##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the quarterly period ended September 30, 2005
 Or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from.
 No. 000-24601
(Commission File
Number)
 PSB BANCORP, INC.
  Pennsylvania
    
    23-2930740(State of Incorporation)
    
    (IRS Employer ID Number)
 1835 Market Street, Philadelphia, PA 19103
 (215) 979-7900
  þ o
  o þ
  o o
  Common Stock (no par value)
    
    5,140,685(Title of Class)
    
    (Outstanding Shares)




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##### Table of Contents



PSB BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2005
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    2Item 1. Financial Statements
    
    
    2Consolidated Statements of Financial Condition as of September 30, 2005, (unaudited) and December 31, 2004
    
    
    2Consolidated Statements of Income (unaudited) for the Three and Nine Month Periods Ended September 30, 2005, and 2004
    
    
    3Consolidated Statements of Cash Flows (unaudited) for the Nine Month Periods Ended September 30, 2005, and 2004
    
    
    5Consolidated Statements of Comprehensive Income (unaudited) for the Nine Month Periods Ended September 30, 2005, and 2004
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II. OTHER INFORMATION
    
    
    17Item 1. Legal Proceedings
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19Certification of Anthony DiSandro pursuant to Section 312 of the Sarbanes-Oxley Act of 2002Certification of John Carrozza pursuant to Section 312 of Sarbanes-Oxley Act of 2002Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 PSB BANCORP, INC. AND SUBSIDIARIES
 
 STATEMENTS OF FINANCIAL CONDITION
 (In thousands except per share data)
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    4,544
    
    
    $
    4,355Interest-earning deposits with banks
    
    
    41,668
    
    
    
    49,964Federal funds sold
    
    
    2,589
    
    
    
    331Total cash and cash equivalents
    
    
    48,801
    
    
    
    54,650Loans held-for-sale
    
    
    1,316
    
    
    
    3,792Investment securities available-for-sale, at fair value
    
    
    126,988
    
    
    
    94,112Investment securities held to maturity (fair value $1,345 and $1,544)
    
    
    1,350
    
    
    
    1,533Federal Home Loan Bank stock  at cost
    
    
    1,132
    
    
    
    1,308Federal Reserve Bank stock  at cost
    
    
    1,187
    
    
    
    1,139Loans
    
    
    360,989
    
    
    
    356,142Less allowance for possible loans losses
    
    
    (3,250
    )
    
    
    (3,157
    )Net loans
    
    
    357,739
    
    
    
    352,985Accrued interest receivable
    
    
    2,503
    
    
    
    2,071Premises and equipment, net
    
    
    2,607
    
    
    
    2,470Bank-owned life insurance
    
    
    13,053
    
    
    
    12,696Other assets
    
    
    6,830
    
    
    
    6,321Total assets
    
    $
    563,506
    
    
    $
    533,077LiabilitiesDepositsNon-interest bearing
    
    $
    35,793
    
    
    $
    30,786Interest bearing
    
    
    469,119
    
    
    
    444,494Total deposits
    
    
    504,912
    
    
    
    475,280Securities sold under agreements to repurchase
    
    
    1,123
    
    
    
    1,105Advances from borrowers for taxes and insurance
    
    
    2,001
    
    
    
    3,114Other liabilities
    
    
    2,405
    
    
    
    1,421Total liabilities
    
    
    510,441
    
    
    
    480,920Shareholders equityCommon stock authorized, 15,000,000 shares no par value, 5,140,685 and
4,893,609 shares issued and outstanding on September 30, 2005 and
December 31, 2004, respectively
    
    
    46,137
    
    
    
    45,270Preferred
stock, 5,000,000 shares authorized, no shares issued and outstanding
    
    
    
    
    
    
    Retained earnings
    
    
    9,645
    
    
    
    8,989Accumulated other comprehensive loss
    
    
    (1,158
    )
    
    
    (440
    )Employee stock ownership plan
    
    
    (1,129
    )
    
    
    (1,232
    )Treasury stock, at cost, 78,252 and 78,187 on September 30, 2005, and
December 31, 2004, respectively
    
    
    (430
    )
    
    
    (430
    )Total shareholders equity
    
    
    53,065
    
    
    
