PSB : December 31, 2021 Financial Statements

PRESS RELEASE

PSB HOLDING CORP. REPORTS RECORD 2021 RESULTS

Preston, MD, February 2, 2022 -- PSB Holding Corp. (the "Company"), the parent company of Provident State Bank, Inc. ("Provident" or the "Bank"), reported record net income of $5.28 million ($3.45 per diluted common share) for the year ended December 31, 2021, representing an increase of 10.7% compared to $4.77 million ($3.13 per diluted common share) for the year ended December 31, 2020. Return on average assets for the year ended December 31, 2021 remained consistent with 2020 at .93%. Return on average equity increased to 10.52% in 2021.

Performance Review

Small Business Administration's Payroll Protection Program

The Bank's participation in the Small Business Administration's Payroll Protection Program ("PPP"), established in April 2020, significantly influenced financial performance during both 2020 and 2021. During 2021, Provident originated PPP loans totaling $34.9 million and recognized fee income net of costs (amortized as a loan yield adjustment) of $3.13 million. PPP loan principal forgiven by the SBA and principal payments received totaled $70.6 million in 2021. During 2020, Provident originated PPP loans totaling $56.9 million and recognized net fee income totaling $1.02 million. PPP loan principal forgiven and principal payments received in 2020 totaled $20.1 million. As of December 31, 2021, PPP loans outstanding were $1.1 million and remaining net fees totaled $49,000.

Net Interest Margin

The net interest margin ("NIM") was 3.44% during 2021 compared to 3.52% during 2020 despite higher net fee income recognized under the PPP. Pressure on the NIM resulted from continuing economic challenges presented by the pandemic and the federal government's fiscal and monetary response to such. Specifically, the NIM has been challenged by (i) low interest rates, (ii) a change in the mix of earning assets, with larger than normal levels of excess liquidity invested in lower yielding investment securities and interest-earning cash, and (iii) highly competitive loan pricing.

Data Processing and software

Data processing and software expense increased $255,000 in 2021 compared to 2020. The increase reflected one-time costs of approximately $60,000 associated with the Bank's transition to a more robust network communication infrastructure and added costs associated with increased volumes and additional products and services, including upgraded anti-money laundering data monitoring capabilities and an online account opening solution.

Fourth Quarter 2021 Compared to Fourth Quarter 2020

Net income totaled $1.02 million during the three months ended December 31, 2021 compared to $1.44 million during the same period of 2020. The decline was attributable to a decline in fees recognized from

1. lending activities, a decline in gain on sale of loans and an increase in the provision for loan losses. Net fee income recognized from PPP lending activities declined from $600,000 during the fourth quarter 2020 to $418,000 during the same period in 2021. Gain on sale of loans totaled $315,000 during the three

months ended December 31, 2021 compared to $502,000 during the same period in 2020. The decline in mortgage banking activity was largely driven by movement of interest rates higher. The provision for loan losses increased $210,000, from $20,000 in the fourth quarter 2020 to $230,000 in the fourth quarter 2021. The provision for loan losses recorded during the fourth quarter 2021 primarily reflected growth in loans, net of PPP loan forgiveness, of $16.7 million during the quarter.

Fourth Quarter 2021 Compared to Third Quarter 2021

Net income declined $508,000 when compared to the third quarter of 2021. The decline was primarily attributable to a decline of $790,000 in net fee income recognized from PPP lending activities.

Balance Sheet and Asset Quality

Assets totaled $585.0 million at December 31, 2021, increasing $35.7 million or 6.5% compared to December 31, 2020. Growth in assets was driven primarily by growth in deposits as government stimulus increased customer liquidity. Deposits and repurchase agreements totaled $510.6 million at December 31, 2021 compared to $464.9 million at December 31, 2020, representing growth of 9.8%. Gross loans totaled $357.8 million at December 31, 2021, representing a decrease of $28.4 million or 7.4% compared to December 31, 2020. The decrease in loans was driven primarily by a decline in PPP loans, which fell $35.7 million to $1.1 million outstanding at December 31, 2021 as a result of continuing loan forgiveness. Stockholders' Equity totaled $51.6 million at December 31, 2021 compared to $48.7 million at December 31, 2020, representing an increase of 5.8%. As of December 31, 2021, non-performing assets and past due loans 30 days or more were .38% of total assets compared to .44% at the end of 2020. The Bank remained well-capitalized at December 31, 2021.

President and Chief Executive Officer Melissa Quirk commented on the Company's performance stating, "We are grateful for the patience of our customers and communities and for the hard-work and commitment of our team members as we continue to navigate the pandemic and the challenges it presents. With the positive influence of PPP lending activity on our financial performance nearly ended, we look forward to traditional growth opportunities associated with more normalized economic and interest rate environments."

