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 Six Months Ended June 30, 1999
Commission File Number 0-28864
PS Financial, Inc.
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(Exact name of the registrant as specified in its charter)
Delaware 36-4101473
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(State of incorporation) (I.R.S. Employer Identification Number)
4800 South Pulaski Road, Chicago, Illinois 60632
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(Address of principal executive offices)
(773) 376-3800
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(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 August 13, 1999
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Common Stock, $.01 par value 1,726,384
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PS Financial, Inc.
Form 10-QSB
Six Months Ended June 30, 1999
Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS Page
Condensed Consolidated Statements of Financial
Condition at June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income for the
three months and six months ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the six months ended June 30, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 6
Notes to the Condensed Consolidated Financial Statements
as of June 30, 1999 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
2
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PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1999 and December 31, 1998
(Dollars in thousands, expect per share data)
June 30, December 31,
1999 1998
--------- ------------
ASSETS
Cash on hand and in banks $ 488 $ 448
Interest-bearing deposit accounts
in other financial institutions 313 3,789
Total cash and cash equivalents 801 4,237
Interest-bearing term deposits in
other financial institutions 159 159
Equity securities 3,192 3,278
Securities available-for-sale 34,754 24,318
Mortgage-backed securities available-for-sale 7,062 11,354
Loans receivable, net 62,110 56,822
Federal Home Loan Bank stock 1,586 1,319
Premises and equipment, net 474 426
Accrued interest receivable 954 803
Other assets 769 68
Total assets $ 111,861 $ 102,784
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 57,526 $ 55,429
Advances from borrowers for taxes and insurance 695 578
Advances from the Federal Home Loan Bank 31,627 23,764
Accrued interest payable and other liabilities 2,010 1,987
Total liabilities 91,858 81,758
Stockholders' Equity
Common stock $0.01 par value
per share, 2,500,000
shares authorized; 2,182,125
issued and outstanding 22 22
Additional paid-in capital 21,638 21,638
Retained earnings, substantially restricted 6,511 6,141
Unearned ESOP shares (1,029) (1,077)
Unearned stock awards (855) (941)
Treasury stock, at cost, 425,741 and
338,737 shares respectively (5,412) (4,759)
Accumulated other comprehensive income (872) 2
Total stockholders' equity 20,003 21,026
Total liabilities and stockholders' equity $ 111,861 $ 102,784
3
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PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months ended
June 30, June 30,
---------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans $ 2,377 $ 1,851 $ 1,228 $ 978
Securities 837 963 491 424
Mortgage-backed securities 311 302 149 143
Dividend income on equity securities 133 - 66 -
Other 99 77 45 44
Total interest income 3,757 3,193 1,979 1,589
Interest expense
Deposits 1,162 864 588 433
Other borrowings 728 479 402 255
Total interest expense 1,890 1,343 990 688
Net interest income 1,867 1,850 989 901
Provision for loan losses 0 0 0 0
Net interest income after provision
for loan losses 1,867 1,850 989 901
Noninterest income
Net gain on sale of securities 18 23 18 0
Other 42 46 22 34
Total noninterest income 60 69 40 34
Noninterest expense
Compensation and benefits 461 446 240 218
Occupancy and equipment expense 65 60 34 32
Data processing 92 30 14 15
Federal insurance premiums 16 13 8 6
Professional fees 49 50 36 33
Other 136 124 75 74
Total noninterest expense 819 723 407 378
Income before income tax expense 1,108 1,196 622 557
Income tax expense 306 424 179 199
Net income $ 802 $ 772 $ 443 $ 358
Earnings per share $ 0.48 $ 0.41 $ 0.27 $ 0.19
