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 Three Months Ended March 31, 1999
Commission File Number 0-28864
PS Financial, Inc.
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(Exact name of the registrant as specified in its charter)
Delaware 36-4101473
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(State of incorporation) (I.R.S. Employer Identification Number)
4800 South Pulaski Road, Chicago, Illinois 60632
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(Address of principal executive offices)
(773) 376-3800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No (First Filing Pursuant to Rule 15d-13(a))
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Class: SHARES OUTSTANDING at May 10, 1999
Common Stock, $.01 par value 1,756,384
PS Financial, Inc.
Form 10-QSB
Three Months Ended March 31, 1999
Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS Page
Condensed Consolidated Statements of Financial
Condition at March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income for
the three months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the three
months ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1999 and 1998 6
Notes to the Condensed Consolidated Financial
Statements as of March 31, 1999 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 15
2
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION March 31,
1999 and December 31, 1998
(Dollars in thousands, expect per share data)
March 31, December 31,
1999 1998
----------- --------------
ASSETS
Cash on hand and in banks $ 665 $ 448
Interest-bearing deposit accounts in other
financial institutions 1,001 3,789
--------- --------
Total cash and cash equivalents 1,666 4,237
Interest-bearing term deposits in other
financial institutions 159 159
Equity securities available for sale 3,239 3,278
Securities available-for-sale 28,586 24,318
Mortgage-backed securities available-for-sale 10,155 11,354
Loans receivable, net 57,898 56,822
Federal Home Loan Bank stock 1,319 1,319
Premises and equipment, net 446 426
Accrued interest receivable 783 803
Other assets 237 68
--------- --------
Total assets $ 104,488 $102,784
========= ========
LIABILITIES AND EQUITY
Liabilities
Deposits $ 56,981 $ 55,429
Advances from borrowers for taxes and insurance 348 578
Advances from the Federal Home Loan Bank 25,279 23,764
Accrued interest payable and other liabilities 1,493 1,987
--------- --------
Total liabilities 84,101 81,758
Stockholders' Equity
Common stock $0.01 par value per share,
2,500,000 shares authorized;
2,182,125 issued and outstanding
22 22
Additional paid-in capital 21,638 21,638
Retained earnings, substantially restricted 6,282 6,141
Unearned ESOP shares (1,053) (1,077)
Unearned stock awards (876) (941)
Treasury stock, at cost, 425,741 and 338,737
shares respectively (5,434) (4,759)
Accumulated other comprehensive income (192) 2
--------- --------
Total stockholders' equity 20,387 21,026
--------- --------
Total liabilities and stockholders' equity $ 104,488 $102,784
========= ========
3
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three months ended
March 31,
---------------------------
1999 1998
-------- --------
Interest income
Loans $ 1,149 $ 873
Securities 346 539
Mortgage-backed securities 162 159
Dividend income on equity securities 67 0
Other interest earning assets 54 33
-------- -------
Total interest income 1,778 1,604
Interest expense
Deposits 574 431
Federal Home Loan Bank advances 326 224
-------- -------
Total interest expense 900 655
-------- -------
Net interest income 878 949
Provision for loan losses 0 0
-------- -------
Net interest income after provision for loan 878 949
Noninterest income
Net gain on sale of securities 0 23
Other operating income 20 13
-------- -------
Total noninterest income 20 36
Noninterest expense
Compensation and benefits 221 228
Occupancy and equipment expense 31 28
Data processing 78 16
Federal deposit insurance premiums 8 7
Professional fees 13 17
Other operating expenses 61 50
-------- -------
Total noninterest expense 412 346
-------- -------
Income before income tax expense 486 639
Income tax expense 127 225
-------- -------
Net income $ 359 $ 414
======== =======
Earnings per share
Basic $ 0.22 $ 0.21
======== =======
Diluted $ 0.22 $ 0.21
======== =======
4
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
Three Months Ended March 31 1999 1998
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Common Shares
Balance at beginning of year $ 22 $ 22
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Balance at March 31 $ 22 $ 22
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Additional Paid-In Capital
Balance at beginning of year $ 21,638 $ 21,602
Change in additional paid in capital 0 17
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Balance at March 31 $ 21,638 $ 21,619
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Retained Earnings, Substantially Restricted
Balance at beginning of year $ 6,141 $ 5,518
Net income for the period 359 $ 359 414 $ 414
Dividends declared (218) (227)
