##### 



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 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, 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




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##### 



PSB BANCORP, INC.
FORM 10-Q
FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2006
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Statements of Financial Condition as of September 30, 2006, (unaudited) and
December 31, 2005
    
    
    3Consolidated Statements of Operations (unaudited) for the Three and Nine Month Periods
Ended September 30, 2006, and 2005
    
    
    4Consolidated Statements of Cash Flows (unaudited) for the Nine Month Periods Ended
September 30, 2006, and 2005
    
    
    5Consolidated Statements of Comprehensive Loss (unaudited) for the Three and Nine Month
Periods Ended September 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
    
    
    22
 1




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##### 



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 31,2006
    
    
    2005(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    5,721
    
    
    $
    6,454Interest-earning deposits with banks
    
    
    11,128
    
    
    
    29,762Federal funds sold
    
    
    1,544
    
    
    
    1,581Total cash and cash equivalents
    
    
    18,393
    
    
    
    37,797Loans held-for-sale
    
    
    2,343
    
    
    
    3,280Investment securities available-for-sale, at fair value
    
    
    91,976
    
    
    
    123,994Investment securities held to maturity (fair value $1,080 and $1,544)
    
    
    1,095
    
    
    
    1,325Federal Home Loan Bank stock  at cost
    
    
    1,497
    
    
    
    1,061Federal Reserve Bank stock  at cost
    
    
    1,241
    
    
    
    1,216Loans
    
    
    422,190
    
    
    
    369,834Less allowance for possible loan losses
    
    
    (3,603
    )
    
    
    (3,300
    )Net loans
    
    
    418,587
    
    
    
    366,534Accrued interest receivable
    
    
    2,903
    
    
    
    2,908Premises and equipment, net
    
    
    1,911
    
    
    
    2,416Bank-owned life insurance
    
    
    13,588
    
    
    
    13,181Other assets
    
    
    10,591
    
    
    
    6,970Total assets
    
    $
    564,125
    
    
    $
    560,682LiabilitiesDepositsNon-interest bearing
    
    
    40,092
    
    
    
    40,695Interest bearing
    
    
    465,089
    
    
    
    460,416Total deposits
    
    
    505,181
    
    
    
    501,111FHLB Borrowings
    
    
    5,000
    
    
    
    Securities sold under agreements to repurchase
    
    
    1,144
    
    
    
    1,127Advances from borrowers for taxes and insurance
    
    
    1,761
    
    
    
    2,460Other liabilities
    
    
    3,150
    
    
    
    2,763Total liabilities
    
    
    516,236
    
    
    
    507,461Shareholders equityCommon stock authorized, 15,000,000 shares no par value, 5,142,526 and
5,140,685 shares issued and outstanding on September 30, 2006 and
December 31, 2005, respectively
    
    
    46,811
    
    
    
    46,292Retained earnings
    
    
    3,898
    
    
    
    10,124Accumulated other comprehensive loss
    
    
    (1,338
    )
    
    
    (1,672
    )Employee stock ownership plan
    
    
    (1,017
    )
    
    
    (1,093
    )Treasury stock, at cost, 81,001 and 78,252 shares at September 30,
2006, and December 31, 2005, respectively
    
    
    (465
    )
    
    
    (430
    )Total shareholders equity
    
    
    47,889
    
    
    
    53,221Total liabilities and shareholders equity
    
    $
    564,125
    
    
    $
    560,682
  2




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##### 



PSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
 Three months endedSeptember 30,2006
    
    
    2005(Unaudited)Interest incomeLoans, including fees
    
    $
    7,841
    
    
    $
    6,270Investment securities
    
    
    1,027
    
    
    
    1,054Deposits with banks
    
    
    101
    
    
    
    520Total interest income
    
    
    8,969
    
    
    
    7,844Interest expenseInterest on deposits
    
    
    4,167
    
    
    
    3,317Interest on borrowings
    
    
    39
    
    
    
    6Total interest expense
    
    
    4,206
    
    
    
    3,323Net interest income
    
    
    4,763
    
    
    
    4,521Provision for loan losses
    
    
    135
    
    
    
    45Net interest income after provision for loan losses
    
    
    4,628
    
    
    
    4,476Non-interest operating income
    
    
    513
    
    
    
