##### 



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 March 31, 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(State or other jurisdiction of
incorporation or organization)
    
    23-2930740(I.R.S. Employer
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 FIRST QUATER ENDED MARCH 31, 2006
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Statements of Financial Condition as of March 31, 2006, (unaudited) and December 31, 2005
    
    
    3Consolidated
Statements of Operations (unaudited) for the Three Month Periods Ended March 31, 2006, and 2005
    
    
    4Consolidated Statements of Cash Flows (unaudited) for the Three Month Periods Ended March 31, 2006, and 2005
    
    
    5Consolidated
Statements of Comprehensive Loss (unaudited) for the Three Month Periods Ended March 31,
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
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 5. Other Information
    
    
    23Item 6. Exhibits
    
    
    23
 2




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements.
 PSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands except per share data)
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    4,187
    
    
    $
    6,454Interest-earning deposits with banks
    
    
    18,725
    
    
    
    29,762Federal funds sold
    
    
    1,570
    
    
    
    1,581Total cash and cash equivalents
    
    
    24,482
    
    
    
    37,797Loans held-for-sale
    
    
    2,868
    
    
    
    3,280Investment securities available-for-sale, at fair value
    
    
    119,838
    
    
    
    123,994Investment securities held to maturity (fair value $1,279 and $1,310)
    
    
    1,261
    
    
    
    1,325Federal Home Loan Bank stock  at cost
    
    
    1,033
    
    
    
    1,061Federal Reserve Bank stock  at cost
    
    
    1,216
    
    
    
    1,216Loans
    
    
    378,683
    
    
    
    369,834Less allowance for possible loans losses
    
    
    (3,385
    )
    
    
    (3,300
    )Net loans
    
    
    375,298
    
    
    
    366,534Accrued interest receivable
    
    
    2,821
    
    
    
    2,908Premises and equipment, net
    
    
    2,201
    
    
    
    2,416Bank-owned life insurance
    
    
    13,310
    
    
    
    13,181Other assets
    
    
    9,977
    
    
    
    6,970Total assets
    
    $
    554,305
    
    
    $
    560,682LiabilitiesDepositsNon-interest bearing
    
    $
    38,326
    
    
    $
    40,695Interest bearing
    
    
    453,312
    
    
    
    460,416Total deposits
    
    
    491,638
    
    
    
    501,111Securities sold under agreements to repurchase
    
    
    1,132
    
    
    
    1,127Advances from borrowers for taxes and insurance
    
    
    2,095
    
    
    
    2,460Other liabilities
    
    
    11,916
    
    
    
    2,763Total liabilities
    
    
    506,781
    
    
    
    507,461Shareholders equityCommon stock authorized, 15,000,000 shares no par value, 5,140,685 and
5,140,685 shares issued and outstanding on March 31, 2006, and December 31,
2005, respectively
    
    
    46,469
    
    
    
    46,292Preferred stock, 5,000,000 shares authorized, no shares issued and outstanding
    
    
    
    
    
    
    Retained earnings
    
    
    4,309
    
    
    
    10,124Accumulated other comprehensive loss
    
    
    (1,704
    )
    
    
    (1,672
    )Employee stock ownership plan
    
    
    (1,085
    )
    
    
    (1,093
    )Treasury
stock, at cost, 83,283 and 78,252 shares at March 31, 2006, and December
31, 2005, respectively
    
    
    (465
    )
    
    
    (430
    )Total shareholders equity
    
    
    47,524
    
    
    
    53,221Total liabilities and shareholders equity
    
    $
    554,305
    
    
    $
    560,682
  3




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##### 



PSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Three months endedMarch 31,2006
    
    
    2005(Unaudited)Interest incomeLoans, including fees
    
    $
    7,071
    
    
    $
    6,045Investment securities
    
    
    1,206
    
    
    
    834Deposits with banks
    
    
    187
    
    
    
    309Total interest income
    
    
    8,464
    
    
    
    7,188Interest expenseInterest on deposits
    
    
    3,527
    
    
    
    2,489Interest on borrowings
    
    
    7
    
    
    
    6Total interest expense
    
    
    3,534
    
    
    
    2,495Net interest income
    
    
    4,930
    
    
    
    4,693Provision for loan losses
    
    
    135
    
    
    
    135Net interest income after provision for loan losses
    
    
    4,795
    
    
    
    4,558Non-interest operating income
    
    
    568
    
    
    
    967Non-interest expenses:Salaries and employee benefits
    
    
    2,575
    
    
    
    2,488Occupancy and equipment
    
    
    602
    
    
    
    648Legal settlement expense
    
    
    9,650
    
    
    
    Other operating
    
    
    1,366
    
    
    
    1,572Total non-interest expenses
    
    
    14,193
    
    
    
    4,708(Loss) income before income taxes
    
    
    (8,830
    )
    
