United States
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 Nine Months Ended September 30, 2000
[ ] Transition Reports under 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:
Common Stock, $.01 par value |
Shares Outstanding
at November 14, 2000
1,303,232 |
|
|
NEXT PAGE
PS Financial, Inc.
Form 10-QSB
Nine Months Ended September 30, 2000
Part I - Financial Information
| ITEM 1 - |
FINANCIAL STATEMENTS |
Page |
| |
|
|
| |
Condensed Consolidated Statements of Financial Condition at September 30, 2000 and December 31, 1999 |
3 |
| |
|
|
| |
Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2000 and 1999 |
4 |
| |
|
|
| |
Condensed Consolidated Statements of Stockholders' Equity for the nine months ended
September 30, 2000 and 1999 |
5 |
| |
|
|
| |
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three
months and nine months ended September 30, 2000 and 1999 |
6 |
| |
|
|
| |
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 |
7 |
| |
|
|
| |
Notes to the Condensed Consolidated Financial Statements as of September 30, 2000 |
9 |
| |
|
|
| Item 2 - |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
11 |
| |
|
|
| |
Part II - Other Information |
|
| |
Item 1. Legal Proceedings |
17 |
| |
Item 2. Changes in Securities and Use of Proceeds |
17 |
| |
Item 3. Defaults Upon Senior Securities |
17 |
| |
Item 4. Submission of Matters to a Vote of Security Holders |
17 |
| |
Item 5. Other Information |
17 |
| |
Item 6. Exhibits and Reports on Form 8-K |
17 |
- 2 -
NEXT PAGE
PS FINANCIAL, INC. CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2000 and December 31, 1999
(Dollars in thousands, except per share data)(Unaudited)
| September 30,
2000
|
December 31,
1999
|
| ASSETS | | |
| Cash on hand and in banks |
$386 | $868 |
| Interest-bearing deposit accounts in other financial institutions |
3,130
|
2,437
|
| Total cash and cash equivalents |
3,516 |
3,305 |
| Interest-bearing term deposits in other financial institutions |
153 |
159 |
| Equity securities |
986 |
1,917 |
| Securities available-for-sale |
33,991 |
33,633 |
| Mortgage-backed securities available-for-sale |
4,792 |
5,636 |
| Loans receivable, net |
69,268 |
72,179 |
| Federal Home Loan Bank stock |
1,996 |
1,927 |
| Premises and equipment, net |
499 |
477 |
| Accrued interest receivable |
993 |
1,051 |
| Other assets |
787
|
1,072
|
| Total assets |
$116,981
======= |
$121,356
======= |
| |
|
|
| LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
| Liabilities |
|
|
| Deposits |
$ 63,665 |
$ 63,983 |
| Advances from borrowers for taxes and insurance |
1,036 |
733 |
| Advances from the Federal Home Loan Bank and other borrowings |
36,513 |
37,405 |
| Accrued interest payable and other liabilities |
667
|
363
|
| Total liabilities |
101,881 |
102,484 |
| |
|
|
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 |
21,655 |
21,644 |
| Retained earnings, substantially restricted |
7,263 |
6,862 |
| Unearned ESOP shares |
(907) |
(981) |
| Unearned stock awards |
(635) |
(767) |
| Treasury stock, at cost, 855,914 and 488,681 shares respectively |
(10,948) |
(6,425) |
| Accumulated other comprehensive loss |
(1,350)
|
(1,483)
|
| Total stockholders' equity |
15,100
|
18,872
|
| Total liabilities and stockholders' equity |
$116,981
====== |
$121,356
====== |
See accompanying notes to condensed consolidated financial statements.
