Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[x] Quarterly Report pursuant to Section 13 or 15 (d)
Of The Securities Exchange Act of 1934
For the Quarter Ended September 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-28864
PS Financial, Inc.
(Exact name of the registrant as specified in its charter)
Delaware 36-4101473
(State of incorporation) (I.R.S. Employer Identification Number)
4800 South Pulaski Road, Chicago, Illinois 60632
(Address of principal executive offices)
(773) 376-3800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No (First Filing Pursuant to Rule 15d-13(a)) ___
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Class: SHARES OUTSTANDING at November 15, 1998
- ------ ---------------------------------------
Common Stock, $.01 par value 1,850,509
<PAGE>
PS Financial, Inc.
Form 10-QSB
Three and Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Page
----
PART I - Financial Information
<S> <C>
Item 1 - FINANCIAL STATEMENTS
Condensed Consolidated Statements of Financial Condition at September 30, 1998 and 3
December 31, 1997
Condensed Consolidated Statements of Income for the three months and nine months ended 4
September 30, 1998 and 1997
Condensed Consolidated Statements of Changes in Stockholders' Equity for the nine 5
months ended September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for the nine months ended September 6
30, 1998 and 1997
Notes to the Condensed Consolidated Financial Statements as of September 30, 1998 8
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
Item 3 - Quantitative and Qualititave Disclosure About Market Risk 14
PART II - Other Information
Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities 18
Item 3 - Defaults Upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
<PAGE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1998 and December 31, 1997
(Dollars in thousands, expect per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Cash on hand and in banks ................................................... $ 297 $ 440
Interest-bearing deposit accounts in other financial institutions .......... 8,516 5,850
--------- ---------
Total cash and cash equivalents .................................... 8,813 6,290
Interest-bearing term deposits in other financial institutions ............. 157 209
Securities available-for-sale ............................................... 27,340 33,459
Mortgage-backed securities available-for-sale ............................... 8,084 8,095
Loans receivable, net ....................................................... 53,094 37,167
Federal Home Loan Bank stock ................................................ 1,319 700
Premises and equipment, net ................................................. 436 458
Accrued interest receivable ................................................. 752 801
Other assets ................................................................ 181 743
--------- ---------
Total assets ................................................................ $ 100,176 $ 87,922
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits ........................................................... $ 51,211 $ 41,275
FHLB Advances ...................................................... 25,147 13,750
Advances from borrowers for taxes and insurance .................... 918 498
Accrued interest payable and other liabilities ..................... 534 1,761
Dividends payable .................................................. -- 7,529
--------- ---------
Total liabilities ......................................... 77,810 64,813
Stockholders' Equity
Common stock $0.01 par value per share, 2,500,000 shares authorized;
1,947,904 and 2,050,429 issued and outstanding respectively 22 22
Additional paid-in capital ......................................... 21,637 21,602
Retained earnings, substantially restricted ........................ 5,984 5,518
Unearned ESOP shares ............................................... (1,101) (1,173)
Unearned stock awards .............................................. (983) (1,117)
Treasury stock, at cost, 234,221 and 131,696 shares respectively ... (3,310) (1,896)
Net unrealized gain on securities available-for-sale, net of tax ... 117 153
--------- ---------
Total Stockholders' equity ................................ 22,366 23,109
--------- ---------
Total liabilities and Stockholders' equity ....... $ 100,176 $ 87,922
========= =========
</TABLE>
3
<PAGE>
<TABLE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Nine months Ended Three months ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Loans $ 2,907 $ 2,447 $ 1,056 $ 828
Securities 1,361 1,442 398 569
Mortgage-backed securities 465 419 163 152
Other 231 145 154 35
----------- ----------- ----------- -----------
Total interest income 4,964 4,453 1,771 1,584
Interest expense
Deposits 1,346 1,299 482 440
Other borrowings 849 156 370 116
----------- ----------- ----------- -----------
Total interest expense 2,195 1,455 852 556
----------- ----------- ----------- -----------
Net interest income 2,769 2,998 919 1,028
Provision for loan losses 40 0 40 0
----------- ----------- ----------- -----------
----------- -----------
Net interest income after provision for loan 2,729 2,998 879 1,028
Noninterest income
Net gain (loss) on sale of securities 22 (1) (1) 2
Other 71 51 25 17
----------- ----------- ----------- -----------
Total noninterest income 93 50 24 19
Noninterest expense
Compensation and benefits 709 532 263 170
Occupancy and equipment expense 90 97 30 32
Data processing 45 40 15 15
Federal insurance premiums 20 20 7 7
Professional Fees 69 79 19 14
Other 185 148 61 53
----------- ----------- ----------- -----------
Total noninterest expense 1,118 916 395 291
----------- ----------- ----------- -----------
Income before income tax expense 1,704 2,132 508 756
Income tax expense 572 866 148 338
----------- ----------- ----------- -----------
Net income $ 1,132 $ 1,266 $ 360 $ 418
=========== =========== =========== ===========