PSB Holding Corp. is the holding company of Provident State Bank, Inc., a full-service financial institution serving the eastern shore of Maryland since 1904. Provident State Bank, Inc. has ten locations in Preston, Federalsburg, Ridgely, Denton, Easton-Elliot Road, Easton-Harrison Street, Secretary, Cambridge, Salisbury and Lewes (Delaware). For more information on PSB Holding Corp. and Provident State Bank, Inc., visit www.providentstatebank.com.

Forward-Looking Statements

Forward-looking statements relating to PSB Holding Corp. and its subsidiary, Provident State Bank, Inc. may include plans, strategies, objectives, expectations, intentions and adequacy of resources. All statements other than statements of historical fact, including, without limitation, statements regarding business strategy, future events, activities, performance, and plans and objectives for future operations, are forward-looking statements. Therefore, the illustrative value of forward-looking statements made in or pursuant to this press release should not, under any circumstances, be considered a guaranty or promise that such future events, activities, occurrences or performances will take place.

CONDENSED CONSOLIDATED BALANCE SHEETS

					December 31,
			2021			2020		% Change
			(unaudited)
Assets
Cash and cash equivalents	$	36,100,150	$	29,162,136	23.8%
Investment securities		167,167,082			111,930,314	49.3%
Loans held for sale		1,879,591			2,367,448	-20.6%
Loans receivable		357,800,695			386,189,190	-7.4%
Less allowance for loan losses		3,892,115			3,583,204	8.6%
Loans, net of allowance for loan losses		353,908,580			382,605,986	-7.5%
Property and equipment		6,879,131			8,401,637	-18.1%
Bank-owned life insurance		11,918,526			8,656,454	37.7%
Lease assets		2,720,578			2,508,345	8.5%
Accrued interest receivable		1,344,283			1,616,775	-16.9%
Other assets		3,119,329			2,103,866	48.3%
Total assets	$	585,037,250	$	549,352,961	6.5%
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing	$	191,144,058	$	171,855,568	11.2%
Interest-bearing		303,379,512			277,526,516	9.3%
Total deposits		494,523,570			449,382,084	10.0%
Repurchase agreements		16,104,671			15,528,356	3.7%
FHLB advances and other borrowing		18,220,887			31,078,123	-41.4%
Lease liabilities		2,930,961			2,685,641	9.1%
Other liabilities		1,677,656			1,934,558	-13.3%
Total liabilities		533,457,745			500,608,762	6.6%
Stockholders' equity		51,579,505			48,744,199	5.8%
Total liabilities and equity	$	585,037,250	$	549,352,961	6.5%
Book value per common share	$	33.86	$	32.00	5.8%

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

				Years Ended					Three Months Ended
				December 31,						December 31,
							%							%
			2021			2020		Change			2021			2020		Change
Interest income
Loans, including fee income	$	19,292,572	$	19,135,849	0.8%	$	4,361,123	$	4,988,220	-12.6%
Investment securities		1,978,770			1,319,864	49.9%			566,608			334,830	69.2%
Other interest income		40,279			60,963	-33.9%			13,907			10,291	35.1%
Total interest income		21,311,621			20,516,676	3.9%			4,941,638			5,333,341	-7.3%
Interest expense
Deposits		1,967,103			2,551,200	-22.9%			434,397			570,013	-23.8%
Repurchase agreements		4,811			8,061	-40.3%			1,375			1,298	5.9%
FHLB advances		550,707			799,285	-31.1%			101,801			187,295	-45.6%
Other borrowings		133,495			155,279	-14.0%			31,250			36,686	-14.8%
Total interest expense		2,656,116			3,513,825	-24.4%			568,823			795,292	-28.5%
Net interest income		18,655,505			17,002,851	9.7%			4,372,815			4,538,049	-3.6%
Provision for loan losses		560,000			448,500	24.9%			230,000			20,000	1050.0%
Net interest income after provision		18,095,505			16,554,351	9.3%			4,142,815			4,518,049	-8.3%
Noninterest income
Service charges		1,829,012			1,627,089	12.4%			485,620			416,823	16.5%
Gain on sale of loans		1,320,073			1,306,885	1.0%			314,859			502,302	-37.3%
Gain on sale of securities		4,310			44,027	-90.2%			-			18,557	-100.0%
Other noninterest income		280,407			281,997	-0.6%			82,327			66,597	23.6%
Total noninterest income		3,433,802			3,259,998	5.3%			882,806			1,004,279	-12.1%
Noninterest expense
Salaries and benefits		7,669,758			7,227,478	6.1%			1,977,495			1,905,737	3.8%
Occupancy		2,124,876			2,009,648	5.7%			590,861			507,121	16.5%
Data processing and software		1,340,576			1,086,040	23.4%			311,239			294,390	5.7%
Other noninterest expense		3,407,220			3,140,315	8.5%			883,182			894,306	-1.2%
Total noninterest expense		14,542,430			13,463,481	8.0%			3,762,777			3,601,554	4.5%
Net income before tax		6,986,877			6,350,868	10.0%			1,262,844			1,920,774	-34.3%
Tax expense		1,703,140			1,579,103	7.9%			247,113			478,399	-48.3%
Net income	$	5,283,737	$	4,771,765	10.7%	$	1,015,731	$	1,442,375	-29.6%
Net income per diluted share	$	3.45	$	3.13	10.3%	$	0.66	$	0.95	-29.9%

