##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the quarterly period ended June 30, 2006
 Or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission file number: 000-24601
 PSB BANCORP, INC.
 (Exact name of registrant as specified in its charter)
 Pennsylvania
    
    23-2930740(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 1835 Market Street
Philadelphia, PA 19103  (Address of principal executive offices)  (215) 979-7900
Registrants telephone number, including area code:
 þ o
  o o þ
 o þ




---



##### 



PSB BANCORP, INC.
FORM 10-Q
FOR THE SECOND QUARTER ENDED JUNE 30, 2006
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Statements of Financial Condition as of June 30, 2006, (unaudited) and
December 31, 2005
    
    
    3Consolidated Statements of Operations (unaudited) for the Three and Six Month Periods
Ended June 30, 2006, and 2005
    
    
    4Consolidated Statements of Cash Flows (unaudited) for the Six Month Period Ended June
30, 2006, and 2005
    
    
    5Consolidated Statements of Comprehensive Loss (unaudited) for the Three and Six Month
Periods Ended June 30, 2006, and 2005
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATION
    
    
    19Item 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22Certification of Anthony DiSandro pursuant to Section 312Certification of John Carrozza pursuant to Section 312Certification Pursuant to 18 U.S.C. Section 1350
  1




---



##### 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)
 June 30,
    
    
    
    
    
    
    December 31,2006
    
    
    
    
    
    
    2005(Unaudited)
    
    
    
    
    
    
    (Audited)AssetsCash and due from banks
    
    $
    5,541
    
    
    
    
    
    
    $
    $6,454Interest-earning deposits with banks
    
    
    8,007
    
    
    
    
    
    
    
    29,762Federal funds sold
    
    
    1,632
    
    
    
    
    
    
    
    1,581Total cash and cash equivalents
    
    
    15,180
    
    
    
    
    
    
    
    37,797Loans held-for-sale
    
    
    1,593
    
    
    
    
    
    
    
    3,280Investment securities available-for-sale, at fair value
    
    
    112,697
    
    
    
    
    
    
    
    123,994Investment securities held to maturity (fair value $1,506 and $1,544)
    
    
    1,139
    
    
    
    
    
    
    
    1,325Federal Home Loan Bank stock  at cost
    
    
    1,290
    
    
    
    
    
    
    
    1,061Federal Reserve Bank stock  at cost
    
    
    1,216
    
    
    
    
    
    
    
    1,216Loans
    
    
    403,274
    
    
    
    
    
    
    
    369,834Less allowance for possible loans losses
    
    
    (3,537
    )
    
    
    
    
    
    
    (3,300
    )Net loans
    
    
    399,737
    
    
    
    
    
    
    
    366,534Accrued interest receivable
    
    
    2,924
    
    
    
    
    
    
    
    2,908Premises and equipment, net
    
    
    2,087
    
    
    
    
    
    
    
    2,416Bank-owned life insurance
    
    
    13,455
    
    
    
    
    
    
    
    13,181Other assets
    
    
    11,053
    
    
    
    
    
    
    
    6,970Total assets
    
    $
    562,371
    
    
    
    
    
    
    $
    560,682LiabilitiesDepositsNon-interest bearing
    
    
    41,664
    
    
    
    
    
    
    
    40,695Interest bearing
    
    
    467,219
    
    
    
    
    
    
    
    460,416Total deposits
    
    
    508,883
    
    
    
    
    
    
    
    501,111Securities sold under agreements to repurchase
    
    
    1,138
    
    
    
    
    
    
    
    1,127Advances from borrowers for taxes and insurance
    
    
    2,417
    
    
    
    
    
    
    
    2,460Other liabilities
    
    
    3,060
    
    
    
    
    
    
    
    2,763Total liabilities
    
    
    515,498
    
    
    
    
    
    
    
    507,461Shareholders equityCommon stock authorized, 15,000,000 shares no par value, 5,142,526 and
5,140,685 shares issued and outstanding on June 30, 2006 and December
31, 2005, respectively
    
    
    46,658
    
    
    
    
    
    
    
    46,292Retained earnings
    
    
    3,685
    
    
    
