UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
__________________________
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _______________
Commission File Number: 033233
____________
PFS BANCORP, INC.
______________________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Indiana 35-2142534
_______________________________ _________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Second & Bridgeway Streets, Aurora, Indiana 47001
______________________________________________________________________________
(Address of principal executive offices)
(812) 926-0631
______________________________________________________________________________
(Issuer's telephone number)
______________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
May 16, 2005 - 1,473,728 shares of common stock
__________________________________________________
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 16
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Controls and Procedures 14
PART II -OTHER INFORMATION 15
SIGNATURES 16
2
PFS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, December 31,
ASSETS 2005 2004
(unaudited)
Cash and due from banks $ 1,250 $ 995
Interest-bearing deposits in other financial institutions 4,710 6,489
-------- --------
Cash and cash equivalents 5,960 7,484
Investment securities designated as available for sale -
at market 4,763 5,014
Investment securities held to maturity - at amortized cost, which
approximates market 133 143
Loans receivable - net 120,246 114,673
Office premises and equipment - at depreciated cost 901 940
Federal Home Loan Bank stock - at cost 1,075 975
Accrued interest receivable 500 441
Prepaid expenses and other assets 120 64
Prepaid income taxes - 20
Deferred income taxes 2 -
-------- --------
Total assets $133,700 $129,754
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 90,227 $ 86,939
Advances from the Federal Home Loan Bank 21,500 17,500
Note payable - 3,500
Advances by borrowers for taxes and insurance 245 201
Accrued interest payable 12 11
Other liabilities 1,225 1,061
Accrued federal income taxes 9 -
Deferred income taxes - 13
-------- --------
Total liabilities 113,218 109,225
Commitments - -
Shareholders' equity
Preferred stock, 5,000,000 shares authorized, $.01 par value;
no shares issued - -
Common stock - 10,000,000 shares authorized, $.01 par value;
1,551,293 shares issued 16 16
Additional paid-in capital 15,106 15,106
Retained earnings - restricted 7,409 7,298
Less 77,565 shares of treasury stock - at cost (1,282) (1,282)
Shares acquired by stock benefit plans (1,608) (1,608)
Accumulated other comprehensive income - unrealized gains on
securities designated as available for sale, net of related tax effects 841 999
-------- --------
Total shareholders' equity 20,482 20,529
-------- --------
Total liabilities and shareholders' equity $133,700 $129,754
======== ========
3
PFS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
For the three months ended March 31,
(In thousands, except per share data)
2005 2004
Interest income
Loans $1,531 $1,277
Investment securities 53 85
Interest-bearing deposits and other 24 10
----- -----
Total interest income 1,608 1,372
Interest expense
Deposits 421 369
Borrowings 179 23
----- -----
Total interest expense 600 392
----- -----
Net interest income 1,008 980
Provision for losses on loans 24 24
----- -----
Net interest income after provision for
losses on loans 984 956
Other income
Gain on sale of investment securities 51 -
Service charges 73 80
Other operating 44 38
----- -----
Total other income 168 118
General, administrative and other expense
Employee compensation and benefits 472 427
Occupancy, equipment and automobile 84 84
Data processing 72 62
Other operating 154 134
----- -----
Total general, administrative and other expense 782 707
----- -----
Earnings before income taxes 370 367
Income taxes
Current 82 150
Deferred 67 -
----- -----
Total income taxes 149 150
----- -----
NET EARNINGS $ 221 $ 217
===== =====
EARNINGS PER SHARE
Basic $.16 $.16
=== ===
Diluted $.16 $.16
=== ===
4
PFS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the three months ended March 31,
(In thousands)
2005 2004
Net earnings $221 $217
Other comprehensive income, net of tax effects:
Unrealized holding gains (losses) on securities during the period,
net of taxes (benefits) of $(99) and $8 in 2005 and 2004, respectively (192) 16
Reclassification adjustment for realized gains included in earnings,
net of taxes of $17 in 2005. 34 -
---- ----
Comprehensive income $ 63 $233
==== ====
Accumulated comprehensive income $841 $875
==== ====
5
PFS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31,
(In thousands)
2005 2004
Cash flows from operating activities:
Net earnings for the period $ 221 $ 217
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Amortization of deferred loan origination fees (11) (10)
Amortization of premiums and discounts on investment securities - net 11 17
Federal Home Loan Bank stock dividends (10) (9)
Depreciation 39 40
Provision for losses on loans 24 24
