<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
----------------------
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending June 30, 2000
-------------
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
------------------
PFSB BANCORP, INC.
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Missouri 31-1627743
---------------- ----------------
(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
----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
573-769-2134
---------------------------
(Issuer's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports). and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No______
------
As of August 10, 2000, there were 451,792 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
Transitional Small Business Disclosure Format
Yes_____ No X
----
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
FORM 10-QBS
JUNE 30, 2000
INDEX PAGE
----- ----
PART I - FINANCIAL INFORMATION
------------------------------
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 7-9
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, September 30
<S> <C> <C>
2000 1999
------- -------
ASSETS (Unaudited) (Unaudited)
Cash (includes interest-bearing deposits of $1,140 and $1,867, respectively) $ 1,563 $ 2,341
Investment securities:
Available-for-sale, at fair value 8,793 9,816
Held-to-maturity (fair value of $7,166 and $7,255, respectively) 7,426 7,484
Mortgage-backed securities held-to-maturity (fair value of $3,107 and $3,574 respectively) 3,230 3,650
Stock in Federal Home Loan Bank of Des Moines ("FHLB") 403 391
Loans receivable, net (allowance for loan losses of $280 at June 30, 2000 and 43,073 41,385
September 30,1999)
Accrued interest receivable 480 617
Premises and equipment 1,094 521
Foreclosed real estate 37 100
Other assets 151 140
------- -------
TOTAL ASSETS $66,250 $66,445
======= =======
LIABILITIES AND EQUITY
LIABILITIES
Deposits 53,112 53,139
Advances from FHLB 3,750 2,500
Advances from borrowers for property taxes and insurance 52 52
Dividends Payable 68 --
Other Liabilities 101 109
------- -------
TOTAL LIABILITIES $57,083 $55,800
EQUITY
Common stock, $.01 par value per share; 5,000,000 authorized, 559,000 issued 6 6
Additional paid-in capital 4,927 4,975
Retained earnings-substantially restricted 6,325 6,317
Unrealized gain (loss) on securities, net of taxes (245) (228)
Unearned ESOP shares (391) (425)
Unearned MRDP shares (218) --
Treasury Stock (107,208 shares at cost) (1,237) --
------- -------
TOTAL EQUITY $ 9,167 $10,645
------- -------
TOTAL LIABILITIES AND EQUITY $66,250 $66,445
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30,
2000 1999 2000 1999
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Mortgage loans $ 794 $ 760 $2,344 $2,298
Consumer and other loans 12 7 30 24
Interest-bearing deposits 17 38 43 102
Investment securities 257 239 795 619
Mortgage-backed securities 54 67 166 148
------ ------ ------ ------
TOTAL INTEREST INCOME $1,134 $1,111 $3,378 $3,191
INTEREST EXPENSE
Deposits 641 649 1,921 2,002
Advances from FHLB 57 -- 158 8
------ ------ ------ ------
TOTAL INTEREST EXPENSE $ 698 $ 649 $2,079 $2,010
------ ------ ------ ------
NET INTEREST INCOME 436 462 1,299 1,181
PROVISION FOR LOAN LOSSES -- -- -- --
------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 436 462 1,299 1,181
NON-INTEREST INCOME
Service charges and other fees 15 14 42 44
Income (loss) from foreclosed assets (1) -- (12) 1
Gain (loss) on disposal of premises & equipment (3) (8) (3) 44
Gain on sale of investment -- 3 -- 14
Other 1 1 9 7
------ ------ ------ ------
TOTAL NON-INTEREST INCOME 12 10 36 110
NON-INTEREST EXPENSE
Employee salaries and benefits 196 155 545 479
Occupancy costs 40 35 111 105
Advertising 15 15 37 33
Data processing 25 21 72 70
Federal insurance premiums 3 3 14 15
Other 124 100 334 238
------ ------ ------ ------
TOTAL NON-INTEREST EXPENSE 403 329 1,113 940
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 45 143 222 351
INCOME TAXES 14 46 75 122
------ ------ ------ ------
NET INCOME $ 31 $ 97 $ 147 $ 229
====== ====== ====== ======
BASIC INCOME PER SHARE $ 0.08 $ 0.19 $ 0.33 $ 0.44
====== ====== ====== ======
DILUTED INCOME PER SHARE $0.08 N/A $0.33 N/A
====== ====== ====== ======
</TABLE>
See accompanying notes to Consolidated Financial Statements
-2-
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
2000 1999
------- -------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 147 $ 229
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 46 47
Amortization of premiums and discounts (2) (2)
Gain (loss) on sale of premises and equipment 3 (44)
Gain (loss) on sale of foreclosed real estate 10 (9)