Earnings per share $ 0.61 $ 0.64 $ 0.20 $ 0.21
=========== =========== =========== ===========
Average shares outstanding 1,848,945 1,990,291 1,815,776 1,951,686
=========== =========== =========== ===========
</TABLE>
4
<PAGE>
<TABLE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Nine months Ended September 30 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Shares
Balance at beginning of year $ 22 $ 22
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30 $ 22 $ 22
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Paid-In Capital
Balance at beginning of year $ 21,602 $ 21,170
Change in additional paid in capital 35 (56)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30 $ 21,637 $ 21,114
- ------------------------------------------------------------------------------------------------------------------------------------
Retained Earnings, Substantially Restricted
Balance at beginning of year $ 5,518 $ 12,669
Net income for the period 1,132 $ 1,132 1,266 $ 1,266
Dividends declared (666) (346)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30 $ 5,984 $ 13,589
- ------------------------------------------------------------------------------------------------------------------------------------
Unearned ESOP Shares
Balance at beginning of year $ (1,173) $ (1,691)
Change in unearned ESOP shares 72 0
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30 $ (1,101) $ (1,691)
- ------------------------------------------------------------------------------------------------------------------------------------
Unearned RRP Shares
Balance at beginning of year $ (1,117) $ 0
Change in RRP shares 134 (1,162)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30 $ (983) $ (1,162)
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year (1,896) 0
Change in Treasury Stock (1,414) (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30 $ (3,310) $ (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on securities available-for-sale
Balance at beginning of year $ 153 $ (23)
Change in unrealized gain (loss) on securities (36) (36) 143 143
available-for-sale net of tax
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30 $ 117 $ 120
- ------------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 22,366 $ 31,985
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $ 1,096 $ 1,409
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Nine months ended
September 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,132 $ 1,266
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 36 37
Provision for loan loss 40 0
Amortization of premiums and discounts on investment
and mortgage-backed securities, net 10 (5)
Net gain on sales of securities available-for-sale (22) 1
RRP expense 134 60
ESOP expense 107 0
Change in
Deferred loan origination fees (60) (40)
Accrued interest receivable and other assets 611 (199)
Other liabilities and deferred income taxes (1,206) 286
-------- --------
Net cash provided by operating activities 782 1,406
Cash flows from investing activities
Proceeds from sale of securities available-for-sale 3,500 10,485
Proceeds from sale of mortgage-backed securities available-for-sale 1,102 1,014
Purchase of Federal Home Loan Bank Stock (619) (88)
Proceeds from repayment of securities available-for-sale 1,864 823
Proceeds from maturities of securities available-for-sale 15,000 5,250
Proceeds from maturities of equity securities 205 0
Purchase of securities available-for-sale (8,300) (25,847)
Purchase of mortgage-backed securities available-for-sale (3,014) (6,209)
Purchase of equity securities available-for-sale (4,272) 0
Net decrease in interest-bearing term deposits in other financial
institutions 52 89
Net change in loans (15,907) 539
Capital expenditures, net (14) (40)
-------- --------
Net cash used in investing activities (10,403) (13,984)
Cash flows from financing activities
Net increase (decrease) in deposits 9,936 (888)
Dividends Paid (8,195) (346)
Borrowings from FHLB 11,397 8,500
Purchase of Treasury Stock (1,414) (1,285)
Net change in advance payments by borrowers for insurance and taxes 420 (236)
-------- --------
Net cash provided by (used in) financing activities 12,144 5,745
Change in cash and cash equivalents 2,523 (6,833)
Cash and cash equivalents at beginning of period 6,290 8,758
-------- --------
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
Cash and cash equivalents at end of period $ 8,813 $ 1,925
======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 2,071 $ 1,445
Income taxes 870 676
</TABLE>
7
<PAGE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of PS Financial, Inc. (the Company), its wholly-owned
subsidiary Preferred Savings Bank (the Bank), and the Bank's wholly-owned
subsidiary, Preferred Service Corporation, which engages in limited insurance
activities. All significant intercompany balances and transactions have been
eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited consolidated financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial condition of PS Financial, Inc. as of
September 30, 1998 and December 31, 1997, and the results of its operations for
the three month and nine month periods ended September 30, 1998 and 1997.
NOTE 2 - CONVERSION
On November 26, 1996, Preferred Savings Bank ("Bank") converted from a state
chartered mutual savings bank to a federally chartered stock savings bank. The
Bank issued all of its common stock to PS Financial, Inc. ("Company") and at the
same time the Company issued 2,182,125 shares of common stock at $10.00 per
share to the ESOP, certain depositors of the Bank, and certain members of the
general public, all pursuant to a plan of conversion ("Conversion").
The ESOP purchased 174,570 shares of common stock representing 8% of the total
issued shares. The ESOP borrowed $1,745,700 from the Company to purchase the
stock using the stock as collateral for the loan. The loan is to be repaid
principally from the Bank's contributions to the ESOP over a period of up to 40
years.