Gain on sale of investment securities (51) -
Deferred compensation liability 11 13
Increase (decrease) in cash due to changes in:
Accrued interest receivable (59) (6)
Prepaid expenses and other assets (56) (15)
Other liabilities 153 144
Accrued interest payable 1 2
Income taxes
Current 29 78
Deferred 67 -
------ ------
Net cash provided by operating activities 369 495
Cash flows used in investing activities:
Purchase of investment securities designated as available for sale - (5,984)
Proceeds from maturities and repayment of investment securities 10 209
Proceeds from sale of investment securities 52 5,950
Loan principal repayments 6,535 5,539
Loan disbursements (12,121) (8,639)
Purchase of office premises and equipment - (5)
Purchase of Federal Home Loan Bank stock (90) -
------ ------
Net cash used in investing activities (5,614) (2,930)
Cash flows provided by financing activities:
Net increase (decrease) in deposits 3,288 (1,360)
Repayment of note payable (3,500) -
Proceeds from Federal Home Loan Bank advances 6,000 4,000
Repayment of Federal Home Loan Bank advances (2,000) -
Advances by borrowers for taxes and insurance 44 37
Dividends paid on common stock (111) (111)
------ ------
Net cash provided by financing activities 3,721 2,566
------ ------
Net (decrease) increase in cash and cash equivalents (1,524) 131
Cash and cash equivalents at beginning of period 7,484 5,187
------ ------
Cash and cash equivalents at end of period $ 5,960 $ 5,318
====== ======
6
PFS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(CONTINUED)
For the three months ended March 31,
(In thousands)
2005 2004
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 53 $ 35
=== ===
Interest on deposits and borrowings $ 599 $ 390
=== ===
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $(192) $ 16
=== ===
Transfers from loans to real estate acquired through
foreclosure $ - $ 50
=== ===
7
PFS Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2005 and 2004
Forward-Looking Statements
--------------------------
This Form 10-QSB contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of
management as well as assumptions made by and information currently
available to management. In addition, in those and other portions of
this document, the words "anticipate," "believe," "estimate,"
"except," "intend," "should" and similar expressions, or the negative
thereof, as they relate to the Company or the Company's management,
are intended to identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future
looking events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties
materialize or should underlying assumptions prove incorrect, actual
results may vary from those described herein as anticipated, believed,
estimated, expected or intended. The Company does not intend to
update these forward-looking statements.
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include information or footnotes necessary for a
complete presentation of financial position, results of operations and
cash flows in conformity with accounting principles generally accepted
in the United States of America. Accordingly, these financial
statements should be read in conjunction with the Consolidated
Financial Statements and Notes thereto of the Company for the year
ended December 31, 2004. However, in the opinion of management, all
adjustments (consisting of only normal recurring accruals) which are
necessary for a fair presentation of the consolidated financial
statements have been included. The results of operations for the
three month period ended March 31, 2005, are not necessarily
indicative of the results which may be expected for the entire year.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of PFS Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, Peoples Federal Savings Bank (the "Savings Bank"). All
significant intercompany items have been eliminated.
3. Earnings Per Share
-------------------
Basic earnings per share is computed based upon the weighted-average
common shares outstanding during the period less shares in the ESOP
that are unallocated and not committed to be released. Weighted-
average common shares deemed outstanding, which gives effect to 75,597
and 86,632 unallocated ESOP shares, totaled 1,398,131 and 1,387,096
for the three month periods ended March 31, 2005 and 2004,
respectively. Diluted earnings per share is computed by taking into
consideration common shares outstanding and the dilutive effect of
additional potential common shares issuable under the Company's stock
option plan. The computations are as follows:
March 31,
2005 2004
Weighted-average common shares
outstanding (basic) 1,398,131 1,387,096
Dilutive effect of assumed exercise
of stock options 19,158 9,405
--------- ---------
Weighted-average common shares
outstanding (diluted) 1,417,289 1,396,501
========= =========
8
PFS Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended March 31, 2005 and 2004
4. Stock Option Plan
-----------------
The Board of Directors had previously adopted the PFS Bancorp, Inc.