HISTORICAL TRENDS

QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL DATA (unaudited)

													2021
														Q4 vs.
						2021						Q3					2020
													%
		Q4			Q3				Q2			Q1		Change		Q4			Q3		Q2			Q1
Interest income
Loans, including fee income	$	4,361,123	$	5,200,935	$	4,967,402	$	4,763,112	-16.1%		$	4,988,220	$	4,796,814		$	4,758,983	$	4,591,832
Investment securities		566,608			502,460				485,823			423,879	12.8%			334,830			305,329			332,732			346,973
Other interest income		13,907			13,540				6,688			6,144	2.7%			10,291			7,190			5,014			38,468
Total interest income		4,941,638			5,716,935				5,459,913			5,193,135	-13.6%			5,333,341			5,109,333			5,096,729			4,977,273
Interest expense
Deposits		434,397			490,718				507,708			534,280	-11.5%			570,013			616,225			657,010			707,952
Repurchase agreements		1,375			1,466				891			1,079	-6.2%			1,298			782			1,036			4,945
FHLB advances		101,801			109,882				163,552			175,472	-7.4%			187,295			195,442			204,654			211,894
Other borrowings		31,250			32,967				34,341			34,937	-5.2%			36,686			38,461			39,834			40,298
Total interest expense		568,823			635,033				706,492			745,768	-10.4%			795,292			850,910			902,534			965,089
Net interest income		4,372,815			5,081,902				4,753,421			4,447,367	-14.0%			4,538,049			4,258,423			4,194,195			4,012,184
Provision for loan losses		230,000			120,000				120,000			90,000	91.7%			20,000			130,000			180,000			118,500
Net interest income after provision		4,142,815			4,961,902				4,633,421			4,357,367	-16.5%			4,518,049			4,128,423			4,014,195			3,893,684
Noninterest income
Service charges		485,620			480,290				445,963			417,139	1.1%			416,823			412,317			374,471			423,478
Gain on sale of loans		314,859			407,328				337,422			260,464	-22.7%			502,302			397,309			243,830			163,444
Gain on sale of securities		-			-				4,310			-		NM		18,557			-			25,470			-
Other noninterest income		82,327			80,747				64,069			53,264	2.0%			66,597			69,745			71,046			74,609
Total noninterest income		882,806			968,365				851,764			730,867	-8.8%			1,004,279			879,371			714,817			661,531
Noninterest expense
Salaries and benefits		1,977,495			2,063,437				1,820,550			1,808,276	-4.2%			1,905,737			1,843,439			1,706,479			1,771,823
Occupancy		590,861			512,155				508,652			513,208	15.4%			507,121			488,246			492,731			521,550
Data processing and software		311,239			408,523				308,194			312,620	-23.8%			294,390			287,995			268,884			234,771
Other noninterest expense		883,182			893,689				790,844			839,505	-1.2%			894,306			715,565			746,696			783,748
Total noninterest expense		3,762,777			3,877,804				3,428,240			3,473,609	-3.0%			3,601,554			3,335,245			3,214,790			3,311,892
Net income before tax		1,262,844			2,052,463				2,056,945			1,614,625	-38.5%			1,920,774			1,672,549			1,514,222			1,243,323
Tax expense		247,113			528,699				525,953			401,375	-53.3%			478,399			420,666			376,544			303,494
Net income	$	1,015,731		$	1,523,764			$	1,530,992		$	1,213,250	-33.3%		$	1,442,375		$	1,251,883		$	1,137,678		$	939,829
Net income per diluted share	$	0.66	$	1.00	$	1.00	$	0.80	-33.5%		$	0.95	$	0.82		$	0.75	$	0.62
Supplemental Data
PPP loans - net fee income	$	418,004	$	1,207,559	$	832,733	$	667,482				$	600,105	$	237,633		$	178,801	$	-