Average shares outstanding 1,661,724 1,867,852 1,652,596 1,875,819
</TABLE>
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<TABLE>
<CAPTION>
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
Six Months Ended June 30 1999 1998
<S> <C> <C> <C> <C>
Common Stock
Balance at beginning of year $ 22 $ 22
Balance at June 30 $ 22 $ 22
Additional Paid-In Capital
Balance at beginning of year $ 21,638 $ 21,602
Change in additional paid in capital 0 26
Balance at June 30 $ 21,638 $ 21,628
Retained Earnings, Substantially Restricted
Balance at beginning of year $ 6,141 $ 5,518
Net income for the period 802 $ 802 772 $772
Dividends declared (432) (453)
Balance at June 30 $ 6,511 $ 5,837
Unearned ESOP Shares
Balance at beginning of year $ (1,077) $ (1,173)
Change in unearned ESOP shares 48 50
Balance at June 30 $ (1,029) $ (1,123)
Unearned Stock Awards
Balance at beginning of year $ (941) $ (1,117)
Change in stock awards 86 89
Balance at June 30 $ (855) $ (1,028)
Treasury Stock
Balance at beginning of year (4,759) (1,896)
Change in treasury stock (653) (794)
Balance at June 30 $ (5,412) $ (2,690)
Accumulated Other Comprehensive Income
Balance at beginning of year $ 2 $ 153
Change in unrealized (loss) on securities
available-for-sale net of tax (874) (874) (36) (36)
Balance at June 30 $ (872) $ 117
Total Stockholders' Equity $ 20,003 $ 22,763
Comprehensive Income / (Loss) $(72) $736
</TABLE>
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PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------
1999 1998
---------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 802 $ 772
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 28 25
Amortization of premiums and discounts on
investment and mortgage-backed securities, net (7) 13
Net gain on sales of securities available-for-sale (18) (23)
Stock award expense 86 89
ESOP expense 48 71
Change in
Deferred loan origination fees (47) (41)
Accrued interest receivable and other assets (852) 722
Other liabilities and deferred income taxes (640) 129
Net cash provided by operating activities (600) 1,757
Cash flows from investing activities
Proceeds from sale of securities available-for-sale 0 3,500
Proceeds from sale of mortgage-backed securities available-for-sale
2,028 1,102
Proceeds from sale of equity securities available-for-sale 92 0
Purchase of Federal Home Loan Bank Stock (267) (238)
Proceeds from repayment of securities available-for-sale 2,097 1,381
Proceeds from maturities of securities available-for-sale 3,500 12,000
Purchase of securities available-for-sale (13,961) (6,996)
Purchase of mortgage-backed securities available-for-sale 0 (3,014)
Purchase of equity securities available-for-sale 0 (268)
Net decrease in interest-bearing term deposits in other financial institutions
0 2
Net change in loans (5,241) (10,411)
Capital expenditures, net (76) (14)
Net cash used in investing activities (11,828) (2,956)
Cash flows from financing activities
Net increase (decrease) in deposits 2,097 (30)
Dividends Paid (432) (8,022)
Borrowings from FHLB 7,863 4,800
Purchase of Treasury Stock (653) (794)
Net increase in advance payments by borrowers for insurance and taxes
117 121
Net cash provided by (used in) financing activities 8,992 (3,925)
Decrease in cash and cash equivalents (3,436) (5,124)
Cash and cash equivalents at beginning of period 4,237 6,290
Cash and cash equivalents at end of period $ 801 $ 1,166
</TABLE>
6
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<TABLE>
<S> <C> <C>
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 1,848 $ 1,310
Income taxes - 645
Supplemental disclosure of noncash investing activity
Amount due broker at June 30 for purchase
of securities available-for-sale $ 1,200 $ -
</TABLE>
7
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PS FINANCIAL, INC.
CHICAGO, ILLINOIS
Notes to Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
June 30, 1999 and December 31, 1998, and the results of its operations for the
three month and six month periods then ended June 30, 1999 and 1998.
NOTE 2 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators for earnings per common
share computations for the three months and six months ended June 30, 1999 and
1998 is presented below.