- 3 -
NEXT PAGE
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)(Unaudited)
|
Nine Months Ended
September 30, |
Three Months ended
September 30, |
|
2000
|
1999
|
2000
|
1999
|
| Interest Income |
|
|
|
|
| Loans |
$4,291 |
$3,705 |
$1,405 |
$1,328 |
| Securities |
1,673 |
1,390 |
558 |
553 |
| Mortgage-backed securities |
260 |
409 |
83 |
98 |
| Dividend income on equity securities |
75 |
196 |
20 |
63 |
| Other interest earning assets |
246
|
148
|
67
|
49
|
| Total interest income |
6,545 |
5,848 |
2,133 |
2,091 |
| Interest expense |
|
|
|
|
| Deposits |
2,247 |
1,753 |
742 |
591 |
| Federal Home Loan Bank advances and other
borrowings |
1,607 |
1,245 |
565 |
517 |
| Total interest expense |
3,854 |
2,998 |
1,307 |
1,108 |
| Net interest income |
2,691 |
2,850 |
826 |
983 |
| Provision for loan losses |
15 |
-- |
-- |
-- |
| Net interest income after provision for loan losses |
2,676 |
2,850 |
826 |
983 |
| Noninterest income |
|
|
|
|
| Net loss on sale of securities |
(103) |
(57) |
-- |
(75) |
| Gain on sale of other real estate owned |
53 |
-- |
35 |
-- |
| Other operating income |
79 |
60 |
26 |
18 |
| Total noninterest income |
29 |
3 |
61 |
(57) |
| Noninterest expense |
|
|
|
|
| Compensation and benefits |
742 |
691 |
244 |
230 |
| Occupancy and equipment expense |
111 |
98 |
37 |
33 |
| Data processing services |
67 |
110 |
22 |
18 |
| Federal deposit insurance premiums |
10 |
25 |
3 |
9 |
| Professional fees |
191 |
58 |
36 |
9 |
| Other operating expenses |
223
|
201
|
78
|
65
|
| Total noninterest expense |
1,344
|
1,183
|
420
|
364
|
| Income before income tax expense |
1,361 |
1,670 |
467 |
562 |
| Income tax expense |
378
|
455
|
122
|
149
|
| Net income |
$ 983
======== |
$1,215
======== |
$ 345
======== |
$ 413
======== |
| Basic earnings per share |
$ 0.76
======== |
$ 0.76
======== |
$ 0.29
======== |
$ 0.29
======== |
| Diluted earnings per share |
$
======== |
$
======== |
$
======== |
$
======== |
See accompanying notes to condensed consolidated financial statements.
- 4 -
NEXT PAGE
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)(Unaudited)
| Nine Months Ended September 30 |
2000
|
1999
|
| Common Stock |
|
|
| Balance at beginning of year |
$ 22
|
$ 22
|
| Balance at September 30 |
$ 22
|
$ 22
|
| Additional Paid-In Capital |
|
|
| Balance at beginning of year |
$21,644 |
$21,638 |
| ESOP shares released |
11
|
3
|
| Balance at September 30 |
$21,655
|
$21,641
|
| Retained Earnings, Substantially Restricted |
|
|
| Balance at beginning of year |
$ 6,862 |
$ 6,141 |
| Net income for the period |
983 |
1,215 |
| Dividends declared, $0.44 $0.40 per share, respectively |
(582)
|
(658)
|
| Balance at September 30 |
$7,263
|
$6,698
|
| Unearned ESOP Shares |
|
|
| Balance at beginning of year |
$(981) |
$(1,077) |
| ESOP shares released |
74
|
72
|
| Balance at September 30 |
$(907)
|
$(1,005)
|
| Unearned Stock Awards |
|
|
| Balance at beginning of year |
$(767) |
$(941) |
| Stock awards earned |
132
|
130
|
| Balance at September 30 |
$(635)
|
$(811)
|
| Treasury Stock |
|
|
| Balance at beginning of year |
(6,425) |
(4,759) |
| Purchases of treasury stock |
(4,523)
|
(1,666)
|
| Balance at September 30 |
$(10,948)
|
$(6,425)
|
| Accumulated Other Comprehensive Income |
|
|
| Balance at beginning of year |
$(1,483) |
$ 2 |
| Change in unrealized loss on securities available-for-sale net of
tax |
133 |
(1,161) |
| Balance at September 30 |
$(1,350)
|
$(1,159)
|
| Total Stockholders' Equity |
$15,100
|
$18,961
|
See accompanying notes to condensed consolidated financial statements.