    
    817Income tax benefit (expense)
    
    
    3,015
    
    
    
    (246
    )Net (loss) income
    
    $
    (5,815
    )
    
    $
    571Earnings (loss) per share:Basic
    
    $
    (1.18
    )
    
    $
    0.12Diluted
    
    $
    (1.18
    )
    
    $
    0.10
  4




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##### 



PSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share data)
 Three months EndedMarch 31,2006
    
    
    2005(Unaudited)CASH FLOW FROM OPERATING ACTIVITIESNet (loss) income
    
    $
    (5,815
    )
    
    $
    571Adjustments
to reconcile net (loss) income to net cash provided by operating activities:Provision for loan losses
    
    
    135
    
    
    
    135Depreciation and amortization
    
    
    225
    
    
    
    246Amortization of discounts and accretion of premiums on investment securities
    
    
    32
    
    
    
    56Restricted stock expense
    
    
    101
    
    
    
    100Loss on sale of real estate
    
    
    
    
    
    
    38Gain on sale of securities
    
    
    
    
    
    
    (420
    )Proceeds from sale and amortization of loans held-for-sale
    
    
    4,401
    
    
    
    9,679Originations of loans held-for-sale
    
    
    (3,989
    )
    
    
    (6,905
    )ESOP expense
    
    
    84
    
    
    
    100Change in assets and liabilities:(Increase) decrease in accrued interest receivable
    
    
    107
    
    
    
    (198
    )Increase in other assets
    
    
    (3,351
    )
    
    
    (32
    )Increase in accrued expenses
    
    
    9,153
    
    
    
    944Total Adjustments
    
    
    6,898
    
    
    
    3,743Net cash provided by operating activities
    
    
    1,083
    
    
    
    4,314CASH FLOWS FROM INVESTING ACTIVITIES:Repayments of investment securities
    
    
    1,775
    
    
    
    (2,198
    )Proceeds from sales of investment securities
    
    
    
    
    
    
    5,578Proceeds from maturities and calls of investment securities
    
    
    2,500
    
    
    
    Redemption (purchases) of Federal Home Loan Bank and Federal Reserve Bank stock
    
    
    28
    
    
    
    251Net (increase) decrease in loans
    
    
    (8,826
    )
    
    
    104Proceeds from sale of real estate owned
    
    
    
    
    
    
    165Purchase of premises and equipment
    
    
    (10
    )
    
    
    (430
    )Net cash
(used in) provided by investing activities
    
    
    (4,533
    )
    
    
    3,470CASH FLOWS FROM FINANCING ACTIVITIES:Net (decrease) increase in deposits
    
    
    (9,473
    )
    
    
    4,052Increase in securities sold under agreements to repurchase
    
    
    5
    
    
    
    11Decrease in advances for borrowers taxes and insurance
    
    
    (365
    )
    
    
    (574
    )Purchase of treasury stock
    
    
    (32
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (9,865
    )
    
    
    3,489NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (13,315
    )
    
    
    11,273Cash and cash equivalents, beginning of period
    
    
    37,797
    
    
    
    54,650CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    24,482
    
    
    $
    65,923
  5




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##### 



PSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
(In thousands)
 Three Months EndedMarch 31,2006
    
    
    2005Net (loss) income
    
    $
    (5,815
    )
    
    $
    571Other comprehensive income (loss), net of tax:Accumulated comprehensive (loss), investments available for sale
    
    
    (32
    )
    
    
    (1,014
    )Comprehensive loss
    
    $
    (5,847
    )
    
    $
    (443
    )
  6




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##### 



PSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2006
(Unaudited)
 1. Basis of Presentation
     2. Earnings Per Share (EPS)
     Three months ended March 31, 2006WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareLoss available to common stockholders
    
    $
    (5,815
    )
    
    
    4,922
    
    
    $
    (1.18
    )Effect of dilutive stock options
    
    
    
    
    
    
    
    
    
    
    Diluted earnings per shareIncome available to common stockholders plus effect of dilutive securities
    
    $
    (5,815
    )
    
    
    4,922
    
    
    $
    (1.18
    )
 7




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##### 



Three months ended March 31, 2005WeightedIncome
    
    
    average shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amount(In thousands, except per share data)Basic earnings per shareIncome available to common stockholders
    
    $
    571
    
    
    
    4,668
    
    
    $
    0.12Effect of dilutive stock options
    
    
    
    
    
    
    1,004
    
    
    
    (0.02
    )Diluted earnings per shareLoss available to common stockholders plus effect of dilutive securities
    
    $
    571
    
    
    
    5,672
    
    
    $
    0.10
  8




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##### 



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




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##### 



4. Stock Based Compensation
    5. Variable Interest Entity
    10




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##### 



6. Subsequent Events
  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




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##### 



Allowance for Loan Losses
  Income Taxes
  Performance Overview
   Net Income
   12