NOTE 3 - CAPITAL REQUIREMENTS
Pursuant to federal regulations, savings institutions must meet two separate
capital requirements. The following is a summary of the Bank's regulatory
capital at September 30, 1998.
Core Risk based
Capital Capital
------- -------
(In thousands)
Regulatory capital $15,399 $15,623
Minimum capital requirement 3,819 3,469
------- -------
Excess regulatory capital over minimum requirement $11,580 $12,154
======= =======
8
<PAGE>
NOTE 4 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators for earnings per common
share computations for the three months and nine months ended September 30, 1998
and 1997 is presented below.
<TABLE>
<CAPTION>
Nine months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Basic Earnings Per Share
Net income $1,132,288 $ 1,266,521 $ 360,723 $ 418,676
========== =========== ========== ==========
Weighted average common shares outstanding 1,848,945 1,990,291 1,815,776 1,951,686
========== =========== ========== ==========
Basic Earnings Per Share $ 0.61 $ 0.64 $ 0.20 $ 0.21
========== =========== ========== ==========
Earnings Per Share Assuming Dilution
Net income $1,132,288 $ 1,266,521 $ 360,723 $ 418,676
========== =========== ========== ==========
Weighted average common shares outstanding 1,848,945 1,990,291 1,815,776 1,951,686
Add dilutive effect of assumed exercises
Incentive stock options 33,938 -- 12,436 14,788
Stock awards 206 -- -- --
Weighted average common and dilutive 1,883,089 1,990,291 1,828,212 1,966,474
========== =========== ========== ==========
Diluted Earnings Per Share $ 0.60 $ 0.64 $ 0.20 $ 0.21
========== =========== ========== ==========
</TABLE>
9
<PAGE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Comparison of Financial Condition at September 30, 1998 and December 31, 1997
Total assets increased $12.3 million from $87.9 million at December 31, 1997 to
$100.2 million at September 30, 1998 due mainly to an increase in the loan
portfolio of $15.9 million, funded by increases in FHLB advances of $13.4
million and deposits of $9.9 million, partially offset by the payment of the
special dividend of $7.5 million in January 1998.
The Company's net loans receivable increased by $15.9 million from $37.2 million
at December 31, 1997 to $53.1 million at September 30, 1998. Cash and cash
equivalents increased $2.5 million, from $6.3 million at December 31, 1997 to
$8.8 million at September 30, 1998, while Equity securities increased $3.9
million, from $0 at December 31, 1997 to $3.9 million at September 30, 1998.
These increases were mainly offset by a decrease in securities
available-for-sale by $10.1 million, from $33.5 million at December 31, 1997 to
$23.4 million at September 30, 1998.
In order to increase the size of the loan portfolio, the Company has utilized
the services of an area mortgage broker who receives a fee for each mortgage
originated for the Company. The broker serves the same market area as the
Company, and the loans share the same characteristics of the Company's existing
loans. Through September 30, 1998, the Company has originated $14.0 million
loans through this broker.
Total liabilities at September 30, 1998 were $77.8 million compared to $64.8
million at December 31, 1997, an increase of $13.0 million. The decrease of $8.1
million in other liabilities was due mainly to the payment of the $4.00 per
share special dividend which totaled $7.5 million. In order to provide for
additional liquidity in light of the payment of the special dividend in January,
1998, and the increase in the loan portfolio, the Company increased FHLB
advances by $13.4 million. In addition, deposits increased by $9.9 million
during the period.
Total Stockholders' Equity at September 30, 1998 was $22.4 million compared to
$23.1 million at December 31, 1997, a decrease of $743,000, or 3.2%, due
primarily to net earnings of $1.1 million partially offset by a $36,000 decrease
in the unrealized gain on securities available-for-sale, payment of regular
dividends totaling $666,000, and treasury stock purchased at a cost of $1.4
million.
Comparison of Operating Results for the Three Months Ended September 30, 1998
and September 30, 1997.
General
Net income for the three months ended September 30, 1998 was $360,000, a
decrease of $58,000, or 13.9%, from net earnings of $418,000 for the three
months ended September 30, 1997. The decrease in net income was primarily due to
the decrease in the net interest margin resulting from the payment of a special
$4.00 per share dividend in January, the increased use of FHLB advances in an
attempt to better leverage the Company's high capital ratio and provide
additional liquidity to fund increased loan demand, and an increase of $104,000
in noninterest expense.
Interest Income
Interest income for the three months ended September 30, 1998 was $1.8 million
compared to $1.6 million for the three months ended September 30, 1997, an
increase of $200,000, or 12.5%. The increase in interest income was the result
of a $8.3 million increase in the average balance of interest-earning assets
primarily due to an increase in the average balance of loans receivable. The
increase in the average balance was partially offset by a decrease in yield on
new loan originations for the three months ended September 30, 1998. The
decrease in loan yields was primarily the result of repayments on
higher-yielding mortgages being replaced by lower-yielding mortgages as long
term rates declined in general.
