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, 2002
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _______________
Commission File Number: 033233
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PFS BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Indiana 35-2142534
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Second & Bridgeway Streets, Aurora, Indiana 47001
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(Address of principal executive offices)
(812) 926-0631
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since
last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Yes [ ] 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 9, 2002 - 1,551,293 shares of
common stock
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 14
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 10
PART II - OTHER INFORMATION 13
SIGNATURES 14
2
PFS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, December 31,
ASSETS 2002 2001
Cash and due from banks $ 863 $ 1,034
Interest-bearing deposits in other financial institutions 13,887 12,820
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Cash and cash equivalents 14,750 13,854
Investment securities designated as available for sale -
at market 8,622 5,953
Investment securities held to maturity - at amortized cost, which
approximates market 160 169
Loans receivable - net 95,375 96,772
Office premises and equipment - at depreciated cost 1,087 1,069
Real estate acquired through foreclosure 107 101
Federal Home Loan Bank stock - at cost 699 699
Accrued interest receivable 434 397
Prepaid expenses and other assets 71 32
Prepaid federal income taxes 65 199
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Total assets $121,370 $119,245
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 92,235 $ 90,429
Advances by borrowers for taxes and insurance 114 75
Accrued interest payable 26 35
Deferred compensation 657 645
Other liabilities 194 107
Deferred federal income taxes 94 118
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Total liabilities 93,320 91,409
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 and outstanding 16 16
Additional paid-in capital 14,931 14,931
Retained earnings - substantially restricted 13,361 13,102
Shares acquired by stock benefit plan (1,095) (1,095)
Accumulated other comprehensive income - unrealized gains on
securities designated as available for sale, net of related tax effects 837 882
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Total shareholders' equity 28,050 27,836
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Total liabilities and shareholders' equity $121,370 $119,245
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3
PFS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended March 31,
(In thousands, except per share data)
2002 2001
Interest income
Loans $1,658 $2,037
Investment securities 47 5
Interest-bearing deposits and other 73 165
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Total interest income 1,778 2,207
Interest expense
Deposits 792 1,224
Borrowings - 49
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Total interest expense 792 1,273
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Net interest income 986 934
Provision for losses on loans 24 54
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Net interest income after provision for
losses on loans 962 880
Other operating income 80 78
General, administrative and other expense
Employee compensation and benefits 315 261
Occupancy and equipment 65 64
Data processing 70 61
Federal deposit insurance premiums 15 12
Other operating 145 117
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Total general, administrative and other expense 610 515
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Earnings before income taxes 432 443
Income taxes
Current 174 213
Deferred (1) (25)
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Total income taxes 173 188
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NET EARNINGS $ 259 $ 255
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EARNINGS PER SHARE
Basic $.18 N/A
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Diluted $.18 N/A
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4
PFS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31,
(In thousands)
2002 2001
Net earnings $259 $255
Other comprehensive loss, net of tax:
Unrealized holding losses on securities during the period,
net of tax benefits of $23 and $153 in 2002 and 2001, respectively (45) (296)
--- ---
Comprehensive income (loss) $214 $(41)
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Accumulated comprehensive income $837 $873
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5
PFS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(In thousands)
2002 2001
Cash flows from operating activities:
Net earnings for the period $ 259 $ 255
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (15) (16)
Depreciation and amortization 33 29
Provision for losses on loans 24 54
Increase (decrease) in cash due to changes in:
Accrued interest receivable (37) (10)
Prepaid expenses and other assets (39) (35)
Other liabilities 99 32
Accrued interest payable (9) 5
Income taxes
Current 134 (44)
Deferred (1) (25)
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Net cash provided by operating activities 448 245
Cash flows provided by (used in) investing activities:
Purchase of investment securities designated as available for sale (8,716) -
Proceeds from maturities and repayment of investment
securities 5,984 9
Loan principal repayments 8,242 8,649
Loan disbursements (6,860) (8,279)
Purchase of office premises and equipment (47) (12)
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Net cash provided by (used in) investing activities (1,397) 367
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits 1,806 (2,275)
Advances by borrowers for taxes and insurance 39 45
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Net cash provided by (used in) financing activities 1,845 (2,230)
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Net increase (decrease) in cash and cash equivalents 896 (1,618)
Cash and cash equivalents at beginning of period 13,854 14,901
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Cash and cash equivalents at end of period $14,750 $13,283
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6
PFS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended March 31,
(In thousands)
2002 2001
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ - $ 200
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Interest on deposits and borrowings $801 $1,268
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Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects $(45) $ (296)
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Transfers from loans to real estate acquired through
foreclosure $ 6 $ -
=== =====
7
PFS Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2002 and 2001
1. Basis of Presentation
Mutual to Stock Conversion. On October 11, 2001, PFS Bancorp, Inc. (the
"Company") completed the mutual-to-stock conversion (the "Conversion") of
Peoples Federal Savings Bank ("Peoples" or the "Savings Bank"), and the sale
of 1,520,875 shares of Company common stock, par value $0.01 per share at
$10.00 per share ("Company Common Stock") for total gross proceeds of $15.2
million. The costs of issuing the common stock were deducted from the sale
proceeds of the offering, resulting in total net proceeds from the offering
equaling approximately $14.6 million. As an integral part of the Conversion
and in furtherance of the Savings Bank's commitment to the communities that
it serves, Peoples and the Company have established a charitable foundation
known as PFS Community Foundation (the "Foundation") and have contributed
30,418 shares of Company Common Stock to the Foundation. The Foundation
provides funding to support charitable causes and community development
activities which complement the Savings Bank's existing community
activities. In addition, the Company established an employee stock ownership
plan ("ESOP") for the employees of the Company and Peoples which became
effective with the completion of the Conversion.