    
    
    
    
    10,124Accumulated other comprehensive loss
    
    
    (1,954
    )
    
    
    
    
    
    
    (1,672
    )Employee stock ownership plan
    
    
    (1,051
    )
    
    
    
    
    
    
    (1,093
    )Treasury stock, at cost, 81,001 and 78,252 shares at June 30, 2006, and
December 31, 2005, respectively
    
    
    (465
    )
    
    
    
    
    
    
    (430
    )Total shareholders equity
    
    
    46,873
    
    
    
    
    
    
    
    53,221Total liabilities and shareholders equity
    
    $
    562,371
    
    
    
    
    
    
    $
    560,682
  2




---



##### Table of Contents



PSB BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF INCOME (LOSS)
 (In thousands, except per share data)
 Three months endedJune 30,2006
    
    
    2005(Unaudited)Interest incomeLoans, including fees
    
    $
    7,033
    
    
    $
    6,226Investment securities
    
    
    1,163
    
    
    
    846Deposits with banks
    
    
    67
    
    
    
    347Total interest income
    
    
    8,263
    
    
    
    7,419Interest expenseInterest on deposits
    
    
    3,763
    
    
    
    2,700Interest on borrowings
    
    
    9
    
    
    
    6Total interest expense
    
    
    3,772
    
    
    
    2,706Net interest income
    
    
    4,491
    
    
    
    4,713Provision for loan losses
    
    
    135
    
    
    
    90Net interest income after provision for loan losses
    
    
    4,356
    
    
    
    4,623Non-interest operating income
    
    
    581
    
    
    
    585Non-interest expenses:Salaries and employee benefits
    
    
    2,589
    
    
    
    2,536Occupancy and equipment
    
    
    621
    
    
    
    627Other operating
    
    
    2,594
    
    
    
    1,731Total non-interest expenses
    
    
    5,804
    
    
    
    4,894(Loss) income before income (taxes) benefit
    
    
    (867
    )
    
    
    314Income tax benefit (expense)
    
    
    243
    
    
    
    (111
    )Net (loss) income
    
    $
    (624
    )
    
    $
    203Earnings (loss) per share:Basic
    
    $
    (0.13
    )
    
    $
    0.04Diluted
    
    $
    (0.13
    )
    
    $
    0.04
  3




---



##### Table of Contents



PSB BANCORP, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME (LOSS)
 (In thousands, except per share data)
 Six months endedJune 30,2006
    
    
    2005(Unaudited)Interest incomeLoans, including fees
    
    $
    14,104
    
    
    $
    12,271Investment securities
    
    
    2,369
    
    
    
    1,680Deposits with banks
    
    
    254
    
    
    
    656Total interest income
    
    
    16,727
    
    
    
    14,607Interest expenseInterest on deposits
    
    
    7,290
    
    
    
    5,189Interest on borrowings
    
    
    16
    
    
    
    12Total interest expense
    
    
    7,306
    
    
    
    5,201Net interest income
    
    
    9,421
    
    
    
    9,406Provision for loan losses
    
    
    270
    
    
    
    225Net interest income after provision for loan losses
    
    
    9,151
    
    
    
    9,181Non-interest operating income
    
    
    1,149
    
    
    
    1,550Non-interest expenses:Salaries and employee benefits
    
    
    5,164
    
    
    
    5,024Occupancy and equipment
    
    
    1,223
    
    
    
    1,275Legal settlement expense
    
    
    9,650
    
    
    
    Other operating
    
    
    3,960
    
    
    
    3,301Total non-interest expenses
    
    
    19,997
    
    
    
    9,600(Loss) income before income (taxes) benefit
    
    
    (9,697
    )
    
    
    1,131Income tax benefit (expense)
    
    
    3,258
    
    
    
    (357
    )Net (loss) income
    
    $
    (6,439
    )
    
    $
    774Earnings (loss) per share:Basic
    
    $
    (1.31
    )
    
    $
    0.17Diluted
    
    $
    (1.31
    )
    
    $
    0.14
  4




---



##### Table of Contents



PSB BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands, except per share data)
 Six months EndedJune 30,2006
    