Stock Option Plan (the "Plan") which provides for the issuance of
152,088 shares of authorized but unissued shares of common stock at
fair value at the date of grant. Stock options were granted in June
2003 for 79,316 (adjusted) shares at an exercise price equal to fair
value of $13.22 (adjusted for the $5.00 special dividend in 2004). The
Plan provides that one-fifth of the options granted become exercisable
on each of the first five anniversaries of the date of grant and each
option has an exercise period to ten years from the grant date.
The Company accounts for the Plan in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation," which contains a fair value-
based method for valuing stock-based compensation that entities may
use, which measures compensation cost at the grant date based on the
fair value of the award. Compensation is then recognized over the
service period, which is usually the vesting period. Alternatively,
SFAS No. 123 permits entities to continue to account for stock options
and similar equity instruments under Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities that continue to account for stock options using APB Opinion
No. 25 are required to make pro forma disclosures of net earnings and
earnings per share, as if the fair value-based method of accounting
defined in SFAS No. 123 had been applied.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the Plan. Accordingly, no compensation cost has been
recognized for the Plan. Had compensation cost for the Plan been
determined based on the fair value at the grant date for awards under
the Plan consistent with the accounting method utilized in SFAS No.
123, the Company's net earnings and earnings per share would have been
reported as the pro forma amounts indicated below:
Three months ended
March 31,
2005 2004
Net earnings (In thousands) As reported $221 $217
Stock-based compensation, net of tax (9) (7)
--- ---
Pro-forma $212 $210
=== ===
Earnings per share
Basic As reported $.16 $.16
Stock-based compensation, net of tax (.01) (.01)
--- ---
Pro-forma $.15 $.15
=== ===
Diluted As reported $.16 $.16
Stock-based compensation, net of tax (.01) (.01)
--- ---
Pro-forma $.15 $.15
=== ===
9
PFS Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended March 31, 2005 and 2004
4. Stock Option Plan (continued)
-----------------
A summary of the status of the Plan as of March 31, 2005 and December
31, 2004 and 2003 is presented below:
March 31, December 31,
2005 2004 2003
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
Outstanding at beginning of period 79,316 $13.22 79,316 $13.22 - $ -
Granted - - - - 79,316 13.22
Exercised - - - - - -
Forfeited - - - - - -
------ ----- ------ ----- ------ -----
Outstanding at end of period 79,316 $13.22 79,316 $13.22 79,316 $ 13.22
====== ===== ====== ===== ====== =====
Options exercisable at period-end 15,863 $13.22 15,863 $13.22 - $ -
====== ===== ====== ===== ====== =====
Weighted-average fair value of
options granted during the period N/A N/A $ 3.82
===== ===== =====
The following information applies to options outstanding at March 31, 2005:
Number outstanding 79,316
Exercise price $13.22
Weighted-average exercise price $13.22
Weighted-average remaining contractual life 8.25 years
5. Critical Accounting Policies
----------------------------
Certain of the Company's accounting policies are important to the
portrayal of the Company's financial condition, since they require
management to make difficult, complex or subjective judgments, some of
which may relate to matters that are inherently uncertain. Estimates
associated with these policies are susceptible to material changes as
a result of changes in facts and circumstances. Facts and
circumstances which could affect these judgments include, but without
limitation, changes in interest rates, changes in the performance of
the economy or changes in the financial condition of borrowers.
Management believes that its critical accounting policies primarily
focuses on determining the allowance for loan losses. The Company's
critical accounting policies are discussed in detail in its Annual
Report for the year ended December 31, 2004 (incorporated by reference
into the Company's 10-KSB filing) in Note A of the Notes to the
Consolidated Financial Statements under "Allowance for Loan Losses."
