UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ending June 30, 2001
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or
(_) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to _________
Commission File Number 0-25355
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PFSB BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Missouri 31-1627743
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
123 W. Lafayette St., P.O. Box 72, Palmyra, MO 63461
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(Address of principal executive offices) (Zip Code)
573-769-2134
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(Issuer's telephone number)
As of August 12, 2001, there were 417,022 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
Transitional Small Business Disclosure Format
Yes _________ No X
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PFSB BANCORP, INC. AND SUBSIDIARIES
FORM 10-QSB
JUNE 30, 2001
INDEX PAGE
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PART I - FINANCIAL INFORMATION
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ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1
CONSOLIDATED STATEMENTS OF INCOME 2
CONSOLIDATED STATEMENTS OF CASH FLOWS 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-10
PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
PFSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30, September 30,
2001 2000
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ASSETS (Unaudited) (Unaudited)
Cash (includes interest-bearing deposits of $4,276 and $3,490, respectively) $ 4,530 $ 3,792
Investment securities:
Available-for-sale, at fair value 7,542 8,870
Held-to-maturity (fair value of $2,252 and $7,217, respectively) 2,244 7,427
Mortgage-backed securities held-to-maturity (fair value of $4,677 and $3,008 respectively) 4,757 3,099
Stock in Federal Home Loan Bank of Des Moines ("FHLB") 427 403
Loans receivable, net (allowance for loan losses of $288 and $280 respectively) 47,366 44,529
Accrued interest receivable 485 600
Premises and equipment 1,043 1,082
Foreclosed real estate -- 105
Other assets 46 137
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TOTAL ASSETS $68,440 $70,044
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $59,295 $56,385
Advances from FHLB -- 4,250
Advances from borrowers for property taxes and insurance 55 51
Dividends Payable 62 --
Other liabilities 78 95
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TOTAL LIABILITIES 59,490 60,781
STOCKHOLDERS' EQUITY
Common stock, $.01 par value per share; 5,000,000 authorized, 559,000 issued 6 6
Additional paid-in capital 4,936 4,929
Retained earnings-substantially restricted 6,241 6,348
Unrealized loss on securities, net of taxes (52) (197)
Unearned ESOP shares (346) (380)
Unearned SBIP shares (176) (206)
Treasury stock, at cost (141,978 and 107,208 shares of common stock, respectively) (1,659) (1,237)
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TOTAL STOCKHOLDERS' EQUITY 8,950 9,263
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $68,440 $70,044
======= =======
See accompanying notes to consolidated financial statements.
-1-
PFSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
---------------------------------------
(Unaudited)
INTEREST INCOME
Mortgage loans $ 883 $ 794 $2,582 $2,344
Consumer and other loans 9 12 32 30
Interest-bearing deposits 19 17 88 43
Investment securities 202 257 697 795
Mortgage-backed securities 57 54 155 166
------ ------ ------ ------
TOTAL INTEREST INCOME $1,170 $1,134 $3,554 $3,378
INTEREST EXPENSE
Deposits 763 641 2,321 1,921
Advances from FHLB 5 57 93 158
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TOTAL INTEREST EXPENSE $ 768 $ 698 $2,414 $2,079
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NET INTEREST INCOME 402 436 1,140 1,299
PROVISION FOR LOAN LOSSES 8 -- 8 --
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 394 436 1,132 1,299
NON-INTEREST INCOME
Service charges and other fees 17 15 49 42
Loss from foreclosed assets (19) (1) (32) (12)
Loss from sale of fixed assets -- (3) -- (3)
Gain from sale of investments 8 -- 10 --
Other income 12 1 28 9
------ ------ ------ ------
TOTAL NON-INTEREST INCOME 18 12 55 36
NON-INTEREST EXPENSE
Employee salaries and benefits 194 196 604 545
Occupancy costs 43 40 131 111
Advertising 11 15 33 37
Data processing 23 25 72 72
Federal insurance premiums 4 3 8 14
Professional fees 25 41 110 112
Directors' fees 19 17 52 47
Other expenses 49 66 158 175
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TOTAL NON-INTEREST EXPENSE 368 403 1,168 1,113
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INCOME BEFORE INCOME TAXES 44 45 19 222
INCOME TAXES (INCOME TAX BENEFIT) 9 14 (4) 75
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NET INCOME $ 35 $ 31 $ 23 $ 147
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BASIC INCOME PER SHARE $ 0.10 $ 0.08 $ 0.06 $ 0.33
====== ====== ====== ======
DILUTED INCOME PER SHARE $ 0.09 $ 0.08 $ 0.06 $ 0.33
====== ====== ====== ======
See accompanying notes to Consolidated Financial Statements
-2-
PFSB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended
June 30
2001 2000
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(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 23 $ 147
