United StatesSecurities and Exchange CommissionWashington, D.C. 20549FORM 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, 2001| [ ] | Transition Reports under Section 13 or 15(d) Of The Securities Exchange Act of 1934 |
Commission File Number 0-28864PS Financial, Inc.
(Exact name of the registrant as specified in its charter)Delaware
(State of incorporation) | | 36-4101473
(I.R.S. Employer Identification Number) |
4800South 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 August 14, 2001
|
| Common Stock, $.01 par value | | 1,255,067 |
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PS Financial, Inc.Form 10-QSBSix Months Ended June 30, 2001Part I - Financial Information| ITEM 1 - | FINANCIAL STATEMENTS | Page |
| Condensed Consolidated Statements of Financial Condition at
June 30, 2001 and December 31, 2000 | 3 |
| Condensed Consolidated Statements of Income for the
three months and six months ended June 30, 2001 and 2000 | 4 |
| Condensed Consolidated Statements of Stockholders' Equity for
the six months ended June 30, 2001 and 2000 | 5 |
| Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000 | 6 |
| Notes to the Condensed Consolidated Financial Statements
as of June 30, 2001 | 7 |
| | |
| ITEM 2 - | MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 9 |
Part II - Other Information | Item 1. Legal Proceedings | 16 |
| Item 2. Changes in Securities and use of Proceeds | 16 |
| Item 3. Defaults Upon Senior Securities | 16 |
| Item 4. Submission of Matters to a Vote of Security Holders | 16 |
| Item 5. Other Information | 16 |
| Item 6. Exhibits and Reports on Form 8-K | 16 |
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PS FINANCIAL, INC.CHICAGO ILLINOISCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONJune 30, 2001 and December 31, 2000(Dollars in thousands, except share data)(Unaudited)
| June 30,
2001
| December 31,
2000
|
| ASSETS | | |
| Cash on hand and in banks | $ 357 | $ 333 |
| Interest-bearing deposit accounts in other financial institutions | 3,326
| 1,008
|
| Total cash and cash equivalents | 3,683 | 1,341 |
| Interest-bearing term deposits in other financial institutions | 154 | 153 |
| Equity securities available-for-sale | 12,287 | 1,012 |
| Securities available-for-sale | 16,705 | 35,076 |
| Mortgage-backed securities available-for-sale | 4,349 | 4,607 |
| Loans receivable, net | 64,150 | 67,862 |
| Federal Home Loan Bank stock | 2,111 | 2,034 |
| Premises and equipment, net | 462 | 494 |
| Accrued interest receivable | 684 | 1,058 |
| Other assets | 629
| 451
|
| Total assets | $ 105,214
| $ 114,088
|
| | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | |
| Liabilities | | |
| Deposits | $ 57,611 | $ 60,594 |
| Advances from borrowers for taxes and insurance | 691 | 648 |
| Advances from the Federal Home Loan Bank
and other borrowings | 30,265 | 36,147 |
| Accrued interest payable and other liabilities | 657
| 673
|
| | Total liabilities | 89,224 | 98,062 |
| | | |
| Stockholders' Equity | | |
| Common stock $0.01 par value per share,
2,500,000 sharesauthorized;
2,182,125 issued and outstanding | 22 | 22 |
| Additional paid-in capital | 21,664 | 21,655 |
| Retained earnings, substantially restricted | 7,394 | 7,315 |
| Unearned ESOP shares | (836) | (884) |
| Unearned stock awards | (496) | (583) |
| Treasury stock, at cost, 903,779 and 855,914
shares respectively | (11,522) | (10,948) |
| Accumulated other comprehensive loss | (236)
| (551)
|
| | Total stockholders' equity | 15,990
| 16,026
|
| | | Total liabilities and stockholders' equity | $ 105,214
| $ 114,088
|
See accompanying notes to condensed consolidated financial statements.3Next Page
PS FINANCIAL, INC.CHICAGO ILLINOISCONDENSED CONSOLIDATED STATEMENTS OF INCOME(Dollars in thousands, except share data)(Unaudited)
