UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

|X|   Annual report under Section 13 or 15(d) of the Securities  Exchange Act of
      1934

                   For the fiscal year ended December 31, 2004

                                       OR

|_|   Transition report under Section 13 or 15(d) of the Securities Exchange Act
      of 1934

                         Commission File No.: 000-33233
                                              ---------

                                PFS BANCORP, INC
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

             Indiana                                            35-2142534
-------------------------------                           ----------------------
(State or Other Jurisdiction of                           (I.R.S. Employer
Incorporation or Organization)                            Identification Number)

Second and Bridgeway Streets, Aurora, Indiana                     47001
---------------------------------------------             ----------------------
   (Address of Principal Executive Offices)                     (Zip Code)

                                 (812) 926-0631
                ------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:
                                 Not Applicable

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock (par value $.01 per share)
                ------------------------------------------------
                                (Title of Class)

Indicate by check whether the issuer: (1) filed all reports required to be filed
by  Section  13 or 15(d) of the  Exchange  Act 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
|_|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-K. |X|

Issuer's  revenues for its most recent fiscal year ended December 31, 2004: $6.2
million.

As of March 24, 2005,  the  aggregate  value of the  1,166,223  shares of Common
Stock of the  Registrant  issued and  outstanding  on such date,  which excludes
307,505 shares held by all directors and  executives  officers of the Registrant
and the Registrant's  Employee Stock Ownership Plan ("ESOP") and Recognition and
Retention Plan ("RRP") as a group, was approximately $19.1 million.  This figure
is based on the  closing  sales  price of $16.40  per share of the  Registrant's

<PAGE>

Common Stock on March 24, 2005.  Although  directors and executive  officers and
the ESOP were assumed to be  "affiliates" of the Registrant for purposes of this
calculation, the classification is not to be interpreted as an admission of such
status.

Number of shares of Common Stock outstanding as of March 24, 2005: 1,473,728

Transitional Small Business Disclosure Format: Yes |_| No |X|

                       DOCUMENTS INCORPORATED BY REFERENCE

      List hereunder the following  documents  incorporated by reference and the
Part of the Form 10-KSB into which the document is incorporated.

(1)   Portions of the Annual Report to Stockholders are  incorporated  into Part
      II, Items 5 through 7 and Item 13 of this Form 10-KSB.

(2)   Portions of the definitive  proxy statement for the 2005 Annual Meeting of
      Stockholders  are  incorporated  into Part III, Items 9 through 12 of this
      Form 10-KSB.

<PAGE>

                                     PART I

Item 1. Business
----------------

General

      PFS Bancorp,  Inc. ("PFS Bancorp") was organized as an Indiana corporation
at the direction of Peoples  Federal  Savings Bank  ("Peoples  Federal") in June
2001 to become the holding  company for Peoples  Federal upon  completion of the
conversion of Peoples Federal from the mutual to stock form of organization.  As
a result of the  conversion,  which was  completed on October 11, 2001,  Peoples
Federal  is a wholly  owned  subsidiary  of PFS  Bancorp  and all the issued and
outstanding  capital  stock of  Peoples  Federal  is owned by PFS  Bancorp.  PFS
Bancorp is a unitary  savings and loan  holding  company  whose  assets  consist
primarily of the ownership of the outstanding  capital stock of Peoples Federal,
investments  of proceeds  retained from the conversion and PFS Bancorp's loan to
the employee stock ownership plan.

      The  management  of PFS  Bancorp and  Peoples  Federal  are  substantially
identical and PFS Bancorp  neither owns nor leases any property but instead uses
the premises,  equipment  and  furniture of Peoples  Federal with the payment of
appropriate rental fees, as required by applicable law and regulations.

      Peoples Federal is a federally  chartered savings bank that was originally
organized in 1887.  Peoples Federal's  business consists primarily of attracting
deposits  from the general  public and using those funds to make loans.  Peoples
Federal operates out of its main office in Aurora, Indiana and branch offices in
the southeast Indiana towns of Rising Sun and Vevay.

Lending Activities

      General.  At December 31, 2004, the net loan portfolio of Peoples  Federal
totaled $114.7 million, representing approximately 88.4% of total assets at that
date. The principal  lending  activity of Peoples  Federal is the origination of
one- to four-family  (which are also known as single-family)  residential loans.
At December 31, 2004, single-family  residential loans amounted to $84.4 million
or 71.3% of the total loan  portfolio  before net items.  In addition to single-
family residential loans, Peoples Federal also offers:

      o     Multi-family   (more  than  four  units)  residential  loans,  which
            amounted to 1.8% of the total loan portfolio at December 31, 2004;

      o     Construction  loans, which amounted to 6.5% of the loan portfolio at
            December 31, 2004;

      o     Non-residential  and land loans which amounted to 14.1% of the total
            loan portfolio at December 31, 2004;

      o     Commercial loans, which amounted to 3.9% of the total loan portfolio
            at December 31, 2004; and

      o     Consumer and other loans,  which  amounted to 2.4% of the total loan
            portfolio at December 31, 2004.

      The types of loans that  Peoples  Federal  may  originate  are  subject to
federal  and state laws and  regulations.  Interest  rates  charged on loans are
affected  principally  by the  demand  for such  loans  and the  supply of money
available for lending purposes and the rates offered by its  competitors.  These
factors  are, in turn,  affected by general  economic  conditions,  the monetary
policy  of  the  federal  government,   including  the  Federal  Reserve  Board,
legislative and tax policies, and governmental budgetary matters.

      A savings institution such as Peoples Federal generally may not make loans
to one borrower and related  entities in an amount which  exceeds the greater of
(i) 15% of its unimpaired capital and surplus, although loans in an amount equal
to an additional 10% of unimpaired capital and surplus may be made to a borrower
if the  loans are fully  secured


                                      -1-
<PAGE>

by readily  marketable  securities,  and (ii)  $500,000.  At December  31, 2004,
Peoples  Federal's  regulatory  limit on loans- to-one borrower was $3.4 million
and its five largest loans or groups of loans-to-one borrower, including related
entities,  aggregated  $1.7 million,  $1.0 million,  $1.0 million,  $976,000 and
$680,000.  Each of Peoples  Federal's five largest loans or groups of loans were
performing in accordance with its contractual terms at December 31, 2004.

      Loan Portfolio Composition. The following table sets forth the composition
of Peoples Federal's loan portfolio by type of loan at the dates indicated.

<TABLE>
<CAPTION>
                                                                       At December 31,
                                         ---------------------------------------------------------------------------
                                                  2004                       2003                       2002
                                         ---------------------      ---------------------      ---------------------
                                          Amount       Percent       Amount       Percent       Amount       Percent
                                         --------     --------      --------     --------      --------     --------
                                                                    (Dollars In Thousands)
<S>                                      <C>             <C>        <C>             <C>        <C>             <C>
 Real estate loans:
    One-to four-family(1) ..........     $ 84,432         71.3%     $ 76,330         74.5%     $ 71,801         73.7%
    Multi-family ...................        2,158          1.8         2,168          2.1         2,490          2.6
    Construction ...................        7,709          6.5         3,908          3.8         4,397          4.5
    Non-residential(2) .............       16,659         14.1        14,142         13.8        12,695         13.0
Commercial .........................        4,590          3.9         3,282          3.2         2,856          2.9
Consumer and other loans ...........        2,802          2.4         2,676          2.6         3,163          3.3
                                         --------     --------      --------     --------      --------     --------
        Total loans receivable .....      118,350        100.0%      102,506        100.0%       97,402        100.0%
                                                      ========                   ========                   ========

  Less:
  Undisbursed loans in process .....        2,746                      1,361                        894
  Deferred loan origination fees ...           98                         81                         42
  Allowance for loan losses ........          833                        771                        764
                                         --------                   --------                   --------
    Loans receivable, net ..........     $114,673                   $100,293                   $ 95,702
                                         ========                   ========                   ========
</TABLE>

----------
(1)   Includes home equity loans.

(2)   Includes land loans.

      Origination  of Loans.  The  lending  activities  of Peoples  Federal  are
subject to the written  underwriting  standards and loan origination  procedures
established  by the board of directors and  management.  Loan  originations  are
obtained  through a variety of sources,  primarily  consisting of referrals from
real estate brokers and existing customers.  Written loan applications are taken
by Peoples  Federal's  loan  officers.  The loan  officers  also  supervise  the
procurement of credit reports,  appraisals and other documentation involved with
a loan.  For real estate loans in excess of $250,000,  property  valuations  are
performed by an independent outside appraiser approved by the board of directors
of Peoples Federal.

      Under the real estate lending policy of Peoples Federal, a title insurance
policy must be obtained for each real estate loan. Peoples Federal also requires
fire  and  extended  coverage  casualty  insurance,  in  order  to  protect  the
properties  securing  its real estate  loans.  Borrowers  must also obtain flood
insurance  policies when the property is in a flood hazard area as designated by
the Department of Housing and Urban Development.