10
<PAGE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Interest Expense
Interest expense for the three months ended September 30, 1998 was $852,000
compared to $556,000 for the three months ended September 30, 1997, an increase
of $296,000, or 53.2%. The increase in interest expense was primarily due to the
addition of $11.3 million in FHLB advances and an increase in deposits of $9.9
million used to fund the growing loan portfolio, as well as an increase in the
Bank's cost of deposits. The increase in the cost of deposits was primarily due
to a decrease in lower-yielding passbook balances and an increase in higher
yielding time deposits.
Provision for Loan Losses
The Bank's provision for loan losses was $40,000 for the three months ended
September 30, 1998 compared to zero for the three months ended September 30,
1997. The increase was primarily a result of increased non-performing loans of
multi-family and commercial real estate loans and the general increase in the
loan portfolio. In order to increase the size of the loan portfolio, the Company
has utilized the services of an area mortgage broker who receives a fee for each
mortgage originated for the Company. At September 30, 1998, the Bank's allowance
for loan losses totaled $224,000, or 0.4% of total loans. The amount of the
provision and allowance for estimated losses on loans is influenced by current
economic conditions, actual loss experience, industry trends and other factors,
such as adverse economic conditions, including declining real estate values, in
the Bank's market area. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to provide additions to the
allowance based upon judgments which differ from those of management. The
absence of a loan loss provision for the three months ended September 30, 1997
was indicative of management's assessment of the adequacy of the allowance for
loan losses, given the trends in historical loss experience of the portfolio and
current economic conditions, as well as the fact that the majority of loans are
single-family residential loans and the loan-to-values are generally less than
80%. Although management uses the best information available, future adjustments
to the allowance may be necessary due to economic, operating, regulatory and
other conditions that may be beyond the Bank's control.
Past due loan balances over sixty days at September 30, 1998 decreased to $1.5
million compared to $2.0 million at December 31, 1997. Non-accruing loans at
September 30, 1998 totaled $1.5 million compared to $471,000 at December 31,
1997, including one loan secured by a single family residence for $616,000 in
which the Bank is currently working with the borrower to resolve the situation.
Noninterest Income
Noninterest income for the three months ended September 30, 1998 was $24,000
compared to $19,000 for the three months ended September 30, 1997. The increase
was primarily due to increased late charges received on delinquent loans.
Noninterest Expense
Noninterest expense was $395,000 for the three months ended September 30, 1998
compared to $291,000 for the three months ended September 30, 1997, an increase
of $104,000, or 35.7%. The increase was primarily a result of a $93,000 increase
in compensation and benefits, including a severance payment of $40,000 upon the
departure of an executive officer.
Income Taxes
Income taxes were $148,000 for the three months ended September 30, 1998
compared to $338,000 for the three months ended September 30, 1997, a decrease
of $190,000, or 56.2%. The decrease was primarily a result of a $248,000
decrease in pretax earnings, and increased investment in federally tax-exempt
municipal bonds.
11
<PAGE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Comparison of Operating Results for the Nine months Ended September 30, 1998 and
September 30, 1997.
General
Net income for the nine months ended September 30, 1998 was $1.1 million, a
decrease of $200,000, or 15.4%, from net earnings of $1.3 million for the nine
months ended September 30, 1997. The decrease in net income was primarily due to
the decrease in net interest income reflecting a decrease in the ratio of
interest earning assets to interest bearing liabilities resulting from the
payment of a special $4.00 per share dividend in January, the increased use of
FHLB advances in an attempt to better leverage the Company's high capital ratio,
as well as the increase in deposits.
Interest Income
Interest income for the nine months ended September 30, 1998 was $5.0 million
compared to $4.5 million for the nine months ended September 30, 1997, an
increase of $500,000, or 11.1%. The increase in interest income was the result
of a $6.5 million increase in the average balance of interest-earning assets
primarily due to an increase in the average balance of loans receivable. The
increase in the average balance was partially offset by a decrease in yield on
new loan originations for the nine months ended September 30, 1998. The decrease
in loan yields was primarily the result of repayments on higher-yielding
mortgages being replaced by lower-yielding mortgages as long term rates declined
in general.
Interest Expense
Interest expense for the nine months ended September 30, 1998 was $2.2 million
compared to $1.5 million for the nine months ended September 30, 1997, an
increase of $700,000, or 46.7%. The increase in interest expense was primarily
due to a $11.3 million increase in FHLB advances, an increase of $9.3 million in
deposits, as well as an increase in the average cost of funds for deposits. The
increase in the cost of funds was primarily due to a decrease in lower-yielding
passbook balances and an increase in higher yielding time deposits.