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
1999 1998 1999 1998
----------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Basic Earnings Per Share
Net income $ 801,984 $ 771,565 $ 443,007 $ 357,647
Weighted average common shares outstanding 1,661,724 1,867,852 1,652,596 1,875,819
Basic Earnings Per Share $ 0.48 $ 0.41 $ 0.27 $ 0.19
Earnings Per Share Assuming Dilution
Net income $ 801,984 $ 771,565 $ 443,007 $ 357,647
Weighted average common shares outstanding 1,661,724 1,867,852 1,652,596 1,875,819
Add dilutive effect of assumed exercises
Incentive stock options - 37,169 - 37,169
Stock awards - - - -
Weighted average common and dilutive
potential common shares outstanding 1,661,724 1,905,021 1,652,596 1,912,988
Diluted Earnings Per Share $ 0.48 $ 0.41 $ 0.27 $ 0.19
</TABLE>
All of the outstanding options at June 30, 1999 and 1998 relate to options
granted in 1997 at an exercise price of $14.00 In January 1998, the Company paid
a special dividend which resulted in a change in equity structure. This event
allowed the Company to modify the stock option agreements to adjust the exercise
price to $11.02, which was an adjustment in direct proportion to the decrease in
exercise price as compared to market value as a result of the change in equity
structure.
8
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Comparison of Financial Condition at June 30, 1999 and December 31, 1998
Total assets increased $9.1 million from $102.8 million at December 31, 1998 to
$111.9 million at June 30, 1999 due mainly to an increase in securities
available for sale of $6.0 million and an increase in net loans receivable of
$5.3 million, partially offset by a decrease in cash and cash equivalents of
$3.4 million. The increase in total assets was primarily funded by an increase
in FHLB advances of $7.8 million and an increase in deposits of $2.1 million.
The Company's net loans receivable increased by $5.3 million from $56.8 million
at December 31, 1998 to $62.1 million at June 30, 1999. In addition, securities
available-for-sale increased by $10.5 million, from $24.3 million at December
31, 1998 to $34.8 million at June 30, 1999, as lower yielding assets were
replaced by higher yielding assets. These increases were mainly offset by a
decrease in cash and cash equivalents of $3.4 million, from $4.2 million at
December 31, 1998 to $801,000 at June 30, 1999, as well as a decrease in
mortgage backed securities of $4.3 million from $11.4 million at December 31,
1998 to $7.1 million at June 30, 1999.
Total liabilities at June 30, 1999 were $91.9 million compared to $81.8 million
at December 31, 1998, an increase of $10.1 million. The Company's deposits
increased by $2.1 million, from $55.4 million at December 31, 1998 to $57.5
million at June 30, 1999. Advances from the Federal Home Loan Bank also
increased $7.8 million, from $23.8 million at December 31, 1998 to $31.6 million
at June 30, 1999. These increases were the result of leveraging the Company's
high capital ratio and provide additional liquidity to fund increased loan
demand.
Equity at June 30, 1999 was $20.0 million compared to $21.0 million at December
31, 1998, a decrease of $1.0 million, or 4.8%, due primarily to net earnings of
$802,000 offset by a $874,000 decrease in the unrealized gain on securities
available-for-sale, payment of regular dividends totaling $432,000, and treasury
stock purchased at a cost of $653,000.
Comparison of Operating Results for the Three Months Ended June 30, 1999 and
June 30, 1998.
General
Net earnings for the three months ended June 30, 1999 were $443,000, an increase
of $85,000, or 23.7%, from net earnings of $358,000 for the three months ended
June 30, 1998. The increase in net earnings is primarily due to the increase in
net interest income as a result of an increase in average interest earning
assets.
