PS Financial (PSFI) 10QSB 2001 Q3 Quarterly report (small business)

United StatesSecurities and Exchange CommissionWashington, 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, 2001

[   ] 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(State of incorporation) 36-4101473(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         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, 2001 1,255,067

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PS Financial, Inc.
Form 10-QSB
Nine Months Ended September 30, 2001
Part I - Financial Information

			Page
ITEM 1 -	FINANCIAL STATEMENTS
	Condensed Consolidated Statements of Financial Condition at		3
		September 30, 2001 and December 31, 2000
	Condensed Consolidated Statements of Income for the three months		4
		and nine months ended September 30, 2001 and 2000
	Condensed Consolidated Statements of Stockholders' Equity for the		5
		nine months ended September 30, 2001 and 2000
	Condensed Consolidated Statements of Cash Flows for the nine		6
		months ended September 30, 2001 and 2000
	Notes to the Condensed Consolidated Financial Statements as of		7
		September 30, 2001
ITEM 2 -	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS		9
		Part II - Other Information
	Item 1. Legal Proceedings		14
	Item 2. Changes in Securities and use of Proceeds		14
	Item 3. Defaults Upon Senior Securities		14
	Item 4. Submission of Matters to a Vote of Security Holders		14
	Item 5. Other Information		14
	Item 6. Exhibits and Reports on Form 8-K		14

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PS FINANCIAL, INC.CHICAGO, ILLINOISCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONSeptember 30, 2001 and December 31, 2000(Dollars in thousands, except share data)(Unaudited)

				September 30,2001	December 31,2000
ASSETS
Cash on hand and in banks				$390	$333
Interest-bearing deposit accounts in other financial institutions				264	1,008
	Total cash and cash equivalents			654	1,341
Interest-bearing term deposits in other financial institutions				154	153
Equity securities available-for-sale				1,201	1,012
Securities available-for-sale				25,997	35,076
Mortgage-backed securities available-for-sale				4,015	4,607
Loans receivable, net				62,446	67,862
Federal Home Loan Bank stock				2,145	2,034
Premises and equipment, net				441	494
Accrued interest receivable				761	1,058
Other assets				790	451
		Total assets		$98,604	$114,088
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
	Deposits			$50,718	$60,594
	Advances from borrowers for taxes and insurance			1,003	648
	Advances from the Federal Home Loan Bank and other borrowings			29,727	36,147
	Accrued interest payable and other liabilities			847	673
		Total liabilities		82,295	98,062
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			21,674	21,655
	Retained earnings, substantially restricted			7,355	7,315
	Unearned ESOP shares			(811)	(884)
	Unearned stock awards			(453)	(583)
	Treasury stock, at cost, 903,779 and 855,914 shares respectively			(11,522)	(10,948)
	Accumulated other comprehensive income (loss)			44	(551)
		Total stockholders' equity		16,309	16,026
			Total liabilities and stockholders' equity	$98,604	$114,088

See accompanying notes to condensed consolidated financial statements.

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PS FINANCIAL, INC.CHICAGO, ILLINOISCONDENSED CONSOLIDATED STATEMENTS OF INCOME(Dollars in thousands, except per share data)(Unaudited)

			Nine Months Ended September 30,		Three Months Ended September 30,
			2001	2000	2001	2000
Interest income
	Loans		$3,940	$4,291	$1,271	$1,405
	Securities		1,044	1,673	270	558
	Mortgage-backed securities		205	260	59	83
	Dividend income on equity investments		51	75	13	20
	Other interest earning assets		224	246	71	67
		Total interest income	5,464	6,545	1,684	2,133
Interest expense
	Deposits		1,988	2,247	600	742
	Federal Home Loan Bank advances and other borrowings		1,646	1,607	464	565
		Total interest expense	3,634	3,854	1,064	1,307
Net interest income			1,830	2,691	620	826
Provision for loan losses			-	15	-	-
Net interest income after provision for loan losses			1,830	2,676	620	826
Noninterest income
	Net gain (loss) on sale of securities		176	(103)	24	-
	Gain on sale of other real estate owned		-	53	-	35
	Other operating income		73	79	28	26
		Total noninterest income	249	29	52	61
Noninterest expense
	Compensation and benefits		777	742	256	244
	Occupancy and equipment expense		115	111	38	37
	Data processing services		83	67	27	22
	Professional fees		303	191	181	36
	Other operating expenses		235	233	76	81
		Total noninterest expense	1,513	1,344	578	420
Income before income tax expense			566	1,361	94	467
Income tax expense (benefit)			(2)	378	(41)	122
Net income			$568	$983	$135	$345
	Change in unrealized Holding gains on securities
		available-for-sale, net of taxes	703	70	296	582
	Less Reclassification adjustment for gains (losses)
		recognized in income, net of taxes	108	(63)	15	-
Total Comprehensive Income			$1,163	$1,116	$416	$927
	Basic earnings per share		$0.48	$0.76	$0.12	$0.29
	Diluted earnings per share		$0.48	$0.75	$0.11	$0.29

See accompanying notes to condensed consolidated financial statements.