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Balance at March 31 $ 6,282 $ 5,705
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Unearned ESOP Shares
Balance at beginning of year $ (1,077) $ (1,173)
Change in unearned ESOP shares 24 24
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Balance at March 31 $ (1,053) $ (1,149)
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Unearned RRP Shares
Balance at beginning of year $ (941) $ (1,117)
Change in RRP shares 43 44
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Balance at March 31 $ (898) $ (1,073)
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Treasury Stock
Balance at beginning of year (4,759) (1,896)
Change in treasury stock (653) 0
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Balance at March 31 $ (5,412) $ (1,896)
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Accumulated Other Comprehensive Income
Balance at beginning of year $ 2 $ 153
Change in unrealized gain (loss) on securities (194) (194) (60) (60)
available-for-sale net of tax
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Balance at March 31 $ (192) $ 93
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Total Stockholders' Equity $ 20,387 $ 23,321
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Comprehensive Income $ 165 $ 354
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5
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
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Three months ended
March 31,
---------------------
1999 1998
------- ---------
Cash flows from operating activities
Net income $ 359 $ 414
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 13 12
Amortization of premiums and discounts
on investment and mortgage-backed
securities, net 0 5
Net gain on sales of securities
available-for-sale 0 (23)
RRP Expense 43 44
ESOP Expense 24 41
Change in
Deferred loan origination fees (11) (12)
Accrued interest receivable
and other assets (149) 728
Other liabilities and deferred
income taxes (1,374) (540)
------ --------
Net cash provided by
operating activities (1,095) 669
Cash flows from investing activities
Proceeds from sale of securities
available-for-sale 0 3,500
Proceeds from sale of mortgage-backed
securities available-for-sale 0 1,102
Purchase of Federal Home Loan Bank
stock 0 (213)
Proceeds from repayment of securities
available-for-sale 1,143 510
Maturities of securities
available-for-sale 3,500 4,500
Purchase of securities
available-for-sale (6,987) (3,001)
Purchase of mortgage-backed securities
available-for-sale 0 (3,014)
Purchase of equity securities
available-for-sale 0 (268)
Net decrease (increase) in
interest-bearing term deposits in other
financial institutions 0 (3)
Net change in loans (1,065) (4,503)
Capital expenditures, net (33) (3)
------ --------
Net cash used in investing activities (3,442) (1,393)
Cash flows from financing activities
Net increase (decrease) in deposits 1,552 (159)
Dividends paid (218) (7,756)
Borrowings from FHLB 1,515 4,250
Purchase of Treasury Stock (653) 0
Net decrease in advance payments by
borrowers for insurance and taxes (230) (207)
------ --------
Net cash used in financing activities 1,966 (3,872)
6
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
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Three months ended
March 31,
---------------------
1999 1998
------- ---------
Decrease in cash and cash equivalents (2,571) (4,596)
Cash and cash equivalents at
beginning of period 4,237 6,290
------ --------
Cash and cash equivalents at end of period $1,666 $ 1,694
====== ========
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 915 $ 624
Income taxes 0 95
Supplemental schedule of noncash investing activities
Amount due to broker for purchase of securities 999 410
7
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
Notes to Condensed Consolidated Financial Statements
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited consolidated financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial condition of PS Financial, Inc. as of
March 31, 1999 and 1998, and the results of its operations for the three month
period then ended.
NOTE 2 - CAPITAL REQUIREMENTS
Pursuant to federal regulations, savings institutions must meet three separate
capital requirements. The following is a summary of the Bank's regulatory
capital at March 31, 1999.
Tangible Core Risk based
Capital Capital Capital
---------- ----------- ------------
(In thousands)
Regulatory capital $ 15,566 $ 15,566 $ 15,817
Minimum capital requirement 2,031 4,062 3,714
---------- ----------- ------------
Excess regulatory capital
over minimum requirement $ 13,535 $ 11,504 $ 12,103
========== =========== ============
8
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
Notes to Condensed Consolidated Financial Statements
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NOTE 4 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators for earnings per common
share computations for the three months ended March 31, 1999 and 1998 is
presented below.