- 5 -
NEXT PAGE
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in thousands)(Unaudited)
|
Nine Months Ended
September 30, |
Three Months ended
September 30, |
|
2000
|
1999
|
2000
|
1999
|
| Net income |
$ 983 |
$1,215 |
$ 345 |
$ 443 |
| Other Comprehensive Income: |
|
|
|
|
| Unrealized gains (losses) on available-for-sale securities |
481 |
(1,890) |
914 |
(132) |
| Less reclassification adjustments for losses (gains) recorded in income |
103 |
(18) |
45 |
(18) |
| Tax effect |
(245)
|
711
|
(287)
|
(175)
|
| Other comprehensive loss |
133
|
(1,161)
|
582
|
(289)
|
| Total comprehensive income (loss) |
$1,116
========= |
$ 54
========= |
$ 927
========= |
$ 154
========= |
See accompanying notes to condensed consolidated financial statements.
- 6 -
NEXT PAGE
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)(Unaudited)
|
Nine months ended September 30, |
|
2000
|
1999
|
| Cash flows from operating activities |
|
|
|
Net income |
$983 |
$1,215 |
|
Adjustments to reconcile net income to net cash from operating activities |
|
|
|
|
Provision for loan losses |
15 |
- |
|
|
Purchase of Federal Home Loan Bank Stock |
(69) |
- |
|
|
Depreciation |
59 |
41 |
|
|
Amortization of premiums and discounts on investment and mortgage-backed
securities, net |
(61) |
(19) |
|
|
Net (gain) loss on sales of securities available-for-sale |
103 |
57 |
|
|
RRP expense |
132 |
130 |
|
|
ESOP expense |
85 |
75 |
|
|
Change in |
|
|
|
|
|
Deferred loan origination fees |
(37) |
(61) |
|
|
|
Accrued interest receivable and other assets |
99 |
(1,044) |
|
|
Other liabilities and deferred income taxes |
304 |
(877) |
|
|
|
Net cash provided by (used in) operating activities |
1,613 |
(483) |
| Cash flows from investing activities |
|
|
|
|
Proceeds from repayment of securities available-for-sale |
842 |
2,656 |
|
Calls on equity securities available-for-sale |
910 |
588 |
|
Proceeds from sale of equity securities available-for-sale |
- |
92 |
|
Proceeds from sale of securities available-for-sale |
|
2,298 |
|
Purchase of securities available-for-sale |
- |
(16,926) |
|
Proceeds from sale of mortgage-backed securities available-for-sale |
- |
3,373 |
|
Purchase of Federal Home Loan Bank Stock |
- |
(608) |
|
Proceeds from maturities of securities available-for-sale |
- |
3,500 |
|
Net decrease in interest-bearing term deposits in other financial institutions |
6 |
0 |
|
|
Net change in loans |
2,933 |
(11,221) |
|
Capital expenditures, net |
(81) |
(98) |
|
|
Net cash provide by (used in) investing activities |
4,610 |
(16,346) |
| Cash flows from financing activities |
|
|
|
Net increase (decrease) in deposits |
(318) |
1,032 |
|
Dividends paid |
(582) |
(658) |
|
Proceeds from FHLB and other borrowings |
23,451 |
21,630 |
|
Repayment of FHLB and other borrowings |
(24,343) |
(7,451) |
|
Purchase of treasury stock |
(4,523) |
(1,666) |
|
|
Net increase in advance payments by borrowers for insurance and taxes |
303 |
483 |
|
|
|
Net cash provided by (used in) financing activities |
(6,012) |
13,370 |
| Change in cash and cash equivalents |
211 |
(3,459) |
| Cash and cash equivalents at beginning of period |
3,305 |
4,237 |
| Cash and cash equivalents at end of period |
$3,516 |
$778 |
| Supplemental disclosure of cash flow information |
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
Interest |
$3,864 |
$3,005 |
|
|
|
Income taxes |
490 |
- |
| Supplemental disclosure of noncash investing activity |
|
|
|
|
Amount due broker at September 30 for purchase of securities available-for-sale |
$- |
$987 |
See accompanying notes to condensed consolidated financial statements.
- 7 -
NEXT PAGE
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
Notes to Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed 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 condensed 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, 2000 and
the results of its operations for the three month and nine month periods ended September 30, 2000 and 1999. The results for the
interim periods are not necessarily indicative of the results to be expected for the entire fiscal year.