| Six Months Ended
June 30
| Three Months Ended
June 30
|
| 2001
| 2000
| 2001
| 2000
|
| Interest income | | | | |
| Loans | $ 2,669 | $ 2,886 | $ 1,314 | $ 1,417 |
| Securities | 774 | 1,115 | 278 | 558 |
| Mortgage-backed securities | 146 | 177 | 68 | 86 |
| Dividend income on equity investments | 38 | 55 | 19 | 26 |
| Other interest earning assets | 153
| 179
| 81
| 69
|
| | Total interest income | 3,780 | 4,412 | 1,760 | 2,156 |
| | | | | | |
| Interest expense | | | | |
| Deposits | 1,388 | 1,505 | 665 | 747 |
| Federal Home Loan Bank advances and
other borrowings | 1,182
| 1,042
| 637
| 543
|
| | Total interest expense | 2,570
| 2,547
| 1,302
| 1,290
|
| | | | | | |
| Net interest income | 1,210 | 1,865 | 458 | 866 |
| | | | | | |
| Provision for loan losses | -
| 15
| -
| 8
|
| | | | | | |
| Net interest income after provision for loan losses | 1,210 | 1,850 | 458 | 858 |
| | | | | | |
| Noninterest income | | | | |
| Net gain (loss) on sale of securities | 152 | (103) | 125 | (45) |
| Other operating income | 45
| 71
| 22
| 34
|
| | Total noninterest income | 197 | (32) | 147 | (11) |
| | | | | | |
| Noninterest expense | | | | |
| Compensation and benefits | 521 | 498 | 266 | 249 |
| Occupancy and equipment expense | 77 | 74 | 36 | 36 |
| Data processing services | 56 | 45 | 27 | 23 |
| Professional fees | 122 | 15 | 71 | 95 |
| Other operating expenses | 159
| 152
| 100
| 85
|
| | Total noninterest expense | 935
| 924
| 500
| 488
|
| | | | | | |
| Income before income tax expense | 472 | 894 | 105 | 359 |
| Income tax expense (benefit) | 39
| 256
| (83)
| 107
|
| | | | | | |
| Net income | $ 433
| $ 638
| $ 188
| $ 252
|
Change in unrealized gain (loss) on
securities available-for-sale | 315 | (449) | (40) | (128) |
| | | | | | |
| Total Comprehensive Income | $ 748
| $ 189
| $ 148
| $ 124
|
| Basic earnings per share | $ 0.37
| $ 0.47
| $ 0.16
| $ 0.21
|
| Diluted earnings per share | $ 0.36
| $ 0.47
| $ 0.16
| $ 0.21
|
See accompanying notes to condensed consolidated financial statements.4Next Page
PS FINANCIAL, INC.CHICAGO ILLINOISCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(Dollars in thousands, except share data)(Unaudited)
| 2001
| 2000
|
| Six Months Ended June 30 2001 2000 | | |
| Common Stock | | |
| Balance at beginning of year | $ 22
| $ 22
|
| Balance at June 30 | $ 22
| $ 22
|
| | |
| Additional Paid-In Capital | | |
| Balance at beginning of year | $ 21,655 | $ 21,644 |
| Change in additional paid in capital | 8
| 8
|
| Balance at June 30 | $ 21,664
| $ 21,652
|
| | |
| Retained Earnings, Substantially Restricted | | |
| Balance at beginning of year | $ 7,315 | $ 6,862 |
| Net income for the period | 433 | 638 |
| Dividends declared, $0.30 $0.29 per share, respectively | (354)
| (401)
|
| Balance at June 30 | $ 7,394
| $ 7,099
|
| | |
| Unearned ESOP Shares | | |
| Balance at be ginning of year | $ (884) | $ (981) |
| Change in unearned ESOP shares | 48
| 49
|
| Balance at June 30 | $ (836)
| $ (932)
|
| | |
| Unearned Stock Awards | | |
| Balance at beginning of year | $ (583) | $ (767) |
| Stock awards earned | 87
| 88
|
| Balance at June 30 | $ (496)
| $ (679)
|
| | |
| Treasury Stock | | |
| Balance at beginning of year | (10,948) | (6,425) |
| Change in treasury stock | (574)
| (4,523)
|
| Balance at June 30 | $ (11,522)
| $ (10,948)
|
| | |
| Accumulated Other Comprehensive Income | | |
| Balance at beginning of year | $ (551) | $ (1,483) |
Change in unrealized gain (loss) on securities
available-for-sale | 315
| (449)
|
| Balance at June 30 | $ (236)
| $ (1,932)
|
| Total Stockholders' Equity | $ 15,990
| $ 14,282
|
See accompanying notes to condensed consolidated financial statements.