Loan fee amortization and payoffs -- (1)
Gain on sale of investments -- (14)
ESOP shares released 36 11
MRDP shares released 11 --
Changes to assets and liabilities increasing (decreasing) cash flows
Accrued interest receivable 138 (39)
Other assets ( 11) 13
Other liabilities 2 19
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 380 210
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities, held-to-maturity -- (5,913)
Proceeds from maturities and calls of investment securities, held-to-maturity 60 4,027
Purchase of investment securities, available-for-sale -- (8,677)
Proceeds from maturities and calls of investment securities, available-for-sale 1,000 5,545
Purchase of mortgage-backed securities -- (1,722)
Principal collected on mortgage-backed securities 418 401
(Purchase) Redemption of FHLB stock (12) (17)
Loans originated, net of repayments (1,161) 1,212
Purchase of mortgage loans (511) (1,529)
Proceeds from sale of education loans 35 42
Purchase of premises and equipment (624) (61)
Proceeds from sales of foreclosed real estate 3 95
Expenditures on foreclosed real estate (1) --
Proceeds from sale of premises and equipment 2 100
------- -------
NET CASH USED BY INVESTING ACTIVITIES $ (791) $(6,497)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits (27) 1,590
Advances from FHLB
Borrowings 3,750 --
Repayments (2,500) (500)
Net increase (decrease) in advances for taxes and insurance (1) (3)
Proceeds from sale of common stock -- 4,981
Loan to ESOP -- (447)
Purchase of treasury stock (1,237) --
Purchase of treasury shares for MRDP (280) --
Dividends paid (71) --
------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES $ (366) $ 5,621
NET INCREASE (DECREASE) IN CASH (777) (666)
CASH, BEGINNING OF PERIOD 2,340 2,268
------- -------
CASH, END OF PERIOD $ 1,563 $ 1,602
======= =======
</TABLE>
-3-
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--Basis of Presentation
-----------------------------
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, 2000, interim financial statements.
The results of operations for the period ended June 30, 2000, 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, 1999.
NOTE B--Formation of Holding Company and Conversion to Stock Form
-----------------------------------------------------------------
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--Earnings Per Share
--------------------------
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings 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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
----- ----- ----- -----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Basic earnings per share:
Income available to common shareholders $ 31 $ 97 $ 147 $ 229
===== ===== ===== =====
Average common shares outstanding 406 515 442 515
===== ===== ===== =====
Basic earnings per share $0.08 $0.19 $0.33 $0.44
===== ===== ===== =====
Diluted earnings per share $0.08 N/A $0.33 N/A
===== ===== ===== =====
</TABLE>
-4-
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE D--Employee Stock Ownership Plan
-------------------------------------
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, 2000 is as follows:
Shares committed for release 2,236
Shares released 3,354
Unreleased shares 39,130
--------
TOTAL 44,720
========
Fair value of unreleased shares $440,213
========
NOTE E--Stock Based Compensation Plans
--------------------------------------
The Board of Directors adopted and on January 27, 2000, the shareholders
approved the PFSB Bancorp, Inc. 2000 Stock-Based Incentive Plan. This plan was
established to assist the Company and its subsidiary in attracting, retaining
and motivating key management and employees by aligning their financial interest
with those of the shareholders of the Company. The plan provides for stock
awards in the form of restricted stock of up to 22,360 shares and for the grant
of options for up to 55,900 shares.
On April 6, 2000, the Company awarded to officers, directors, and employees
22,360 shares of restricted stock which vest over a five year period. The
Company selected an amortization method which recognizes an equal amount of
compensation cost each year, called straight line amortization.
Options to acquire shares of the Company's common stock may be granted to
certain officers, directors and employees of the Bank. The options will enable
the recipient to purchase stock at an exercise price equal to the fair market
value of the stock at the date of the grant. On April 6, 2000, the Company
granted options for 44,720 shares at $10.25 per share. The options will vest
over a five year period following the date of grant and are exercisable for up
to ten years.