Interest Income
Interest income for the three months ended June 30, 1999 was $2.0 million
compared to $1.6 million for the three months ended June 30, 1998, an increase
of $390,000, or 24.4%. The increase in interest income was the result of a $21.8
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 June 30, 1999. 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 three months ended June 30, 1999 was $990,000 compared
to $688,000 for the three months ended June 30, 1998, an increase of $302,000,
or 43.9%. The increase in interest expense was primarily due to an increase of
$10.4 million in average balance of FHLB advances and an increase in the average
balance of the Bank's deposits of $16.3 million, in an attempt to better
leverage the Company's high capital ratio and provide additional liquidity to
fund increased loan demand. The increase in deposits and advances was partially
offset by a lower cost of funds, as rates declined in general over the twelve
month period.
9
<PAGE>
Provision for Loan Losses
The Bank's provision for loan losses was zero for the three months ended June
30, 1999 and 1998. At June 30, 1999, the Bank's allowance for loan losses
totaled $266,000, or 0.4% of total loans. The amount of the provision and
allowance for 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 June 30, 1999 is 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 June 30, 1999 increased to $1.0
million compared to $758,000 at December 31, 1998. Non-accruing loans at June
30, 1999 totaled $258,000 compared to $777,000 at December 31, 1998.
Noninterest Income
Noninterest income for the three months ended June 30, 1999 was $40,000 compared
to $34,000 for the three months ended June 30, 1998. The increase was primarily
due to a net gain of $18,000 on the sale of securities in 1999, partially offset
by a decrease of $12,000 in other noninterest income as a result of a $16,000
gain on the sale of a company vehicle in 1998.
Noninterest Expense
Noninterest expense was $407,000 for the three months ended June 30, 1999
compared to $378,000 for the three months ended June 30, 1998, an increase of
$29,000. The increase was primarily a result of a $22,000 increase in
compensation and benefits.
Income Taxes
Income taxes were $179,000 for the three months ended June 30, 1999 compared to
$199,000 for the three months ended June 30, 1998, a decrease of $20,000, or
10.1%. The decrease was primarily a result of an increase in earning from
municipal securities which are tax free for federal tax purposes.
Comparison of Operating Results for the Six Months Ended June 30, 1999 and June
30, 1998.
General
Net earnings for the six months ended June 30, 1999 were $802,000, an increase
of $30,000, or 3.9%, from net earnings of $772,000 for the six months ended June
30, 1998. The increase in net earnings is primarily due to a decrease in the
income tax expense, due to an increase in earnings from municipal securities
which are tax free for federal tax purposes, partially offset by an increase in
noninterest expense.
Interest Income
Interest income for the six months ended June 30, 1999 was $3.8 million compared
to $3.2 million for the six months ended June 30, 1998, an increase of $600,000,
or 18.8%. The increase in interest income was the result of a $21.8 million
increase in the average balance of interest-earning assets primarily due to an
increase in the average balance of loans receivable and securities available for
sale in an attempt to better leverage the Company's high ratio. The increase in
10
<PAGE>
the average balance was partially offset by a decrease in yield on interest
earning assets the six months ended June 30, 1999. The decrease in asset 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 six months ended June 30, 1999 was $1.9 million
compared to $1.3 million for the six months ended June 30, 1998, an increase of
$600,000, or 46.2%. The increase in interest expense was primarily due to a
$15.7 million increase in the average balance of deposits, as well as a $9.8
million increase in average balance of FHLB advances, used in an attempt to
better leverage the Company's capital ratio and to fund increased loan demand..
The $26.8 million increase in average interest bearing liabilities was partially
offset by a decrease in the average cost of funds. The decrease in the cost of
funds was primarily due to a decline in interest rates in general since June,
1998.
Provision for Loan Losses
The Bank's provision for loan losses was zero for the six months ended June 30,
1999 and 1998. At June 30, 1999, the Bank's allowance for loan losses totaled
$266,000, or 0.4% of total loans. The amount of the provision and allowance for
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 six months ended June 30, 1999 is 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.
Noninterest Income
Noninterest income for the six months ended June 30, 1999 was $60,000 compared
to $69,000 for the six months ended June 30, 1998. The decrease was primarily a
result of a net gain of $16,000 on the sale of a company vehicle in 1998.