    573Non-interest expenses:Salaries and employee benefits
    
    
    2,608
    
    
    
    2,735Occupancy and equipment
    
    
    624
    
    
    
    673Other operating
    
    
    1,515
    
    
    
    1,790Total non-interest expenses
    
    
    4,747
    
    
    
    5,198Income(loss) before income tax (expense) benefit
    
    
    394
    
    
    
    (149
    )Income tax (expense) benefit
    
    
    (180
    )
    
    
    29Net income (loss)
    
    $
    214
    
    
    $
    (120
    )Earnings (loss) per share:Basic
    
    $
    0.04
    
    
    $
    (0.03
    )Diluted
    
    $
    0.04
    
    
    $
    (0.03
    )
  3




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##### 



PSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
 Nine months endedSeptember 30,2006
    
    
    2005(Unaudited)Interest incomeLoans, including fees
    
    $
    21,945
    
    
    $
    18,541Investment securities
    
    
    3,396
    
    
    
    2,734Deposits with banks
    
    
    355
    
    
    
    1,176Total interest income
    
    
    25,696
    
    
    
    22,451Interest expenseInterest on deposits
    
    
    11,457
    
    
    
    8,506Interest on borrowings
    
    
    55
    
    
    
    18Total interest expense
    
    
    11,512
    
    
    
    8,524Net interest income
    
    
    14,184
    
    
    
    13,927Provision for loan losses
    
    
    405
    
    
    
    270Net interest income after provision for loan losses
    
    
    13,779
    
    
    
    13,657Non-interest operating income
    
    
    1,662
    
    
    
    2,097Non-interest expenses:Salaries and employee benefits
    
    
    7,772
    
    
    
    7,759Occupancy and equipment
    
    
    1,847
    
    
    
    1,946Legal settlement expense
    
    
    10,850
    
    
    
    Other operating
    
    
    4,274
    
    
    
    5,067Total non-interest expenses
    
    
    24,743
    
    
    
    14,772(Loss) income before income (taxes) benefit
    
    
    (9,302
    )
    
    
    982Income tax benefit (expense)
    
    
    3,078
    
    
    
    (328
    )Net (loss) income
    
    $
    (6,224
    )
    
    $
    654Earnings (loss) per share:Basic
    
    $
    (1.26
    )
    
    $
    0.14Diluted
    
    $
    (1.26
    )
    
    $
    0.11
  4




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PSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share data)
 Nine months EndedSeptember 30,2006
    
    
    2005(Unaudited)CASH FLOW
FROM OPERATING ACTIVITIES:Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activitiesNet income (loss)
    
    $
    (6,224
    )
    
    $
    654Adjustments used in operating activities:Provision for loan losses
    
    
    405
    
    
    
    270Depreciation and amortization
    
    
    668
    
    
    
    754Amortization of discounts and accretion of premiums on investment securities
    
    
    87
    
    
    
    197Restricted stock expense
    
    
    300
    
    
    
    264ESOP expense
    
    
    219
    
    
    
    293Loss (gain) on sale of real estate
    
    
    (47
    )
    
    
    43Gain on sale of securities
    
    
    
    
    
    
    (440
    )Proceeds from sale of loans held-for-sale
    
    
    14,598
    
    
    
    28,555Originations of loans held-for-sale
    
    
    (13,661
    )
    
    
    (26,079
    )Change in assets and liabilities:Decrease (increase) in accrued interest receivable
    
    
    5
    
    
    
    (432
    )Decrease in other assets
    
    
    402
    
    
    
    155Increase in other liabilities
    
    
    388
    
    
    
    984Total adjustments
    
    
    3,364
    
    
    
    4,564Net cash ( used in) provided by operating activities
    
    
    (2,860
    )
    
    
    5,218CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of investment securities, available-for-sale
    
    
    
    
    
    
    (45,645
    )Proceeds from sales of investment securities
    
    
    
    
    
    
    2,168Proceeds from maturities and calls of investment securities
    
    
    32,967
    
    
    
    9,054(Purchase) redemption of Federal Home Loan Bank and Federal Reserve Bank
stock
    
    
    (441
    )
    
    
    128Net increase in loans
    
    
    (52,303
    )
    
    
    (4,995
    )Proceeds from sale of real estate owned
    
    
    