-5-
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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, 2000
and 1999, 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, 2000
and 1999 is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net Income
Other comprehensive income: $ 31 $ 97 $ 147 $ 229
Net unrealized holding gains (losses) on investments
in debt and equity securities available-for-sale 21 (175) (17) (188)
Adjustments for net securities (gains) losses realized
in net income, net of applicable income taxes -- -- -- --
----- ----- ----- -----
Total other comprehensive income (loss) $ 52 $ (78) $ 130 $ 41
===== ===== ===== =====
</TABLE>
-6-
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
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
-------
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, 2000
and 1999 as well as those material changes in liquidity and capital resources
that have occurred since September 30, 1999.
Financial Condition at June 30, 2000 and September 30, 1999
-----------------------------------------------------------
Total assets decreased $195,000 to $66.3 million at June 30, 2000. There was a
$778,000 decrease in cash, a $1,081,000 decrease in investment securities, a
$420,000 decrease in mortgage-backed securities, a $1,688,000 increase in loans
receivable, a $63,000 decrease in foreclosed real estate, and a $573,000
increase in premises and equipment. A portion of these decreases were used to
fund stock repurchases in the amount of $1.5 million. The decrease in
investment securities was mainly due to the maturity of a $1.0 million federal
agency security which, along with a $1,250,000 increase in FHLB advances, was
used to fund the increase in loans receivable. The increase in premises and
equipment was mainly due to the construction of the new branch facility located
in Kahoka, Missouri. The new facility opened for business May 9, 2000.
Total liabilities increased $1,283,000 to $57.1 million at June 30, 2000 as
compared to September 30, 1999. The increase was due to a $1,250,000 increase
in FHLB advances and a $68,000 increase in dividends payable.
Stockholders equity at June 30, 2000 decreased $1,478,000 to $9,167,000 or 13.8%
of total assets, as compared to $10,645,000 at September 30, 1999. The decrease
was primarily due to the repurchase of 129,568 shares of Company stock at a cost
of $1.5 million. Of those shares, 22,360 was used to fund the restricted stock
awards under the Company's 2000 Stock-Based Incentive Plan. These two factors,
along with nine months earnings in the amount of $147,000, resulted in the
decrease of stockholders equity.
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.
-7-
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
<TABLE>
<CAPTION>
June 30 September 30
2000 1999
<S> <C> <C>
Non-accrual loans................................................................. $ 212 $ 138
Loans past due 90 days or more and still accruing interest ....................... 0 0
Foreclosed real estate and other repossessed assets .............................. 37 100
----- -----
Total non-performing assets ................................................. $ 249 $ 238
</TABLE>
Non-accrual loans at June 30, 2000 and September 30, 1999 consisted primarily of
residential real estate loans.
Results of Operations for the Three Months Ended June 30, 2000 and 1999
-----------------------------------------------------------------------
Net income for the three months ended June 30, 2000 decreased $66,000 compared
to the three months ended June 30, 1999. Net interest income decreased $26,000,
while non-interest income increased $2,000. Non-interest expense increased
$74,000,and income taxes decreased $32,000 for the three months ended June 30,
2000 compared to the same period ended June 30, 1999.
Interest income increased $23,000 for the three month period ended June 30, 2000
as compared to the three month period ended June 30, 1999, while interest
expense increased $49,000, providing a decrease in net interest income of
$26,000. The increase in interest income was due to an increase in loans
receivable of $2.5 million, which was partially offset by a decrease in
mortgage-backed investments of $675,000, along with a decrease in investment
securities of $1.2 million. Interest expense increased $49,000 from the three
month period ended June 30, 2000 as compared to the same period ended June 30,
1999. This was mainly due to the cost of obtaining FHLB advances. Investment
yield increased from 5.85% to 6.01% and the cost of deposits increased from
4.74% to 5.12% for the period ended June 30, 2000 compared to the period ended
June 30, 1999. The increase in investment yield and cost of deposits resulted
from the general increase in market rates between the two periods.
Total non-interest income increased $2,000 for the three month period ended June
30, 2000 as compared to the same period ended June 30, 1999 while total non-
interest expense increased $74,000. Of the increase $41,000 was due to increased
employee salaries and benefits (mainly due to the ESOP plan implemented as a
part of the stock conversion and the stock awards) and most of the remainder was
due to increased audit and professional expenses due to the increased reporting
requirements associated with being a public company.