      Peoples  Federal's  loan  approval  process  is  intended  to  assess  the
borrower's ability to repay the loan, the viability of the loan and the adequacy
of the value of the  property  that will  secure the loan.  Generally,  all real
estate  loans as well as all  non-real  estate  loans in excess of  $50,000  (or
$10,000 if unsecured) require board of directors' approval.


                                      -2-
<PAGE>

      The following table shows total loans  originated,  purchased,  and repaid
during the periods indicated.  Peoples Federal did not sell any loans during the
periods presented.

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                       ------------------------------------
                                                         2004          2003          2002
                                                       --------      --------      --------
                                                                  (In Thousands)
<S>                                                    <C>           <C>           <C>
Loan originations:
  Real estate loans:
    One-to four-family ...........................     $ 22,648      $ 22,337      $ 15,743
    Multi-family .................................        1,099            --         1,052
    Construction .................................       10,026         4,165         3,300
    Non-residential ..............................        4,729         5,146         3,524
  Commercial .....................................        5,573         3,447         1,979
  Consumer and other loans .......................        2,188         5,050         3,218
                                                       --------      --------      --------
    Total loans originated .......................       46,263        40,145        28,816
                                                       --------      --------      --------
Loan principal reductions:
  Loan principal repayments ......................      (31,779)      (35,516)      (29,639)
 Increase (decrease) due to other items, net(1) ..         (104)          (38)         (247)
                                                       --------      --------      --------
Net increase (decrease) in loan portfolio ........     $ 14,380      $  4,591      $ (1,070)
                                                       ========      ========      ========
</TABLE>

----------
(1)   Other items consist of loans in process,  deferred loan  origination  fees
      and costs, unearned interest and the allowance for loan losses.

      Although  federal laws and  regulations  permit  savings  institutions  to
originate  and purchase  loans  secured by real estate  located  throughout  the
United States,  Peoples Federal concentrates its lending activity on its primary
market area in Dearborn, Ohio and Switzerland Counties,  Indiana. Subject to its
loans-to-one borrower limitation, Peoples Federal is permitted to invest without
limitation in residential  mortgage loans and up to 400% of its capital in loans
secured by non-residential  or commercial real estate.  Peoples Federal also may
invest in secured and unsecured consumer loans in an amount not exceeding 35% of
total assets.  This 35% limitation may be exceeded for certain types of consumer
loans, such as home equity and property improvement loans secured by residential
real property.  In addition,  Peoples  Federal may invest up to 10% of its total
assets in secured and unsecured  loans for  commercial,  corporate,  business or
agricultural  purposes.  At December 31, 2004 Peoples Federal was within each of
the above lending limits.

      Maturity  of  Loan  Portfolio.   The  following  table  presents   certain
information at December 31, 2004,  regarding the dollar amount of loans maturing
in Peoples  Federal's  portfolio based on their contractual terms to maturity or
scheduled  amortization,  but does not  include  potential  prepayments.  Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts  are reported as becoming due within one year.  Loan  balances do not
include  undisbursed  loan  proceeds,  net deferred loan  origination  costs and
allowance for loan losses.

<TABLE>
<CAPTION>
                                                         At December 31, 2004
                                         -------------------------------------------------
                                                                   Consumer and     Total
                                         Real Estate   Commercial      Other        Loans
                                         -----------   ----------  ------------   --------
                                                            (In Thousands)
<S>                                        <C>          <C>          <C>          <C>
Amounts due in:
  One year or less ...................     $  4,127     $  3,913     $  1,146     $  9,186
  More than one year to five years ...       18,626          677        1,656       20,959
  More than five years ...............       88,205           --           --       88,205
                                           --------     --------     --------     --------
     Total amount due ................     $110,958     $  4,590     $  2,802     $118,350
                                           ========     ========     ========     ========
</TABLE>

      Of the $109.2 million of loans due after December 31, 2005,  $16.9 million
have  fixed-rates  of interest  and $92.3  million have  floating or  adjustable
interest rates.


                                      -3-
<PAGE>

      The following table sets forth the dollar amount of all loans,  before net
items,  as of December  31, 2004 which have fixed  interest  rates or which have
floating or adjustable interest rates.

                                                     Floating or
                                    Fixed-Rates    Adjustable-Rates       Total
                                    -----------    ----------------     --------
                                                    (In Thousands)
Real estate loans:
  One-to four-family ........         $ 14,477         $ 69,955         $ 84,432
  Multi-family ..............               --            2,158            2,158
  Construction ..............              844            6,865            7,709
  Non-residential ...........            1,242           15,417           16,659
Commercial ..................              341            4,249            4,590
Consumer and other loans ....            1,577            1,225            2,802
                                      --------         --------         --------
     Total loans ............         $ 18,481         $ 99,869         $118,350
                                      ========         ========         ========

      Scheduled  contractual  maturities of loans do not necessarily reflect the
actual expected term of the loan  portfolio.  The average life of mortgage loans
is  substantially   less  than  their  average   contractual  terms  because  of
prepayments.  The average life of mortgage  loans tends to increase when current
mortgage  loan  rates are  higher  than rates on  existing  mortgage  loans and,
conversely,  decrease  when  rates on  current  mortgage  loans are  lower  than
existing  mortgage  loan  rates  (due  to  refinancing  of  adjustable-rate  and
fixed-rate loans at lower rates). Under the latter  circumstance,  the weighted-
average  yield on loans  decreases  as  higher  yielding  loans  are  repaid  or
refinanced at lower rates.

      One- to Four-Family  Residential  Real Estate Loans.  The primary  lending
activity of Peoples Federal is the origination of loans secured by single-family
residences.  At  December  31,  2004,  $84.4  million or 71.3% of the total loan
portfolio, before net items, consisted of single-family residential loans.

      The loan-to-value  ratio,  maturity and other provisions of the loans made
by Peoples  Federal  generally have reflected the policy of making less than the
maximum loan permissible under applicable regulations,  in accordance with sound
lending practices,  market conditions and underwriting  standards established by
Peoples  Federal.   Peoples  Federal's  present  lending  policies  on  one-  to
four-family   residential   mortgage   loans   typically   limits  the   maximum
loan-to-value  ratio to 80% or less of the appraised value of the property,  but
in some cases Peoples Federal may lend up to a 90% loan-to-  value.  Residential
mortgage  loans are amortized on a monthly basis with principal and interest due
each month.

      Peoples  Federal's  residential  mortgage loans have either fixed rates of
interest or  interest  rates which  adjust  periodically  during the term of the
loan.  Fixed-rate  loans  generally  have  a term  of 10  years  with a 30  year
amortization   schedule.   Peoples  Federal's  fixed-rate  loans  generally  are
originated  under terms,  conditions and  documentation  which permit them to be
sold to  U.S.  Government-sponsored  agencies,  such as the  Federal  Home  Loan
Mortgage Corporation, and other investors in the secondary market for mortgages.
At  December  31,  2004,   $14.5  million,   or  17.1%,  of  Peoples   Federal's
single-family residential mortgage loans were fixed-rate loans.

      The  adjustable-rate  single-family  residential  mortgage loans currently
offered by Peoples  Federal have interest rates which adjust on an annual basis.
Peoples Federal's  adjustable-rate  single-family  residential real estate loans
generally  have a cap of 1% on any increase or decrease in the interest  rate at
any adjustment  date,  and include a specified cap on the maximum  interest rate
over the life of the loan,  which cap  generally  is 3% to 6% above or below the
initial rate.  Such loans are  underwritten  based on the initial rate.  Peoples
Federal's  adjustable-rate  loans require that any payment adjustment  resulting
from a change in the interest rate of an  adjustable-rate  loan be sufficient to
result in full  amortization  of the loan by the end of the loan term and, thus,
do not permit any of the increased  payment to be added to the principal  amount
of the loan, or so-called  negative  amortization.  At December 31, 2004,  $70.0
million, or 82.9%, of Peoples Federal's single-family residential mortgage loans
were adjustable-rate loans.

      Adjustable-rate  mortgage loans help reduce Peoples Federal's  exposure to
changes in interest  rates.  There are,  however,  unquantifiable  credit  risks
resulting from the potential of increased  costs due to changed rates to be paid
by


                                      -4-
<PAGE>

the borrower.  During  periods of rising  interest  rates the risk of default on
adjustable-rate  mortgage  loans may increase as a result of  repricing  and the
increased   payments   required  by  the   borrower.   In   addition,   although
adjustable-rate  mortgage  loans  help make  Peoples  Federal's  asset base more
responsive to changes in interest rates, the extent of this interest sensitivity
is limited by the annual and lifetime interest rate adjustment  limits.  Because
of these  considerations,  yields on  adjustable-rate  mortgage loans may not be
sufficient to offset increases in Peoples Federal's cost of funds during periods
of rising interest rates.

      At December 31, 2004, Peoples Federal's home equity loans amounted to $1.8
million  or 1.5% of the total loan  portfolio.  These  loans are  secured by the
underlying  equity in the borrower's  residence.  As a result,  Peoples  Federal
generally  requires  loan-to-value  ratios  of 80% or  less  after  taking  into
consideration the first mortgage loan.  Peoples Federal does not require that it
hold the first  mortgage  on the  property.  These loans have a term of up to 12
years and the interest rate adjusts monthly based on the prime rate.