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PS FINANCIAL, INC.CHICAGO, ILLINOISCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(Dollars in thousands, except per share data)(Unaudited)

Nine Months Ended September 30	2001	2002
Common Stock
Balance at beginning of year	$22	$22
Balance at September 30	$22	$22
Additional Paid-In Capital
Balance at beginning of year	$21,655	$21,644
Change in additional paid in capital	19	11
Balance at September 30	$21,674	$21,655
Retained Earnings, Substantially Restricted
Balance at beginning of year	$7,315	$6,862
Net income for the period	568	983
Dividends declared, $0.45 and $0.44 per share, respectively	(528)	(582)
Balance at September 30	$7,355	$7,263
Unearned ESOP Shares
Balance at beginning of year	$(884)	$(981)
Change in unearned ESOP shares	73	74
Balance at September 30	$(811)	$(907)
Unearned Stock Awards
Balance at beginning of year	$(583)	$(767)
Stock awards earned	130	132
Balance at September 30	$(453)	$(635)
Treasury Stock
Balance at beginning of year	$(10,948)	$(6,425)
Change in treasury stock	(574)	(4,523)
Balance at September 30	$(11,522)	$(10,948)
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of year	$(551)	$(1,483)
Change in unrealized gain (loss) on securities available-for-sale net of tax	595	133
Balance at September 30	$44	$(1,350)
Total Stockholders' Equity	$16,309	$15,100

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)

					Nine months ended September 30,
					2001	2000
Cash flows from operating activities
	Net income				$568	$983
	Adjustments to reconcile net income to net cash from
		operating activities
		Provision for loan losses			-	15
		Dividends on Federal Home Loan Bank Stock			(111)	(69)
		Depreciation			63	59
		Amortization of premiums and discounts on
			investment and mortgage-backed securities, net		(51)	(61)
		Net (gain) loss on sales of securities available-for-sale			(176)	103
		RRP expense			130	132
		ESOP expense			92	85
		Change in
			Deferred loan origination fees		(24)	(37)
			Accrued interest receivable and other assets		(308)	99
			Other liabilities and deferred income taxes		174	304
				Net cash provided by operating activities	357	1,613
Cash flows from investing activities
	Proceeds from repayment of securities available-for-sale				887	842
	Calls on equity securities available-for-sale				260	910
	Proceeds from sale of equity securities available-for-sale				36,075	-
	Purchase of equity securities available-for-sale				(36,411)	-
	Purchase of securities available-for-sale				(10,873)	-
	Proceeds for 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				20,855	-
	Net change in interest-bearing term deposits in other financial institutions				(1)	6
	Net change in loans				5,440	2,933
	Capital expenditures, net				(10)	(81)
				Net cash provided by investing activities	15,999	4,610
Cash flows from financing activities
	Net decrease in deposits				(9,876)	(318)
	Dividends paid				(528)	(582)
	Proceeds from FHLB and other borrowings				2,643	23,451
	Repayment of FHLB and other borrowings				(9,063)	(24,343)
	Purchase of treasury stock				(574)	(4,523)
	Net increase in advance payments by borrowers for insurance and taxes				355	303
				Net cash used in financing activities	(17,043)	(6,012)
Change in cash and cash equivalents					(687)	211
Cash and cash equivalents at beginning of period					1,341	3,305
Cash and cash equivalents at end of period					$654	$3,516
Supplemental disclosure of cash flow information
	Cash paid during the period for
		Interest			$3,838	$3,864
		Income taxes			165	490

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 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, 2001 and the results of its operations for the three month and nine month periods ended September 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 nine months ended September 30, 2001 and 2000 is presented below.