Results of Operations for the Nine Months Ended June 30, 2000 and 1999
----------------------------------------------------------------------
Net income for the nine months ended June 30, 2000 decreased $82,000 compared to
the nine months ended June 30, 1999. Net interest income increased $118,000,
while non-interest income decreased $74,000. Non-interest expense increased
$173,000, and income taxes decreased $47,000 for the nine months ended June 30,
2000 compared to the same period ended June 30, 1999.
Interest income increased $187,000 for the nine month period ended June 30, 2000
as compared to the nine month period ended June 30, 1999, while interest expense
increased $69,000, providing an increase in net interest income of $118,000. The
increase in interest income was due to an increase in loans receivable of $2.5
million, which was partially offset by a decrease in mortgage-backed investments
of $675,000, along with a decrease in investment securities of $1.2 million.
Interest expense increased $69,000 from the nine month period ended June 30,
2000 as compared to the same period ended June 30, 1999. Of this increase,
$150,000 can be attributed to the increased cost of FHLB advances, and this was
partially offset by a decrease in deposit expense of $81,000. Investment yield
increased from 5.85% to 6.01% and the cost of deposits increased from 4.74% to
5.12% for the period ended June 30, 2000 compared to the period ended June 30,
1999. The increase in investment yield and cost of deposits resulted from the
general increase in market rates between the two periods.
Total non-interest income decreased $74,000 for the nine month period ended June
30, 2000 as compared to the same period ended June 30, 1999. Loss on foreclosed
real estate in the amount of $12,000 for the period ended June 30, 2000, along
with a gain on the sale of investment securities in the amount of $14,000 and a
one-time profit of $44,000 on the sale of the former Kahoka Branch office
building for the period ended June 30, 1999 accounted for the majority of the
decrease between periods.
-8-
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Total non-interest expense increased $173,000 for the period. Of the increase
$66,000 was due to increased employee salaries and benefits (mainly due to the
ESOP plan implemented as a part of the stock conversion and the stock awards)
and most of the remainder was due to increased audit and professional expenses
due to the increased reporting requirements associated with being a public
company.
Liquidity and Capital Resources
-------------------------------
Palmyra Savings' 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.
Office of Thrift Supervision regulations require savings institutions to
maintain an average daily balance of liquid assets equal to at least 4.0% (which
percentage is subject to change) of the average daily balance of its net
withdrawable deposits and short-term borrowings. The Bank's actual liquidity
ratio at June 30, 2000 was 17.4%.
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,
2000, cash and interest-bearing deposits totaled $1.6 million, or 2.4% of total
assets, and investment securities classified as available-for-sale totaled
$8.8 million. At June 30, 2000, the Bank had outstanding FHLB advances in the
amount of $3.75 million.
The Bank's primary investing activity is the origination and purchase of one- to
four-family mortgage loans. At June 30, 2000, the Bank had outstanding loan
commitments totaling $1,171,000 and had undisbursed loans in process totaling
$593,000. Certificates of deposit that are scheduled to mature in less than one
year from June 30, 2000 totaled $27.2 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, 2000, Palmyra Savings
complied with all regulatory capital requirements with tangible, core and risk-
based capital ratios of 12.91%, 12.91% and 27.05%, respectively. The following
table summarizes Palmyra Savings' capital ratios and the ratios required by
regulation at June 30, 2000.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ----------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 2000
Total Risk-Based Capital
(to Risk Weighted Assets) $8,867 27.93% (greater than $2,539 8.0% (greater than $3,174 10.0%
Tier 1 Capital or equal to) or equal to)
(to Risk Weighted Assets) $8,587 27.05% (greater than $1,270 4.0% (greater than $1,905 6.0%
Tier 1 Capital or equal to) or equal to)
(to Adjusted Assets) $8,587 12.91% (greater than) $1,996 3.0% (greater than $3,327 5.0%
Tangible Capital or equal to)
(to Adjusted Assets) $8,587 12.91% (greater than $ 998 1.5% (greater than) N/A N/A
or equal to)
</TABLE>
-9-
<PAGE>
PFSB BANCORP, INC. AND SUBSIDIARY
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
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
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.*
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 * * *
27.0 Financial Data Schedule
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.
-10-
<PAGE>
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, 2000 By: /s/ Eldon R. Mette
-------------------------------------------
Eldon R. Mette
President and Chief Executive Officer
Date: August 14, 2000 By: /s/ Ronald L. Nelson
--------------------------------------------
Ronald L. Nelson
Vice President, Treasurer and
Secretary
11