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PS FINANCIAL, INC.CHICAGO ILLINOISCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in thousands)(Unaudited)
| Six months ended June 30
|
| 2001
| 2000
|
| Cash flows from operating activities | | |
| Net income | $ 433 | $ 638 |
| Adjustments to reconcile net income to net cash from operating activities | | |
| | Provision for loan losses | - | 15 |
| | Depreciation | 42 | 40 |
| | Amortization of premiums and discounts on investment and
mortgage-backed securities, net | (39) | (40) |
| | Net (gain) loss on sales of securities available-for-sale | (152) | 103 |
| | RRP expense | 87 | 88 |
| | ESOP expense | 57 | 56 |
| | Purchase of Federal Home Loan Bank Stock | (77) | (34) |
| | Change in | | |
| | | Deferred loan origination fees | (15) | (25) |
| | | Accrued interest receivable and other assets | 107 | (97) |
| | | Other liabilities and deferred income taxes | (16)
| 405
|
| | | | Net cash from operating activities | 427 | 1,149 |
| | | |
| Cash flows from investing activities | | |
| Proceeds from repayment of securities available-for-sale | 556 | 548 |
| Calls on equity securities available-for-sale | - | 910 |
| Proceeds from sale of equity securities available-for-sale | 21,922 | - |
| Purchase of equity securities available-for-sale | (33,161) | - |
| Proceeds from sale of mortgage-backed securities available-for-sale | 3,387 | - |
| Purchase of mortgage-backed securities available-for-sale | (3,610) | - |
|
| Calls and maturities of securities available-for-sale | 18,855 | - |
| Net (increase) decrease in interest-bearing term deposits in other
financial institutions | (1) | 6 |
| Net change in loans | 3,727 | 2,506 |
| Capital expenditures, net | (10)
| (76)
|
| | Net cash from investing activities | 11,665 | 3,894 |
| | | |
| Cash flows from financing activities | | |
| Net increase (decrease) in deposits | (2,983) | (1,339) |
| Dividends paid | (354) | (401) |
| Proceeds from Federal Home Loan Bank advances and other borrowings | 1,161 | 18,374 |
| Repayment of Federal Home Loan Bank advances and other borrowings | (7,043) | (18,533) |
| Purchase of treasury stock | (574) | (4,523) |
| Net increase (decrease) in advance payments by borrowers for insurance | 43
| (9)
|
| | Net cash from financing activities | (9,750)
| (6,431)
|
| | | |
| Decrease in cash and cash equivalents | 2,342 | (1,388) |
| | | |
| Cash and cash equivalents at beginning of period | 1,341
| 3,305
|
| | | |
| Cash and cash equivalents at end of period | $ 3,683
| $ 1,917
|
| | | |
| Supplemental disclosure of cash flow information | | |
| Cash paid during the period for | | |
| | Interest | $ 2,647 | $ 2,605 |
| | Income taxes | 160 | 285 |
See accompanying notes to condensed consolidated financial statements.
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PS FINANCIAL, INC.CHICAGO ILLINOISNOTES 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 accounting principals generally accepted in the United States of America 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 June 30, 2001 and the results of its operations for the three month and six month periods then ended June 30, 2001 and 2000. The annualized results of operations 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") included in the Company's 2000 Annual report on Form 10-KSB filed with the Securities and Exchange Commission.