Provision for Loan Losses
The Bank's provision for loan losses was $40,000 for the three months ended
September 30, 1998 compared to zero for the three months ended September 30,
1997. The increase was primarily a result of increased non-performing loans of
multi-family and commercial real estate loans and the general increase in the
loan portfolio. In order to increase the size of the loan portfolio, the Company
has utilized the services of an area mortgage broker who receives a fee for each
mortgage originated for the Company. The broker caters to the same clientele as
the Company, and the loans share the same characteristics of the Company's
existing loans. Through September 30, 1998, the Company has originated $14.0
million loans through this broker. At September 30, 1998, the Bank's allowance
for loan losses totaled $224,000, or 0.4% of total loans. The amount of the
provision and allowance for estimated losses on loans is influenced by current
economic conditions, actual loss experience, industry trends and other factors,
such as adverse economic conditions, including declining real estate values, in
the Bank's market area. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to provide additions to the
allowance based upon judgments which differ from those of management. The
absence of a loan loss provision for the three months ended September 30, 1997
was indicative of management's assessment of the adequacy of the allowance for
loan losses, given the trends in historical loss experience of the portfolio and
current economic conditions, as well as the fact that the majority of loans are
single-family residential loans and the loan-to-values are generally less than
80%. Although management uses the best information available, future adjustments
to the allowance may be necessary due to economic, operating, regulatory and
other conditions that may be beyond the Bank's control.
Past due loan balances over sixty days at September 30, 1998 decreased to $1.5
million compared to $2.0 million at December 31, 1997. Non-accruing loans at
September 30, 1998 totaled $1.5 million compared to $471,000 at December 31,
1997, including one loan secured by a single family residence for $616,000 in
which the Bank is currently working with the borrower to resolve the situation.
12
<PAGE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Noninterest Income
Noninterest income for the nine months ended September 30, 1998 was $93,000
compared to $50,000 for the nine months ended September 30, 1998. The increase
was primarily a result of a net gain of $22,000 on sales of securities and a net
gain of $16,000 on the sale of a company vehicle in 1998.
Noninterest Expense
Noninterest expense was $1.1 million for the nine months ended September 30,
1998 compared to $916,000 for the nine months ended September 30, 1997, an
increase of $184,000. The increase was primarily a result of an $177,000
increase in compensation and benefits, including the implementation of the
Company's Recognition and Retention Plan and a severance payment of $40,000 upon
the departure of an executive officer.
Income Taxes
Income taxes were $572,000 for the nine months ended September 30, 1998 compared
to $866,000 for the nine months ended September 30, 1997, a decrease of
$294,000, or 34.0%. The decrease was primarily a result of a $400,000 decrease
in pretax earnings and increased income from tax-exempt municipal bonds.
13
<PAGE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
Quantitative and Qualitative Disclosure About Market Risk
- --------------------------------------------------------------------------------
Asset/Liability Management
In an attempt to manage its exposure to changes in interest rates, management
monitors the Company's interest rate risk. The Board of Directors meets at least
quarterly to review the Company's interest rate risk position and profitability.
The Board of Directors also reviews the Company's portfolio, formulates
investment strategies and oversees the timing and implementation of transactions
to assure attainment of the Company's objectives in the most effective manner.
In addition, the Board anticipates reviewing on a quarterly basis the Company's
asset/liability position, including simulations of the effect on the Company's
capital of various interest rate scenarios. Interest rate risk information as of
September 30, 1998 was not yet available at the time of this filing; however,
management estimates that there has not been a material change from the June 30,
1998 presentation, which is discussed below.
In managing its asset/liability mix, PS Financial, depending on the relationship
between long- and short-term interest rates, market conditions and consumer
preference, often places more emphasis on managing net interest margin than on
better matching the interest rate sensitivity of its assets and liabilities in
an effort to enhance net interest income. Management believes that the increased
net interest income resulting from a mismatch in the maturity of its asset and
liability portfolios can, during periods of declining or stable interest rates,
provide high enough returns to justify the increased exposure to sudden and
unexpected increases in interest rates. The Company's vulnerability to a change
in interest rates has increased in 1998 due to a reduction in capital caused by
the payment of the special dividend and the increase in long term fixed rate
assets.
Management has taken a number of steps to limit to some extent its interest rate
risk. First, the Company focuses its fixed rate loan originations on loans with
maturities of 15 years or less. At September 30, 1998, $39.2 million or 96.8% of
the Company's one-to four family residential loan portfolio consisted of fixed
rate loans having original terms to maturity of 15 years or less. Second, the
Company offers balloon loans of 10 years or less in an attempt to decrease its
asset/liability mismatch. Third, the Company has maintained a mortgage-backed
securities portfolio with adjustable-rates. At September 30, 1998, adjustable
rate mortgage-backed securities totaled $5.4 million which represented 5.57% of
interest-earning assets. Fourth, the Company has attempted to reinvest the
proceeds of most of its borrowings into assets with maturities which are
anticipated to be similar to those of its borrowings. Fifth, the Company has
started to attract more term deposits to better match up with its assets.