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 63 46
Amortization of premiums and discounts (1) (2)
Loss on sale of premises and equipment -- 3
Gain on sale of investments (10) --
Loss on sale of foreclosed real estate 28 10
ESOP shares released 40 36
Amortization of SBIP 31 11
Changes to assets and liabilities increasing (decreasing) cash flows
Accrued interest receivable 115 138
Other assets 90 (11)
Other liabilities (106) 2
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NET CASH PROVIDED BY OPERATING ACTIVITIES 273 380
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of investment securities, held-to-maturity 5,189 60
Purchase of investment securities, available-for-sale (6,868) --
Proceeds from maturities and calls of investment securities, available-for-sale 8,437 1,000
Purchase of mortgage-backed securities (2,098) --
Principal collected on mortgage-backed securities 437 418
Purchase of FHLB stock (24) (12)
Loans originated, net of repayments (807) (1,161)
Purchase of mortgage loans (2,071) (511)
Proceeds from sale of education loans 41 35
Purchase of premises and equipment (24) (624)
Proceeds from sales of foreclosed real estate 76 3
Expenditures on foreclosed real estate 2 (1)
Proceeds from sale of premises and equipment -- 2
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NET CASH USED BY INVESTING ACTIVITIES $ 2,290 $ (791)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,911 (27)
Advances from FHLB
Borrowings -- 3,750
Repayments (4,250) (2,500)
Net increase (decrease) in advances for taxes and insurance 4 (1)
Dividends paid (68) (71)
Purchase of treasury stock (422) (1,237)
Purchase of treasury shares for SBIP -- (280)
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES $(1,825) $ (366)
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NET INCREASE (DECREASE) IN CASH 738 (777)
CASH, BEGINNING OF PERIOD 3,792 2,340
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CASH, END OF PERIOD $ 4,530 $ 1,563
======= =======
See accompanying notes to Consolidated Financial Statements
-3-
PFSB BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--Basis of Presentation
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The accompanying unaudited, consolidated financial statements have been prepared
by the PFSB Bancorp, Inc. (the "Company") in accordance with instructions to
Form 10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation are
reflected in the June 30, 2001, interim financial statements.
The results of operations for the period ended June 30, 2001, are not
necessarily indicative of the operating results for the full year. The
accompanying consolidated financial statements and related notes of PFSB
Bancorp, Inc. should be read in conjunction with the audited financial
statements and related notes included in the Company's Annual Report for the
year ended September 30, 2000.
NOTE B--Formation of Holding Company and Conversion to Stock Form
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On March 31, 1999, the Company became the holding company for Palmyra Savings
(the "Bank) upon the Bank's conversion from a federally chartered mutual savings
association to a federally chartered capital stock savings bank. The conversion
was accomplished through the sale and issuance by the Company of 559,000 shares
of common stock at $10 per share. Proceeds from the sale of common stock, net of
expenses incurred of $608,237, were $4,981,763, inclusive of $447,200 related to
shares held by Palmyra Savings' Employee Stock Ownership Plan ("ESOP"). The
financial statements included herein have not been restated as a result of the
consummation of the conversion.
NOTE C--Net Income (Loss) Per Share
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Basic income per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted income per common share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
--------------------------------------------------
(In thousands, except (In thousands, except
per share amounts) per share amounts)
Basic earnings per share:
Income available to common shareholders $ 35 $ 31 $ 23 $ 147
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Average common shares outstanding 367 406 381 442
===== ===== ===== =====
Basic income per share $0.10 $0.08 $0.06 $0.33
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Diluted income per share $0.09 $0.08 $0.06 $0.33
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-4-
PFSB BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE D--Employee Stock Ownership Plan
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In connection with the conversion to stock form, Palmyra Savings established an
ESOP for the exclusive benefit of participating employees (all salaried
employees who have completed at least 1000 hours of service in a twelve-month
period and have attained the age of 21). The ESOP borrowed funds from the
Company in an amount sufficient to purchase 44,720 shares (8% of the Common
Stock issued in the stock offering). The loan is secured by the shares purchased
and will be repaid by the ESOP with funds from contributions made by Palmyra
Savings, dividends received by the ESOP and any other earnings on ESOP assets.