    
    2005(Unaudited)CASH FLOW FROM OPERATING ACTIVITIESAdjustments to reconcile net income to net cashNet income (loss)
    
    $
    (6,439
    )
    
    $
    774Adjustments used in operating activities:Provision for loan losses
    
    
    270
    
    
    
    225Depreciation and amortization
    
    
    453
    
    
    
    499Amortization of discounts and accretion of premiums on investment securities
    
    
    68
    
    
    
    140Restricted stock. expense
    
    
    200
    
    
    
    200ESOP expense
    
    
    166
    
    
    
    196Loss (gain) on sale of real estate
    
    
    (7
    )
    
    
    43Proceeds from sale and amortization of loans held-for-sale
    
    
    5,630
    
    
    
    18,674Originations of loans held-for-sale
    
    
    (7,317
    )
    
    
    (19,201
    )Change in assets and liabilities:(Increase) in accrued interest receivable
    
    
    (16
    )
    
    
    (102
    )(Increase) decrease in other assets
    
    
    (1,006
    )
    
    
    305Increase in other liabilities
    
    
    299
    
    
    
    954Total adjustments
    
    
    (1,260
    )
    
    
    1,933Net cash ( used in) provided by operating activities
    
    
    (7,699
    )
    
    
    2,707CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of investment securities, available-for-sale
    
    
    
    
    
    
    (10,092
    )Proceeds from sales of investment securities
    
    
    
    
    
    
    2,135Proceeds from maturities and calls of investment securities
    
    
    11,086
    
    
    
    5,378(Purchase)redemption of Federal Home Loan Bank and Federal Reserve Bank
stock
    
    
    (229
    )
    
    
    252Net decrease (increase) in loans
    
    
    (33,393
    )
    
    
    2,212Proceeds from sale of real estate owned
    
    
    
    
    
    
    165Purchase of premises and equipment
    
    
    (125
    )
    
    
    (817
    )Net cash used in investing activities
    
    
    (22,661
    )
    
    
    (767
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    7,772
    
    
    
    8,179Increase in securities sold under agreements to repurchase
    
    
    11
    
    
    
    14Change in treasury stock
    
    
    (35
    )
    
    
    Exercise of stock options
    
    
    38(Decrease) in advances for borrowers taxes and insurance
    
    
    (43
    )
    
    
    (340
    )Net cash provided by financing activities
    
    
    7,743
    
    
    
    7,853NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (22,617
    )
    
    
    9,793Cash and cash equivalents, beginning of period
    
    
    37,797
    
    
    
    54,650CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    15,180
    
    
    $
    64,443
  5




---



##### Table of Contents



PSB BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)Net (loss) income
    
    $
    (624
    )
    
    $
    203
    
    
    $
    (6,439
    )
    
    $
    774Other comprehensive income (loss), net of tax:Accumulated comprehensive gain (loss),
investments available for sale
    
    
    (250
    )
    
    
    543
    
    
    
    (282
    )
    
    
    (471
    )Comprehensive (loss ) income
    
    $
    (874
    )
    
    $
    746
    
    
    $
    (6,721
    )
    
    $
    303
  6




---



##### Table of Contents



PSB BANCORP, INC.
 
 NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006
(Unaudited)
 1. Basis of Presentation
     2. Earnings Per Share (EPS)
    Six months ended June 30, 2006WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareLoss available to common stockholders
    
    $
    (6,439
    )
    
    
    4,921
    
    
    $
    (1.31
    )Effect of dilutive stock options
    
    
    
    
    
    
    N/A
    
    
    
    Diluted earnings per shareLoss available to common stockholders plus effect of
dilutive securities
    
    $
    (6,439
    )
    
    
    4,921
    
    
    $
    (1.31
    )
  7




---



##### Table of Contents



Three months ended June 30, 2006WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareLoss available to common stockholders
    
    $
    (624
    )
    
    
    4,923
    
    
    $
    (0.13
    )Effect of dilutive stock options
    
    
    
    
    
    
    N/A
    
    
    