Finally, a substantial proportion of the Company's liabilities consists of
passbook savings accounts which are believed by management to be somewhat less
sensitive to interest rate changes than certificate accounts.
The primary objective of PS Financial's investment strategy is to provide
liquidity necessary to meet funding needs as well as to address daily, cyclical
and long-term changes in the asset/liability mix, while contributing to
profitability by providing a stable flow of dependable earnings. Investments
generally include interest-bearing deposits in other federally insured financial
institutions, FHLB stock and U.S. Government securities.
Generally, the investment policy of the Company is to invest funds among various
categories of investments and maturities based upon the Company's need for
liquidity, to achieve the proper balance between its desire to minimize risk and
maximize yield, to provide collateral for borrowings, and to fulfill the
Company's asset/liability management policies.
PS Financial's cost of funds responds to changes in interest rates due to the
relatively short-term nature of its deposit portfolio. Consequently, the results
of operations are heavily influenced by the levels of short-term interest rates.
PS Financial offers a range of maturities on its deposit products at competitive
rates and monitors the maturities on an ongoing basis.
14
<PAGE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
Quantitative and Qualitative Disclosure About Market Risk
- --------------------------------------------------------------------------------
An approach used by management to quantify interest rate risk is the net
portfolio value ("NPV") analysis. In essence, this approach calculates the
difference between the present value of liabilities, expected cash flows from
assets and cash flows from off balance sheet contracts.
The following table sets forth, at June 30, 1998, an analysis of the Bank's
interest rate risk as measured by the estimated changes in NPV resulting from
instantaneous and sustained parallel shifts in the yield curve (+/-400 basis
points, measured in 100 basis point increments).
Change in Interest
Rates Estimated Ratio of NPV Estimated Increase
(Basis Points) NPV to (Decrease) in NPV
- ------------------ Amount Total Assets Amount Percent
--------- ------------- ------ -------
+400 $9,655 12.36% ($9,767) (50)%
+300 12,070 14.93 (7,351) (38)
+200 14,579 17.42 (4,843) (25)
+100 17,080 19.74 (2,342) (12)
--- 19,421 21.76 --- ---
-100 21,978 23.84 2,557 13
-200 24,689 25.90 5,268 27
-300 27,703 28.05 8,282 43
-400 31,005 30.24 11,583 60
Certain assumptions utilized in assessing interest rate risk were employed in
preparing the preceding table. These assumptions relate to interest rates, loan
prepayment rates, deposit decay rates, and the market values of certain assets
under the various interest rate scenarios. It was also assumed that delinquency
rates will not change as a result of changes in interest rates although there
can be no assurance that this will be the case. Even if interest rates change in
the designated amounts, there can be no assurance that the Bank's assets and
liabilities would perform as set forth above. In addition, a change in U.S.
Treasury rates in the designated amounts accompanied by a change in the shape of
the Treasury yield curve would cause significantly different changes to the NPV
than indicated above
15
<PAGE>
Impact of New Accounting Standards
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", was issued by the Financial Accounting Standards Board in 1997. This
Statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
It does not address issues of recognition or measurement for comprehensive
income and is components. Statement 130 is effective for fiscal years beginning
after December 15, 1997. Since the provisions of this Statement are disclosure
oriented, it will have no impact on the operations of the Company.
Comprehensive income is now reported for all periods. Comprehensive income
includes both net income and other comprehensive income. Other comprehensive
income includes the change in unrealized gains and losses on securities
available for sale.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosure about Segments of
an Enterprise and Related Information". The statement establishes standards for
the way that public business enterprises report information about operating
segments and certain other information in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. The statement is
effective for financial statements for periods beginning after December 15,
1997. The Company adopted SFAS No. 131 on January 1, 1998 and required
disclosures will be included beginning with the Company's 1998 Annual Report.
The Company operates as a single segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e. gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and, if so, on the reason for holding it. If certain
conditions are met, entities may elect to designate a derivative instrument as a
hedge of exposure to change in fair value, cash flows, or foreign currencies. If
the hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. If the hedged exposure is a cash flow exposure, the effective portion of
the gain or loss on the derivative instrument is reported initially as a
component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amount excluded from the assessment of hedge effectiveness as well as the
ineffective portion of the gain or loss is reported in earnings immediately.
Accounting for foreign currency hedges is similar to accounting for fair value
and cash flow hedges. If the derivative instrument is not designated as a hedge,
the gain or loss is recognized in earnings in the period of change. This
Statement will have no effect on the Company.