    
    
    
    165Purchase of premises and equipment
    
    
    (163
    )
    
    
    (892
    )Net cash used in investing activities
    
    
    (19,940
    )
    
    
    (40,017
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    4,070
    
    
    
    29,632Increase in securities sold under agreements to repurchase
    
    
    17
    
    
    
    18Change in treasury stock
    
    
    (35
    )
    
    
    Exercise of stock options
    
    
    43
    
    
    
    413Decrease in advances for borrowers taxes and insurance
    
    
    (699
    )
    
    
    (1,113
    )Net cash provided by financing activities
    
    
    3,396
    
    
    
    28,950NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (19,404
    )
    
    
    (5,849
    )Cash and cash equivalents, beginning of period
    
    
    37,797
    
    
    
    54,650CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    18,393
    
    
    $
    48,801
  5




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PSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
 Three months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)Net income (loss)
    
    $
    214
    
    
    $
    (120
    )
    
    $
    (6,224
    )
    
    $
    654Other comprehensive income (loss), net of tax:Accumulated comprehensive gain (loss),
investments available for sale
    
    
    616
    
    
    
    (247
    )
    
    
    334
    
    
    
    (671
    )Comprehensive income (loss )
    
    $
    830
    
    
    $
    (367
    )
    
    $
    (5,890
    )
    
    $
    (17
    )
  6




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PSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(Unaudited)
 1. Basis of Presentation
     2. Earnings Per Share (EPS)
    Nine months ended September 30, 2006WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareLoss available to common stockholders
    
    $
    (6,224
    )
    
    
    4,932
    
    
    $
    (1.26
    )Effect of dilutive stock options
    
    
    
    
    
    
    N/A
    
    
    
    Diluted earnings per shareLoss available to common stockholders plus effect of
dilutive securities
    
    $
    (6,224
    )
    
    
    4,932
    
    
    $
    (1.26
    )
  7




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Three months ended September 30, 2006WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareIncome available to common stockholders
    
    $
    214
    
    
    
    4,936
    
    
    $
    0.04Effect of dilutive stock options
    
    
    
    
    
    
    183
    
    
    
    Diluted earnings per shareIncome available to common stockholders plus effect of
dilutive securities
    
    $
    214
    
    
    
    5,119
    
    
    $
    0.04
  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
  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
    
    
    
    
    
    
    N/A
    
    
    
    Diluted earnings per shareLoss available to common stockholders plus effect of
dilutive securities
    
    $
    (120
    )
    
    
    4,730
    
    
    $
    (0.03
    )
  8




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##### 



3. New Accounting Pronouncements
 NEW ACCOUNTING PRONOUNCEMENTS
      4. Stock Based Compensation
  9




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5. Variable Interest Entity
   10




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##### 



6. Legal Settlement
  7. Merger agreement
      8. Reclassifications
  Item 2. Managements Discussion and Analysis of the Financial Condition and Results of Operations.
 RESULTS OF OPERATIONS
 General
  11




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Impact of Inflation
  Critical Accounting Policies, Judgments, and Estimates
  Allowance for Loan Losses
   Performance Overview
    12




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##### 



Net Income (Loss)
   Net Interest Income and Average Balances
       13




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##### 



Provision for Loan Losses
   Average Balance Sheets and Rate/Yield Analysis
  Three months Ended September 30,2006
    
    
    2005Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Interest-earning deposits
    
    $
    9,477
    
    
    $
    92
    
    
    
    3.88
    %
    
    $
    67,897
    
    
    $
    520
    
    
    
    3.06
    %Investment securities
    
    
    80,361
    
    
    
    760
    
    
    
    3.78
    
    
    
    81,843
    
    
    
    719
    
    
    
    3.51Mortgage-backed securities
    
    
    25,901
    
    
    
    276
    
    
    
    4.26
    
    
    
    34,002
    
    
    
    335
    
    
    
    3.94Loans
    
    
    418,046
    
    
    
    7,841
    
    
    
    7.50
    
    
    
    359,350
    
    
    
    6,270
    
    
    
    6.98Total interest-earning assets
    
    
    533,785
    
    
    $
    8,969
    
    
    
    6.72
    %
    
    
    543,092
    
    
    $
    7,844
    
    
    