Contributions will be applied to repay interest on the loan first, and then the
remainder will be applied to principal. The loan is expected to be repaid in
approximately 10 years. Shares purchased with the loan proceeds are held in a
suspense account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account are
allocated among participants in proportion to their compensation relative to
total compensation of all active participants. Participants will vest in their
accrued benefits under the employee stock ownership plan at the rate of 20% per
year, beginning upon the completion of two years of service. Vesting is
accelerated upon retirement, death or disability of the participant. Forfeitures
will be reallocated to remaining plan participants. Benefits may be payable upon
retirement, death, disability or separation from service. Since Palmyra Savings'
annual contributions are discretionary, benefits payable under the ESOP cannot
be estimated.
The Company accounts for its ESOP in accordance with Statement of Position
("SOP") 93-6, Employers Accounting for Employee Stock Ownership Plans.
Accordingly, the debt of the ESOP is eliminated in consolidation and the shares
pledged as collateral are reported as unearned ESOP shares in the consolidated
statements of financial condition. Contributions to the ESOP shall be sufficient
to pay principal and interest currently due under the loan agreement. As shares
are committed to be released from collateral, the Company reports compensation
expense equal to the average market price of the shares for the respective
period, and the shares become outstanding for earnings per share computations.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings; dividends on unallocated ESOP shares are recorded as a reduction of
debt and accrued interest.
A summary of ESOP shares at June 30, 2001 is as follows:
Shares committed for release 2,236
Shares released 7,826
Unreleased shares 34,658
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TOTAL 44,720
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Fair value of unreleased shares $408,964
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NOTE E--Stock Based Compensation Plans
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The Board of Directors adopted and the shareholders subsequently approved
(January 27, 2000) the PFSB Bancorp, Inc. 2000 Stock-Based Incentive Plan
("SBIP"). The purpose of the SBIP is to attract and retain qualified personnel
in key positions, provide officers, employees and non-employee directors of the
Company and Palmyra Savings, with a proprietary interest in the Company as an
incentive to contribute to the success of the Company, promote the attention of
management to other stockholder's concerns, and reward employees for outstanding
performance.
The SBIP authorizes the granting of options to purchase common stock of the
Company and awards of restricted shares of common stock. Subject to certain
adjustments to prevent dilution of awards to participants, the number of shares
of common stock reserved for awards under the SBIP is 78,260 shares, consisting
of 55,900 shares reserved for options and 22,360 shares reserved for restricted
stock awards. All employees and non-employee directors of the Company and its
affiliates are eligible to receive awards under the SBIP. The SBIP is
administered by a committee consisting of members of the Board of Directors who
are not employees of the Company or its affiliates.
-5-
PFSB BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On April 6, 2000, the Company granted options for 44,720 shares at $10.25 per
share and awarded the 22,360 shares reserved for restricted stock awards.
The options will enable the recipient to purchase stock at the exercise price
above. The options vest over three years following the date of grant and are
exercisable for up to 10 years. As of June 30, 2001, 16,154 options had vested,
and 1,218 options were exercised.
The restricted stock awards do not require any payment by the recipient and vest
over five years following the date of the award. The Company funded the
restricted stock awards with Treasury Stock which was purchased at a price above
the fair market value of the Company's stock at the award date resulting in an
increase in additional paid-in capital of $50,316. Amortization of the awards
resulted in a charge to compensation and benefit expense of $16,419 for the
three month period ended June 30, 2001.
The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize, as expense over the vesting period, the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 allows entities to disclose pro forma net income and income per share as if
the fair value-based method defined in SFAS No. 123 has been applied, while
continuing to apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, under which
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price.
As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation" the
Company has elected to apply the recognition provisions of Accounting Principles
Board Opinion No. 25, under which compensation expense is recorded on the date
of grant only if the current market price of the underlying stock exceeds the
exercise price. Accordingly, adoption of SFAS No. 123 will have no impact on the
Company's consolidated financial position or results of operations.
NOTE F--Comprehensive Income
- ----------------------------
On October 1, 1998 the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", which
established standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. For the three and nine month periods ended June
30, 2001 and 2000, unrealized holding gains and losses on investments in debt
and equity securities available-for-sale were the Company's only other
comprehensive income component.