Year 2000
As the year 2000 approaches, a significant business issue has emerged regarding
how existing application software programs and operating systems can accommodate
the date value for the year 2000. Many existing software application products,
including software application products used by the Bank and its suppliers and
customers, were designed to accommodate only a two-digit date value, which
represents the year. For example, information relating to the year 1996 is
stored in the system as "96". As a result, the year 1999 (i.e. "99") could be
the maximum date value that these systems will be able to process accurately. In
response to concerns about this issue, regulatory agencies have begun to monitor
holding companies' and banks' readiness for the year 2000 as part of the regular
examination process. The
16
<PAGE>
Company presently believes that with modification to existing software,
conversion to new software, and conversion to a new third party data processor,
the year 2000 issue will not pose significant operational problems for the
Company's computer systems or business operations. Implementation of the
Company's plan to test in-house and out-sourced software has been underway since
the first quarter of 1998. Testing of applications considered to be "mission
critical" are scheduled for completion by second quarter of 1999. Total
compliance of all systems is expected by management to be completed by the third
quarter of 1999; management currently estimates that such compliance will cost
$15,000. The team for the plan is responsible for the implementation of the plan
and reports to the Company's Board of Directors on a quarterly basis until
December 1998 and on a monthly basis thereafter until the plan is completed.
However, if such modifications and conversions are not made, or are not
completed timely, the year 2000 issue could have a material adverse impact on
the operations of the Company. In addition, there can be no assurance that
unforeseen problems in the Company's computer systems, or the systems of third
parties on which the Company's computers rely, will not have an adverse effect
on the Company's systems or operations. Additionally, failure of the Bank's
customers' to prepare for year 2000 compatibility could have a significant
adverse effect on such customer's operations and profitability, thus inhibiting
their ability to repay loans and adversely affecting the Bank's operations. The
Company does not have sufficient information accumulated from customers of the
Bank to enable the Company to assess the degree to which customers' operations
are susceptible to potential problems relating to the year 2000 issue.
Safe Harbor Statement
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for the purpose of these safe harbor
provisions. Forward-looking statements, which are based on certain assumption
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe", "expect", "intend",
"anticipate", "estimate", "project"" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and the subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative / regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
17
<PAGE>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
a. Amended and restated By-laws
b. None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PS FINANCIAL, INC.
(Registrant)
--------------------------------------------
Date: November 14, 1998 By: /s/Kimberly Rooney
--------------------------------------------
Kimberly Rooney
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1998 By: /s/Jeffrey Przybyl
--------------------------------------------
Jeffrey Przybyl
Chief Financial Officer
(Principal Financial and Accounting Officer)
19
AMENDED AND RESTATED
BY-LAWS OF
PS FINANCIAL, INC.
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten nor more than 60 days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than 30 days after
the date for which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place, date and time
of the adjourned meeting shall be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of at least one-third of
all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or except
to the extent that the presence of a larger number may be required by law. Where
a separate vote by a class or classes is required, a majority of the shares
Oct. 21, 1998
<PAGE>
of such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
(b) At any annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered or mailed to and received
at the principal executive offices of the Corporation not less than 70 days
prior to the anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 20 days or delayed by more than 60 days from such anniversary date,
notice by the stockholder to be timely must be so delivered by the close of
business on the later of (i) the 70th day prior to such annual meeting or (ii)
the 10th day following the earlier of the day on which notice of the date of the
annual meeting is mailed or the day on which a public announcement of the date
of such meeting is first made. A stockholder's notice to the Secretary shall set
forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder who proposed such business, (iii) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
stockholder and (iv) any material interest of such stockholder in such business.
Notwithstanding anything in these By-laws to the contrary, no business shall be
Oct. 21, 1998
<PAGE>
brought before or conducted at an annual meeting except in accordance with the
provisions of this Section 6(b). The officer of the Corporation or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 6(b) and, if he or she should
so determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures set
forth in these By-laws shall be eligible for election as directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders at which directors are to be elected only (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 6(c). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than 70 days prior to the date of the meeting; provided, however, that in the
event that less than 80 days' notice of the date of the meeting is given to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the earlier of (i)
the day on which such notice of the date of the meeting is mailed or (ii) the
day on which a public announcement of the date of the meeting is first made.
Such stockholder' s notice shall set forth (i) as to each person whom such
stockholder proposes to nominate for election or re-election as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as to
the stockholder giving the notice: (x) the name and address, as they appear on
the Corporation's books, of such stockholder and (y) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure established
for the meeting. Proxies solicited on behalf of the management shall be
Oct. 21, 1998
<PAGE>
voted as directed by the stockholder or in the absence of such direction, as
determined by a majority of the Board of Directors. No proxy shall be valid
after eleven months from the date of its execution except for a proxy coupled
with an interest.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his or her name on the record date for the meeting,
except as otherwise provided herein or in the Certificate of Incorporation of
the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballot, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballot shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
The officer who has charge of the stock transfer books of the Corporation
shall prepare and make, in the time and manner required by applicable law, a
list of stockholders entitled to vote and shall make such list available for
such purposes, at such places, at such times and to such persons as required by
applicable law. The stock transfer books shall be the only evidence as to the
identity of the stockholders entitled to examine the stock transfer books or to
vote in person or by proxy at any meeting of stockholders.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
Section 10. Inspectors of Election
The Board of Directors shall, in advance of any meeting of stockholders,
appoint one or more persons as inspectors of election, to act at the meeting or
any adjournment thereof and make a written report thereof, in accordance with
applicable law.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers Number and Term of Office
Oct. 21, 1998
<PAGE>
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. The number of directors shall be as
provided for in the Certificate of Incorporation. The Board of Directors shall
annually elect a Chairman of the Board and a President from among its members
and shall designate, when present, either the Chairman of the Board or the
President to preside at its meetings.