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##### 



Net Interest Income and Average Balances
     Provision for Loan Losses
  Average Balance Sheets and Rate/Yield Analysis
  Three months Ended March 31,2006
    
    
    2005Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Interest-earning deposits
    
    $
    22,211
    
    
    $
    187
    
    
    
    3.37
    %
    
    $
    58,473
    
    
    $
    309
    
    
    
    2.11
    %Investment securities
    
    
    96,797
    
    
    
    901
    
    
    
    3.72
    
    
    
    58,260
    
    
    
    468
    
    
    
    3.21Mortgage-backed securities
    
    
    29,486
    
    
    
    305
    
    
    
    4.14
    
    
    
    34,891
    
    
    
    366
    
    
    
    4.20Loans
    
    
    380,203
    
    
    
    7,071
    
    
    
    7.44
    
    
    
    356,022
    
    
    
    6,045
    
    
    
    6.79Total interest-earning assets
    
    
    528,697
    
    
    $
    8,464
    
    
    
    6.40
    %
    
    
    507,646
    
    
    $
    7,188
    
    
    
    5.66
    %Noninterest-earning assets
    
    
    27,283
    
    
    
    
    
    
    
    
    
    
    
    27,667Total assets
    
    $
    555,980
    
    
    
    
    
    
    
    
    
    
    $
    535,313LIABILITIESInterest-bearing liabilities:Now checking accounts
    
    $
    24,659
    
    
    $
    32
    
    
    
    0.52
    %
    
    $
    25,900
    
    
    $
    34
    
    
    
    0.53
    %
 13




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##### 



Three months Ended March 31,2006
    
    
    2005Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Money market accounts
    
    
    50,435
    
    
    
    317
    
    
    
    2.51
    
    
    
    54,258
    
    
    
    162
    
    
    
    1.19Savings deposits
    
    
    73,816
    
    
    
    261
    
    
    
    1.41
    
    
    
    87,390
    
    
    
    239
    
    
    
    1.09Certificates
    
    
    312,804
    
    
    
    2,917
    
    
    
    3.73
    
    
    
    281,970
    
    
    
    2,054
    
    
    
    2.91Total deposits
    
    
    461,714
    
    
    
    3,527
    
    
    
    1.53
    
    
    
    449,518
    
    
    
    2,489
    
    
    
    1.11Borrowed money
    
    
    1,130
    
    
    
    7
    
    
    
    2.48
    
    
    
    1,115
    
    
    
    6
    
    
    
    2.15Total interest-bearing liabilities
    
    
    462,844
    
    
    $
    3,534
    
    
    
    3.05
    %
    
    
    450,633
    
    
    $
    2,495
    
    
    
    2.21
    %Non-interest-bearing liabilities
    
    
    39,579
    
    
    
    
    
    
    
    
    
    
    
    32,642Total liabilities
    
    
    502,423
    
    
    
    
    
    
    
    
    
    
    
    483,275Shareholders equity
    
    
    53,557
    
    
    
    
    
    
    
    
    
    
    
    52,038Total liabilities and shareholders equity
    
    $
    555,980
    
    
    
    
    
    
    
    
    
    
    $
    535,313Net interest income
    
    
    
    
    
    $
    4,930
    
    
    
    
    
    
    
    
    
    
    $
    4,693Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.35
    %
    
    
    
    
    
    
    
    
    
    
    3.45
    %Net yield on interest-earning assets
    
    
    
    
    
    
    
    
    
    
    3.73
    %
    
    
    
    
    
    
    
    
    
    
    3.70
    %Ratio of interest-earning assets to interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.14
    x
    
    
    
    
    
    
    
    
    
    
    1.13
    x
 Non-interest Income
   Three months endedMarch 31,2006
    
    
    2005(In thousands)Service fees on deposit accounts
    
    $
    339
    
    
    $
    322(Loss) on sale of real estate owned
    
    
    (7
    )
    
    
    (38
    )Banked owned life insurance
    
    
    129
    
    
    
    115Gain on sale of investments securities
    
    
    
    
    
    
    420Other
    
    
    107
    
    
    
    148Total
    
    $
    568
    
    
    $
    967
 14




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##### 



Non-interest Expense
   Three months endedMarch 31,2006
    
    
    2005(In thousands)Salaries and employment benefits
    
    $
    2,575
    
    
    $
    2,488Rent and occupancy expense
    
    
    602
    
    
    
    648Professional fees
    
    
    351
    
    
    
    300FDIC insurance expense
    
    
    30
    
    
    
    30General insurance
    
    
    76
    
    
    
    81Advertising
    
    
    64
    
    
    
    47Data processing fees
    
    
    188
    
    
    
    100Director fees
    
    
    68
    
    
    