    52,157Total liabilities and shareholders equity
    
    $
    563,506
    
    
    $
    533,077
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PSB BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share data)
 Three months endedSeptember 30,2005
    
    
    2004(Unaudited)Interest incomeLoans, including fees
    
    $
    6,270
    
    
    $
    5,666Investment securities
    
    
    1,054
    
    
    
    811Deposits with banks
    
    
    520
    
    
    
    265Total interest income
    
    
    7,844
    
    
    
    6,742Interest expenseInterest on deposits
    
    
    3,317
    
    
    
    2,286Interest on borrowings
    
    
    6
    
    
    
    6Total interest expense
    
    
    3,323
    
    
    
    2,292Net interest income
    
    
    4,521
    
    
    
    4,450Provision for loan losses
    
    
    45
    
    
    
    90Net interest income after provision for loan losses
    
    
    4,476
    
    
    
    4,360Non-interest operating income
    
    
    573
    
    
    
    490Non-interest expensesSalaries and employee benefits
    
    
    2,735
    
    
    
    2,564Occupancy and equipment
    
    
    673
    
    
    
    608Other operating
    
    
    1,790
    
    
    
    1,326Total non-interest expenses
    
    
    5,198
    
    
    
    4,498Income
before income tax benefit (expense) and Ironbridge Holdings, Inc.
consolidation
    
    
    (149
    )
    
    
    352Net effect of Ironbridge Holdings, Inc. consolidation
    
    
    
    
    
    
    42(Loss)Income
before income tax benefit (expense)
    
    
    (149
    )
    
    
    394Income tax
benefit (expense)
    
    
    29
    
    
    
    (134
    )Net (loss) income
    
    $
    (120
    )
    
    $
    260Net (loss) income per common shareBasic:
    
    $
    (0.03
    )
    
    $
    0.06Diluted:
    
    $
    (0.03
    )
    
    $
    0.05
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Nine months endedSeptember 30,2005
    
    
    2004(Unaudited)Interest incomeLoans, including fees
    
    $
    18,541
    
    
    $
    16,773Investment securities
    
    
    2,734
    
    
    
    2,617Deposits with banks
    
    
    1,176
    
    
    
    515Total interest income
    
    
    22,451
    
    
    
    19,905Interest expenseInterest on deposits
    
    
    8,506
    
    
    
    6,020Interest on borrowings
    
    
    18
    
    
    
    17Total interest expense
    
    
    8,524
    
    
    
    6,037Net interest income
    
    
    13,927
    
    
    
    13,868Provision for loan losses
    
    
    270
    
    
    
    90Net interest income after provision for loan losses
    
    
    13,657
    
    
    
    13,778Non-interest operating income
    
    
    2,064
    
    
    
    1,503Non-interest expensesSalaries and employee benefits
    
    
    7,759
    
    
    
    7,193Occupancy and equipment
    
    
    1,946
    
    
    
    1,751Other operating
    
    
    5,067
    
    
    
    4,367Total non-interest expenses
    
    
    14,772
    
    
    
    13,311Income before income taxes and Ironbridge Holdings, Inc.
consolidation
    
    
    949
    
    
    
    1,970Net effect of Ironbridge Holdings, Inc. consolidation
    
    
    33
    
    
    
    19Income before income taxes
    
    
    982
    
    
    
    1,989Income taxes
    
    
    (328
    )
    
    
    (676
    )Net income
    
    $
    654
    
    
    $
    1,313Net income per common shareBasic:
    
    $
    0.14
    
    
    $
    0.30Diluted:
    
    $
    0.11
    
    
    $
    0.26
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PSB BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands, except per share data)
 Nine months EndedSeptember 30,2005
    
    
    2004(Unaudited)CASH FLOW FROM OPERATING ACTIVITIESAdjustments to reconcile net income to net cash provided by (used in) operating
activitiesNet income
    
    $
    654
    
    
    $
    1,313Adjustments used in operating activities:Provision for loan losses
    
    
    270
    
    
    
    90Depreciation and amortization
    
    
    754
    
    
    
    614Amortization of discounts and accretion of premiums on investment securities
    
    
    197
    
    
    