The condensed financial statements should be read in conjunction with the audited financial statements and accompanying notes (or
"notes thereto") of the Company for the years ended December 31, 1999, 1998 and 1997.
NOTE 2 - 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, 2000 and 1999 is presented below.
|
Nine Months Ended
September 30,
|
Three Months Ended
September 30,
|
|
2000
|
1999
|
2000
|
1999
|
| Basic Earnings Per Share |
|
|
|
|
| Net income |
$983,420 |
$1,215,471 |
$345,277 |
$411,487 |
| Weighted average common shares outstanding |
1,302,170 |
1,607,423 |
1,189,525 |
1,577,928 |
| Basic Earnings Per Share |
$0.76 |
$0.76 |
$0.29 |
$0.26 |
| Earnings Per Share Assuming Dilution |
|
|
|
|
| Net income |
$983,420 |
$1,215,471 |
$345,277 |
$411,487 |
| Weighted average common shares outstanding |
1,302,170 |
1,607,423 |
1,189,525 |
1,577,928 |
| Add dilutive effect of assumed exercises |
|
|
|
|
| Incentive stock options |
5,982 |
- |
3,642 |
- |
| Stock awards |
- |
- |
- |
- |
Weighted average common and dilutive potential
common shares outstanding |
1,308,152 |
1,607,423 |
1,193,167 |
1,577,928 |
| Diluted Earnings Per Share |
$0.75 |
$0.76 |
$0.29 |
$0.26 |
- 8 -
NEXT PAGE
All of the outstanding options at September 30, 2000 and 1999 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.
NOTE 3 - MODIFIED DUTCH TENDER OFFER
On March 1, 2000, the Company offered to purchase up to 333,858 shares of its common stock through a modified dutch auction
tender offer. Upon expiration of the offer on March 29, 2000, the Company agreed to purchase 367,233 shares of its
common stock at a price of $12.00 per share. Final payment for these shares took place on April 7, 2000. Funding for the
purchase consisted of $3.5 million of cash, $577,000 on a variable rate loan with a current rate of 7.75%, and $300,000 on
a variable rate line of credit with a current rate of 8.82%.
NOTE 4 - OTHER MATTERS
At the 2000 annual meeting held on May 3, 2000, shareholders approved a stockholder proposal relating to the engagement of
an investment banker to explore the Company's strategic options, including a sale of the Company, details of which are
disclosed in the proxy statement to the 2000 annual meeting.
- 9 -
NEXT PAGE
Comparison of Financial Condition at September 30, 2000 and December 31, 1999
Total assets decreased $4.4 million to $117.0 million at September 30, 2000 from $121.4 million at December 31, 1999, due
mainly to decreases in net loans receivable of $2.9 million and securities available-for-sale of $1.4 million.
The Company's net loans receivable decreased by $2.9 million to $69.3 million at September 30, 2000 from $72.2 million at
December 31, 1999 as a result of lower demand due to rising mortgage rates. Securities available-for-sale decreased by
$1.4 million to $39.8 million at September 30, 2000 from $41.2 million at December 31, 1999, as maturities of equity
securities and principal repayments from mortgage backed securities were used to pay for treasury shares tendered in the
dutch auction tender offer. Cash and cash equivalents increased by $200,000 to $3.5 million at September 30, 2000 from
$3.3 million at December 31, 1999.
Total liabilities decreased $600,000 to $101.9 million at September 30, 2000 from $102.5 million at December 31, 1999, due
mainly to a decrease in Advances from the Federal Home Loan Bank and other borrowings of $900,000. During the period,
deposits decreased $300,000 to $63.7 million at September 30, 2000 from $64.0 million at December 31, 1999 as a result
of interest sensitive deposits seeking higher yields.
Stockholders' equity decreased $3.8 million to $15.1 million at September 30, 2000 from $18.9 million at December 31, 1999,
due primarily to the purchase of $4.4 million of treasury stock in the dutch auction tender offer, and payment of regular
dividends totaling $582,000, partially offset by net income of $983,000 and a $133,000 decrease in the unrealized loss on
securities available-for-sale,
- 10 -
NEXT PAGE
Comparison of Operating Results for the Three Months Ended September 30, 2000 and September 30, 1999.