Comprehensive income for the three and nine month periods ended June 30, 2001
and 2000 is summarized as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
----------------------------------------------------
(Dollars in thousands) (Dollars in thousands)
Net Income $ 35 $ 31 $ 23 $ 147
Other comprehensive income:
Net unrealized holding gains (losses) on investments
in debt and equity securities available-for-sale (58) 21 151 (17)
Adjustments for net securities (gains) losses realized
in net income, net of applicable income taxes (5) -- (6) --
----- ----- ----- -----
Total other comprehensive income (loss) $ (28) $ 52 $ 168 $ 130
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-6-
PFSB BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
- --------------------------
This report contains forward-looking statements within the meaning of the
federal securities laws. These statements are not historical facts, rather they
are statements based on the PFSB Bancorp, Inc.'s (the "Company's") current
expectations regarding its business strategies and their intended results and
its future performance. Forward-looking statements are preceded by terms such as
"expects," "believes," "anticipates," "intends," and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous
risks and uncertainties could cause or contribute to the Company's actual
results; performance and achievements to be materially different from those
expressed or implied by the forward-looking statements. Factors that may cause
or contribute to these differences include, without limitation, general economic
conditions, including changes in market interest rates and changes in monetary
and fiscal policies of the federal government; legislative and regulatory
changes; and other factors disclosed periodically in the Company's filings with
the Securities and Exchange Commission. Because of the risks and uncertainties
inherent in forward-looking statements, readers are cautioned not to place undue
reliance on them, whether included in this report or made elsewhere from time to
time by the Company or on its behalf. The Company assumes no obligation to
update any forward-looking statements.
General
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The Company is a Missouri corporation that was organized for the purpose of
becoming the holding company for Palmyra Savings ("Bank") upon the Bank's
conversion from a federal mutual savings association to a federal stock savings
bank. The Bank's conversion was completed on March 31, 1999. The Bank's business
consists principally of attracting retail deposits from the general public and
using these funds to originate and purchase residential mortgage loans generally
located in Missouri.
The Company's operating results depend primarily on its net interest income,
which is the difference between the income it receives from its loans and
investments, and the interest paid on deposits and borrowings. Non-interest
income and expenses also affect the Company's operating results. Non-interest
income would include such items as loan service fees, service charges, and other
fees. Non-interest expense would include such items as salaries and benefits,
occupancy costs, data processing expenses, and other expenses.
The discussion and analysis included herein covers material changes in results
of operations during the three month and nine month periods ended June 30, 2001
and 2000 as well as those material changes in liquidity and capital resources
that have occurred since September 30, 2000.
Financial Condition at June 30, 2001 and September 30, 2000
- -----------------------------------------------------------
Total assets decreased $1.6 million to $68.4 million at June 30, 2001. There was
a $738,000 increase in cash, a $6.5 million decrease in investment securities, a
$1.7 million increase in mortgage-backed securities, a $2.8 million increase in
loans receivable, a $115,000 decrease in accrued interest receivable, a $39,000
decrease in premises and equipment, a $105,000 decrease in foreclosed real
estate, and a $91,000 decrease in other assets. There were $13.3 million in
securities which were called in the period, $65,000 in securities which matured,
$250,000 which were sold, and $6.9 million in securities which were purchased.
The $6.5 million decrease in investment securities was used to fund the $1.7
million increase in mortgage-backed securities, the $2.8 million increase in
loans receivable, and the $738,000 increase in cash. The decrease in accrued
interest receivable was due primarily to the decrease in investment securities,
which was partially offset by the increase in mortgage-backed securities and the
increase in loans receivable. The decrease in foreclosed real estate was due to
the sale of an REO property, and the majority of the decrease in other assets
was due to the change in deferred taxes due the mark to market adjustment to
investment securities.
Total liabilities decreased $1.3 million to $59.5 million at June 30, 2001 as
compared to September 30, 2000. The decrease was due to the repayment of $4.3
million in FHLB advances partially offset by a $2.9 million increase in
deposits.
-7-
PFSB BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Stockholders' equity at June 30, 2001 decreased $313,000 to $8.9 million or
13.1% of total assets, as compared to $9.3 million at September 30, 2000. A
decrease in retained earnings of $107,000 was due to earnings of $23,000 and
stock dividend expense of $130,000, while treasury stock increased $422,000.
These decreases in equity were partially offset by a decrease in unrealized loss
on securities for the period of $145,000, and a decrease in unearned ESOP and
SBIP shares of $64,000.
Non-performing assets include non-accrual loans, loans 90 days or more
delinquent and still accruing interest, foreclosed real estate and other
repossessed assets. The following table presents non-performing assets for the
periods indicated.