      Construction Loans.  Peoples Federal originates loans for the construction
of one- to four-family and multi- family  residences as well as  non-residential
construction. At December 31, 2004, $4.7 million, or 4.0%, of the loan portfolio
consisted  of  residential   construction  loans,  $4.2  million  of  which  was
originated for the construction of one- to four-family homes.  Peoples Federal's
residential  construction  loans  generally  provide for the payment of interest
only during the construction phase, which is usually up to nine months.  Peoples
Federal  does  not  establish  an  interest   reserve  in  connection  with  the
origination of the loan. Loans can be made with a maximum loan to value ratio of
80%. On occasion,  Peoples Federal will also originate residential  construction
loans to builders with which Peoples Federal has an established relationship.

      Peoples Federal also  originates  non-residential  construction  loans. At
December 31, 2004,  $3.0 million,  or 2.5%, of the loan  portfolio  consisted of
non-residential construction loans such as retail buildings and churches.

      Before making a commitment to fund a construction  loan,  Peoples  Federal
requires an  appraisal  of the property by an  appraiser.  Peoples  Federal also
reviews and inspects each property before  disbursement of funds during the term
of the  construction  loan. Loan proceeds are disbursed after each stage of work
is completed.

      Construction  lending  generally  involves  a higher  degree  of risk than
single-family  permanent  mortgage lending because of the greater  potential for
disagreements  between borrowers and builders and the failure of builders to pay
subcontractors.  Additional risk often exists because of the inherent difficulty
in estimating both a property's value and the estimated cost of the property. If
the  estimate  of the value upon  completion  proves to be  inaccurate,  Peoples
Federal may be confronted  with a property whose value is insufficient to assure
full repayment.

      Non-residential  Real  Estate and  Multi-family  Residential  Real  Estate
Loans.  Peoples  Federal's non-  residential  loans  primarily  consist of loans
secured by land, storefront retail and office buildings, churches and warehouses
located  in Peoples  Federal's  market  area.  At  December  31,  2004,  Peoples
Federal's  non-residential  real estate loans amounted to $16.7 million or 14.1%
of the total loan portfolio.  In addition, at December 31, 2004, Peoples Federal
had  $2.2  million  in  loans  secured  by  multi-family  (five  or more  units)
residential  properties.  Peoples Federal's  multi-family  residential loans are
underwritten  and subject to review and oversight  procedures on a substantially
similar basis as its commercial real estate loans.

      Peoples  Federal's  non-residential  real estate  loans  typically  have a
maximum  loan-to-value  ratio of 75% or less and generally  have interest  rates
which are higher than interest rates on its single-family  residential  mortgage
loans.  Peoples  Federal's  non-residential  real estate  loans  generally  have
floating  interest rates tied to the prime rate.  The term of Peoples  Federal's
non-residential real estate loans is generally 10 to 15 years, with a maximum of
20  years,  based on a 15 or 25 year  amortization  schedule.  In  reaching  its
decision on whether to make a non-residential  or multi-family real estate loan,
Peoples  Federal  considers  the  net  operating  income  of the  property,  the
borrower's  expertise,  credit  history and  profitability  and the value of the
underlying  property.  In addition,  with respect to non-residential real estate
rental properties,  Peoples Federal will also consider the term of the lease and
the quality of the tenants.  Peoples  Federal has


                                      -5-
<PAGE>

generally  required that the  properties  securing  these real estate loans have
debt service  coverage ratios (the ratio of earnings before debt service to debt
service) of between 1.2x and 1.5x.  Peoples Federal requires written  appraisals
prepared  by a  certified  independent  appraiser  of  all  properties  securing
non-residential  or  multi-family  real estate loans greater than  $250,000.  At
December  31,  2004,  the  average  balance  of the loans in  Peoples  Federal's
non-residential   real   estate   portfolio   was   $212,000   and  its  largest
non-residential real estate loan at such date was $1.7 million secured by a golf
course. This loan was current at December 31, 2004.

      Peoples Federal's non-residential real estate loan portfolio also includes
land loans. These are loans secured primarily by single-family  residential lots
being held for development. Peoples Federal's land loans typically have floating
rates of interest tied to the prime rate, have maximum  loan-to-value  ratios of
75%, and are interest only loans which are subject to renewal by Peoples Federal
on an annual basis.  At December 31, 2004,  Peoples  Federal had $4.0 million in
land loans which  loans had an average  balance of  $68,000.  Peoples  Federal's
largest land loan at December 31, 2004 amounted to $398,000.

      Commercial and multi-family real estate lending is generally considered to
involve a higher degree of risk than one- to  four-family  residential  lending.
Such lending  typically  involves large loan balances  concentrated  in a single
borrower or groups of related  borrowers for rental or business  properties.  In
addition, the payment experience on loans secured by income-producing properties
is typically  dependent on the success of the  operation of the related  project
and thus is typically  affected by adverse  conditions in the real estate market
and in the economy.  Peoples  Federal  generally  attempts to mitigate the risks
associated  with its  commercial  real estate  lending by,  among other  things,
lending primarily in its market area and using low  loan-to-value  ratios in the
underwriting process.

      Consumer and Other Loans.  Peoples Federal is authorized to make loans for
a wide  variety of personal or consumer  purposes.  Peoples  Federal  originates
consumer  loans in order to  accommodate  its  customers  and because such loans
generally have shorter terms and higher interest rates than residential mortgage
loans.  The consumer  loans offered by Peoples  Federal  consist of  automobile,
mobile home and recreational vehicle loans and loans secured by deposit accounts
in Peoples  Federal and other  miscellaneous  loans.  At December 31, 2004, $2.8
million or 2.4% of Peoples Federal's total loan portfolio  consisted of consumer
and other loans.

      Peoples  Federal  also  offers  loans  for both new and used  automobiles,
mobile  homes and  recreational  vehicles.  Such  loans have terms of up to five
years.  At December  31, 2004,  Peoples  Federal's  automobile,  mobile home and
recreational  vehicle  loans  amounted to $1.5 million or 1.3% of the total loan
portfolio.

      Peoples  Federal  offers  loans  secured  by deposit  accounts  in Peoples
Federal,  which loans  amounted to $611,000 or 0.5% of Peoples  Federal's  total
loan portfolio at December 31, 2004.  Such loans are originated for up to 90% of
the  account  balance,  with  a  hold  placed  on the  account  restricting  the
withdrawal of the account balance. The interest rate on the loan is equal to the
interest  rate paid on the account  plus 2%. These loans mature on or before the
maturity date of the underlying certificate of deposit.

      Commercial  Loans.  Peoples  Federal also originates  commercial  business
loans  and other  unsecured  consumer  loans.  At  December  31,  2004,  Peoples
Federal's  commercial business loans amounted to $4.6 million or 3.9% of Peoples
Federal's  total  loan  portfolio.  Such  loans  generally  are  made  to  small
businesses located in Peoples Federal's market area. Approximately $3.2 million,
or 69.6% of these loans are subject to Uniform  Commercial Code filings or other
assets.  The  remaining  commercial  business  loans  are  unsecured.  The loans
generally are structured as lines of credit with floating rates of interest tied
to the prime  rate and which are  subject  to review  and  renewal  on an annual
basis.

      Loan  Origination and Other Fees. In addition to interest earned on loans,
Peoples  Federal  receives  loan  origination  fees or "points" for  originating
fixed-rate  loans.  Loan points are a percentage of the principal  amount of the
mortgage loan and are charged to the borrower in connection with the origination
of the loan.  Loan  origination  fees are deferred and recognized as income over
the life of the loan as a yield adjustment.


                                      -6-
<PAGE>

Asset Quality

      General.  Peoples  Federal mails late notices to borrowers when a borrower
fails to make a required payment within 15 days of the date due. In addition,  a
personal  letter is mailed when a loan  becomes 30 days  delinquent  and a phone
call is placed when a loan becomes 60 days delinquent. If a loan becomes 90 days
past due,  Peoples  Federal mails a notice  indicating that Peoples Federal will
refer it to an attorney within 30 days to commence  foreclosure.  In most cases,
deficiencies are cured promptly. While Peoples Federal generally prefers to work
with  borrowers  to  resolve  such  problems,  Peoples  Federal  will  institute
foreclosure  or other  collection  proceedings  when  necessary  to minimize any
potential loss.

      Loans are  placed on  non-accrual  status  when  management  believes  the
probability  of  collection  of  interest  is  insufficient  to warrant  further
accrual.  When a loan is placed on non-accrual  status,  previously  accrued but
unpaid  interest is deducted from interest  income.  Peoples  Federal  generally
discontinues  the accrual of interest  income when the loan becomes 90 days past
due as to principal or interest.