Financial Statement Presentation. The Company was incorporated under Indiana
law in June, 2001 by Peoples in connection with the Conversion. Upon
consummation of the Conversion on October 11, 2001, the Company became the
holding company for the Savings Bank.
The accompanying unaudited 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 financial
statements and notes thereto of the Company for the year ended December 31,
2001. However, in the opinion of management, all adjustments (consisting of
only normal recurring accruals) which are necessary for a fair presentation
of the financial statements have been included. The results of operations
for the three month period ended March 31, 2002, 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
the Company and its wholly-owned subsidiary, 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 109,503 unallocated ESOP shares,
totaled 1,441,790 for the three month period ended March 31, 2002.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common share equivalents. The
Company had no dilutive or potentially dilutive securities during the period
ended March 31, 2002.
The provisions of SFAS No. 128, "Earnings Per Share," are not applicable to
the three month period ended March 31, 2001, as the Savings Bank had not
completed its conversion to stock form until October 2001.
8
PFS Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended March 31, 2002 and 2001
4. Effects of Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and
Intangible Assets," which prescribes accounting for all purchased goodwill
and intangible assets. Pursuant to SFAS No. 142, acquired goodwill is not
amortized, but is tested for impairment at the reporting unit level annually
and whenever an impairment indicator arises.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. Management adopted SFAS No. 142 effective January 1, 2002, as
required, without material effect on the Company's financial position or
results of operations.
9
PFS Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from December 31, 2001 to March 31,
2002
At March 31, 2002, the Company's assets totaled $121.4 million, an increase of
$2.1 million, or 1.8%, over total assets at December 31, 2001. The increase in
assets was funded primarily by growth in deposits of $1.8 million.
Liquid assets (i.e. cash and interest-bearing deposits) increased by $896,000,
or 6.5%, from December 31, 2001 levels, to a total of $14.8 million at March 31,
2002. Investment securities totaled $8.8 million at March 31, 2002, an increase
of $2.7 million, or 43.5%, from December 31, 2001 levels. The increase resulted
primarily from purchases totaling $8.7 million, which were partially offset by
maturities of $6.0 million.
Loans receivable decreased by $1.4 million, or 1.4%, during the three month
period ended March 31, 2002, to a total of $95.4 million. Loan disbursements
amounted to $6.9 million and were offset by principal repayments of $8.2
million. During the three months ended March 31, 2002, loan originations were
comprised primarily of $5.1 million in loans secured by one- to four-family
residential real estate, $1.2 million in loans secured by commercial and
nonresidential real estate and $602,000 in consumer and other loans.
The allowance for loan losses totaled $738,000 and $719,000 at March 31, 2002
and December 31, 2001, respectively. Nonperforming loans totaled $1.5 million
and $1.8 million at March 31, 2002 and December 31, 2001, respectively. The
allowance for loan losses represented 50.5% and 37.1% of nonperforming loans as
of March 31, 2002 and December 31, 2001, respectively. At March 31, 2002,
nonperforming loans were comprised of $259,000 of one- to four-family
residential real estate loans, $220,000 of nonresidential real estate loans and
$981,000 in commercial and other loans. Management believes such loans are
adequately collateralized and does not presently expect to incur any losses on
such loans. Although management believes that its allowance for loan losses at
March 31, 2002, 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 Savings Bank's results of operations.
Deposits totaled $92.2 million at March 31, 2002, an increase of $1.8 million,
or 2.0%, over December 31, 2001 levels. The growth in deposits was primarily
attributable to managements efforts to achieve a moderate rate of growth through
marketing and pricing strategies.
Shareholders' equity amounted to $28.1 million at March 31, 2002, an increase of
$214,000, or 0.8%, over December 31, 2001 levels. The increase resulted
primarily from net earnings of $259,000, which was partially offset by a $45,000
decrease in unrealized gains on securities designated as available for sale.
Peoples is required to meet minimum capital standards promulgated by the Office
of Thrift Supervision ("OTS"). At March 31, 2002, Peoples' regulatory capital
was well in excess of the minimum capital requirements.
10
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, 2002
and 2001
General
Net earnings for the three months ended March 31, 2002 amounted to $259,000, an
increase of $4,000, or 1.6%, over the $255,000 in net earnings reported for the
three month period ended March 31, 2001. The increase in earnings was due
primarily to a $52,000 increase in net interest income, a $30,000 decrease in
the provision for losses on loans and a $15,000 decrease in the provision for
income taxes, which were partially offset by a $95,000 increase in general,
administrative and other expense.