The directors, other than those who may be elected by the holders of any
class or series of preferred stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the first annual meeting, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election, with each director to hold office until his or her
successor shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of preferred
stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires, and until
such director's successor shall have been duly elected and qualified. No
decrease in the number of authorized directors constituting the Board shall
shorten the term of any incumbent director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third (1/3)
of the directors then in office (rounded up to the nearest whole number) or by
the President and shall be held at such place, on such date, and at such time as
they or he or she shall fix. Notice of the place, date, and time of each such
special meeting shall be given to each director by whom it is not waived by
mailing written notice not less than five days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Oct. 21, 1998
<PAGE>
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or nonnegotiable,
secured or unsecured, and to do all things necessary in connection therewith;
(4) To remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any other
person for the time being;
(5) To confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase, bonus or
other compensation plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
Oct. 21, 1998
<PAGE>
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with these
By-laws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so designated
may exercise the power and authority of the Board of Directors to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law if the resolution which designated the committee or a supplemental
resolution of the Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Oct. 21, 1998
<PAGE>
Section 3. Nominating Committee.
The Board of Directors may appoint a Nominating Committee of the Board,
consisting of not less than three members, one of which shall be the President
if, and only so long as, the President remains in office as a member of the
Board of Directors. The Nominating Committee shall have authority (i) to review
any nominations for election to the Board of Directors made by a stockholder of
the Corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in
order to determine compliance with such By-law and (ii) to recommend to the
Whole Board nominees for election to the Board of Directors to replace those
directors whose terms expire at the annual meeting of stockholders next ensuing.
ARTICLE IV
OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after the annual
meeting of stockholders shall choose a President, a Secretary and a Treasurer
and from time to time may choose such other officers as it may deem proper. The
President shall be chosen from among the directors. Any number of offices may be
held by the same person.
(b) The term of office of all officers shall be until the next annual
election of officers and until their respective successors are chosen, but any
officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of directors then constituting the Board of
Directors.
(c) All officers chosen by the Board of Directors shall each have such
powers and duties as generally pertain to their respective offices, subject to
the specific provisions of this Article IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. President.
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation' s business
and general supervisory power and authority over its policies and affairs. The
President shall see that all orders and resolutions of the Board of Directors
and of any committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall be
presided over by such officer as has been designated by the Board of Directors
or, in his absence, by such officer or other person as is chosen at the meeting.
The Secretary or, in the Secretary's absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of Directors or,
in his absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
Oct. 21, 1998
<PAGE>
Section 3. Vice President.
The Vice President or Vice Presidents, if any, shall perform the duties of
the President in his absence or during his disability to act. In addition, the
Vice Presidents shall perform the duties and exercise the powers usually
incident to their respective offices and/or such other duties and powers as may
be properly assigned to them from time to time by the Board of Directors, the
Chairman of the Board or the President.
Section 4. Secretary.
The Secretary or an Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such offices and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or the
President.
Section 5. Treasurer.
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. The Treasurer shall sign or countersign such instruments as
require his signature, shall perform all such duties and have all such powers as
are usually incident to such office and/or such other duties and powers as are
properly assigned to him by the Board of Directors, the Chairman of the Board or
the President, and may be required to give bond, payable by the Corporation, for
the faithful performance of his duties in such sum and with such surety as may
be required by the Board of Directors.
Section 6. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more assistant secretaries and
one or more assistant treasurers, or one appointee to both such positions, which
officers shall have such powers and shall perform such duties as are provided in
these By-laws or as may be assigned to them by the Board of Directors, the
Chairman of the Board or the President.
Section 7. Action with Respect to Securities of Other Other Corporations
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other Corporation.
Oct. 21, 1998
<PAGE>
ARTICLE V
STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
60 nor less than ten days before the date of any meeting of stockholders, nor
more than 60 days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held, and, for determining stockholders entitled to receive payment of any
dividend or other distribution or allotment of rights or to exercise any rights
of change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Oct. 21, 1998
<PAGE>
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, by sending such notice by prepaid telegram or mailgram or by
sending such notice by facsimile machine or other electronic transmission. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice is received, if hand delivered, or
dispatched, if delivered through the mail, by telegram or mailgram or by
facsimile machine or other electronic transmission, shall be the time of the
giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Oct. 21, 1998
<PAGE>
Section 3. Reliance upon Books. Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person' s professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these By-laws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE VIII
AMENDMENTS
The By-laws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
Oct. 21, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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