      Real estate and other  assets  acquired by Peoples  Federal as a result of
foreclosure  or by  deed-in-lieu  of  foreclosure  are classified as real estate
owned until sold. Peoples Federal did not have any real estate owned at December
31,  2004.  Peoples  Federal had  $169,000  and $228,000 in real estate owned at
December 31, 2003 and 2002, respectively.

      Delinquent  Loans. The following table sets forth  information  concerning
delinquent  loans at December 31, 2004, in dollar amounts and as a percentage of
Peoples  Federal's total loan  portfolio.  The amounts  presented  represent the
total  outstanding  principal  balances  of the related  loans,  rather than the
actual payment amounts which are past due.

<TABLE>
<CAPTION>
                                                      At December 31, 2004
                                 ----------------------------------------------------------------
                                        30-59                  60-89             90 or More Days
                                    Days Overdue           Days Overdue              Overdue
                                 ------------------     ------------------     ------------------
                                            Percent                Percent                Percent
                                           of Total               of Total               of Total
                                 Amount      Loans      Amount      Loans      Amount      Loans
                                 ------    --------     ------    --------     ------    --------
                                                      (Dollars In Thousands)
<S>                              <C>          <C>       <C>           <C>      <C>           <C>
Real estate loans:
  One-to four-family .......     $1,811       1.53%     $  208        .18%     $  281        .24%
  Non-residential ..........         --         --          --         --         514        .43
Commercial .................         --         --          --         --          --         --
Consumer and other loans ...          3         --          30        .02          21        .02
                                 ------     ------      ------     ------      ------     ------
  Total loans ..............     $1,814       1.53%     $  238        .20%     $  816        .69%
                                 ======     ======      ======     ======      ======     ======
</TABLE>

      Non-Performing   and  Impaired   Assets.   The  following  table  presents
information with respect to Peoples Federal's  nonperforming and impaired assets
at the dates  indicated.  Peoples  Federal did not have any accruing loans 90 or
more days past due at any of the dates shown.

<TABLE>
<CAPTION>
                                                                       At December 31,
                                                                ------------------------------
                                                                 2004        2003        2002
                                                                ------      ------      ------
                                                                    (Dollars In Thousands)
<S>                                                             <C>         <C>         <C>
Nonaccruing and impaired loans:
  Real estate loans:
    One-to four-family ....................................     $  281      $  923      $  816
    Non-residential(1) ....................................        514         514         519
    Construction ..........................................         --          --          --
  Commercial ..............................................         --          --          --
  Consumer and other loans ................................         21          47          85
                                                                ------      ------      ------
      Total nonaccruing and impaired loans ................        816       1,484       1,420
Real estate owned(2) ......................................         --         169         228
                                                                ------      ------      ------
Total nonperforming and impaired assets ...................     $  816      $1,653      $1,648
                                                                ======      ======      ======
Total nonperforming and impaired assets as a percentage
  of total assets .........................................        .63%       1.40%       1.38%
</TABLE>


                                      -7-
<PAGE>

----------
(1)   Represents a participation  interest in a non-residential real estate loan
      which was impaired at December 31, 2003 and 2002.  Subsequently,  the loan
      became  more  than 90 days past due at  December  31,  2004.  The loan was
      repaid in March 2005 at no loss.

(2)   Real estate owned includes other  repossessed  assets and the balances are
      shown net of related loss allowances.

      If the $816,000 of  nonaccruing  loans of Peoples  Federal at December 31,
2004 had been current in  accordance  with their terms  during  2004,  the gross
income on such loans  would have been  approximately  $21,000 for the year ended
December 31, 2004. No interest  income was actually  recorded by Peoples Federal
on such loans for the year ended December 31, 2004.

      Classified Assets.  Federal  regulations require that each insured savings
institution  classify its assets on a regular basis. In addition,  in connection
with examinations of insured  institutions,  federal examiners have authority to
identify  problem assets and, if  appropriate,  classify  them.  There are three
classifications  for  problem  assets:  "substandard,"  "doubtful"  and  "loss."
Substandard  assets have one or more defined weaknesses and are characterized by
the distinct  possibility that the insured institution will sustain some loss if
the  deficiencies  are not  corrected.  Doubtful  assets have the  weaknesses of
substandard assets with the additional  characteristic  that the weaknesses make
collection  or  liquidation  in full on the basis of currently  existing  facts,
conditions and values  questionable,  and there is a higher possibility of loss.
An asset  classified loss is considered  uncollectible  and of such little value
that  continuance  as an  asset of the  institution  is not  warranted.  Another
category  designated  "special  mention" also must be established and maintained
for assets which do not currently expose an insured  institution to a sufficient
degree of risk to  warrant  classification  as  substandard,  doubtful  or loss.
Assets  classified as  substandard  or doubtful may require the  institution  to
establish general  allowances for loan losses. If an asset or portion thereof is
classified  loss,  the  insured   institution  must  either  establish  specific
allowances  for loan  losses in the  amount of 100% of the  portion of the asset
classified loss, or charge-off such amount.  General loss allowances established
to cover possible  losses related to assets  classified  substandard or doubtful
may be  included in  determining  an  institution's  regulatory  capital,  while
specific  valuation  allowances  for loan  losses do not  qualify as  regulatory
capital.   Federal   examiners  may  disagree  with  an  insured   institution's
classifications and amounts reserved.

      Peoples Federal's total classified assets at December 31, 2004 amounted to
$1.3  million,  all  of  which  were  classified  as  substandard.  The  largest
classified asset at December 31, 2004 consisted of a non-residential  loan, with
an  outstanding  balance of $520,000 at such date.  This loan  represents  a 50%
participation  interest  acquired by Peoples  Federal in October 1997. This loan
was advanced for the  acquisition of land and the  construction  of 20 townhouse
units,  12  condominiums,  parking  garages and a clubhouse  and swimming  pool.
Presently,  17 of the 20  townhouse  units  and  all  of  the  condominiums  are
complete.  Six townhouse  units and four  condominiums  are unsold.  The loan is
repaid as the townhouses or  condominiums  are sold. This loan was classified as
substandard as of August 31, 2002. The remaining classified assets are comprised
of a $514,000  non-residential  real estate loan, $281,000 of one-to-four family
real estate loans and $21,000 of consumer loans.  The $514,000  represents a 50%
participation  interest  acquired by Peoples  Federal in May 2000. This loan was
repaid in March 2005 at no loss. The $281,000 represents four one-to-four family
real estate loans.  Peoples Federal does not presently  anticipate incurring any
material loss on the above mentioned loans.

      Allowance  for Loan  Losses.  At  December  31,  2004,  Peoples  Federal's
allowance  for loan losses  amounted  to  $833,000,  or .70%,  of the total loan
portfolio.  The loan loss  allowance  is based on prior  loan  loss  experience,
adverse  situations  that may  affect  the  borrower's  ability  to  repay,  the
estimated value of any underlying collateral,  current economic conditions,  and
known,  probable and reasonably estimable losses inherent in the loan portfolio.
In determining the amount of the allowance for loan losses, management considers
its lower risk exposure as a result of its predominant single-family lending and
the  correspondingly low historical  charge-off  experience.  Specifically,  our
methodology  for assessing the  appropriateness  of the allowance  consists of a
formula  allowance,  a specific  allowance  and an  unallocated


                                      -8-
<PAGE>

allowance.  The  formula  allowance  is based  on loss  factors  applied  to the
categories of Peoples  Federal's loan portfolio based on historical  experience.
The specific  allowance relates to specific  categories of loans based on recent
loss experience, charge-offs and current economic conditions related to specific
borrowers.  The unallocated  allowance is based upon management's  evaluation of
various  conditions,  including  general  economic and business  conditions  and
credit  quality  trends,  the effects of which are not directly  measured in the
determination  of the formula and specific  allowances.  The  evaluation  of the
inherent loss with respect to these  conditions is subject to a higher degree of
uncertainty because they are not identified with specific credits.

      While  management  believes that it  determines  the size of the allowance
based on the best information  available at the time, the allowance will need to
be  adjusted  as  circumstances  change  and  assumptions  are  updated.  Future
adjustments to the allowance could significantly affect net earnings.

      The following  table sets forth  information  concerning the allocation of
Peoples  Federal's  allowance  for loan losses by loan  categories  at the dates
indicated.

<TABLE>
<CAPTION>
                                                                     At December 31,
                                     ---------------------------------------------------------------------------------
                                               2004                         2003                         2002
                                     -----------------------      -----------------------      -----------------------
                                                 Percent of                   Percent of                   Percent of
                                               Loans in Each                Loans in Each                Loans in Each
                                     Amount     Category to       Amount     Category to       Amount     Category to
                                     ------     Total Loans       ------     Total Loans       ------     Total Loans
                                               -------------                -------------                -------------
                                                                 (Dollars In Thousands)
<S>                                  <C>            <C>           <C>            <C>           <C>            <C>
Allocated:
Real estate loans:
  One-to four-family .......         $ 360          71.3%         $ 340          74.5%         $ 320          73.7%
  Multi-family .............            --           1.8             --           2.1             --           2.6
  Construction .............            --           6.5             --           3.8             --           4.5
  Non-residential ..........           160          14.1            130          13.8            123          13.0
Commercial .................           130           3.9            100           3.2             90           2.9
Consumer and other loans ...           130           2.4            150           2.6            182           3.3
Unallocated ................            53            --             51            --             49            --
                                     -----         -----          -----         -----          -----         -----
    Total ..................         $ 833         100.0%         $ 771         100.0%         $ 764         100.0%
                                     =====         =====          =====         =====          =====         =====
</TABLE>

      The following table sets forth an analysis of Peoples Federal's  allowance
for loan losses during the periods indicated.