Net Interest Income
Total interest income amounted to $1.8 million for the three-month period ended
March 31, 2002, a decrease of $429,000, or 19.4%, from the same period in 2001.
Interest income on loans totaled $1.7 million during the 2002 period, a decrease
of $379,000, or 18.6%, from the 2001 period. This decline was due primarily to a
146 basis point decrease in the weighted-average yield, to 6.94% for the 2002
period and a $1.3 million decrease in the average balance of loans outstanding.
Interest income on investment securities increased by $42,000 for the three
months ended March 31, 2002, compared to the same quarter in 2001, due primarily
to a $6.1 million, or 388.8%, increase in the average balance outstanding.
Interest income on other interest-bearing deposits decreased by $92,000, or
55.8%, during the three months ended March 31, 2002, compared to the same period
in 2001, due primarily to a 292 basis point decrease in the weighted-average
yield, to 2.23% for the three months ended March 31, 2002.
Interest expense totaled $792,000 for the three month period ended March 31,
2002, a decrease of $481,000, or 37.8%, from the $1.3 million total recorded for
the same period in 2001. Interest expense on deposits decreased by $432,000, or
35.3%, due primarily to a 167 basis point decrease in the weighted-average cost
of deposits, to 3.48% in the 2002 period and a $4.0 million decline in the
weighted-average balance outstanding. Interest expense on borrowings decreased
by $49,000, or 100%, as the Company had no borrowings outstanding during the
2002 period. The decrease in the level of yields on interest-earning assets and
costs of interest-bearing liabilities were due primarily to the overall decrease
in interest rates in the economy during 2001.
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 the three-month
period ended March 31, 2002, compared to $54,000 for the three-month period
ended March 31, 2001. The current period provision was predicated primarily upon
the increase in nonaccrual consumer loans year to year. There can be no
assurance that the loan loss allowance will be sufficient to cover losses on
nonperforming assets in the future.
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, 2002
and 2001 (continued)
Other Operating Income
Other operating income increased by $2,000, or 2.6%, during the three month
period ended March 31, 2002, compared to the same quarter in 2001, due primarily
to an increase in late fees associated with loan repayments period to period.
General, Administrative and Other Expense
General, administrative and other expense totaled $610,000 for the three months
ended March 31, 2002, an increase of $95,000, or 18.4%, compared to the same
quarter in 2001. This increase was due primarily to a $54,000, or 20.7%,
increase in employee compensation and benefits, a $9,000, or 14.8%, increase in
data processing expense and a $28,000, or 23.9%, increase in other operating
expenses. The increase in employee compensation and benefits was due primarily
to expense recognized in connection with the Company's Employee Stock Ownership
Plan which was established in October 2001, as well as normal merit increases
and additional staffing needs at the branch locations. The increase in data
processing expense was due to increased ATM processing fees and checking account
processing costs. The increase in other operating expenses was due primarily to
professional fees and other costs associated with changing the Company's
reporting year end to December 31 and expense associated with the reporting
requirements of a public company.
Income Taxes
The income tax provision decreased by $15,000, or 8.0%, due primarily to an
$11,000, or 2.5%, decrease in pre-tax earnings and a lower effective tax rate.
The income tax provision includes expense for federal and Indiana state income
tax. The effective tax rates were 40.0% and 42.4% for the three month periods
ended March 31, 2002 and 2001, respectively.
12
PFS Bancorp, Inc.
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in 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 April 15, 2002, the Company held its Annual Meeting of
Shareholders. Four matters were submitted to the shareholders for a
vote. The shareholders elected two directors to terms expiring in 2005
by the following votes:
For Withheld
Mel E. Green 1,349,137 16,422
Robert L. Laker 1,350,392 15,167
Directors whose terms are continuing are Gilbert L. Houze and Jack D.
Tandy, with terms expiring in 2003 and Dale R. Moeller and Carl E.
Petty with terms expiring in 2004.
The shareholders adopted the PFS Bancorp, Inc. 2002 Recognition and
Retention Plan and Trust Agreement by the following vote:
For: 805,698 Against: 214,992 Abstain: 24,223
The shareholders adopted the PFS Bancorp, Inc. 2002 Stock Option Plan
by the following vote:
For: 948,058 Against: 81,796 Abstain: 15,060
The shareholders also ratified the selection of Grant Thornton LLP as
the Company's auditors for the 2002 fiscal year by the following vote:
For: 1,329,018 Against: 22,905 Abstain: 13,636
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None.
(b) No Form 8-K reports were filed during the quarter.
13
PFS Bancorp, Inc.
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.
Date: May 13, 2002 By: /s/Mel E. Green
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Mel E. Green
President and Chief Executive Officer
Date: May 13, 2002 By: /s/Stuart M. Suggs
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Stuart M. Suggs
Chief Financial Officer, Vice President and
Corporate Treasurer
14