    Diluted earnings per shareLoss available to common stockholders plus effect of
dilutive securities
    
    $
    (624
    )
    
    
    5,066
    
    
    $
    (0.13
    )
  Six months ended June 30, 2005WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareIncome available to common stockholders
    
    $
    774
    
    
    
    4,659
    
    
    $
    0.17Effect of dilutive stock options
    
    
    
    
    
    
    985
    
    
    
    (0.03
    )Diluted earnings per shareIncome available to common stockholders plus effect of
dilutive securities
    
    $
    774
    
    
    
    5,644
    
    
    $
    0.14
  Three months ended June 30, 2005WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareIncome available to common stockholders
    
    $
    203
    
    
    
    4,655
    
    
    $
    0.04Effect of dilutive stock options
    
    
    
    
    
    
    967
    
    
    
    Diluted earnings per shareIncome available to common stockholders plus effect of
dilutive securities
    
    $
    203
    
    
    
    5,622
    
    
    $
    0.04
  8




---



##### Table of Contents



3. New Accounting Pronouncements
 RECENT ACCOUNTING PRONOUNCEMENTS
    Accounting for Certain Investments in
Debt and Equity Securities
  9




---



##### Table of Contents



4. Stock Based Compensation
    5. Variable Interest Entity
   10




---



##### Table of Contents



6. Legal Settlement
  7. Reclassifications
  
 Item 2. Managements Discussion and Analysis of the Financial Condition and Results of Operations.
 RESULTS OF OPERATIONS
 General
  Impact of Inflation
  Critical Accounting Policies, Judgments, and Estimates
  11




---



##### Table of Contents



Allowance for Loan Losses
   Performance Overview
    Net Income (Loss)
    12




---



##### Table of Contents



Net Interest Income and Average Balances
       Provision for Loan Losses
  13




---



##### Table of Contents



Average Balance Sheets and Rate/Yield Analysis
  Three months Ended June 30,2006
    
    
    2005Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Interest-earning deposits
    
    $
    11,516
    
    
    $
    67
    
    
    
    2.33
    %
    
    $
    54,554
    
    
    $
    347
    
    
    
    2.54
    %Investment securities
    
    
    92,801
    
    
    
    884
    
    
    
    3.81
    
    
    
    61,702
    
    
    
    505
    
    
    
    3.27Mortgage-backed securities
    
    
    27,674
    
    
    
    279
    
    
    
    4.03
    
    
    
    34,064
    
    
    
    341
    
    
    
    4.00Loans
    
    
    395,611
    
    
    
    7,033
    
    
    
    7.11
    
    
    
    356,461
    
    
    
    6,226
    
    
    
    6.99Total interest-earning assets
    
    
    527,602
    
    
    $
    8,263
    
    
    
    6.26
    %
    
    
    506,781
    
    
    $
    7,419
    
    
    
    5.86
    %Noninterest-earning assets
    
    
    30,778
    
    
    
    
    
    
    
    
    
    
    
    33,318Total assets
    
    $
    558,380
    
    
    
    
    
    
    
    
    
    
    $
    540,099LIABILITIESInterest-bearing liabilities:Now checking accounts
    
    $
    24,695
    
    
    $
    22
    
    
    
    0.36
    %
    
    $
    25,297
    
    
    $
    32
    
    
    
    0.51
    %Money market accounts
    
    
    50,702
    
    
    
    299
    
    
    
    2.36
    
    
    
    50,720
    
    
    
    193
    
    
    
    1.52Savings deposits
    
    
    70,347
    
    
    
    220
    
    
    
    1.25
    
    
    
    83,963
    
    
    
    251
    
    
    
    1.20Certificates
    
    
    320,943
    
    
    
    3,222
    
    
    
    4.02
    
    
    
    283,866
    
    
    
    2,224
    
    
    
    3.13Total deposits
    
    
    466,687
    
    
    
    3,763
    
    
    
    1.61
    %
    
    
    443,846
    
    
    
    2,700
    
    
    
    1.22Borrowed money
    
    
    1,136
    
    
    
    9
    
    
    
    3.17
    
    
    
    1,118
    
    
    