June 30, September 30,
2001 2000
--------------------------------
Non-accrual loans...................................................................... $ 282 $ 151
Loans past due 90 days or more and still accruing interest ............................ -- --
Foreclosed real estate and other repossessed assets ................................... -- 105
----- -----
Total non-performing assets ...................................................... $ 282 $ 256
===== =====
Non-accrual loans at June 30, 2001 and September 30, 2000 consisted primarily of
residential real estate loans.
Results of Operations for the Three Months Ended June 30, 2001 and 2000
- -----------------------------------------------------------------------
Net Income - Net income increased $4,000 to $35,000 for the quarter ended June
30, 2001 as compared to net income of $31,000 for the quarter ended June 30,
2000. Basic income per share increased from $0.08 for the 2000 quarter end to
$0.10 for the 2001 quarter end.
Net Interest Income - Net interest income decreased $34,000 to $402,000 for the
three months ended June 30, 2001. Interest income increased $36,000 for the
three month period ended June 30, 2001 as compared to the three month period
ended June 30, 2000, while interest expense increased $70,000, resulting in a
decrease in net interest income of $34,000. The increase in interest income was
due to an increase in loans receivable of $4.3 million, and an increase in
mortgage-backed investments of $1.5 million, along with a decrease in investment
securities of $6.4 million. Interest expense increased $70,000 from the three
month period ended June 30, 2001 as compared to the same period ended June 30,
2000. This was primarily due to the increase in deposit expense of $122,000,
partially offset by a decrease in interest expense on FHLB advances $52,000. The
increase in deposit expense was a direct result of an increase in deposits,
primarily certificates of deposit, of $6.2 million. The decrease in interest on
advances was the result of a decrease in outstanding advances.
Provision for Loan Losses - The allowance for loan losses increased $8,000 from
June 30, 2000 to June 30, 2001. The increase was mainly due to the increase in
the loan portfolio. Management believes the overall allowance is adequate at
June 30, 2001 to meet any potential losses in the loan portfolio at that date.
Noninterest Income - Total noninterest income increased $6,000 to $18,000 for
June 30, 2001. $2,000 of the increase was an increase in service charges and
fees collected, $8,000 was gains on called investment securities, and $10,000
was a one time insurance premium refund. These increases were partially offset
by losses on foreclosed real estate of $18,000.
Noninterest Expense - Total noninterest expense decreased $35,000 to $368,000
for June 30, 2001. Of this decrease, $4,000 was due to a decrease in advertising
expense, $16,000 was due to a decrease in professional fees, and $17,000 was due
to a decrease in other operating expenses. The decrease in professional fees and
other operating expenses was due to consulting expenses incurred in the third
quarter of 2000 that were not realized in 2001.
Income Taxes - Income taxes decreased from a $14,000 tax expense for the quarter
ended June 30,2000 to a $9,000 tax expense for the quarter ended June 30, 2001.
-8-
PFSB BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations for the Nine Months Ended June 30, 2001 and 2000
- ----------------------------------------------------------------------
Net Income - Net income for the nine months ended June 30, 2001 decreased
$124,000 compared to the nine months ended June 30, 2000. Net interest income
decreased $159,000, while non-interest income increased $19,000. Non-interest
expense increased $55,000, and income taxes decreased $79,000 for the nine
months ended June 30, 2001 compared to the same period ended June 30, 2000.
Basic income per share decreased from $0.33 for the 2000 period end to $0.06 for
the 2001 period end.
Net Interest Income - Net interest income decreased $159,000 to $1,140,000 for
the nine months ended June 30, 2001. Interest income increased $176,000 for the
nine month period ended June 30, 2001 as compared to the nine month period ended
June 30, 2000, while interest expense increased $335,000, resulting in a
decrease in net interest income of $159,000. The increase in interest income was
due to an increase in loans receivable of $4.3 million and an increase in
mortgage-backed investments of $1.5 million, along with a decrease in investment
securities of $6.4 million. Interest expense increased $335,000 for the nine
month period ended June 30, 2001 as compared to the same period ended June 30,
2000. This was primarily due to an increase in deposit expense of $400,000 was
partially offset by a decrease in interest on advances of $65,000. The increase
in deposit expense was a direct result of an increase in deposits, primarily
certificates of deposit, of $6.2 million. The decrease in interest on advances
was the result of a decrease in outstanding advances.
Provision for Loan Losses - The allowance for loan losses increased $8,000 from
June 30, 2000 to June 30, 2001. The increase was mainly due to the increase in
the loan portfolio. Management believes the overall allowance is adequate at
June 30, 2001 to meet any potential losses in the loan portfolio at that date.