			Nine Months Ended September 30,		Three Months Ended September 30,
			2001	2000	2001	2000
Basic Earnings Per Share
	Net income (Dollars in thousands)		$568	$983	$135	$345
	Weighted average common shares outstanding		1,174,061	1,302,170	1,164,126	1,189,525
		Basic Earnings Per Share	$0.48	$0.76	$0.12	$0.29
Earnings Per Share Assuming Dilution
	Net income (Dollars in thousands)		$568	$983	$135	$345
	Weighted average common shares outstanding		1,174,061	1,302,170	1,164,126	1,189,525
	Add dilutive effect of assumed exercises
		Incentive stock options	18,426	5,982	31,550	3,642
		Stock awards	-	-	-	-
	Weighted average common and dilutive
	potential common shares outstanding		1,192,487	1,308,152	1,195,676	1,193,167
		Diluted Earnings Per Share	$0.48	$0.75	$0.11	$0.29

All of the outstanding options at September 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

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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 September 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 November 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 September 30, 2001 and December 31, 2000

Total assets decreased $15.5 million to $98.6 million at September 30, 2001 from $114.1 million at December 31, 2000, due mainly to decreases in net loans receivable of $5.4 million and securities available-for-sale of $9.5 million.

The Company's net loans receivable decreased by $5.4 million to $62.4 million at September 30, 2001 from $67.9 million at December 31, 2000 due to principal paydowns. Securities available-for-sale (including equity and mortgage-backed securities) decreased by $9.5 million to $31.2 million at September 30, 2001 from $40.7 million at December 31, 2000. During the period, $20.9 million in securities were called of which approximately $12.5 million were reinvested in lower yielding short term U. S. Treasury equity funds. Cash and cash equivalents decreased by $687,000 to $654,000 at September 30, 2001 from $1.3 million at December 31, 2000 to repay maturing higher yielding deposits.

Total liabilities decreased $15.8 million to $82.3 million at September 30, 2001 from $98.1 million at December 31, 2000. The decrease was due mainly to a $9.9 million decrease in deposits to $50.7 million at September 30, 2001 from $60.6 million at December 31, 2000, as higher paying term deposits were not renewed as interest rates decreased. During the period, advances from the Federal Home Loan Bank and other borrowings decreased $6.4 million consistent with management's strategy to increase the net interest spread and margin in the long term.

Stockholders' equity increased $283,000 to $16.3 million at September 30, 2001 from $16.0 million at December 31, 2000, due primarily to net income of $568,000 and a $595,000 decrease in the unrealized loss on securities available-for-sale, partially offset by the purchase of $574,000 of treasury stock and payment of regular dividends totaling $528,000.

Comparison of Operating Results for the Three Months Ended September 30, 2001 and September 30, 2000.

General
Net income for the three months ended September 30, 2001 were $135,000 compared to $345,000 for the three months ended September 30, 2000, a decrease of $210,000. The decrease in net income was primarily due to a decrease in the net interest margin, from 2.93% to 2.46%, and a decrease of $12.7 million in the balance of average assets from September 30, 2000 to September 30, 2001. Also contributing to the decrease in earnings was an increase in professional fees due to the Company's announced merger with PNA Holding Company.

Interest Income
Interest income for the three months ended September 30, 2001 was $1.7 million compared to $2.1 million for the three months ended September 30, 2000, a decrease of $449,000, or 21.1%. The decrease in interest income was the result of a decrease in the yield on average interest-earning assets, from 7.55% to 6.68%, due primarily to $20.9 million of securities called in 2001 that were reinvested in lower yielding securities, as well as a $12.2 million decrease in average interest earning assets from September 30, 2000 to September 30, 2001.

Interest Expense
Interest expense for the three months ended September 30, 2001 was $1.1 million compared to $1.3 million for the three months ended September 30, 2000, a decrease of $243,000, or 18.6%. The decrease in interest expense was primarily due to the decreased average balance of interest-bearing liabilities during the three months ended September 30, 2001 compared to the three months ended September 30, 2000, as well as a decrease in the Company's cost of funds, from 5.26% to 4.26%, due to a decrease in short term deposit rates.



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PS FINANCIAL, INC.CHICAGO, ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Provision for Loan Losses
The Bank's provision for loan losses was zero for the three months ended September 30, 2001 and 2000. At September 30, 2001, the Bank's allowance for loan losses totaled $281,000, or 0.5% 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, 2001 and 2000 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, were $4.4 million at September 30, 2001 and 2000. Included in the past due loan balances are non-accruing loans at September 30, 2001 which totaled $345,000 compared to $662,000 at September 30, 2000.

Noninterest Income
Noninterest income for the three months ended September 30, 2001 was $52,000 compared to $61,000 for the three months ended September 30, 2000, a decrease of $9,000, or 14.8%. The decrease was primarily due to a $35,000 gain on sale of foreclosed assets in 2000, offset by a net $24,000 gain on the sale of securities in 2001.

Noninterest Expense
Noninterest expense was $578,000 for the three months ended September 30, 2001 compared to $420,000 for the three months ended September 30, 2000, an increase of $158,000, or 37.6%. The increase was primarily a result of a $145,000 increase in professional fees related to the Company's announced merger with PNA Holding Company and a $12,000 increase in compensation and benefits.