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, 2001 and 2000 is presented below.
| Six Months Ended
June 30
| Three Months Ended
June 30
|
| 2001
| 2000
| 2001
| 2000
|
| Basic Earnings Per Share | | | | |
| Net income | $ 433,087
| $ 638,143
| $ 187,650
| $ 251,725
|
| Weighted average common
shares outstanding | 1,179,114
| 1,358,579
| 1,160,285
| 1,182,753
|
| | Basic Earnings Per Share | $ 0.37
| $ 0.47
| $ 0.16
| $ 0.21
|
| | | | | | |
| Earnings Per Share Assuming Dilution | | | | |
| Net income | $ 433,087
| $ 638,143
| $ 187,650
| $ 251,725
|
| Weighted average common
shares outstanding | 1,179,114 | 1,358,579 | 1,160,285 | 1,182,753 |
| Add dilutive effect of assumed exercises | | | | |
| | Incentive stock options | 11,781 | 7,132 | 19,340 | 5,095 |
| | Stock awards | -
| -
| -
| -
|
| Weighted average common and dilutive
potential common shares outstanding | 1,190,895
| 1,365,711
| 1,179,625
| 1,187,848
|
| | Diluted Earnings Per Share | $ 0.36
| $ 0.47
| $ 0.16
| $ 0.21
|
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PS FINANCIAL, INC.CHICAGO ILLINOISNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
All of the outstanding options at June 30, 2001 and 2000 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. The Company's stock awards were not included in the calculation of diluted earnings per share for the three months or six months ended June 30, 2001 and 2000 because to do so would have been antidilutive.
NOTE 3 - PS FINANCIAL, INC. - PNA HOLDING COMPANY MERGER
On June 13, 2001 PS Financial, Inc. (PS Financial) entered into an Agreement and Plan of Merger (the "Agreement") with PNA Holding Company ("PNA"). Under the terms of the Agreement, PS Financial will be merged into a subsidiary of PNA, all shares of PS Financial will be canceled, and PNA will pay $14.00 per share in cash for each of the 1,255,067 outstanding shares of the PS Financial's common stock. Each option to purchase PS Financial's common stock shall be converted into the right to receive, in cash, an amount equal to the difference between $14.00 and the exercise price of the option.
As a result of the merger, Alliance FSB, a wholly owned subsidiary of PNA, will merge with and into Preferred Savings Bank, a wholly owned subsidiary of PS Financial. Upon consummation of the Merger, Preferred Savings Bank will change its name to Alliance, FSB. The aggregate purchase price for the transaction (including cash payments for the cancellation of options) is approximately $18.0 million. The transaction will be accounted for using the purchase method of accounting.
Consummation of the merger is subject to approval by PS Financial's shareholders and the receipt of all required regulatory approvals. It is anticipated that the transaction will be completed around September 30, 2001.
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PS FINANCIAL, INC.CHICAGO ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at June 30, 2001 and December 31, 2000Total assets decreased $8.9 million to $105.2 million at June 30, 2001 from $114.1 million at December 31, 2000, due mainly to decreases in net loans receivable of $3.7 million and securities available-for-sale of $7.4 million, partially offset by an increase in cash and cash equivalents of $2.3 million.
The Company's net loans receivable decreased by $3.7 million to $64.2 million at June 30, 2001 from $67.9 million at December 31, 2000 as principal paydowns were used to repay maturing higher yielding deposits. Securities available-for-sale (including equity and mortgage-backed securities) decreased by $7.4 million to $33.3 million at June 30, 2001 from $40.7 million at December 31, 2000. During the period, $18.9 million in securities were called of which approximately $11.1 million were reinvested in lower yielding short term U. S. Treasury equity funds. These decreases were partially offset by an increase in cash and cash equivalents of $2.3 million to $3.7 million at June 30, 2001 from $1.3 million at December 31, 2000.
Total liabilities at June 30, 2001 were $89.2 million compared to $98.1 million at December 31, 2000, a decrease of $8.9 million. The decrease was due mainly to a $5.9 million decrease in advances from the Federal Home Loan Bank and other borrowings with the intent to increase the net interest spread and margin in the long term. Deposits also decreased by $3.0 million to $57.6 million at June 30, 2001 from $60.6 million at December 31, 2000, as higher paying term deposits were not renewed as interest rates decreased.
Stockholders' equity at June 30, 2001 and December 31, 2000 was $16.0 million. During the period, the purchase of $354,000 of treasury stock and payment of regular dividends totaling $383,000 were partially offset by a $315,000 decrease in the unrealized loss on securities available-for-sale and net income of $433,000.