If management were to underestimate the allowance for loan losses,
earnings could be reduced in the future as a result of greater than
expected net loan losses. Overestimations of the required allowance
could result in future increases in income, as loan loss recoveries
increase or provisions for losses on loans decrease.
10
PFS Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from December 31, 2004 to
March 31, 2005
--------------------------------------------------------------------
At March 31, 2005, the Company's assets totaled $133.7 million, an
increase of $3.9 million, or 3.0%, compared to total assets at
December 31, 2004. The increase in assets was comprised primarily of
a $5.6 million, or 4.9%, increase in loans receivable which was
principally funded by additional deposits of $3.3 million.
Liquid assets (i.e. cash and interest-bearing deposits) decreased by
$1.5 million, or 20.4%, from December 31, 2004 levels, to a total of
$6.0 million at March 31, 2005. Investment securities available for
sale totaled $4.8 million at March 31, 2005, a decrease of $251,000,
or 5.0%, from December 31, 2004 levels. The decrease in investment
securities was due to a sale of securities totaling $52,000 and a
decrease in the market value of the investment securities during the
three month period.
As previously stated, loans receivable increased by $5.6 million, or
4.9%, during the three month period ended March 31, 2005, to a total
of $120.2 million. Loan disbursements amounted to $12.1 million and
were partially offset by principal repayments of $6.5 million. During
the three months ended March 31, 2005, loan originations were
comprised of $5.9 million in loans secured by one- to four-family
residential real estate, $3.5 million in loans secured by commercial
and nonresidential real estate and $2.7 million in consumer and other
loans.
The allowance for loan losses totaled $856,000 and $833,000 at March
31, 2005 and December 31, 2004, respectively. Nonperforming and
impaired loans totaled $422,000 and $816,000 at March 31, 2005 and
December 31, 2004, respectively. The decrease in nonperforming and
impaired loans was primarily due to the repayment in full of a
$500,000 nonperforming loan during the quarter ended March 31, 2005.
The allowance for loan losses represented 202.8% and 102.1% of
nonperforming and impaired loans as of March 31, 2005 and December
31, 2004, respectively. The allowance represented approximately .70%
of the total loan portfolio at March 31, 2005 and December 31, 2004.
At March 31, 2005, nonperforming and impaired loans were comprised of
$329,000 in loans secured by one- to four-family residential real
estate and $93,000 in commercial, consumer and other loans.
Management believes such loans are adequately collateralized and does
not presently expect to incur any additional material losses on such
loans. Although management believes that its allowance for loan
losses at March 31, 2005 was sufficient to cover known and inherent
losses in the loan portfolio based upon the available facts and
circumstances, there can be no assurance that additions to such
allowance will not be necessary in future periods, which could
adversely affect the Company's results of operations.
Deposits totaled $90.2 million at March 31, 2005, an increase of $3.3
million, or 3.8%, from December 31, 2004 levels. While management
generally strives to maintain a moderate level of growth in deposits
through marketing and pricing strategies, the current rise in interest
rates have contributed to the increase in deposits as depositors are
attracted by the higher yields. The increase in deposits was used to
fund increased loan demand. Federal Home Loan Bank advances increased
by $4.0 million to $21.5 million at March 31, 2005. The increase in
advances was used to pay down the $3.5 million line of credit to zero.
Shareholders' equity amounted to $20.5 million at both March 31, 2005
and December 31, 2004. During the quarter, shareholders' equity
increased from the net earnings of $221,000, which was reduced by a
net $158,000 decrease in unrealized gains on securities designated as
available for sale and by the payment of dividends of $111,000.
The Saving Bank is required to meet minimum capital standards
promulgated by the Office of Thrift Supervision ("OTS"). At March 31,
2005, the Savings Bank's regulatory capital was well in excess of the
minimum capital requirements.