    5.78
    %Noninterest-earning assets
    
    
    25,612
    
    
    
    
    
    
    
    
    
    
    
    23,313Total assets
    
    $
    559,397
    
    
    
    
    
    
    
    
    
    
    $
    566,405LIABILITIESInterest-bearing liabilities:Now checking accounts
    
    $
    24,601
    
    
    $
    41
    
    
    
    0.67
    %
    
    $
    24,573
    
    
    $
    34
    
    
    
    0.55
    %Money market accounts
    
    
    46,735
    
    
    
    303
    
    
    
    2.59
    
    
    
    47,805
    
    
    
    179
    
    
    
    1.50Savings deposits
    
    
    66,766
    
    
    
    180
    
    
    
    1.08
    
    
    
    78,569
    
    
    
    247
    
    
    
    1.26Certificates
    
    
    332,381
    
    
    
    3,643
    
    
    
    4.38
    
    
    
    325,328
    
    
    
    2,857
    
    
    
    3.51Total deposits
    
    
    470,483
    
    
    
    4,167
    
    
    
    1.77
    
    
    
    476,275
    
    
    
    3,317
    
    
    
    1.39Borrowed money
    
    
    2,359
    
    
    
    39
    
    
    
    6.67
    
    
    
    1,122
    
    
    
    6
    
    
    
    2.14Total interest-bearing
liabilities
    
    
    472,842
    
    
    $
    4,206
    
    
    
    3.56
    %
    
    
    477,397
    
    
    $
    3,323
    
    
    
    2.78
    %Non-interest-bearing liabilities
    
    
    39,132
    
    
    
    
    
    
    
    
    
    
    
    36,045Total liabilities
    
    
    511,974
    
    
    
    
    
    
    
    
    
    
    
    513,442Shareholders equity
    
    
    47,423
    
    
    
    
    
    
    
    
    
    
    
    52,963Total liabilities and
shareholders equity
    
    $
    559,397
    
    
    
    
    
    
    
    
    
    
    $
    566,405Net interest income
    
    
    
    
    
    $
    4,763
    
    
    
    
    
    
    
    
    
    
    $
    4,521Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.16
    %
    
    
    
    
    
    
    
    
    
    
    3.02
    %Net yield on interest-earning
assets
    
    
    
    
    
    
    
    
    
    
    3.57
    %
    
    
    
    
    
    
    
    
    
    
    3.36
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.13
    x
    
    
    
    
    
    
    
    
    
    
    1.14
    x
 14




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##### 



Nine months Ended September 30,2006
    
    
    2005Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Interest-earning deposits
    
    $
    14,401
    
    
    $
    346
    
    
    
    3.20
    %
    
    $
    59,435
    
    
    $
    1,176
    
    
    
    2.64
    %Investment securities
    
    
    89,986
    
    
    
    2,545
    
    
    
    3.77
    
    
    
    67,268
    
    
    
    1,690
    
    
    
    3.35Mortgage-backed securities
    
    
    27,687
    
    
    
    860
    
    
    
    4.14
    
    
    
    34,319
    
    
    
    1,044
    
    
    
    4.06Loans
    
    
    397,953
    
    
    
    21,945
    
    
    
    7.35
    
    
    
    357,278
    
    
    
    18,541
    
    
    
    6.92Total interest-earning assets
    
    
    530,027
    
    
    $
    25,696
    
    
    
    6.46
    %
    
    
    518,300
    
    
    $
    22,451
    
    
    
    5.78
    %Noninterest-earning assets
    
    
    27,673
    
    
    
    
    
    
    
    
    
    
    
    29,580Total assets
    
    $
    557,700
    
    
    
    
    
    
    
    
    
    
    $
    547,880LIABILITIESInterest-bearing liabilities:Now checking accounts
    
    $
    24,652
    
    
    $
    95
    
    
    
    0.51
    %
    
    $
    25,257
    
    
    $
    100
    
    
    
    0.53
    %Money market accounts
    
    
    49,291
    
    
    
    919
    
    
    
    2.49
    
    
    
    48,320
    
    
    
    534
    
    
    
    1.47Savings deposits
    
    
    70,310
    
    
    
    661
    
    
    
    1.25
    
    
    
    82,797
    
    
    