    6
    
    
    
    2.15Total interest-bearing
liabilities
    
    
    467,823
    
    
    $
    3,772
    
    
    
    3.23
    %
    
    
    444,964
    
    
    $
    2,706
    
    
    
    2.43
    %Non-interest-bearing liabilities
    
    
    43,317
    
    
    
    
    
    
    
    
    
    
    
    42,745Total liabilities
    
    
    511,140
    
    
    
    
    
    
    
    
    
    
    
    487,709Shareholders equity
    
    
    47,240
    
    
    
    
    
    
    
    
    
    
    
    52,390Total liabilities and
shareholders equity
    
    $
    558,380
    
    
    
    
    
    
    
    
    
    
    $
    540,099Net interest income
    
    
    
    
    
    $
    4,491
    
    
    
    
    
    
    
    
    
    
    $
    4,713Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.04
    %
    
    
    
    
    
    
    
    
    
    
    3.42
    %Net yield on interest-earning
assets
    
    
    
    
    
    
    
    
    
    
    3.40
    %
    
    
    
    
    
    
    
    
    
    
    3.72
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.13
    x
    
    
    
    
    
    
    
    
    
    
    1.14
    x
 14




---



##### Table of Contents



Six months Ended June 30,2006
    
    
    2005Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Interest-earning deposits
    
    $
    23,023
    
    
    $
    254
    
    
    
    2.21
    %
    
    $
    56,514
    
    
    $
    656
    
    
    
    2.32
    %Investment securities
    
    
    95,538
    
    
    
    1,785
    
    
    
    3.74
    
    
    
    59,981
    
    
    
    971
    
    
    
    3.24Mortgage-backed securities
    
    
    29,500
    
    
    
    584
    
    
    
    3.96
    
    
    
    34,478
    
    
    
    709
    
    
    
    4.11Loans
    
    
    382,592
    
    
    
    14,104
    
    
    
    7.37
    
    
    
    356,242
    
    
    
    12,271
    
    
    
    6.89Total interest-earning assets
    
    
    530,653
    
    
    $
    16,727
    
    
    
    6.30
    %
    
    
    507,215
    
    
    $
    14,607
    
    
    
    5.76
    %Noninterest-earning assets
    
    
    28,494
    
    
    
    
    
    
    
    
    
    
    
    30,543Total assets
    
    $
    559,147
    
    
    
    
    
    
    
    
    
    
    $
    537,758LIABILITIESInterest-bearing liabilities:Now checking accounts
    
    $
    24,560
    
    
    $
    54
    
    
    
    0.44
    %
    
    $
    25,599
    
    
    $
    66
    
    
    
    0.52
    %Money market accounts
    
    
    48,400
    
    
    
    616
    
    
    
    2.55
    
    
    
    50,219
    
    
    
    355
    
    
    
    1.41Savings deposits
    
    
    73,158
    
    
    
    481
    
    
    
    1.31
    
    
    
    85,218
    
    
    
    490
    
    
    
    1.15Certificates
    
    
    318,504
    
    
    
    6,139
    
    
    
    3.85
    
    
    
    282,918
    
    
    
    4,278
    
    
    
    3.02Total deposits
    
    
    464,622
    
    
    
    7,290
    
    
    
    3.14
    %
    
    
    443,954
    
    
    
    5,189
    
    
    
    2.34Borrowed money
    
    
    1,131
    
    
    
    16
    
    
    
    2.83
    
    
    
    1,117
    
    
    
    12
    
    
    
    2.15Total interest-bearing
liabilities
    
    
    465,753
    
    
    $
    7,306
    
    
    
    3.14
    %
    
    
    445,071
    
    
    $
    5,201
    
    
    
    2.34
    %Non-interest-bearing liabilities
    
    
    44,160
    
    
    
    
    
    
    
    
    
    
    
    40,375Total liabilities
    
    
    509,913
    
    
    
    
    
    
    
    
    
    
    
    485,446Shareholders equity
    
    
    49,234
    
    
    
    
    
    
    
    
    
    
    
    52,312Total liabilities and
shareholders equity
    
    $
    559,147
    
    
    