<TABLE>
<CAPTION>
                                                                                      Year Ended
                                                                                     December 31,
                                                                      -----------------------------------------
                                                                         2004            2003            2002
                                                                      ---------       ---------       ---------
                                                                                (Dollars In Thousands)
<S>                                                                   <C>             <C>             <C>
                Total loans outstanding, net ....................     $ 114,673       $ 100,293       $  95,702
                                                                      =========       =========       =========
                Average loans outstanding, net ..................     $ 108,861       $  97,021       $  95,104
                                                                      =========       =========       =========
                Balance at beginning of period ..................     $     771       $     764       $     719
                Charge-offs:
                Real estate loans:
                  One-to four-family ............................           (16)             (5)             --
                  Multi-family ..................................            --              --              --
                  Non-residential ...............................            --              --              --
                Consumer and other loans ........................           (23)            (42)            (59)
                                                                      ---------       ---------       ---------
                      Total charge-offs .........................           (39)            (47)            (59)
                                                                      ---------       ---------       ---------
                Recoveries:
                Real estate loans:
                  One-to four-family ............................            --              --              --
                  Multi-family ..................................            --              --              --
                  Non-residential ...............................            --              --              --
                Consumer and other loans ........................             5               2              12
                                                                      ---------       ---------       ---------
                      Total recoveries ..........................             5               2              12
                                                                      ---------       ---------       ---------
                Net charge-offs .................................           (34)            (45)            (47)
                Provision for losses on loans ...................            96              52              92
                                                                      ---------       ---------       ---------
                Balance at end of period ........................     $     833       $     771       $     764
                                                                      =========       =========       =========
                Allowance for loan losses as a
                  percent of total loans outstanding ............           .70%            .75%            .78%
                                                                      =========       =========       =========
                Allowance for loan losses as a
                  percent of total non-performing and impaired
                   loans ........................................        102.08%          46.64%          46.36%
                                                                      =========       =========       =========
                Ratio of net charge-offs to
                  average loans outstanding .....................           .03%            .05%            .05%
                                                                      =========       =========       =========
</TABLE>


                                      -9-
<PAGE>

Investment Securities

      Peoples  Federal has authority to invest in various  types of  securities,
including mortgage-backed securities,  U.S. Treasury obligations,  securities of
various federal agencies and of state and municipal governments, certificates of
deposit at federally-insured  banks and savings  institutions,  certain bankers'
acceptances  and  federal  funds.   Peoples  Federal's  investment  strategy  is
established by the board of directors.  In recent  periods,  Peoples Federal has
maintained a limited portfolio of investment securities.

      The following table sets forth information  relating to the amortized cost
and fair value of Peoples Federal's securities.

<TABLE>
<CAPTION>
                                                                December 31,
                                   ----------------------  ----------------------  ----------------------
                                            2004                    2003                    2002
                                   ----------------------  ----------------------  ----------------------
                                   Amortized               Amortized               Amortized
                                      Cost     Fair Value     Cost     Fair Value     Cost     Fair Value
                                   ---------   ----------  ---------   ----------  ---------   ----------
                                                              (In Thousands)
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>
Held to maturity:
  State and municipal
    obligations ...............     $   143     $   143     $   152     $   152     $   161     $   161
Available for sale:
  FHLMC stock .................          20       1,527          20       1,208          20       1,226
  U.S. government agency
    securities ................         500         488         500         483       1,341       1,346
  Corporate debt securities ...       2,980       2,999       8,194       8,325      12,446      12,570
                                    -------     -------     -------     -------     -------     -------
    Total .....................     $ 3,643     $ 5,157     $ 8,866     $10,168     $13,968     $15,303
                                    =======     =======     =======     =======     =======     =======
</TABLE>

      The following table sets forth the amount of Peoples Federal's  securities
which  mature  during each of the  periods  indicated  and the  weighted-average
yields for each range of  maturities at December 31, 2004.  The amounts  reflect
the fair value of Peoples Federal's securities at December 31, 2004.


                                      -10-
<PAGE>

<TABLE>
<CAPTION>
                                                                      Contractually Maturing
                                     ----------------------------------------------------------------------------------------

                                               Weighted            Weighted            Weighted             Weighted
                                     Under 1    Average     1-5     Average    6-10     Average   Over 10    Average
                                       Year      Yield     Years     Yield     Years     Yield     Years      Yield     Total
                                     -------   --------   ------   --------   ------   --------   -------   --------   ------
                                                                      (Dollars In Thousands)
<S>                                   <C>        <C>      <C>        <C>      <C>        <C>      <C>         <C>      <C>
State and municipal
  obligations ................        $   10     4.40%    $   45     4.40%    $   71     4.40%    $   17      4.40%    $  143
Corporate debt securities ....         1,981     3.90      1,018     4.03         --       --         --        --      2,999
U.S. government agency
  securities .................            --       --         --       --        245     3.10        243      4.00        488
FHLMC Stock ..................         1,527     1.63         --       --         --       --         --        --      1,527
                                      ------              ------              ------              ------               ------
  Total ......................        $3,518              $1,063              $  316              $  260               $5,157
                                      ======              ======              ======              ======               ======
</TABLE>

Sources of Funds

      General.  Deposits are the primary source of Peoples  Federal's  funds for
lending and other investment  purposes.  In addition to deposits,  principal and
interest payments on loans and investment securities are a source of funds. Loan
repayments are a relatively  stable source of funds,  while deposit  inflows and
outflows are significantly influenced by general interest rates and money market
conditions.  Borrowings may also be used on a short-term basis to compensate for
reductions in the  availability of funds from other sources and on a longer-term
basis for general business purposes.

      Deposits.  Deposits are  attracted  by Peoples  Federal  principally  from
within its primary market area.  Deposit  account terms vary, with the principal
differences being the minimum balance required,  the time periods the funds must
remain on deposit and the interest rate.

      Peoples  Federal  obtains  deposits  primarily  from residents of Indiana.
Peoples Federal has not solicited  deposits from outside Indiana or paid fees to
brokers to solicit funds for deposit.

      At December 31, 2004,  $10.9 million or 12.5% of total deposits  consisted
of public deposits from local  municipalities or local government  agencies.  At
December 31, 2003, such public deposits amounted to $15.0 million.

      Interest rates paid, maturity terms, service fees and withdrawal penalties
are established on a periodic basis.  Management  determines the rates and terms
based on rates  paid by  competitors,  the need for funds or  liquidity,  growth
goals and federal  regulations.  Peoples Federal attempts to control the flow of
deposits by pricing  its  accounts to remain  generally  competitive  with other
financial institutions in its market area.


                                      -11-
<PAGE>

      The  following   table  shows  the   distribution  of  and  certain  other
information  relating  to  Peoples  Federal's  deposits  by type as of the dates
indicated.

<TABLE>
<CAPTION>
                                                                            At December 31,
                                        ---------------------------------------------------------------------------------------
                                                    2004                          2003                          2002
                                        ----------------------------   ---------------------------   --------------------------
                                                   Percent   Average             Percent   Average             Percent  Average
                                                     of       Rate                 of       Rate                 of      Rate
                                        Amount    Deposits    Paid     Amount   Deposits    Paid     Amount   Deposits   Paid
                                        -------   --------   -------   -------  --------   -------   -------  --------  -------
                                                                          (Dollars In Thousands)
<S>                                     <C>         <C>         <C>    <C>        <C>         <C>    <C>        <C>        <C>
Transaction accounts:
  Demand deposits ................      $12,051      13.9%      0.77%  $12,703     14.4%       .46%  $17,505     19.6%     1.10%
  Savings and money market
     deposits ....................       19,557      22.4        .63    23,492     26.6        .65    16,682     18.6      1.70
                                        -------   -------              -------  -------              -------  -------
    Total transaction accounts ...       31,608      36.3        .68    36,195     41.0        .58    34,187     38.2      1.40
                                        -------   -------              -------  -------              -------  -------
Certificate accounts:
  up to 3.99% ....................       50,821      58.5       2.40    45,462     51.5       2.25    40,402     45.2      2.82
  4.00% - 5.99% ..................        3,831       4.4       4.42     5,694      6.4       4.77    11,121     12.4      4.92
  6.00% - 7.99% ..................          679        .8       6.51       977      1.1       6.32     3,710      4.2      6.44
                                        -------   -------              -------  -------              -------  -------
    Total certificate accounts ...       55,331      63.7       2.59    52,133     59.0       2.60    55,233     61.8      4.35
                                        -------   -------              -------  -------              -------  -------
      Total deposits .............      $86,939     100.0%             $88,328    100.0%             $89,420    100.0%
                                        =======   =======              =======  =======              =======  =======
</TABLE>

      The following  table sets forth the savings  activities of Peoples Federal
during the periods indicated.