Three Months Ended March 31,
-----------------------------
1999 1998
------------- --------------
Basic Earnings Per Share
Net income $ 358,977 $ 413,918
============ ============
Weighted average common shares outstanding 1,670,410 1,956,435
============ ============
Basic Earnings Per Share $ 0.22 $ 0.21
============ ============
Earnings Per Share Assuming Dilution
Net income $ 358,977 $ 413,918
============ ============
Weighted average common shares outstanding 1,670,410 1,956,435
Add dilutive effect of assumed exercises
Incentive stock options - 38,032
Stock awards - 3,284
Weighted average common and dilutive
potential common shares outstanding 1,670,410 1,997,751
============ ============
Diluted Earnings Per Share $ 0.22 $ 0.21
============ ============
All of the outstanding options at March 31, 1999 and 1998 relate to options
granted in 1997 at an exercise price of $14.00. In January 1998, the Company
paid a special dividend which resulted in a change in equity structure. This
event allowed the Company to modify the stock option agreements to adjust the
exercise price to $11.02, which was an adjustment in direct proportion to the
decrease in exercise price as compared to market value as a result of the change
in equity structure.
9
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Comparison of Financial Condition at March 31, 1999 and December 31, 1998
Total assets increased $1.7 million from $102.8 million at December 31, 1998 to
$104.5 million at March 31, 1999, due mainly to increases in securities
available for sale of $4.2 million and an increase in net loans receivable of
$1.1 million, partially offset by a decrease in cash and cash equivalents of
$2.5 million.
The Company's net loans receivable increased by $1.1 million from $56.8 million
at December 31, 1998 to $57.9 million at March 31, 1999. Securities
available-for-sale increased by $4.3 million from $24.3 million at December 31,
1998 to $28.6 million at March 31, 1998, as cash balances and principal
repayments from mortgage backed securities were invested. These increases were
mainly offset by a decrease in cash and cash equivalents of $2.5 million from
$4.2 million at December 31, 1998 to $1.7 million at March 31, 1999 and a
decrease in mortgage backed securities of $1.2 million from $11.4 million at
December 31, 1998 to $10.2 million at March 31, 1999.
Total liabilities at March 31, 1999 were $84.1 million compared to $81.8 million
at December 31, 1998, an increase of $2.3 million. The increase was primarily
due to an increase in FHLB advances of $1.5 million, from $23.8 million at
December 31, 1998 to $25.3 million at March 31, 1999. Deposits also increased
$1.6 million from $55.4 million at December 31, 1998 to $56.9 million at March
31, 1999.
Stockholders' equity at March 31, 1999 was $20.4 million compared to $21.0
million at December 31, 1998, a decrease of $639,000, or 3.0%, due primarily to
net income of $359,000, partially offset by a $194,000 increase in the
unrealized loss on securities available-for-sale, a $653,000 increase in
treasury stock, and payment of regular dividends totaling $218,000.
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
March 31, 1998.
General
Net income for the three months ended March 31, 1999 was $359,000, a decrease of
$55,000, or 13.3%, from net income of $414,000 for the three months ended March
31, 1998. The decrease in net income is primarily due to the decrease in the
ratio of interest earning assets to interest bearing liabilities resulting from
the Company's attempt to better leverage the Company's high capital level
through the use of FHLB advances to increase interest earning assets.
Interest Income
Interest income for the three months ended March 31, 1999 was $1.8 million
compared to $1.6 million for the three months ended March 31, 1998, an increase
of $174,000, or 10.9%. 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 mortgage loans. The increase in the average
balance was offset by a decrease in yield on interest-earning assets for the
three months ended March 31, 1999. This decrease was primarily due to an decline
in long term interest rates in general.
Interest Expense
Interest expense for the three months ended March 31, 1999 was $900,000 compared
to $655,000 for the three months ended March 31, 1998, an increase of $245,000,
or 37.4%. The increase in interest expense was due to the increased average
balance of interest-bearing liabilities during the three months ended March 31,
1999 compared to the three months ended March 31, 1998.
Provision for Loan Losses
The Bank's provision for loan losses was zero for the three months ended March
31, 1999 and 1998. At March 31, 1999, the Bank's allowance for loan losses
totaled $251,000, or .4% of total loans. The amount of the provision and
10
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
allowance for estimated losses on loans is influenced by current economic
conditions, actual loss experience, industry trends and other factors, such as
adverse economic conditions, including declining real estate values, in the
Bank's market area. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to provide additions to the
allowance based upon judgments which differ from those of management. The
absence of a loan loss provision for the three months ended March 31, 1999 and
1998 is indicative of management's assessment of the adequacy of the allowance
for loan losses, given the trends in historical loss experience of the portfolio
and current economic conditions, as well as the fact that the majority of loans
are single-family residential loans and the loan-to-values are generally less
than 80%. Although management uses the best information available, future
adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions that may be beyond the Bank's control.