    104Restricted stock
    
    
    264
    
    
    
    Loss (gain) on sale of real estate
    
    
    43
    
    
    
    (10
    )Gain on sale
of securities
    
    
    (440
    )
    
    
    Proceeds from sale and amortization of loans held-for-sale
    
    
    28,555
    
    
    
    8,766Originations of loans held-for-sale
    
    
    (26,079
    )
    
    
    (32,843
    )ESOP expense
    
    
    293
    
    
    
    460Change in assets and liabilities:(Increase) decrease in accrued interest receivable
    
    
    (432
    )
    
    
    110(Increase) in other assets
    
    
    155
    
    
    
    (148
    )(Increase) decrease change in accrued expenses
    
    
    984
    
    
    
    (1,096
    )Net cash provided by (used in) operating activities
    
    
    5,218
    
    
    
    (22,640
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of investment securities, available-for-sale
    
    
    (45,645
    )
    
    
    (10,845
    )Proceeds from sales of investment securities
    
    
    2,168
    
    
    
    10,000Proceeds from maturities and calls of investment securities
    
    
    9,054
    
    
    
    14,133Redemption (purchases) of Federal Home Loan Bank and Federal Reserve Bank
stock
    
    
    128
    
    
    
    (1,078
    )Net decrease (increase) in loans
    
    
    (4,995
    )
    
    
    (25,567
    )Proceeds from sale of real estate owned
    
    
    165
    
    
    
    170Purchase of premises and equipment
    
    
    (892
    )
    
    
    (356
    )Net cash used in investing activities
    
    
    (40,017
    )
    
    
    (13,543
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    29,632
    
    
    
    71,238Increase in securities sold under agreements to repurchase
    
    
    18
    
    
    
    10Decrease in advances for borrowers taxes and insurance
    
    
    (1,113
    )
    
    
    (492
    )Exercised stock options
    
    
    413
    
    
    
    2,384Purchase of treasury stock
    
    
    
    
    
    
    (23
    )Net cash provided by financing activities
    
    
    28,950
    
    
    
    73,117NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (5,849
    )
    
    
    36,934Cash and cash equivalents, beginning of period
    
    
    54,650
    
    
    
    52,408CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    48,801
    
    
    $
    89,342
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PSB BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 (In thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Unaudited)Net income (loss)
    
    $
    (120
    )
    
    $
    260
    
    
    $
    654
    
    
    $
    1,313Other comprehensive income, net of tax:Accumulated comprehensive gain (loss),
investments available for sale
    
    
    (247
    )
    
    
    742
    
    
    
    (671
    )
    
    
    55Comprehensive income (loss)
    
    $
    (367
    )
    
    $
    1,002
    
    
    $
    (64
    )
    
    $
    1,368
  6




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PSB BANCORP, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 SEPTEMBER 30, 2005
 (Unaudited)
 1.
    
    Basis of PresentationThis quarterly report presents the consolidated financial statements of PSB Bancorp, Inc.
(PSB) and its subsidiaries.PSBs financial statements reflect all adjustments and disclosures that management believes are
necessary for a fair presentation of interim results. The results of operations for the quarter
presented does not necessarily indicate the results that PSB will achieve for all of 2005. You
should read these interim financial statements in conjunction with the consolidated financial
statements and accompanying notes that are presented in the PSB Bancorp, Inc. Annual Report on
Form 10-K for the year ended December 31, 2004.The financial information in this quarterly report has been prepared in accordance with PSBs
customary accounting practices; these financial statements have not been audited. Certain
information and footnote disclosures required under generally accepted accounting principles
have been condensed or omitted, as permitted by rules and regulations of the Securities and
Exchange Commission.2.
    