    737
    
    
    
    1.19Certificates
    
    
    322,043
    
    
    
    9,782
    
    
    
    4.05
    
    
    
    298,786
    
    
    
    7,135
    
    
    
    3.18Total deposits
    
    
    466,296
    
    
    
    11,457
    
    
    
    3.28
    
    
    
    455,160
    
    
    
    8,506
    
    
    
    2.49Borrowed money
    
    
    1,542
    
    
    
    55
    
    
    
    4.76
    
    
    
    1,118
    
    
    
    18
    
    
    
    2.15Total interest-bearing
liabilities
    
    
    467,838
    
    
    $
    11,512
    
    
    
    3.28
    %
    
    
    456,278
    
    
    $
    8,524
    
    
    
    2.49
    %Non-interest-bearing liabilities
    
    
    42,406
    
    
    
    
    
    
    
    
    
    
    
    39,987Total liabilities
    
    
    510,244
    
    
    
    
    
    
    
    
    
    
    
    495,265Shareholders equity
    
    
    47,456
    
    
    
    
    
    
    
    
    
    
    
    52,615Total liabilities and
shareholders equity
    
    $
    557,700
    
    
    
    
    
    
    
    
    
    
    $
    547,880Net interest income
    
    
    
    
    
    $
    14,184
    
    
    
    
    
    
    
    
    
    
    $
    13,927Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.18
    %
    
    
    
    
    
    
    
    
    
    
    3.29
    %Net yield on interest-earning
assets
    
    
    
    
    
    
    
    
    
    
    3.57
    %
    
    
    
    
    
    
    
    
    
    
    3.59
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.13
    x
    
    
    
    
    
    
    
    
    
    
    1.14
    x
 15




---



##### 



Non-interest Income
   Nine months endedSeptember 30,2006
    
    
    2005(In thousands)Service fees on deposit accounts
    
    $
    1,021
    
    
    $
    979Loss on sale of real estate owned
    
    
    (47
    )
    
    
    (43
    )Banked owned life insurance
    
    
    397
    
    
    
    357Gain on sale of investment securities
    
    
    19
    
    
    
    440Other
    
    
    272
    
    
    
    364Total
    
    $
    1,662
    
    
    $
    2,097
 Non-interest Expense
   Nine months endedSeptember 30,2006
    
    
    2005(In thousands)Salaries and employment benefits
    
    $
    7,772
    
    
    $
    7,759Rent and occupancy expense
    
    
    1,847
    
    
    
    1,946Professional fees
    
    
    985
    
    
    
    1,264FDIC insurance expense
    
    
    89
    
    
    
    90General insurance
    
    
    222
    
    
    
    232Advertising
    
    
    224
    
    
    
    214Data processing fees
    
    
    550
    
    
    
    297Director fees
    
    
    185
    
    
    
    177Legal settlement expense
    
    
    10,850
    
    
    
    Other operating expense
    
    
    2,019
    
    
    
    2,793Total
    
    $
    24,743
    
    
    $
    14,772
 16




---



##### 



Provision for Income Taxes
  Liquidity
    Interest Rate Sensitivity
   17




---



##### 



Capital Adequacy
   WellCapitalized
    
    
    At September 30, 2006
    
    
    At December 31, 2005Ratios
    
    
    PSB
    
    
    Bank
    
    
    PSB
    
    
    Bank(Dollars in thousands)Tier I Capital
    
    
    
    
    
    $
    47,798
    
    
    $
    41,487
    
    
    $
    53,437
    
    
    $
    41,885Tier II Capital
    
    
    
    
    
    
    3,603
    
    
    
    3,603
    
    
    
    3,300
    
    
    
    3,300Total Qualifying Capital
    
    
    
    
    
    $
    51,401
    
    
    $
    45,090
    
    
    $
    56,737
    
    
    $
    45,185Risk Adjusted Total Assets
    
    
    
    
    
    $
    420,459
    
    
    $
    414,778
    
    
    $
    381,254
    
    
    $
    377,761Tier I Risk Based Capital Ratio
    
    
    6.00
    %
    
    
    11.37
    %
    
    
    10.00
    %
    
    
    14.02
    %
    
    
    11.09
    %Total Risk Based Capital Ratio
    
    
    10.00
    %
    
    
    12.22
    %
    
    
    10.87
    %
    
    
    14.88
    %
    
    
    11.96
    %Leverage Ratio
    
    
    5.00
    %
    
    
    8.57
    %
    
    
    7.46
    %
    
    
    9.53
    %
    
    
    7.50
    %Average Assets
    
    
    