Past due loan balances at March 31, 1999 increased to $5.2 million compared to
$3.8 million at March 31, 1998. Non-accruing loans at March 31, 1999 totaled
$563,000 compared to $1.5 million at March 31, 1998.
Noninterest Income
Noninterest income for the three months ended March 31, 1999 was $20,000
compared to $36,000 for the three months ended March 31, 1998. The decrease was
primarily due to a $23,000 decrease in net gain on sales of securities in 1999,
partially offset by a $7,000 increase in other income.
Noninterest Expense
Noninterest expense was $412,000 for the three months ended March 31, 1999
compared to $346,000 for the three months ended March 31, 1998, an increase of
$66,000. The increase was primarily a result of a $62,000 increase in data
processing expense due to the Company's decision to change data processing
vendors and an increase of $11,000 in other operating expenses, partially offset
by a $4,000 decrease in professional fees and a $7,000 decrease in compensation
and benefits.
Income Taxes
Income taxes were $127,000 for the three months ended March 31, 1999 compared to
$225,000 for the three months ended March 31, 1998, a decrease of $98,000, or
43.6%. The decrease was primarily a result of a $153,000 decrease in pretax
earnings, as well as an increase in earning from municipal securities which are
tax free for federal tax purposes.
Asset/Liability Management
In an attempt to manage its exposure to changes in interest rates, management
monitors the Company's interest rate risk. The Board of Directors meets at least
quarterly to review the Company's interest rate risk position and profitability.
The Board of Directors also reviews the Company's portfolio, formulates
investment strategies and oversees the timing and implementation of transactions
to assure attainment of the Company's objectives in the most effective manner.
In addition, the Board reviews on a quarterly basis the Company's
asset/liability position, including simulations of the effect on the Company's
capital of various interest rate scenarios.
In managing its asset/liability mix, PS Financial, depending on the relationship
between long- and short-term interest rates, market conditions and consumer
preference, often places more emphasis on managing net interest margin than on
better matching the interest rate sensitivity of its assets and liabilities in
an effort to enhance net interest income. Management believes that the increased
net interest income resulting from a mismatch in the maturity of its asset and
liability portfolios can, during periods of declining or stable interest rates,
provide high enough returns to justify the increased exposure to sudden and
unexpected increases in interest rates.
The Company's interest rate risk increased during the twelve months ended
December 31, 1998 due to the large increase in fixed rate loans, funded by fixed
rate time deposits and FHLB advances. However, management has taken a number of
steps to limit to some extent its interest rate risk. First, the Company focuses
its fixed rate loan originations on loans with maturities of 15 years or less.
At March 31, 1999, $40.2 million, or 91.2%, of the Company's one- to four family
11
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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 March 31, 1999, adjustable rate mortgage-backed securities
totaled $8.1 million which represented 7.8% of interest-earning assets. Fourth,
the Company has attempted to reinvest the proceeds of most of its borrowings
into assets with maturities which are anticipated to be similar to those of its
borrowings. Finally, a substantial proportion of the Company's liabilities
consists of passbook savings accounts which are believed by management to be
somewhat less sensitive to interest rate changes than certificate accounts..
Generally, the investment policy of the Company is to invest funds among various
categories of investments and maturities based upon the Company's need for
liquidity, to achieve the proper balance between its desire to minimize risk and
maximize yield, to provide collateral for borrowings, and to fulfill the
Company's asset/liability management policies. Investments generally include
interest-bearing deposits in other federally insured financial institutions,
FHLB stock, U.S. Government securities and municipal securities.
PS Financial's cost of funds responds to changes in interest rates due to the
relatively short-term nature of its deposit portfolio. Consequently, the results
of operations are heavily influenced by the levels of short-term interest rates.
PS Financial offers a range of maturities on its deposit products at competitive
rates and monitors the maturities on an ongoing basis.
12
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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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
December 31, 1998, an analysis of the Bank's interest rate risk as measured by
the estimated changes in NPV resulting from instantaneous and sustained parallel
shifts in the yield curve (+/-400 basis points, measured in 100 basis point
increments).