    
    
    
    
    
    
    
    $
    537,758Net interest income
    
    
    
    
    
    $
    9,421
    
    
    
    
    
    
    
    
    
    
    $
    9,406Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.17
    %
    
    
    
    
    
    
    
    
    
    
    3.42
    %Net yield on interest-earning
assets
    
    
    
    
    
    
    
    
    
    
    3.55
    %
    
    
    
    
    
    
    
    
    
    
    3.71
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.14
    x
    
    
    
    
    
    
    
    
    
    
    1.14
    x
 15




---



##### Table of Contents



Non-interest Income
   Six months endedJune 30,2006
    
    
    2005(In thousands)Service fees on deposit accounts
    
    $
    690
    
    
    $
    611(Loss) on sale of real estate owned
    
    
    (7
    )
    
    
    (43
    )Banked owned life insurance
    
    
    264
    
    
    
    233Gain on sale of investment securities
    
    
    
    
    
    
    423Other
    
    
    202
    
    
    
    326Total
    
    $
    1,149
    
    
    $
    1,550
 Non-interest Expense
   Six months endedJune 30,2006
    
    
    2005(In thousands)Salaries and employment benefits
    
    $
    5,164
    
    
    $
    5,024Rent and occupancy expense
    
    
    1,223
    
    
    
    1,275Professional fees
    
    
    678
    
    
    
    753FDIC insurance expense
    
    
    61
    
    
    
    61General insurance
    
    
    151
    
    
    
    159Advertising
    
    
    111
    
    
    
    135Data processing fees
    
    
    371
    
    
    
    181Director fees
    
    
    128
    
    
    
    136Legal settlement expense
    
    
    9,650
    
    
    
    Other operating expense
    
    
    2,460
    
    
    
    1,876Total
    
    $
    19,997
    
    
    $
    9,600
 16




---



##### Table of Contents



Provision for Income Taxes
  Liquidity
    Interest Rate Sensitivity
   Capital Adequacy
  17




---



##### Table of Contents



WellCapitalized
    
    At June 30, 2006
    
    At December 31, 2005Ratios
    
    PSB
    
    Bank
    
    PSB
    
    Bank(Dollars in thousands)Tier I Capital
    
    
    
    
    
    $
    47,386
    
    
    $
    40,993
    
    
    $
    53,437
    
    
    $
    41,885Tier II Capital
    
    
    
    
    
    
    3,537
    
    
    
    3,537
    
    
    
    3,300
    
    
    
    3,300Total Qualifying Capital
    
    
    
    
    
    $
    50,923
    
    
    $
    44,530
    
    
    $
    56,737
    
    
    $
    45,185Risk Adjusted Total Assets
    
    
    
    
    
    $
    400,565
    
    
    $
    394,958
    
    
    $
    381,254
    
    
    $
    377,761Tier I Risk Based Capital Ratio
    
    
    6.00
    %
    
    
    11.83
    %
    
    
    10.38
    %
    
    
    14.02
    %
    
    
    11.09
    %Total Risk Based Capital Ratio
    
    
    10.00
    %
    
    
    12.71
    %
    
    
    11.27
    %
    
    
    14.88
    %
    
    
    11.96
    %Leverage Ratio
    
    
    5.00
    %
    
    
    8.51
    %
    
    
    7.43
    %
    
    
    9.53
    %
    
    
    7.50
    %Average Assets
    
    
    
    
    
    $
    556,995
    
    
    $
    551,651
    
    
    $
    560,650
    
    
    $
    558,167
 FINANCIAL CONDITION
 General
    At June 30,
    
    
    At December 31,2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Variance
    
    
    % ChangeCommercial loans
    
    $
    192,276
    
    
    
    47.78
    %
    
    $
    171,555
    
    
    
    46.43
    %
    
    $
    20,721
    
    
    
    12.08
    %Construction loans
    
    
    51,202
    
    
    
    12.72
    %
    
    
    48,309
    
    
    
    13.08
    %
    
    
    2,893
    
    
    
    5.99
    %Mortgage loans(1)
    
    
    81,345
    
    
    