11
PFS Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods Ended
March 31, 2005 and 2004
-----------------------------------------------------------------
General
-------
Net earnings for the three months ended March 31, 2005 amounted to
$221,000, an increase of $4,000, or 1.8%, compared to the $217,000 in
net earnings reported for the three month period ended March 31, 2004.
The increase in earnings was due primarily to a $28,000, or 2.9%,
increase in net interest income and a $50,000, or 42.4%, increase in
other income, which were partially offset by a $75,000, or 10.6%,
increase in general, administrative and other expense.
Net Interest Income
-------------------
Total interest income amounted to $1.6 million for the three-month
period ended March 31, 2005, an increase of $236,000, or 17.2%, from
the same period in 2004. Interest income on loans totaled $1.5
million during the 2005 period, an increase of $254,000, or 19.9%,
from the 2004 period. This increase was due primarily to a $16.6
million, or 16.2%, increase in the average balance of loans
outstanding quarter to quarter, coupled with a 16 basis point increase
in the weighted-average yield to 5.14% for the quarter ended March 31,
2005. The increase in the average balance was due to the growth in
the loan portfolio, in particular, commercial and nonresidential real
estate. The increase in yield was due to the upward repricing of our
adjustable rate mortgages reflecting recent increases in market
interest rates.
Interest income on investment securities decreased by $32,000, or
37.6%, for the three months ended March 31, 2005, compared to the same
quarter in 2004. This decline was due primarily to a $4.8 million, or
44.3%, decrease in the average balance outstanding which was partially
offset by a 37 basis point increase in the weighted-average yield to
3.51% for the quarter ended March 31, 2005. The decrease in the
average balance of investment securities was primarily due to the
maturity of investment securities which was used to partially pay a
$5.00 per share special dividend in October 2004. Interest income on
other interest-bearing deposits increased by $14,000, or 140.0%,
during the three months ended March 31, 2005, compared to the same
period in 2004, due primarily to a 120 basis point increase in the
weighted-average yield, to 2.14% for the 2005 quarter, coupled with a
$220,000, or .5%, increase in the average balance outstanding for the
three month period. The increase in the weighted average yield of
interest-bearing deposits was primarily due to the rise in short term
interest rates.
Interest expense on deposits totaled $421,000 for the three month
period ended March 31, 2005, an increase of $52,000, or 14.1%, from
the $369,000 recorded for the same period in 2004. The increase in
interest on deposits was due primarily to a 23 basis point increase in
the weighted-average cost of deposits in the 2005 period, coupled with
a $785,000, or .9%, increase in the average balance outstanding
quarter to quarter. Interest expense on borrowings increased by
$156,000 to $179,000 for the three month period ended March 31, 2005,
as compared to $23,000 in borrowing costs in the 2004 quarter. The
increase in borrowing costs is due to a $16.8 million increase in the
average borrowings outstanding quarter to quarter. The increase in
borrowings was also used to fund increased loan demand.
12
PFS Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods Ended
March 31, 2005 and 2004 (continued)
-----------------------------------------------------------------
Provision for Losses on Loans
-----------------------------
As a result of an analysis of historical experience, the volume and
type of lending conducted by the Savings Bank, the status of past due
principal and interest payments, general economic conditions,
particularly as such conditions relate to the Savings Bank's market
area, and other factors related to the collectibility of the Savings
Bank's loan portfolio, management elected to record a provision for
losses on loans totaling $24,000 for each of the quarters ending March
31, 2005 and 2004. The current period provision was predicated
primarily upon the continuing change in the loan portfolio mix,
including an increase in loans secured by nonresidential real estate,
as well as an increase in the size of the loan portfolio. There can be
no assurance that the loan loss allowance will be sufficient to cover
estimated loan losses in the future.
Other Income
------------
Other income totaled $168,000 for the three month period ended March
31, 2005, an increase of $50,000, or 42.4%, over the same period in
2004. The increase in other income was due primarily to a $51,000
gain from the sale of investment securities. Excluding the investment
securities gain, other income would have decreased by $1,000 from
quarter to quarter. This decline is a result of a $7,000, or 8.8%,
decrease in service charge fees which was partially offset by a
$6,000, or 15.8%, increase in other operating income.