Comparison of Operating Results for the Three Months Ended June 30, 2001 and June 30, 2000.GeneralNet earnings for the three months ended June 30, 2001 were $188,000, a decrease of $64,000, or 25.4%, from net earnings of $252,000 for the three months ended June 30, 2000. The decrease in net income was primarily due to a decrease in net interest spread and the net interest margin, a decrease of $9.4 million in the average assets from June 30, 2000 to June 30, 2001, and the prepayment of $5.0 million in FHLB advances resulting in prepayment penalties of $130,000.
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PS FINANCIAL, INC.CHICAGO ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest IncomeInterest income for the three months ended June 30, 2001 was $1.8 million compared to $2.2 million for the three months ended June 30, 2000, a decrease of $396,000, or 18.4%. The decrease in interest income was the result of a decrease in the yield on average interest-earning assets due primarily to $18.9 million of securities called in 2001 that were reinvested in lower yielding securities, as well as an $8.3 million decrease in average interest earning assets from June 30, 2000 to June 30, 2001.
Interest ExpenseInterest expense for the three month periods ended June 30, 2001 and 2000 was $1.3 million. Interest bearing liabilities decreased $11.9 million from June 30, 2000 to June 30, 2001, the Company incurred prepayment penalties of $130,000 related to the prepayment of $5.0 million in FHLB advances in 2001. This resulted in a decrease in the net interest margin at June 30, 2001 to 1.74% from 3.03% at June 30, 2000.
Provision for Loan LossesThe Bank's provision for loan losses was zero for the three months ended June 30, 2001 compared to $8,000 for the three months ended June 30, 2000. At June 30, 2001, 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 June 30, 2001 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 June 30, 2001 decreased to $3.4 million compared to $4.1 million at June 30, 2000. Included in the past due loan balances are non-accruing loans at June 30, 2001 which totaled $231,000 compared to $532,000 at June 30, 2000.
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PS FINANCIAL, INC.CHICAGO ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Noninterest IncomeNoninterest income for the three months ended June 30, 2001 was a $147,000 compared to a loss of $11,000 for the three months ended June 30, 2000. The increase was primarily due to a net $125,000 gain on the sale of securities in 2001, partially offset by a $12,000 decrease in other noninterest income, which included $9,000 from the gain on sale of foreclosed assets in 2000.
Noninterest ExpenseNoninterest expense was $500,000 for the three months ended June 30, 2001 compared to $488,000 for the three months ended June 30, 2000, an increase of $12,000. The increase was primarily a result of a $17,000 increase in compensation expense and a $16,000 increase in other operating expenses relating to the Company's pending merger discussed in Note 3 of the Condensed Consolidated Financial Statements, partially offset by a $24,000 decrease in professional fees related to the proxy contest at the 2000 annual meeting.
Income TaxesIncome taxes were a net benefit of $83,000 for the three months ended June 30, 2001 compared to $107,000 for the three months ended June 30, 2000, a decrease of $190,000, or 177.5%. The decrease was primarily the result of the utilization of capital loss carryforwards not previously recognized, combined with a $254,000 decrease in pretax earnings.
Comparison of Operating Results for the Six Months Ended June 30, 2001 and June30, 2000.GeneralNet earnings for the six months ended June 30, 2001 were $433,000, a decrease of $205,000, or 32.1%, from net earnings of $638,000 for the six months ended June 30, 2000. The decrease in net income was primarily due to a decrease in net interest spread and the net interest margin, a decrease of $9.4 million in average assets from June 30, 2000 to June 30, 2001 and the prepayment of $5.0 million in FHLB advances resulting in prepayment penalties of $130,000, partially offset by a $152,000 net gain on the sale of securities.
Interest IncomeInterest income for the six months ended June 30, 2001 was $3.8 million compared to $4.4 million for the six months ended June 30, 2000, a decrease of $632,000, or 14.3%. The decrease in interest income was the result of a decrease in the yield on average interest-earning assets due primarily to $18.9 million of securities called in 2001, that were reinvested in lower yielding securities, as well as an $8.3 million decrease in average interest earning assets from June 30, 2000 to June 30, 2001.