General
Net earnings for the three months ended September 30, 2000 were $345,000, a decrease of $68,000, or 16.5%, from net earnings
of $413,000 for the three months ended September 30, 1999. The decrease in net earnings is primarily due to a decrease
in the ratio of average interest earning assets to average interest bearing liabilities as a result of the completion of the
Company's modified dutch auction tender offer in which interest earning assets and additional debt were used to fund the
purchase. Also contributing to the decrease in earnings was the loss on sale of securities, as issuers exercised call options
before maturity and an increase in professional fees due to the proxy contest at the annual meeting.
Interest Income
Interest income for the three months ended September 30, 2000 was $2.1 million compared to $2.1 million for the three months
ended September 30, 1999.
Interest Expense
Interest expense for the three months ended September 30, 2000 was $1.3 million compared to $1.1 million for the three months
ended September 30, 1999, an increase of $200,000, or 18.2%. The increase in interest expense was primarily due to the
increased average balance of interest-bearing liabilities during the three months ended September 30, 2000 compared to
the three months ended September 30, 1999, as well as an increase in the Company's cost of funds due to an increase in
short term deposit rates.
Provision for Loan Losses
The Bank's provision for loan losses was zero for the three months ended September 30, 2000 and 1999. At September 30,
2000, the Bank's allowance for loan losses totaled $281,000, 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 September 30, 2000 and 1999
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, delinquent greater than 30 days, at September 30, 2000 were $4.2 million, an increase of $400,000, or
10.5%, compared to $3.8 million at September 30, 1999. Included in the past due loan balances are non-accruing loans at
September 30, 2000 which totaled $662,000 compared to $475,000 at September 30, 1999.
Noninterest Income
Noninterest income for the three months ended September 30, 2000 was $61,000 compared to a loss of $57,000 for the three
months ended September 30, 1999. The increase was primarily due to a net $75,000 loss on the sale of securities in 1999
and a $43,000 increase in other noninterest income, including $35,000 from the gain on sale of foreclosed assets.
- 11 -
NEXT PAGE
Noninterest Expense
Noninterest expense was $420,000 for the three months ended September 30, 2000 compared to $364,000 for the three months
ended September 30, 1999, an increase of $56,000. The increase was primarily a result of a $27,000 increase in
professional fees related to the proxy contest at the annual meeting and a $14,000 increase in compensation and benefits.
Income Taxes
Income taxes were $122,000 for the three months ended September 30, 2000 compared to $149,000 for the three months ended
September 30, 1999, a decrease of $27,000, or 18.1%. The decrease was primarily the result of a $95,000 decrease in pretax
earnings. The effective tax rate was 26.1% and 26.5% for 2000 and 1999, respectively. The difference between the effective rate and the statutory rate primarily results from the investment in tax exempt securities.
Comparison of Operating Results for the Nine Months Ended September 30, 2000 and September 30, 1999.
General
Net earnings for the nine months ended September 30, 2000 were $983,000, a decrease of $217,000, or 18.1%, from net earnings
of $1.2 million for the nine months ended September 30, 1999. The decrease in net earnings is primarily due to a $159,000
decrease in net interest income, a $133,000 increase in professional fees and a $103,000 net loss on the sale of securities,
partially offset by a $43,000 decrease in data processing fees.
Interest Income
Interest income for the nine months ended September 30, 2000 was $6.5 million compared to $5.8 million for the nine months
ended September 30, 1999, an increase of $700,000, or 12.1%. The increase in interest income was the result of an increase
in the average balance of interest-earning assets primarily due to an increase in the average balance of loans receivable.
Interest Expense
Interest expense for the nine months ended September 30, 2000 was $3.9 million compared to $3.0 million for the nine months
ended September 30, 1999, an increase of $900,000, or 30.0%. The increase in interest expense was primarily due to the
increased average balance of interest-bearing liabilities during the nine months ended September 30, 2000 compared to the
nine months ended September 30, 1999, as well as an increase in the Company's cost of funds due to an increase in short
term deposit rates.