    68Legal settlement expense
    
    
    9,650
    
    
    
    Other operating expense
    
    
    589
    
    
    
    946Total
    
    $
    14,193
    
    
    $
    4,708
 Legal settlement expense
  Provision for Income Taxes
  Liquidity
   15




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##### 



Interest Rate Sensitivity
   Capital Adequacy
   At March 31, 2006
    
    
    At December 31, 2005PSB
    
    
    Bank
    
    
    PSB
    
    
    Bank(Dollars in thousands)Tier I Capital
    
    $
    47,683
    
    
    $
    42,603
    
    
    $
    53,437
    
    
    $
    41,885Tier II Capital
    
    
    3,385
    
    
    
    3,385
    
    
    
    3,300
    
    
    
    3,300Total Qualifying Capital
    
    $
    51,068
    
    
    $
    45,988
    
    
    $
    56,737
    
    
    $
    45,185Risk Adjusted Total Assets
    
    $
    388,725
    
    
    $
    382,656
    
    
    $
    381,254
    
    
    $
    377,761Tier I Risk Based Capital Ratio
    
    
    12.27
    %
    
    
    11.13
    %
    
    
    14.02
    %
    
    
    11.09
    %Total Risk Based Capital Ratio
    
    
    13.14
    %
    
    
    12.02
    %
    
    
    14.88
    %
    
    
    11.96
    %Leverage Ratio
    
    
    8.60
    %
    
    
    7.71
    %
    
    
    9.53
    %
    
    
    7.50
    %Average Assets
    
    $
    554,595
    
    
    $
    552,230
    
    
    $
    560,650
    
    
    $
    558,167
 16




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##### 



FINANCIAL CONDITION
 General
    At March 31,
    
    
    At December 31,2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Variance
    
    
    % ChangeCommercial loans
    
    $
    180,774
    
    
    
    47.82
    %
    
    $
    171,555
    
    
    
    46.43
    %
    
    $
    9,219
    
    
    
    5.37
    %Construction loans
    
    
    47,828
    
    
    
    12.65
    %
    
    
    48,309
    
    
    
    13.08
    %
    
    
    (481
    )
    
    
    (1.00
    )%Mortgage loans(1)
    
    
    78,926
    
    
    
    20.87
    %
    
    
    79,856
    
    
    
    21.61
    %
    
    
    (930
    )
    
    
    (1.17
    )%Consumer loans
    
    
    70,572
    
    
    
    18.66
    %
    
    
    69,736
    
    
    
    18.88
    %
    
    
    836
    
    
    
    1.20
    %Total loans
    
    $
    378,100
    
    
    
    100.00
    %
    
    $
    369,456
    
    
    
    100.00
    %
    
    $
    8,644
    
    
    
    4.40
    %Unearned fees and discounts
    
    $
    583
    
    
    
    
    
    
    $
    378Allowance for loan losses
    
    
    (3,385
    )
    
    
    
    
    
    
    (3,300
    )Net Loans
    
    $
    375,298
    
    
    
    
    
    
    $
    366,534
 
 (1)
    
    Does not include loans held for sale.  At March 31
    
    
    At December 31,2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentFixed rates
    
    $
    288,841
    
    
    
    76.39
    %
    
    $
    285,884
    
    
    
    77.38
    %Adjustable rate
    
    
    89,259
    
    
    
    23.61
    %
    
    
    83,572
    
    
    
    22.62
    %Total loans
    
    $
    378,100
    
    
    
    100.00
    %
    
    $
    369,456
    
    
    
    100.00
    %
 17




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##### 



Asset Quality
 Non-Performing Assets
   At March 31,
    
    
    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
    
    
    1,708
    
    
    
    2,510Total nonperforming loans
    
    
    1,708
    
    
    
    2,510Real estate owned (REO)
    
    
    1,109
    
    
    
    1,109Total nonperforming assets
    
    $
    2,817
    
    
    $
    3,619Nonperforming loans to total loans
    
    
    0.45
    %
    
    
    0.68
    %Nonperforming assets to total assets
    
    
    0.51
    %
    
    
    0.65
    %Allowance for loan losses to total loans
    
    
    0.90
    %
    
    
    0.89
    %Allowance for loan losses to nonperforming loans
    
    
    198.19
    %
    
    
    131.47
    %Allowance for loan losses to nonperforming assets
    
    
    120.16
    %
    
    
    91.19
    %Net charge-offs as a percentage of total loans
    
    
    0.02
    %
    
    
    0.11
    %
  Allowance for Loan Losses
    18




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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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20




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Item 1A . Risk Factors.
  A court decision in favor of the purported option-holders could have an effect on our stock price.
  22




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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.
  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 DirectorBy:
    
    /s/ John CarrozzaJohn Carrozza,Chief Financial Officer (Principal Financial Officer andChief Accounting Officer)
  23




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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