    Earnings Per Share (EPS)The following table illustrates the required disclosure of the numerators and denominators of
the basic and diluted EPS computation. PSB was a defendant in a lawsuit resulting from the
cancellation of a number of options issued in conjunction with the acquisition of First Bank of
Philadelphia (see Part II, Item 1  Legal Proceedings, herein) The computation of dilutive
earnings per share for all periods presented in the below tables includes 895,240 shares of the
1,371,200 options which were issued in connection with the 1999 First Bank of Philadelphia
acquisition and were originally deemed invalid by management. These shares continue to be
considered contingently issuable shares and are required to be included in the calculation of
diluted EPS and excluded from the calculation of basic EPS.
 Nine months ended September 30, 2005WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareIncome available to common stockholders
    
    $
    654
    
    
    
    4,734
    
    
    $
    0.14Effect of dilutive stock options
    
    
    
    
    
    
    968
    
    
    
    (0.03
    )Diluted earnings per shareIncome available to common stockholders plus effect of
dilutive securities
    
    $
    654
    
    
    
    5,702
    
    
    $
    0.11
 All options were dilutive at September 30, 2005.
 Three months ended September 30, 2005WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareLoss available to common stockholders
    
    $
    (120
    )
    
    
    4,730
    
    
    $
    (0.03
    )Effect of dilutive stock options
    
    
    
    
    
    
    968
    
    
    
    Diluted earnings per shareLoss available to common stockholders plus effect of
dilutive securities
    
    $
    (120
    )
    
    
    5,698
    
    
    $
    (0.03
    )
 All options were excluded from net loss per share due to the
loss for the three months ended September 30, 2005.
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Nine months ended September 30, 2004WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareIncome available to common stockholders
    
    $
    1,313
    
    
    
    4,444
    
    
    $
    0.30Effect of dilutive stock options
    
    
    
    
    
    
    689
    
    
    
    (0.04
    )Diluted earnings per shareIncome available to common
stockholders plus effect of dilutive
securities
    
    $
    1,313
    
    
    
    5,133
    
    
    $
    0.26
 There were 2,128 options that were not dilutive for the nine months ended September 30, 2004.
 Three months ended September 30, 2004WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareIncome available to common stockholders
    
    $
    260
    
    
    
    4,437
    
    
    $
    0.06Effect of dilutive stock options
    
    
    
    
    
    
    728
    
    
    
    (0.01
    )Diluted earnings per shareIncome available to common
stockholders plus effect of dilutive
securities
    
    $
    260
    
    
    
    5,165
    
    
    $
    0.05
 All options were dilutive at September 30, 2004.
 3.
    
    New Accounting PronouncementsThe FASB recently issued Statement 154 , Accounting Changes and Error Corrections-a
replacement of APB Opinion No. 20 and FASB Statement No. 3,as part of its short-term
convergence project with the International Accounting Standards Board. Statement 154 requires
that all voluntary changes in accounting principles and changes required by a new accounting
pronouncement that do not include specific transition provisions be applied retrospectively to
prior periods financial statements, unless it is impracticable to do so. Opinion 20,
Accounting Changes, required that most voluntary changes in accounting principle be recognized
by including the cumulative effect of changing to the new accounting principle as a component of
net income in the period of the change.In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment (SFAS 123R). This
statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires
all share-based payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values. The provisions of this
statement are effective for interim or annual periods beginning after September 15, 2005. PSB
is currently evaluating the provisions of this revision to determine the impact on its
consolidated financial statements. It is, however, expected to have a negative effect on
consolidated net income.In March 2005 the FASB issued Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations (FIN 47). FIN 47 requires an entity to recognize a liability for the
fair value of a legal obligation to perform asset-
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retirement activities that are conditional on a future event if the amount can be reasonably
estimated. The Interpretation provides guidance to evaluate whether fair value is reasonably
estimable. FIN 47 is effective no later than the end of fiscal years ending after December 15,
2005.4.
    