                                                   Year Ended December 31,
                                             ----------------------------------
                                               2004         2003         2002
                                             --------     --------     --------
                                                       (In Thousands)
   Total deposits at beginning of period ..  $ 88,328     $ 89,420     $ 90,429
   Net withdrawals ........................    (2,815)      (3,013)      (3,916)
   Interest credited ......................     1,426        1,921        2,907
                                             --------     --------     --------
     Total deposits at end of period ......  $ 86,939     $ 88,328     $ 89,420
                                             ========     ========     ========

      The following  table shows the interest rate and maturity  information for
Peoples Federal's certificates of deposit at December 31, 2004.

<TABLE>
<CAPTION>
                                                         Maturity Date
                    ----------------------------------------------------------------------------------------
Interest Rate       One Year or Less    Over 1-2 Years     Over 2-3 Years      Over 3 Years           Total
-------------       ----------------    --------------     --------------      ------------           -----
                                                         (In Thousands)
<S>                      <C>                <C>                <C>                <C>                <C>
up to 3.99%              $38,027            $10,584            $ 1,783            $   427            $50,821
4.00% - 5.99%              2,643                202                 53                933              3,831
6.00% - 7.99%                679                 --                 --                 --                679
                         -------            -------            -------            -------            -------
  Total                  $41,349            $10,786            $ 1,836            $ 1,360            $55,331
                         =======            =======            =======            =======            =======
</TABLE>


                                      -12-
<PAGE>

      As of  December  31,  2004,  the  aggregate  amount  of  outstanding  time
certificates  of deposit at Peoples  Federal in amounts greater than or equal to
$100,000,  was  approximately  $19.3 million.  The following  table presents the
maturity of these time certificates of deposit at such dates.

                                                              December 31, 2004
                                                              -----------------
                                                                (In Thousands)
3 months or less .........................................         $ 3,710
Over 3 months through 6 months ...........................           2,006
Over 6 months through 12 months ..........................           8,945
Over 12 months ...........................................           4,595
                                                                   -------
 Total ...................................................         $19,256
                                                                   =======

      Borrowings. Peoples Federal may obtain advances from the Federal Home Loan
Bank of Indianapolis  upon the security of the common stock it owns in that bank
and certain of its  residential  mortgage  loans and  mortgage-backed  and other
investment  securities,  provided certain standards related to  creditworthiness
have been met. These advances are made pursuant to several credit programs, each
of which has its own interest  rate and range of  maturities.  Federal Home Loan
Bank advances are generally  available to meet seasonal and other withdrawals of
deposit accounts and to permit increased lending.

      As of December 31,  2004,  Peoples  Federal was  permitted to borrow up to
$55.4 million from the Federal Home Loan Bank of  Indianapolis.  Peoples Federal
had $17.5 million in Federal Home Loan Bank advances outstanding at December 31,
2004  compared to $2.0 million at December 31, 2003.  The  increased  borrowings
were used as a complement to deposits in order to fund loan growth.

      The following table shows certain information  regarding the borrowings of
Peoples Federal at or for the dates indicated:

<TABLE>
<CAPTION>
                                                      At or for the Year Ended December 31,
                                                      -------------------------------------
                                                           2004        2003        2002
                                                         -------     -------     -------
                                                              (Dollars In Thousands)
<S>                                                      <C>         <C>         <C>
      Federal Home Loan Bank open line of credit:
        Average balance outstanding .................    $10,899     $   175     $   154
        Maximum amount outstanding at any
          month-end during the period ...............     19,500       2,500       1,000
        Balance outstanding at end of period ........     17,500       2,000       1,000
        Average interest rate during the period .....       2.28%       1.71%       1.30%
        Weighted average interest rate at end of
          period ....................................       2.89%       1.75%       1.62%
</TABLE>

      PFS Bancorp had other  borrowings of $3.5 million as of December 31, 2004.
The funds  were used to pay a special  dividend  in October  2004.  This line of
credit was repaid in full in January  2005.  The  interest  rate on this line of
credit was prime and it was secured by the common stock of Peoples Federal.  PFS
Bancorp had no borrowings in prior years.


                                      -13-
<PAGE>

      The following  table shows certain  information  regarding the  short-term
borrowings of PFS Bancorp at or for the dates indicated:

<TABLE>
<CAPTION>
                                                       At or for the Year Ended December 31,
                                                       -------------------------------------
                                                         2004           2003          2002
                                                        ------         ------        ------
                                                               (Dollars In Thousands)
<S>                                                     <C>            <C>           <C>
      Open line of credit:
        Average balance outstanding ................    $  650         $   --        $   --
        Maximum amount outstanding at any
          month-end during the period ..............     3,500             --            --
        Balance outstanding at end of period .......     3,500             --            --
        Average interest rate during the period ....      5.08%            --%           --%
        Weighted average interest rate at end of
          period ...................................      5.25%            --%           --%
</TABLE>

Subsidiaries

      At December 31, 2004, Peoples Federal had no subsidiaries.

Total Employees

      Peoples Federal had 31 full-time employees and four part-time employees at
December 31,  2004.  None of these  employees  are  represented  by a collective
bargaining  agent,  and Peoples  Federal  believes that it enjoys good relations
with its personnel.

Market Area

      Peoples  Federal's main office is in Aurora,  Indiana in Dearborn  County.
Peoples Federal's primary market area consists of the three southeastern Indiana
counties in which it has offices,  Dearborn,  Ohio and Switzerland  Counties, as
well as surrounding  areas.  On occasion,  Peoples Federal  originates  loans to
borrowers outside of its primary market area.

      Aurora,   Indiana  is  located   approximately   25  miles  from  downtown
Cincinnati,  Ohio, and is included in the Cincinnati MSA. To a certain  limited,
but growing,  extent,  Dearborn  County serves as a "bedroom  community" for the
growing  greater  Cincinnati  area since certain  residents who live in Dearborn
County also commute to Cincinnati  for work.  Peoples  Federal's  primary market
area is mostly rural in nature, with relatively low population density. Dearborn
County's 2000  population  was 49,000 while both Ohio and  Switzerland  counties
each had  populations  of less than  10,000.  The  economy in Peoples  Federal's
primary market area is fairly diversified,  with services,  wholesale and retail
trade,  manufacturing  and  local  government  serving  as  cornerstones.  Major
employers  in the area  include a distillery  for a worldwide  spirits  company,
three  riverfront  hotels/casinos,  local  hospitals  and school  districts  and
miscellaneous manufacturing and retail concerns.

Competition

      Peoples Federal faces significant  competition both in attracting deposits
and in  making  loans.  Its  most  direct  competition  for  deposits  has  come
historically from commercial banks, credit unions and other savings institutions
located in its primary market area, including many large financial  institutions
which have greater  financial  and  marketing  resources  available to them.  In
addition,  Peoples Federal faces  significant  competition for investors'  funds
from short- term money market  securities,  mutual funds and other corporate and
government  securities.  Peoples Federal does not rely upon any individual group
or entity for a material portion of its deposits. The ability of Peoples Federal
to attract and retain  deposits  depends on its ability to  generally  provide a
rate of return,  liquidity  and risk  comparable  to that  offered by  competing
investment opportunities.


                                      -14-
<PAGE>

      Peoples Federal's competition for real estate loans comes principally from
mortgage banking  companies,  commercial banks,  other savings  institutions and
credit unions.  Peoples Federal competes for loan originations primarily through
the interest  rates and loan fees it charges,  and the efficiency and quality of
services it provides borrowers. Factors which affect competition include general
and local economic  conditions,  current  interest rate levels and volatility in
the mortgage  markets.  Competition  may increase as a result of the  continuing
reduction  of   restrictions   on  the   interstate   operations   of  financial
institutions.

                                   REGULATION

      The  following  discussion  of  certain  laws and  regulations  which  are
applicable to PFS Bancorp and Peoples  Federal,  as well as descriptions of laws
and regulations contained elsewhere herein,  summarizes the aspects of such laws
and  regulations  which are deemed to be  material  to PFS  Bancorp  and Peoples
Federal.  However,  the summary does not purport to be complete and is qualified
in its entirety by reference to applicable laws and regulations.

General

      Financial   institutions  and  their  holding  companies  are  extensively
regulated  under  federal and state law.  Consequently,  the growth and earnings
performance  of PFS  Bancorp and  Peoples  Federal  can be affected  not only by
management decisions and general economic  conditions,  but also by the statutes
administered  by, and the  regulations  and  policies of,  various  governmental
regulatory  authorities.  Those authorities include, but are not limited to, the
Office of Thrift Supervision,  the Federal Reserve Board, the FDIC, the Internal
Revenue  Service,  and state taxing  authorities.  The effect of such  statutes,
regulations and policies can be significant, and cannot be predicted with a high
degree of certainty.