Income Taxes
Income taxes were a net benefit of $41,000 for the three months ended September 30, 2001 compared to $122,000 for the three months ended September 30, 2000, a decrease of $163,000, or 133.6%. The decrease was primarily the result of the utilization of capital loss carryforwards not previously recognized, combined with a $373,000 decrease in pretax earnings.

Comparison of Operating Results for the Nine Months Ended September 30, 2001 and September 30, 2000.

General
Net earnings for the nine months ended September 30, 2001 were $568,000 compared to net earnings of $983,000 for the nine months ended September 30, 2000, a decrease of $415,000. The decrease in net income was primarily due to a decrease in net interest spread, from 2.46% to 1.32%, and the net interest margin, from 3.11% to 2.31%, a decrease of $12.7 million in average assets from September 30, 2000 to September 30, 2001, the prepayment of $5.0 million in FHLB advances resulting in prepayment penalties of $130,000, partially offset by a $380,000 decrease in income tax expense and a $176,000 net gain on the sale of securities.





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PS FINANCIAL, INC.CHICAGO, ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest Income
Interest income for the nine months ended September 30, 2001 was $5.5 million compared to $6.5 million for the nine months ended September 30, 2000, a decrease of $1.1 million, or 16.5%. The decrease in interest income was the result of a decrease in the yield on average interest-earning assets, from 7.57% to 6.90%, due primarily to $20.9 million of securities called in 2001, that were reinvested in lower yielding securities, as well as a $12.2 million decrease in average interest earning assets from September 30, 2000 to September 30, 2001.

Interest Expense
Interest expense for the nine months ended September 30, 2001 was $3.6 million compared to $3.9 million for the nine months ended September 30, 2000, a decrease of $300,000, or 7.7%. The decrease in interest expense was primarily due to a $14.2 million decrease in the average balance of interest-bearing liabilities during the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000, which was partially offset by the payment of $130,000 in prepayment penalties related to the prepayment of $5.0 million in FHLB advances.

Provision for Loan Losses
The Bank's provision for loan losses for the nine months ended September 30, 2001 was zero compared to $15,000 for the nine months ended September 30, 2000. At September 30, 2001, the Bank's allowance for loan losses totaled $281,000, or 0.5% 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, 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 Income
Noninterest income for the nine months ended September 30, 2001 was $249,000 compared to $29,000 for the nine months ended September 30, 2000, an increase of $220,000. The increase was primarily due to a $279,000 increase in the gain on sale of securities, partially offset by a $53,000 decrease in the gain on sale of foreclosed assets.

Noninterest Expense
Noninterest expense was $1.5 million for the nine months ended September 30, 2001 compared to $1.3 million for the nine months ended September 30, 2000, an increase of $200,000, or 15.4%. The increase was primarily a result of a $35,000 increase in compensation expense and a $112,000 increase in professional fees related to the Company's announced sale to PNA Holding Company

Income Taxes
Income taxes were a net benefit of $2,000 for the nine months ended September 30, 2001 compared to a net expense of $378,000 for the nine months ended September 30, 2000, a decrease of $380,000. The decrease was primarily a result of the utilization of capital loss carryforwards not previously recognized, combined with a $795,000 decrease in pretax earnings.



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PS FINANCIAL, INC.CHICAGO, ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2001 (most recent available) due to a decrease in the average remaining term 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 September 30, 2001, $47.3 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. 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.

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, 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.



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PS FINANCIAL, INC.CHICAGO, ILLINOISMANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2001 (most recent data available), 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
			Amount	Percent
+300	8,911	9.12	(8,883)	(50)
+200	11,987	11.83	(5,807)	(33)
+100	15,021	14.30	(2,774)	(16)
---	17,794	16.37	---	---
-100	19,438	17.45	1,644	9
-200	20,584	18.10	2,790	16
-300	21,789	18.74	3,995	22

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

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.



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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
	A Special Meeting of Stockholders of the Company was held on September 26, 2001. At the meeting, a proposal to approve the adoption of the Agreement and Plan of Merger, dated as of June 13, 2001, by and between the Company and PNA Holding Company 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
		915,666	31,636	13,722	0
Item 5.	Other information
	None
Item 6.	Exhibits and Reports on Form 8-K
	a.	None
	b.	None

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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, 2001	By:	/s/ Kimberly RooneyKimberly Rooney Chief Executive Officer (Principal Executive Officer)
Date:	November 14, 2001	By:	/s/ Jeffrey PrzybylJeffrey Przybyl Chief Financial Officer (Principal Financial and Accounting Officer)

15End.