    Variable Interest EntityIn January 29, 1999, PSB purchased 1,600,000 shares of Series A Convertible Preferred Stock,
$.01 par value per share, (the Preferred Stock) of McGuire Performance Solutions, Inc.
(MPS). PSB purchased the shares for $.78125 per share for a total cost of $1,250,000. In
2000, MPS changed its name to Iron Bridge Holdings, Inc. (Iron Bridge) and formed two new
subsidiaries, one adopting the MPS name and the other, Avanti Capital, Inc, a registered
investment advisory company. During the year ended December 31, 2001, PSB purchased an
additional 375,000 shares and 500,000 shares, respectively, of the Preferred Stock for $1.00 per
share for a total cost $875,000. On December 27, 2002, the founding shareholders of Iron Bridge
purchased from PSB 314,350 shares of preferred stock for $0.88 per share, which was the average
cost per share paid by PSB for these shares. PSB currently owns 87.7% of the Preferred Stock,
which represents a 49.9% fully diluted ownership interest in Iron Bridge. The Iron Bridge
subsidiary, MPS, is a nationally recognized firm delivering cost-effective solutions for high
performance total balance sheet management to banks, thrifts, credit unions and other financial
institutions.In the second quarter of 2004, PSB adopted FASB interpretation No. 46(R) Consolidation of
Variable Interest Entities (FIN 46(R)). In applying FIN 46(R), it was determined that PSB, as
the largest shareholder and virtually Iron Bridges only financial resource, would absorb a
majority of Iron Bridges expected losses. Therefore, it was PSBs conclusion that in
accordance with FIN 46(R), Iron Bridge is a variable interest entity and thus PSB was required
to consolidate the financial results of Iron Bridge during the second quarter of 2004.The consolidation of Iron Bridge resulted in PSB recording goodwill of $1.4 million and minority
interest of $246,000. PSB accounts for goodwill in accordance with SFAS 142, Goodwill and
Other Intangible Assets. Goodwill is now subject to impairment testing at least annually to
determine whether write-downs of the recorded balances are necessary. PSB tests for impairment
based on the goodwill maintained at each defined reporting unit. A fair value is determined for
each reporting unit based on at least one of three various market valuation methodologies. If
the fair value of the reporting unit exceeds its then book value, no write-down of recorded
goodwill is necessary. If the fair value of a reporting unit is less, an expense may be
required on PSBs books to write down the related goodwill to the proper carrying value. As of
March 31, 2005, PSB updated its impairment testing from December 31, 2004, and determined that
no impairment write-off was necessary. No assurance can be given that future goodwill
impairment tests will not result in a charge to earnings.5.
    
    ReclassificationsCertain 2004 amounts have been reclassified to conform to the 2005 presentation.
 
 Item 2. Managements Discussion and Analysis of the Financial Condition and Results of Operations.
 RESULTS OF OPERATIONS
 General
  Impact of Inflation
  9




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Critical Accounting Policies, Judgments, and Estimates
  Allowance for Loan Losses
  Income Taxes
  Performance Overview
    Net Income
  10




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Net Interest Income and Average Balances
         Provision for Loan Losses
  11




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Average Balance Sheets and Rate/Yield Analysis
  12




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Three months Ended September 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Interest-earning deposits
    
    $
    67,897
    
    
    $
    520
    
    
    
    3.06
    %
    
    $
    82,933
    
    
    $
    265
    
    
    
    1.28
    %Investment securities
    
    
    81,843
    
    
    
    719
    
    
    
    3.51
    
    
    
    50,826
    
    
    
    400
    
    
    
    3.15Mortgage-backed securities
    
    
    34,002
    
    
    
    335
    
    
    
    3.94
    
    
    
    43,089
    
    
    
    411
    
    
    
    3.82Loans
    
    
    359,350
    
    
    
    6,270
    
    
    
    7.02
    
    
    
    331,904
    
    
    
    5,666
    
    
    
    6.83Total interest-earning assets
    
    
    543,092
    
    
    $
    7,844
    
    
    
    5.80
    %
    
    
    508,752
    
    
    $
    6,742
    
    
    
    5.30
    %Noninterest-earning assets
    
    
    23,313
    
    
    
    
    
    
    
    
    
    
    
    27,877Total assets
    
    $
    566,405
    
    
    
    
    
    
    
    
    
    
    $
    536,629LIABILITIESInterest-bearing liabilities:Now checking accounts
    
    $
    24,573
    
    
    $
    34
    
    
    
    0.55
    %
    
    $
    27,293
    
    
    $
    32
    
    
    
    0.47
    %Money market accounts
    
    
    47,805
    
    
    
    179
    
    
    
    1.50
    
    
    
    67,823
    
    
    
    195
    
    
    
    1.15Savings deposits
    
    
    78,569
    
    
    
    247
    
    
    
    1.26
    
    
    
    90,014
    
    
    