Noninterest Income - Total noninterest income increased $19,000 to $55,000 for
June 30, 2001. $7,000 of the increase was an increase in service charges and
fees collected, $10,000 was gains on called investment securities, $10,000 was a
one time insurance premium refund, and $8,000 was due to several non-recurring
transactions that took place in the quarter ended December 31, 2000. These
increases were partially offset by losses on foreclosed real estate of $20,000.
Noninterest Expense - Total noninterest expense increased $55,000 to $1,168,000
June 30, 2001. Of the increase, $59,000 was due to increased employee cost which
included compensation expenses which are associated with the addition of the
Stock-Based Incentive Plan and a 20% increase in employee insurance costs.
Occupancy costs increased $20,000 primarily due to costs associated with the
Kahoka branch office building opened in the spring of 2000, while other
operating expenses decreased $17,000.
Income Taxes - Income taxes decreased from a $75,000 tax expense for the nine
month period ended June 30,2000 to a $4,000 tax benefit for the nine month
period ended June 30, 2001. This was a result of lower income before income
taxes in 2001
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of funds are maturities and prepayments of
investment securities, customer deposits, proceeds from principal and interest
payments on loans and Federal Home Loan Bank of Des Moines advances. While
investment securities maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows, investment securities prepayments
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
Palmyra Savings must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. Palmyra Savings generally maintains sufficient cash
and short-term investments to meet short-term liquidity needs. At June 30, 2001,
cash and interest-bearing deposits totaled $4.5 million, or 7.0% of total
assets, and investment securities classified as available-for-sale totaled $7.5
million.
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PFSB BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Bank's primary investing activity is the origination and purchase of one- to
four-family mortgage loans. At June 30, 2001, the Bank had outstanding loan
commitments totaling $3.2 million and had undisbursed loans in process totaling
$545,000. Certificates of deposit that are scheduled to mature in less than one
year from June 30, 2001 totaled $29.5 million. Historically, the Bank has been
able to retain a significant amount of its deposits as they mature. Management
believes it has adequate resources to fund all loan commitments from savings
deposits, loan payments, maturities of investment securities and the ability to
obtain advances from the Federal Home Loan Bank.
Office of Thrift Supervision regulations require Palmyra Savings to maintain
specific amounts of regulatory capital. As of June 30, 2001 Palmyra Savings
complied with all regulatory capital requirements stated below. The following
table summarizes Palmyra Savings' capital ratios and the ratios required by
regulation at June 30, 2001.
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ------------------ ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ------ -------- -------- ------------ ----------
(Dollars in thousands)
As of June 30, 2001
Total Risk-Based Capital
(to Risk Weighted Assets) $8,456 24.75% $2,733 8.0% $3,416 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $8,168 23.91% $1,366 4.0% $2,050 6.0%
Tier 1 Capital
(to Adjusted Assets) $8,168 11.92% $2,055 3.0% $3,425 5.0%
Tangible Capital
(to Adjusted Assets) $8,168 11.92% $1,027 1.5% N/A N/A
-10-
PFSB BANCORP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor Palmyra Savings is a party to any material legal
proceedings at this time. From time to time Palmyra Savings is involved in
various claims and legal actions arising in the ordinary course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
3.1 Articles of Incorporation of PFSB Bancorp, Inc.*
3.2 Bylaws of PFSB Bancorp, Inc.*
4.0 Form of Stock Certificate of PFSB Bancorp, Inc.*
10.1 Employment Agreement with Eldon R. Mette * *
10.2 Employment Agreement with Ronald L. Nelson * *
10.3 PFSB Bancorp, Inc. 2000 Stock-Based Incentive Plan * * *
b. Reports on Form 8-K
None
* Incorporated by reference from the Form SB-2 (Registration No. 333-
69191), as amended, as filed on December 18, 1998.
* * Incorporated by reference from the Form 10-QSB for the quarter ended
March 31, 1999, as filed on May 17, 1999.
* * * Incorporated by reference from the Definitive Proxy Statement for the
2000 Annual Meeting of Stockholders, as filed on December 15, 1999.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PFSB Bancorp, Inc.
Date: August 14, 2001 By:/s/ Eldon R. Mette
--------------------------------------
Eldon R. Mette
President and Chief Executive Officer
Date: August 14, 2001 By:/s/ Ronald L. Nelson
--------------------------------------
Ronald L. Nelson
Vice President, Treasurer
and Secretary
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