General, Administrative and Other Expense
-----------------------------------------
General, administrative and other expense totaled $782,000 for the
three months ended March 31, 2005, an increase of $75,000, or 10.6%,
compared to the same quarter in 2004. This increase was due primarily
to a $45,000, or 10.5%, increase in employee compensation and
benefits, a $20,000, or 14.9%, increase in other operating expenses
and a $10,000, or 16.1%, increase in data processing expenses. The
increase in employee compensation and benefits was due to pension
costs totaling $51,000. Excluding the pension expense, employee
compensation and benefits decreased $6,000, or 1.4%, quarter to
quarter. The increase in other operating expenses is primarily due to
increased check processing costs and legal expense related to the on-
going compliance costs of being a stock company.
Income Taxes
------------
The income tax provision totaled $149,000 for the three month period
ended March 31, 2005, a decrease of $1,000, or .7%, compared to the
same quarter in 2004. The income tax provision includes expense for
federal and Indiana state income taxes. The combined effective tax
rates were 40.3% and 40.9% for the three month periods ended March 31,
2005 and 2004, respectively.
13
PFS Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Subsequent Events
-----------------
On May 4, 2005, the Company announced that it entered into an
agreement and plan of merger with Peoples Community Bancorp, Inc.
(Peoples Community), whereby Peoples Community will pay $23.00 per
share in cash, or approximately $33.8 million in the aggregate, for
100% of the outstanding common shares of the Company. The transaction
is subject to shareholder and regulatory approval with a tentative
closing date in the fourth quarter of calendar 2005.
Impact of Inflation and Changing Prices
---------------------------------------
The financial statements and related financial data presented herein
have been prepared in accordance with instructions to Form 10-QSB,
which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in
relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the Savings Bank's
assets and liabilities are monetary in nature. As a result, interest
rates generally have a more significant impact on a financial
institution's performance than does the effect of inflation.
ITEM 3: Controls and Procedures
-----------------------
The Company's management reviews the systems of internal controls with
a view towards continuous improvement. In this regard, management
became aware that security access logs were not being reviewed.
Management has implemented corrective action with respect to this
matter and is currently reviewing access logs on a weekly basis and
more frequently if the situation warrants it. The Company's Chief
Executive Officer and Chief Financial Officer evaluated the
effectiveness of our disclosure controls and procedures (as defined
under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934) as of the end of the period covered by this report. Based on
such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures are
designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Securities and Exchange
Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and regulations and are
operating in an effective manner.
14
PFS Bancorp, Inc.
PART II
ITEM 1. Legal Proceedings
-----------------
Not applicable
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
Not applicable
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On May 5, 2005, the Company held its Annual Meeting of
Shareholders. Two matters were submitted to the shareholders
for a vote. The shareholders elected two directors to terms
expiring in 2008 by the following votes:
For Withheld
--- --------
Robert L. Laker 1,245,186 79,583
Mel E. Green 1,221,716 103,053
Directors whose terms are continuing are Gilbert L. Houze
and Jack D. Tandy with terms expiring in 2006 and Dale R.
Moeller and Carl E. Petty with terms expiring in 2007.
The shareholders also ratified the selection of Grant
Thornton LLP as the Company's auditors for the 2005 fiscal
year by the following vote:
For: 1,321,044 Against: 3,214 Abstain: 510
ITEM 5. Other Information
-----------------
None.
ITEM 6. Exhibits
--------
EX-31.1 Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a)
EX-31.2 Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a)
EX-32.1 Section 1350 Certification of the Chief Executive
Officer
EX-32.2 Section 1350 Certification of the Chief Financial
Officer
15
PFS Bancorp, Inc.
SIGNATURES
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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.
Date: May 16, 2005 By: /s/Mel E. Green
------------------------- --------------------------
Mel E. Green
President and Chief Executive Officer
Date: May 16, 2005 By: /s/Stuart M. Suggs
------------------------- --------------------------
Stuart M. Suggs
Corporate Treasurer, Chief Operating
Officer, and Chief Financial Officer
16