    242
    
    
    
    1.08Certificates
    
    
    325,328
    
    
    
    2,857
    
    
    
    3.51
    
    
    
    264,855
    
    
    
    1,817
    
    
    
    2.74Total deposits
    
    
    476,275
    
    
    
    3,317
    
    
    
    1.39
    
    
    
    449,985
    
    
    
    2,286
    
    
    
    1.02Borrowed money
    
    
    1,122
    
    
    
    6
    
    
    
    2.14
    
    
    
    1,108
    
    
    
    6
    
    
    
    2.17Total interest-bearing
liabilities
    
    
    477,397
    
    
    $
    3,323
    
    
    
    2.78
    %
    
    
    451,093
    
    
    $
    2,292
    
    
    
    2.03
    %Non-interest-bearing liabilities
    
    
    36,045
    
    
    
    
    
    
    
    
    
    
    
    35,972Total liabilities
    
    
    513,442
    
    
    
    
    
    
    
    
    
    
    
    487,065Shareholders equity
    
    
    52,963
    
    
    
    
    
    
    
    
    
    
    
    49,564Total liabilities and
shareholders equity
    
    $
    566,405
    
    
    
    
    
    
    
    
    
    
    $
    536,629Net interest income
    
    
    
    
    
    $
    4,521
    
    
    
    
    
    
    
    
    
    
    $
    4,450Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.02
    %
    
    
    
    
    
    
    
    
    
    
    3.27
    %Net yield on interest-earning
assets
    
    
    
    
    
    
    
    
    
    
    3.36
    %
    
    
    
    
    
    
    
    
    
    
    3.50
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.14
    x
    
    
    
    
    
    
    
    
    
    
    1.15
    x
 13




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##### Table of Contents



Nine months Ended September 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Interest-earning deposits
    
    $
    59,435
    
    
    $
    1,176
    
    
    
    2.64
    %
    
    $
    64,527
    
    
    $
    515
    
    
    
    1.06
    %Investment securities
    
    
    67,268
    
    
    
    1,690
    
    
    
    3.35
    
    
    
    51,311
    
    
    
    1,106
    
    
    
    2.87Mortgage-backed securities
    
    
    34,319
    
    
    
    1,044
    
    
    
    4.06
    
    
    
    47,144
    
    
    
    1,511
    
    
    
    4.27Loans
    
    
    357,278
    
    
    
    18,541
    
    
    
    6.93
    
    
    
    312,056
    
    
    
    16,773
    
    
    
    7.17Total interest-earning assets
    
    
    518,300
    
    
    $
    22,451
    
    
    
    5.78
    %
    
    
    475,038
    
    
    $
    19,905
    
    
    
    5.59
    %Noninterest-earning assets
    
    
    29,580
    
    
    
    
    
    
    
    
    
    
    
    25,095Total assets
    
    $
    547,880
    
    
    
    
    
    
    
    
    
    
    $
    500,133LIABILITIESInterest-bearing liabilities:Now checking accounts
    
    $
    25,257
    
    
    $
    100
    
    
    
    0.53
    %
    
    $
    26,763
    
    
    $
    99
    
    
    
    0.49
    %Money market accounts
    
    
    48,320
    
    
    
    534
    
    
    
    1.47
    
    
    
    69,103
    
    
    
    611
    
    
    
    1.18Savings deposits
    
    
    82,797
    
    
    
    737
    
    
    
    1.19
    
    
    
    91,291
    
    
    
    758
    
    
    
    1.11Certificates
    
    
    298,786
    
    
    
    7,135
    
    
    
    3.18
    
    
    
    231,502
    
    
    
    4,552
    
    
    
    2.62Total deposits
    
    
    455,160
    
    
    
    8,506
    
    
    
    2.49
    
    
    
    418,632
    
    
    
    6,020
    
    
    
    1.92Borrowed money
    
    
    1,118
    
    
    
    18
    
    
    
    2.15
    
    
    
    1,105
    
    
    
    17
    
    
    
    2.05Total interest-bearing
liabilities
    
    
    456,278
    
    
    $
    8,524
    
    
    
    2.49
    %
    
    
    419,737
    
    
    $
    6,037
    
    
    