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PS FINANCIAL, INC.CHICAGO ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest ExpenseInterest expense for the six months ended June 30, 2001 was $2.6 million compared to $2.5 million for the six months ended June 30, 2000, an increase of $23,000, or 0.9%. The increase in interest expense was primarily due to the payment of $130,000 in prepayment penalties related to the prepayment of $5.0 million in FHLB advances, which was partially offset by a $8.6 million decrease in the average balance of interest-bearing liabilities during the six months ended June 30, 2001 compared to the six months ended June 30, 2000, as well as a decrease in the Company's cost of funds due to a decrease in short term deposit rates.
Provision for Loan LossesThe Bank's provision for loan losses was zero for the six months ended June 30, 2001 compared to $15,000 for the six months ended June 30, 2000. At June 30, 2001, 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 six months ended June 30, 2001 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.
Noninterest IncomeNoninterest income for the six months ended June 30, 2001 was $197,000 compared to a loss of $32,000 for the six months ended June 30, 2000. The increase was primarily due to a $255,000 gain on the sale of securities in 2001 compared to a $103,000 loss in 2000, partially offset by a $26,000 decrease in other income, including $18,000 from the gain on sale of foreclosed assets in 2000.
Noninterest ExpenseNoninterest expense was $935,000 for the six months ended June 30, 2001 compared to $924,000 for the six months ended June 30, 2000, an increase of $11,000. The increase was primarily a result of a $23,000 increase in compensation expense and an $11,000 increase in data processing expense, partially offset by a $33,000 decrease in professional fees related to the proxy contest at the 2000 annual meeting.
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PS FINANCIAL, INC.CHICAGO ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income TaxesIncome taxes were $39,000 for the six months ended June 30, 2001 compared to $256,000 for the six months ended June 30, 2000, a decrease of $217,000, or 84.8%. The decrease was primarily a result of the utilization of capital loss carryforwards not previously recognized, combined with a $254,000 decrease in pretax earnings.
Asset/Liability ManagementIn 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 March 31, 2001 (most recent available) due to decreases in the average remaining maturity of the Company's fixed income securities and net loans receivable. 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, 2001, $48.7 million, or 95.9% 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, 2001, adjustable rate mortgage-backed securities totaled $4.3 million which represented 4.2% of interest-earning assets. Finally, 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.
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PS FINANCIAL, INC.CHICAGO ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and equity 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 March 31, 2001, 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 inInterest
Rates
(Basis Points)
|
EstimatedNPV
Amount
|
Ratio of NPVto
Total Assets
| Estimated Increase
(Decrease in NPV)
|
Amount
| Percent
|
| +300 | 9,514 | 9.09 | (8,542) | (74) |
| +200 | 12,688 | 11.68 | (5,368) | (30) |
| +100 | 15,631 | 13.89 | (2,425) | (13) |
| --- | 18,056 | 15.60 | --- | --- |
| -100 | 19,084 | 16.12 | 1,028 | 6 |
| -200 | 20,132 | 16.65 | 2,076 | 11 |
| -300 | 21,074 | 17.07 | 3,018 | 17 |
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.
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PS FINANCIAL, INC.CHICAGO ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor StatementThis 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 such as "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.
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PS FINANCIAL, INC.CHICAGO ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 |
| The Company's annual meeting of stockholders was held on May 16, 2001. At the meeting, Lorraine G. Ptak and Edward Wolak were elected for terms to expire in 2004. The votes cast for and withheld from each such director were as follows: |
| Director
| For
| Abstain
| |
| Lorraine G. Ptak | 1,134,096 | 70,643 | |
| Edward Wolak | 1,134,096 | 70,643 | |
| 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, 2001 was approved. The votes cast for and a 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
|
| 1,177,973 | 16,205 | 10,561 | 0 |
| Item 5. | Other Information
None |
| Item 6. | Exhibits and Reports on Form 8-K |
| a. | None |
| b. | (1) A current report on Form 8-K was filed on June 21, 2001 to announce the Agreement and Plan of Merger with PNA Holding Company |
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SIGNATURESPursuant 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, 2001 | | By: | /s/ Kimberly Rooney
Kimberly Rooney
Chief Executive Officer
(Principal Executive Officer) |
| | | | |
| Date: | August 14, 2001 | | By: | /s/ Jeffrey Przybyl
Jeffrey Przybyl
Chief Financial Officer
(Principal Financial and Accounting Officer) |
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