      Federal and state laws and regulations  generally  applicable to financial
institutions and their holding companies regulate, among other things, the scope
of business, investments,  reserves against deposits, capital levels relative to
operations,   lending  activities  and  practices,  the  nature  and  amount  of
collateral for loans, the establishment of branches, mergers, consolidations and
dividends.  The system of supervision  and regulation  applicable to PFS Bancorp
and Peoples Federal  establishes a comprehensive  framework for their respective
operations  and is intended  primarily for the  protection of the FDIC's deposit
insurance funds,  the depositors of Peoples Federal and the public,  rather than
stockholders of Peoples Federal or PFS Bancorp.

      Federal law and regulations  establish supervisory standards applicable to
the lending activities of Peoples Federal,  including internal controls,  credit
underwriting,  loan documentation and loan-to-value  ratios for loans secured by
real property.

PFS Bancorp, Inc.

      Holding  Company  Acquisitions.  PFS Bancorp is a savings and loan holding
company  within the meaning of the Home Owners'  Loan Act, as amended  ("HOLA"),
and  registered  with the Office of Thrift  Supervision.  Federal law  generally
prohibits a savings and loan  holding  company,  without  prior Office of Thrift
Supervision  approval,  from  acquiring  the  ownership  or control of any other
savings   institution  or  savings  and  loan  holding   company,   or  all,  or
substantially  all, of the assets or more than 5% of the voting shares  thereof.
These provisions also prohibit, among other things, any director or officer of a
savings and loan holding  company,  or any  individual who owns or controls more
than 25% of the voting shares of such holding company, from acquiring control of
any savings  institution  not a  subsidiary  of such  savings  and loan  holding
company, unless the acquisition is approved by the Office of Thrift Supervision.

      The Office of Thrift  Supervision  may not  approve any  acquisition  that
would result in a multiple savings and loan holding company  controlling savings
institutions in more than one state, subject to two exceptions: (i) the approval
of interstate supervisory acquisitions by savings and loan holding companies and
(ii) the  acquisition  of a savings


                                      -15-
<PAGE>

institution  in  another  state if the laws of the state of the  target  savings
institution specifically permit such acquisitions. The states vary in the extent
to which they permit interstate savings and loan holding company acquisitions.

      Holding Company Activities.  PFS Bancorp operates as a unitary savings and
loan holding company. The activities of PFS Bancorp are restricted to activities
traditionally  permitted to multiple  savings and loan holding  companies and to
financial  holding  companies  under newly added  provisions of the Bank Holding
Company Act. Multiple savings and loan holding companies may:

      o     furnish or perform  management  services  for a savings  association
            subsidiary of a savings and loan holding company;

      o     hold,  manage or liquidate  assets owned or acquired  from a savings
            association subsidiary of a savings and loan holding company;

      o     hold or manage properties used or occupied by a savings  association
            subsidiary of a savings and loan holding company;

      o     engage in activities determined by the Federal Reserve to be closely
            related to banking and a proper incident thereto; and

      o     engage in  services  and  activities  previously  determined  by the
            Federal Home Loan Bank Board by regulation to be  permissible  for a
            multiple savings and loan holding company as of March 5, 1987.

      The activities financial holding companies may engage in include:

      o     lending,  exchanging,  transferring  or  investing  for  others,  or
            safeguarding money or securities;

      o     insuring,  guaranteeing or indemnifying  others,  issuing annuities,
            and  acting  as  principal,  agent or  broker  for  purposes  of the
            foregoing;

      o     providing  financial,  investment  or  economic  advisory  services,
            including advising an investment company;

      o     issuing or selling interests in pooled assets that a bank could hold
            directly;

      o     underwriting, dealing in or making a market in securities; and

      o     merchant banking activities.

      If the Office of Thrift  Supervision  determines  that there is reasonable
cause to believe that the  continuation by a savings and loan holding company of
an activity  constitutes  a serious risk to the financial  safety,  soundness or
stability  of  its  subsidiary  savings   institution,   the  Office  of  Thrift
Supervision  may impose such  restrictions  as deemed  necessary to address such
risk. These restrictions include limiting the following:

      o     the payment of dividends by the savings institution;

      o     transactions between the savings institution and its affiliates; and

      o     any  activities  of the  savings  institution  that  might  create a
            serious  risk that the  liabilities  of the holding  company and its
            affiliates may be imposed on the savings institution.


                                      -16-
<PAGE>

      Every savings institution subsidiary of a savings and loan holding company
is required to give the Office of Thrift  Supervision  at least 30 days' advance
notice of any proposed dividends to be made on its guaranty,  permanent or other
non-withdrawable  stock,  or else such dividend will be invalid.  See "- Peoples
Federal - Capital Distributions."

      Restrictions  on  Transactions  With  Affiliates.  Transactions  between a
savings  institution  and its  "affiliates"  are  subject  to  quantitative  and
qualitative  restrictions  under Sections 23A and 23B of the Federal Reserve Act
and  Office  of  Thrift  Supervision   regulations.   Affiliates  of  a  savings
institution include,  among other entities,  the savings  institution's  holding
company and companies  that are  controlled by or under common  control with the
savings institution.

      In general,  the extent to which a savings institution or its subsidiaries
may engage in certain  "covered  transactions"  with affiliates is limited to an
amount equal to 10% of the  institution's  capital and  surplus,  in the case of
covered  transactions  with any one affiliate,  and to an amount equal to 20% of
such  capital  and  surplus,  in the  case  of  covered  transactions  with  all
affiliates.  In addition,  a savings institution and its subsidiaries may engage
in covered  transactions and certain other  transactions only on terms and under
circumstances  that are  substantially the same, or at least as favorable to the
savings  institution  or its  subsidiary,  as those  prevailing  at the time for
comparable transactions with nonaffiliated companies. A "covered transaction" is
defined to include a loan or extension of credit to an affiliate;  a purchase of
investment  securities  issued by an  affiliate;  a purchase  of assets  from an
affiliate,  with certain  exceptions;  the acceptance of securities issued by an
affiliate as collateral  for a loan or extension of credit to any party;  or the
issuance  of a  guarantee,  acceptance  or  letter  of  credit  on  behalf of an
affiliate.

      In addition, a savings institution may not:

      o     make a loan or  extension  of  credit  to an  affiliate  unless  the
            affiliate is engaged only in activities permissible for bank holding
            companies;

      o     purchase or invest in securities  of an affiliate  other than shares
            of a subsidiary;

      o     purchase a low-quality asset from an affiliate; or

      o     engage  in  covered  transactions  and  certain  other  transactions
            between a savings  institution or its  subsidiaries and an affiliate
            except on terms and  conditions  that are  consistent  with safe and
            sound banking practices.

With  certain  exceptions,  each  loan  or  extension  of  credit  by a  savings
institution  to an affiliate  must be secured by collateral  with a market value
ranging from 100% to 130% (depending on the type of collateral) of the amount of
the loan or extension of credit.

      Office of Thrift  Supervision  regulations  generally exclude all non-bank
and non-savings institution  subsidiaries of savings institutions from treatment
as affiliates, except to the extent that the Office of Thrift Supervision or the
Federal Reserve Board decides to treat such  subsidiaries as affiliates.  Office
of Thrift  Supervision  regulations also provide that certain classes of savings
institutions  may be  required  to give the Office of Thrift  Supervision  prior
notice of affiliate transactions.

      Federal  Securities Laws. PFS Bancorp registered its common stock with the
SEC under Section 12(g) of the  Securities  Exchange Act of 1934 (the  "Exchange
Act").  PFS  Bancorp is subject to the proxy and  tender  offer  rules,  insider
trading reporting requirements and restrictions,  and certain other requirements
under the Exchange Act. Pursuant to Office of Thrift Supervision regulations and
the plan of conversion, PFS Bancorp has agreed to maintain such registration for
a minimum of three years following the conversion.


                                      -17-
<PAGE>

      Sarbanes-Oxley  Act of 2002. On July 30, 2002,  the President  signed into
law the Sarbanes-Oxley Act of 2002 implementing  legislative reforms intended to
address  corporate and accounting  fraud. In addition to the  establishment of a
new accounting oversight board which will enforce auditing,  quality control and
independence  standards  and will be  funded by fees  from all  publicly  traded
companies, the bill restricts provision of both auditing and consulting services
by accounting  firms.  To ensure auditor  independence,  any non-audit  services
being  provided to an audit client will  require  preapproval  by the  company's
audit committee members.  In addition,  the audit partners must be rotated.  The
bill requires chief executive  officers and chief financial  officers,  or their
equivalent,  to certify to the accuracy of periodic  reports filed with the SEC,
subject to civil and criminal  penalties if they knowingly or willfully  violate
this  certification  requirement.  In addition,  under the Act,  counsel will be
required to report evidence of a material  violation of the securities laws or a
breach of  fiduciary  duty by a company  to its chief  executive  officer or its
chief legal officer,  and, if such officer does not  appropriately  respond,  to
report such evidence to the audit  committee or other  similar  committee of the
board of directors or the board itself.