Noninterest Expense
Noninterest expense was $819,000 for the six months ended June 30, 1999 compared
to $723,000 for the six months ended June 30, 1998, an increase of $96,000. The
increase was primarily a result of a $62,000 increase in data processing expense
due to the Company's decision to change data processing vendors, a $15,000
increase in compensation and benefits, and an increase of $12,000 in other
expenses, primarily used to grow the loan portfolio.
Income Taxes
Income taxes were $306,000 for the six months ended June 30, 1999 compared to
$424,000 for the six months ended June 30, 1998, a decrease of $118,000, or
27.8%. The decrease was primarily a result of an increase in earnings from
municipal securities which are tax free for federal income tax purposes.
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 reviews 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.
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<PAGE>
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 interest rate risk increased during the twelve months ended June
30, 1999 due to the large increase in fixed rate loans, funded by fixed rate
time deposits and FHLB advances. However, 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
June 30, 1999, $44.5 million or 93.1% 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 June 30, 1999, adjustable rate mortgage-backed securities
totaled $5.8 million which represented 4.9% 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. 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.
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. Investments generally include
interest-bearing deposits in other federally insured financial institutions,
FHLB stock, U.S. Government securities and municipal securities.
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.
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.
12
<PAGE>
The following table sets forth, at March 31, 1999, 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 (+/-300 basis
points, measured in 100 basis point increments).
Estimated Increase
Change in Interest Estimated Ratio of NPV (Decrease) in NPV
Rates NPV to ------------------
(Basis Points) Amount Total Assets Amount Percent
- ------------------- --------- ------------- --------- -------
+300 10,050 10.7 (8,816) (47)
+200 13,008 13.3 (5,858) (31)
+100 15,973 15.8 (2,894) (15)
--- 18,866 18.0 --- ---
-100 22,109 20.3 3,243 17
-200 25,688 22.7 6,821 36
-300 29,656 25.1 10,790 57
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
Impact of New Accounting Standards
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.
Effective January 1, 1999, Statement of Financial Standards (SFAS) No. 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise", became
effective. SFAS No. 134 allows entities with mortgage banking operations which
convert pools of mortgages into securities to classify these securities as
available-for-sale, trading, or held-to-maturity, instead of the current
requirement to classify these pools as trading. This standard is not expected to
have a material effect on the Company.
13
<PAGE>
American Institute of Certified Public Accountants Statement of Position 98-5,
effective in 1999, requires all start-up, pre-opening, and organization costs to
be expensed as incurred. Any such costs previously capitalized for financial
reporting purposes must be written off to income at the start of the year.
Statement of Position 98-5 is not expected to have a material impact 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 Company 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 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" is scheduled for completion by third 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
monthly basis 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 Company'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 Company's operations. The Company does not have
sufficient information accumulated from customers of the Company 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 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.
14
<PAGE>
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
The Company's annual meeting of stockholders was held on April 28, 1999. At the
meeting, Sylvester J Ptak and Kimberly P Rooney were elected for terms to
expire in 2002. The votes cast for and withheld from each such director were as
follows:
Director For Withheld/Abstain Broker Non-Votes
Sylvester J Ptak 1,525,367 123,094 0
Kimberly P Rooney 1,527,367 121,094 0
Also at the annual meeting, a proposal to ratify the
appointment of Crowe, Chizek and Company, LLP as independent auditors for the
fiscal year ending December 31, 1999 was approved. The votes cast for and
against this proposal, and the number of abstentions and broker non-votes with
respect to the proposal, was as follows
For Against Abstentions Broker Non-Votes
1,633,450 7,711 7,300 0
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
a. None
b. None
15
<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: August 14, 1999 By: /s/Kimberly Rooney
------------------------
Kimberly Rooney
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1999 By: /s/Jeffrey Przybyl
------------------------
Jeffrey Przybyl
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT FILED ON FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 31, 1999 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-31-1999
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0
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