Provision for Loan Losses
The Bank's provision for loan losses was $15,000 for the nine months ended September 30, 2000 compared to zero for the nine
months ended September 30, 1999. At September 30, 2000, the Bank's allowance for loan losses totaled $281,000, 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 nine months ended September 30, 1999 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.
- 12 -
NEXT PAGE
Noninterest Income
Noninterest income for the nine months ended September 30, 2000 was $29,000 compared to $3,000 for the nine months ended
September 30, 1999. The increase was primarily due to a $53,000 from the gain on sale of foreclosed assets, partially offset
by an increase of $46,000 on the loss on sale of securities.
Noninterest Expense
Noninterest expense was $1.3 million for the nine months ended September 30, 2000 compared to $1.2 milion for the nine
months ended September 30, 1999, an increase of $100,000. The increase was primarily a result of a $51,000 increase in
compensation expense and a $133,000 increase in professional fees related to the proxy contest at the annual meeting,
partially offset by a $43,000 decrease in data processing expenses. Data processing expense was higher in 1999 due to a
system conversion that was completed in the first quarter of 1999.
Income Taxes
Income taxes were $378,000 for the nine months ended September 30, 2000 compared to $455,000 for the nine months ended
September 30, 1999, a decrease of $77,000, or 16.9%. The decrease was primarily a result of a decrease in pretax earnings. The effective tax rate ws 27.8% and 27.2% for 2000 and 1999, respectively. The difference between the effective rate and the
statutory rate primarily results from the investment in tax exempt securities.
.
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.
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 decreased during the twelve months ended June 30, 2000 due to a decrease in the
remaining term of the securities portfolio. 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, 2000, $52.5 million, or 95.2% 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, 2000, adjustable rate mortgage-backed securities totaled $4.8 million
which represented 4.2% 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.
- 13 -
NEXT PAGE
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 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, 2000, 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).
Change in
Interest
Rates
(Basis Points) |
Estimated
NPV
Amount |
Ratio of NPV
to
Total Assets |
Estimated
Increase
(Decrease) in
NPV |
| +300 |
5,428 |
5.20 |
(9,513) |
(64) |
|
| +200 |
8,554 |
7.91 |
(6,387) |
(43) |
|
| +100 |
11,722 |
10.46 |
(3,220) |
(22) |
|
| --- |
14,941 |
12.88 |
--- |
--- |
|
| -100 |
17,590 |
14.73 |
2,649 |
18 |
|
| -200 |
18,980 |
15.61 |
4,039 |
27 |
|
| -300 |
20,669 |
16.66 |
5,727 |
38 |
|
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
- 14 -
NEXT PAGE
Impact of New Accounting Standards
In June 1998, the Financial Accounting Standards Board (the FASB) issued Statement No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS 133), subsequently amended by SFAS No. 137 and 138, which the company is required to adopt
effective January 1, 2001. SFAS 133 will require the company to record all derivatives on the balance sheet at fair value. Changes in derivative fair values will either be recognized in earnings as offsets to the changes in fair value of related hedged
assets, liabilities and firm commitments or, for forecasted transactions, deferred and recorded as a component of other stockholders' equity until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging
derivative's change in fair value will be immediately recognized in earnings. The impact of SFAS 133 on the company's financial statements will depend on a variety of factors, including future interpretative guidance from the FASB, the future level of
forecasted and actual foreign currency transactions, the extent of the company's hedging activities, the types of hedging instruments used and the effectiveness of such instruments. However, the company does not believe the effect of adopting SFAS 133
will be material to its financial position.
I
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.
- 15 -
NEXT PAGE
PART II. OTHER INFORMATION
| Item 1. |
Legal Proceedings
None |
| Item 2. |
Changes in Securities and use of Proceeds
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 |
- 16 -
NEXT 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, 2000 |
By: /s/Kimberly Rooney |
|
Kimberly Rooney |
|
Chief Executive Officer |
|
(Principal Executive Officer) |
|
|
| Date: November 14, 2000 |
By: /s/Jeffrey Przybyl |
|
Jeffrey Przybyl |
|
Chief Financial Officer |
|
(Principal Financial and Accounting Officer) |
- 17 -