    20.21
    %
    
    
    79,856
    
    
    
    21.61
    %
    
    
    1,489
    
    
    
    1.86
    %Consumer loans
    
    
    77,598
    
    
    
    19.29
    %
    
    
    69,736
    
    
    
    18.88
    %
    
    
    7,862
    
    
    
    11.27
    %Total loans
    
    $
    402,421
    
    
    
    100.00
    %
    
    $
    369,456
    
    
    
    100.00
    %
    
    $
    32,965
    
    
    
    8.92
    %
 18




---



##### Table of Contents



At June 30,
    
    
    At December 31,2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Variance
    
    
    % ChangeUnearned fees and discounts
    
    $
    853
    
    
    
    
    
    
    $
    378Allowance for loan losses
    
    
    (3,537
    )
    
    
    
    
    
    
    (3,300
    )Net Loans
    
    $
    399,737
    
    
    
    
    
    
    $
    366,534
 
 (1)
    
    Does not include loans held for sale.  At June 30
    
    
    At December 31,2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentFixed rates
    
    $
    307,398
    
    
    
    76.39
    %
    
    $
    285,884
    
    
    
    77.38
    %Adjustable rate
    
    
    95,023
    
    
    
    23.61
    %
    
    
    83,572
    
    
    
    22.62
    %Total loans
    
    $
    402,421
    
    
    
    100.00
    %
    
    $
    369,456
    
    
    
    100.00
    %
 19




---



##### Table of Contents



Asset Quality
 Non-Performing Assets
   At June
    
    
    At December 31,2006
    
    
    2005(Dollars in thousands)Loans past due 90 days or more as to interest or principal and accruing interest
    
    $
    
    
    
    $
    Nonaccrual loans
    
    
    1,880
    
    
    
    2,510Total nonperforming loans
    
    
    1,880
    
    
    
    2,510Real estate owned (REO)
    
    
    1,109
    
    
    
    1,109Total nonperforming assets
    
    $
    2,989
    
    
    $
    3,619Nonperforming loans to total loans
    
    
    0.47
    %
    
    
    0.68
    %Nonperforming assets to total assets
    
    
    0.53
    %
    
    
    0.65
    %Allowance for loan losses to total loans
    
    
    0.88
    %
    
    
    0.89
    %Allowance for loan losses to nonperforming loans
    
    
    188.14
    %
    
    
    131.47
    %Allowance for loan losses to nonperforming assets
    
    
    118.33
    %
    
    
    91.19
    %Net charge-offs as a percentage of total loans
    
    
    0.02
    %
    
    
    0.11
    %
  Allowance for Loan Losses
    20




---



##### 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.
       21




---



##### Table of Contents



Item 1A . Risk Factors.
  A
court decision in favor of the purported option-holders could have an
effect on our stock price
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Total
    
    
    MaximumNumber of
    
    
    Number (orShares (or Units)
    
    
    Approximate DollarTotal
    
    
    Average
    
    
    Purchased
    
    
    Value) of Shares (orNumber of
    
    
    Price Paid
    
    
    as Part of Publicly
    
    
    Units) that May YetShares (or Units)
    
    
    per Share
    
    
    Announced Plans
    
    
    Be Purchased UnderPeriod
    
    Purchased
    
    
    (or Unit)
    
    
    or Programs
    
    
    the Plans or ProgramsApril 1 to June 30, 2006
    
    
    5,031
    
    
    $
    12.00
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    5,031
    
    
    $
    12.00
 
 (1)
    
    During the second quarter of 2006, PSB repurchased 5,031 of ESOP shares from three former employees of the bank 
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
  22




---



##### Table of Contents



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.
 23




---



##### Table of Contents



SIGNATURES
  PSB BANCORP, INC.By:
    
    /s/ Anthony DiSandroAnthony DiSandro,President, Chief Executive Officer, and DirectorBy:
    
    /s/ John CarrozzaJohn Carrozza,Chief Financial Officer (Principal
Financial Officer andChief Accounting Officer)August 14, 2006
 24




---



##### 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 theSarbanes-Oxley Act of 2002.
 25