    1.92
    %Non-interest-bearing liabilities
    
    
    38,987
    
    
    
    
    
    
    
    
    
    
    
    31,845Total liabilities
    
    
    495,265
    
    
    
    
    
    
    
    
    
    
    
    451,582Shareholders equity
    
    
    52,615
    
    
    
    
    
    
    
    
    
    
    
    48,551Total liabilities and
shareholders equity
    
    $
    547,880
    
    
    
    
    
    
    
    
    
    
    $
    500,133Net interest income
    
    
    
    
    
    $
    13,927
    
    
    
    
    
    
    
    
    
    
    $
    13,868Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.29
    %
    
    
    
    
    
    
    
    
    
    
    3.67
    %Net yield on interest-earning
assets
    
    
    
    
    
    
    
    
    
    
    3.59
    %
    
    
    
    
    
    
    
    
    
    
    3.89
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.14
    x
    
    
    
    
    
    
    
    
    
    
    1.13
    x
 Non-interest Income
   Nine months ended September 30,2005
    
    
    2004(In thousands)Service fees on deposit accounts
    
    $
    979
    
    
    $
    811(Loss)gain on sale of real estate owned
    
    
    (43
    )
    
    
    10Banked owned life insurance
    
    
    357
    
    
    
    317Gain on sale of investments/securities
    
    
    440
    
    
    
    Other
    
    
    331
    
    
    
    365Total
    
    $
    2,064
    
    
    $
    1,503
 14




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##### Table of Contents



Non-interest Expense
    Nine months ended September 30,2005
    
    
    2004(In thousands)Salaries and employment benefits
    
    $
    7,759
    
    
    $
    7,193Rent and occupancy expense
    
    
    1,946
    
    
    
    1,751Professional fees
    
    
    528
    
    
    
    517Option and derivative law suit legal fees
    
    
    736
    
    
    
    118FDIC insurance expense
    
    
    90
    
    
    
    149General insurance
    
    
    232
    
    
    
    220Advertising
    
    
    214
    
    
    
    218Data processing fees
    
    
    297
    
    
    
    237Director fees
    
    
    177
    
    
    
    184Other operating expense
    
    
    2,793
    
    
    
    2,724Total
    
    $
    14,772
    
    
    $
    13,311
 Provision for Income Taxes
  Liquidity
    15




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##### Table of Contents



Interest Rate Sensitivity
   Capital Adequacy
   WellCapitalized
    
    
    At September 30, 2005
    
    
    At December 31, 2004Ratios
    
    
    PSB
    
    
    Bank
    
    
    PSB
    
    
    Bank(Dollars in thousands)Tier I Capital
    
    
    
    
    
    $
    52,762
    
    
    $
    41,235
    
    
    $
    51,207
    
    
    $
    39,938Tier II Capital
    
    
    
    
    
    
    3,250
    
    
    
    3,250
    
    
    
    3,157
    
    
    
    3,157Total Qualifying Capital
    
    
    
    
    
    $
    56,012
    
    
    $
    44,485
    
    
    $
    54,364
    
    
    $
    43,095Risk Adjusted Total Assets
    
    
    
    
    
    $
    367,590
    
    
    $
    364,163
    
    
    $
    351,023
    
    
    $
    349,124Tier I Risk Based Capital Ratio
    
    
    6.00
    %
    
    
    14.35
    %
    
    
    11.32
    %
    
    
    14.59
    %
    
    
    11.44
    %Total Risk Based Capital Ratio
    
    
    10.00
    %
    
    
    15.24
    %
    
    
    12.22
    %
    
    
    15.49
    %
    
    
    12.34
    %Leverage Ratio
    
    
    5.00
    %
    
    
    9.34
    %
    
    
    7.51
    %
    
    
    9.53
    %
    
    
    7.48
    %Average Assets
    
    
    
    
    
    $
    564,983
    
    
    $
    549,237
    
    
    $
    537,232
    
    
    $
    534,026
 FINANCIAL CONDITION
 General
  16




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##### Table of Contents



At September 30,
    
    
    At December 31,2005
    
    
    2004Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Variance
    
    
    % ChangeReal Estate Loans(1):One-to-four family(2)
    