Estimated Increase
Change in Interest Estimated Ratio of NPV (Decrease) in NPV
Rates NPV to ---------------------------
(Basis Points) Amount Total Assets Amount Percent
- -------------------- -------------- --------------- --------------- ----------
+400 $9,915 11% ($9,837) (50)%
+300 12,327 13 (7,425) (38)
+200 14,828 15 (4,924) (25)
+100 17,313 17 (2,439) (12)
--- 19,752 19 --- ---
-100 22,419 21 2,667 14
-200 25,427 23 5,675 29
-300 28,833 25 9,082 32
-400 32,488 27 12,737 64
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 Company's assets and
liabilities would perform as set forth above. In addition, a change in U.S.
Treasury rates in the designated amounts accompanied by a change in the shape of
the Treasury yield curve would cause significantly different changes to the NPV
than indicated above.
Impact of New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e. gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and, if so, on the reason for holding it. If certain
conditions are met, entities may elect to designate a derivative instrument as a
hedge of exposure to change in fair value, cash flows, or foreign currencies. If
the hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. If the hedged exposure is a cash flow exposure, the effective portion of
the gain or loss on the derivative instrument is reported initially as a
component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amount excluded from the assessment of hedge effectiveness as well as the
ineffective portion of the gain or loss is reported in earnings immediately.
Accounting for foreign currency hedges is similar to accounting for fair value
and cash flow hedges. If the derivative instrument is not designated as a hedge,
the gain or loss is recognized in earnings in the period of change. This
Statement will have no effect on the Company.
Effective January 1, 1999, Statement of Financial Standards (SFAS) No. 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise", became
13
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
effective. SFAS No. 134 allows entities with mortgage banking operations which
convert pools of mortgages into securities to classify these securities as
available-for-sale, trading, or held-to-maturity, instead of the current
requirement to classify these pools as trading. This standard is not expected to
have a material effect on the Company.
American Institute of Certified Public Accountants Statement of Position 98-5,
effective in 1999, requires all start-up, pre-opening, and organization costs to
be expensed as incurred. Any such costs previously capitalized for financial
reporting purposes must be written off to income at the start of the year.
Statement of Position 98-5 is not expected to have a material impact on the
company.
Year 2000
As the year 2000 approaches, a significant business issue has emerged regarding
how existing application software programs and operating systems can accommodate
the date value for the year 2000. Many existing software application products,
including software application products used by the Company and its suppliers
and customers, were designed to accommodate only a two-digit date value, which
represents the year. For example, information relating to the year 1996 is
stored in the system as "96". As a result, the year 1999 (i.e. "99") could be
the maximum date value that these systems will be able to process accurately. In
response to concerns about this issue, regulatory agencies have begun to monitor
holding companies' and banks' readiness for the year 2000 as part of the regular
examination process. The Company presently believes that with modification to
existing software, conversion to new software, and conversion to a new third
party data processor, the year 2000 issue will not pose significant operational
problems for the Company's computer systems or business operations.
Implementation of the Company's plan to test in-house and out-sourced software
has been underway since the first quarter of 1998. Testing of applications
considered to be "mission critical" is scheduled for completion by second
quarter of 1999. Total compliance of all systems is expected by management to be
completed by the third quarter of 1999; management currently estimates that such
compliance will cost $15,000. The team for the plan is responsible for the
implementation of the plan and reports to the Company's Board of Directors on a
monthly basis until the plan is completed. However, if such modifications and
conversions are not made, or are not completed timely, the year 2000 issue could
have a material adverse impact on the operations of the Company. In addition,
there can be no assurance that unforeseen problems in the Company's computer
systems, or the systems of third parties on which the Company's computers rely,
will not have an adverse effect on the Company's systems or operations.
Additionally, failure of the Company's customers' to prepare for year 2000
compatibility could have a significant adverse effect on such customer's
operations and profitability, thus inhibiting their ability to repay loans and
adversely affecting the Company's operations. The Company does not have
sufficient information accumulated from customers of the Company to enable the
Company to assess the degree to which customers' operations are susceptible to
potential problems relating to the year 2000 issue.
Safe Harbor Statement
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purpose of these safe harbor
provisions. Forward-looking statements, which are based on certain assumption
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe", "expect", "intend",
"anticipate", "estimate", "project"" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and the subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative / regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principles, policies and guidelines.
14
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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
PS FINANCIAL, INC.
CHICAGO, ILLINOIS
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
a. None
b. None
16
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: May 14, 1999 By: /s/Kimberly Rooney
------------------------------
Kimberly Rooney
Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1999 By: /s/Jeffrey Przybyl
------------------------------
Jeffrey Przybyl
Chief Financial Officer
(Principal Financial and
Accounting Officer)