    
    
    $
    558,012
    
    
    $
    556,316
    
    
    $
    560,650
    
    
    $
    558,167
 FINANCIAL CONDITION
 General
    At September 30,
    
    
    At December 31,2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Variance
    
    
    % ChangeCommercial loans
    
    $
    204,567
    
    
    
    48.58
    %
    
    $
    171,555
    
    
    
    46.43
    %
    
    $
    33,012
    
    
    
    19.24
    %Construction loans
    
    
    56,237
    
    
    
    13.36
    %
    
    
    48,309
    
    
    
    13.08
    %
    
    
    7,928
    
    
    
    16.41
    %Mortgage loans(1)
    
    
    75,830
    
    
    
    18.01
    %
    
    
    79,856
    
    
    
    21.61
    %
    
    
    (4,026
    )
    
    
    (5.04
    )%Consumer loans
    
    
    84,445
    
    
    
    20.05
    %
    
    
    69,736
    
    
    
    18.88
    %
    
    
    14,709
    
    
    
    21.09
    %Total loans
    
    $
    421,079
    
    
    
    100.00
    %
    
    $
    369,456
    
    
    
    100.00
    %
    
    $
    51,623
    
    
    
    13.97
    %Unearned fees and discounts
    
    $
    1,111
    
    
    
    
    
    
    $
    378Allowance for loan losses
    
    
    (3,603
    )
    
    
    
    
    
    
    (3,300
    )Net Loans
    
    $
    418,587
    
    
    
    
    
    
    $
    366,534
 
 (1)
    
    Does not include loans held for sale. 18




---



##### 



At September 30
    
    
    At December 31,2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentFixed rates
    
    $
    314,598
    
    
    
    74.71
    %
    
    $
    285,884
    
    
    
    77.38
    %Adjustable rate
    
    
    106,481
    
    
    
    25.29
    %
    
    
    83,572
    
    
    
    22.62
    %Total loans
    
    $
    421,079
    
    
    
    100.00
    %
    
    $
    369,456
    
    
    
    100.00
    %
 19




---



##### 



Asset Quality
 Non-Performing Assets
   At September 30,
    
    
    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
    
    
    3,048
    
    
    
    2,510Total nonperforming loans
    
    
    3,048
    
    
    
    2,510Real estate owned (REO)
    
    
    1,109
    
    
    
    1,109Total nonperforming assets
    
    $
    4,157
    
    
    $
    3,619Nonperforming loans to total loans
    
    
    0.72
    %
    
    
    0.68
    %Nonperforming assets to total assets
    
    
    0.74
    %
    
    
    0.65
    %Allowance for loan losses to total loans
    
    
    0.85
    %
    
    
    0.89
    %Allowance for loan losses to nonperforming loans
    
    
    118.21
    %
    
    
    131.47
    %Allowance for loan losses to nonperforming assets
    
    
    86.67
    %
    
    
    91.19
    %Net charge-offs as a percentage of total loans
    
    
    0.04
    %
    
    
    0.11
    %
  Allowance for Loan Losses
    20




---



##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Item 4. Controls And Procedures
   PART II. OTHER INFORMATION
 Item 1. Legal Proceedings.
   Item 1A . Risk Factors.
  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 September 30,
2006
    
    
    5,031
    
    
    $
    12.00
    
    
    N/A
    
    N/ATotal
    
    
    5,031
    
    
    $
    11.50
 
 (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.
 Not Applicable
 21




---



##### 



Item 4. Submission of Matters to a Vote of Security Holders.
  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.
 22




---



##### 



SIGNATURES
  PSB BANCORP, INC.By:
    
    /s/ Anthony DiSandro

Anthony DiSandro,
President, Chief Executive Officer, and DirectorBy:
    
    /s/ John CarrozzaJohn Carrozza,
Chief Financial Officer (Principal Financial
Officer and Chief Accounting Officer)
  23




---



##### 



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.
 24