    $
    135,556
    
    
    
    37.57
    %
    
    $
    140,459
    
    
    
    39.43
    %
    
    $
    (4,903
    )
    
    
    (2.65
    )%Construction loans
    
    
    39,749
    
    
    
    10.97
    %
    
    
    21,854
    
    
    
    6.13
    %
    
    
    17,895
    
    
    
    81.88
    %Five or more family residential
    
    
    18,592
    
    
    
    5.13
    %
    
    
    18,888
    
    
    
    5.30
    %
    
    
    (296
    )
    
    
    (1.57
    )%Nonresidential
    
    
    118,386
    
    
    
    32.68
    %
    
    
    132,066
    
    
    
    37.07
    %
    
    
    (13,680
    )
    
    
    (10.36
    )%Commercial loans
    
    
    19,084
    
    
    
    5.27
    %
    
    
    21,439
    
    
    
    6.02
    %
    
    
    (2,355
    )
    
    
    (10.89
    )%Consumer loans
    
    
    29,687
    
    
    
    8.20
    %
    
    
    21,516
    
    
    
    6.04
    %
    
    
    8,171
    
    
    
    37.98
    %Total loans
    
    $
    361,054
    
    
    
    100.00
    %
    
    $
    356,222
    
    
    
    100.00
    %
    
    $
    4,832
    
    
    
    1.69
    %Less:Unearned fees and discounts
    
    $
    65
    
    
    
    
    
    
    $
    80Allowance for loan losses
    
    
    3,250
    
    
    
    
    
    
    
    3,157Net Loans
    
    $
    357,739
    
    
    
    
    
    
    $
    352,985
 
 (1)
    
    Real Estate Loans represent loans secured by real estate.(2)
    
    Does not include loans held for sale.  At September 30
    
    
    At December 31,2005
    
    
    2004Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentFixed rates
    
    $261,384

    
    

    72.50%
    
    
    $252,579

    
    

    70.93%Adjustable rate
    

    99,605
    
    

    29.47%
    
    

    103,563
    
    

    29.07%Total loans
    
    $360,989

    
    

    100.00%
    
    
    $356,142

    
    

    100.00%
 Asset Quality
 Non-Performing Assets
  17




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##### Table of Contents



At September 30,
    
    
    At December 31,2005
    
    
    2004(Dollars in thousands)Loans past due 90 days or more as to interest or principal and accruing interest
    
    $
    
    
    
    $
    Nonaccrual loans
    
    
    2,844
    
    
    
    3,633Total nonperforming loans
    
    
    2,844
    
    
    
    3,633Real estate owned (REO)
    
    
    1,114
    
    
    
    422Total nonperforming assets
    
    $
    3,958
    
    
    $
    4,055Nonperforming loans to total loans
    
    
    0.79
    %
    
    
    1.02
    %Nonperforming assets to total assets
    
    
    0.70
    %
    
    
    0.76
    %Allowance for loan losses to total loans
    
    
    0.90
    %
    
    
    0.89
    %Allowance for loan losses to nonperforming loans
    
    
    114.28
    %
    
    
    86.90
    %Allowance for loan losses to nonperforming assets
    
    
    82.11
    %
    
    
    77.85
    %Net charge-offs as a percentage of total loans
    
    
    0.11
    %
    
    
    0.04
    %
  Allowance for Loan Losses
    18




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls And Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
       19




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
 20




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##### Table of Contents



Item 5. Other Information.
  
 Item 6. Exhibits.
  31.1
    
    Certification of Anthony DiSandro pursuant to Section 312 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of John Carrozza pursuant to Section 312 of the Sarbanes-Oxley Act of 2002.32
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 SIGNATURES
  PSB BANCORP, INC.By:
    /s/Anthony DiSandroAnthony DiSandro,President, Chief Executive Officer, and
Director By:
    /s/John CarrozzaJohn Carrozza,Chief Financial Officer(Principal Financial Officer and
Chief Accounting Officer)  21




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Document31.1
    
    Certification of Anthony DiSandro pursuant to Section 312 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of John Carrozza pursuant to Section 312 of the Sarbanes-Oxley Act of 2002.32
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 22