      Longer  prison  terms and  increased  penalties  will also be  applied  to
corporate  executives  who violate  federal  securities  laws, the period during
which  certain  types of suits can be brought  against a company or its officers
has been extended,  and bonuses issued to top executives prior to restatement of
a  company's  financial  statements  are now  subject  to  disgorgement  if such
restatement was due to corporate misconduct. Executives are also prohibited from
insider trading during retirement plan "blackout" periods,  and loans to company
executives are restricted. In addition, a provision directs that civil penalties
levied by the SEC as a result of any judicial or administrative action under the
Act be  deposited  to a fund for the  benefit of harmed  investors.  The Federal
Accounts for Investor  Restitution  ("FAIR")  provision also requires the SEC to
develop methods of improving  collection rates. The legislation  accelerates the
time  frame for  disclosures  by  public  companies,  as they  must  immediately
disclose  any  material  changes in their  financial  condition  or  operations.
Directors and executive officers must also provide  information for most changes
in ownership in a company's securities within two business days of the change.

      The Act also increases the oversight of, and codifies certain requirements
relating to audit  committees of public companies and how they interact with the
company's "registered public accounting firm" ("RPAF").  Audit committee members
must be independent and are barred from accepting consulting,  advisory or other
compensatory fees from the issuer. In addition,  companies must disclose whether
at least one member of the committee is a "financial  expert" (as such term will
be defined by the SEC) and if not, why not.  Under the Act, a RPAF is prohibited
from  performing  statutorily  mandated  audit  services  for a company  if such
company's chief executive officer, chief financial officer,  comptroller,  chief
accounting  officer  or any  person  serving in  equivalent  positions  has been
employed by such firm and  participated  in the audit of such company during the
one-year period  preceding the audit initiation date. The Act also prohibits any
officer  or  director  of a  company  or any other  person  acting  under  their
direction from taking any action to fraudulently influence,  coerce,  manipulate
or mislead any independent  public or certified  accountant engaged in the audit
of the company's financial statements for the purpose of rendering the financial
statement's  materially  misleading.  The Act also requires the SEC to prescribe
rules  requiring  inclusion  of an internal  control  report and  assessment  by
management in the annual report to stockholders.  The Act requires the RPAF that
issues the audit report to attest to and report on  management's  assessment  of
the  company's  internal  controls.  In  addition,  the Act  requires  that each
financial  report  required to be prepared in accordance with (or reconciled to)
accounting  principles  generally  accepted in the United  States of America and
filed  with  the SEC  reflect  all  material  correcting  adjustments  that  are
identified by a RPAF in accordance with accounting principles generally accepted
in the United States of America and the rules and regulations of the SEC.

Peoples Federal

      General.  The Office of Thrift Supervision is Peoples Federal's chartering
authority and primary federal  regulator.  The Office of Thrift  Supervision has
extensive   authority  over  the  operations  of  federally   chartered  savings
institutions.   As  part  of  this  authority,   federally   chartered   savings
institutions  are  required to file  periodic  reports with the Office of Thrift
Supervision  and are  subject to periodic  examinations  by the Office of Thrift
Supervision  and the Federal Deposit  Insurance  Corporation  ("FDIC").  Peoples
Federal  also  is  subject  to  regulation  by  the  FDIC  and  to


                                      -18-
<PAGE>

requirements  established  by the Federal  Reserve  Board.  The  investment  and
lending  authority of savings  institutions  are  prescribed by federal laws and
regulations,   and  such  institutions  are  prohibited  from  engaging  in  any
activities  not  permitted by such laws and  regulations.  Such  regulation  and
supervision  is primarily  intended for the  protection  of  depositors  and the
Savings Association Insurance Fund ("SAIF") which is administered by the FDIC.

      The Office of Thrift Supervision's  enforcement authority over all savings
institutions  and their holding  companies  includes,  among other  things,  the
ability to assess  civil money  penalties,  to issue cease and desist or removal
orders and to initiate injunctive actions. In general, these enforcement actions
may be initiated for  violations of laws and  regulations  and unsafe or unsound
practices.  Other  actions or  inactions  may provide the basis for  enforcement
action, including misleading or untimely reports filed with the Office of Thrift
Supervision.

      Insurance of Accounts.  The deposits of Peoples Federal are insured to the
maximum extent  permitted by applicable  FDIC  regulations and are backed by the
full faith and credit of the U.S. Government. As insurer, the FDIC is authorized
to  conduct   examinations  of,  and  to  require  reporting  by,   FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious threat
to the FDIC.  The FDIC also has the  authority to initiate  enforcement  actions
against savings  institutions,  after giving the Office of Thrift Supervision an
opportunity to take such action.

      SAIF-insured  institutions  are  assigned to one of three  capital  groups
which  are  based  solely  on  the  level  of  an  institution's   capital-"well
capitalized,"  "adequately  capitalized," and "undercapitalized."  These capital
levels are  defined in the same  manner as under the  prompt  corrective  action
system discussed below. These three groups are then divided into three subgroups
which  reflect  varying  levels of  supervisory  concern,  from those  which are
considered  to be healthy to those  which are  considered  to be of  substantial
supervisory  concern.  Assessment rates for insured  institutions are determined
semi-annually  by the FDIC and  currently  range from zero basis  points for the
healthiest institutions to 27 basis points for the riskiest.

      In addition to the  assessment  for deposit  insurance,  institutions  are
required  to make  payments on bonds  issued in the late 1980s by the  Financing
Corporation, a federal agency established to recapitalize the predecessor to the
SAIF.  During 1999,  payments for SAIF members  approximated  6.1 basis  points,
while Bank Insurance Fund members paid 1.2 basis points.  Since January 1, 2000,
there has been equal sharing of Financing  Corporation  payments between members
of both insurance funds.

      The FDIC may  terminate  the deposit  insurance of any insured  depository
institution,  including  Peoples Federal,  if it determines after a hearing that
the institution has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound  condition  to continue  operations,  or has  violated  any
applicable law, regulation,  order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance  temporarily  during the hearing
process for the permanent  termination of insurance,  if the  institution has no
tangible  capital.  If insurance of accounts is terminated,  the accounts at the
institution at the time of the termination,  less subsequent withdrawals,  shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of Peoples Federal's deposit insurance.

      Regulatory Capital  Requirements.  Federally insured savings  institutions
are required to maintain  minimum  levels of regulatory  capital.  The Office of
Thrift Supervision has established  capital standards  applicable to all savings
institutions.  These standards  generally must be as stringent as the comparable
capital requirements imposed on national banks. The Office of Thrift Supervision
also is authorized to impose capital  requirements  in excess of these standards
on individual institutions on a case-by-case basis.

      Current Office of Thrift  Supervision  capital  standards  require savings
institutions to satisfy three different capital requirements:

      o     "tangible" capital equal to at least 1.5% of adjusted total assets,


                                      -19-
<PAGE>

      o     "core"  capital equal to at least 3.0% of adjusted  total assets for
            savings   associations  with  the  highest  rating  for  safety  and
            soundness, and 4% to 5% for all other savings associations, and

      o     "total" capital (a combination of core and "supplementary"  capital)
            equal to at least 8.0% of "risk- weighted" assets.

      Core capital generally consists of common  stockholders' equity (including
retained  earnings).  Tangible  capital  generally  equals  core  capital  minus
intangible  assets,  with  only  a  limited  exception  for  purchased  mortgage
servicing rights. Peoples Federal had $33,000 of intangible assets, comprised of
pre-paid software, at December 31, 2004 (reflecting the re-categorization by the
OTS during fiscal 2003 of pre-paid software as an intangible  asset).  Both core
and  tangible  capital  are  further  reduced  by an  amount  equal to a savings
institution's debt and equity investments in subsidiaries  engaged in activities
not permissible to national banks (other than subsidiaries engaged in activities
undertaken  as  agent  for  customers  or in  mortgage  banking  activities  and
subsidiary   depository   institutions  or  their  holding   companies).   These
adjustments do not affect Peoples Federal's regulatory capital.

      In determining  compliance  with the  risk-based  capital  requirement,  a
savings  institution  is allowed to include both core capital and  supplementary
capital in its total capital,  provided that the amount of supplementary capital
included does not exceed the savings  institution's core capital.  Supplementary
capital generally consists of general allowances for loan losses up to a maximum
of  1.25% of  risk-weighted  assets,  together  with  certain  other  items.  In
determining the required amount of risk-based capital,  total assets,  including
certain  off-balance  sheet items,  are multiplied by a risk weight based on the
risks  inherent in the type of assets.  The risk weights  range from 0% for cash
and securities issued by the U.S.  Government or  unconditionally  backed by the
full  faith and  credit of the U.S.  Government  to 100% for loans  (other  than
qualifying residential loans weighted at 50%) and repossessed assets.

      Savings institutions must value securities available for sale at amortized
cost for regulatory  capital purposes.  This means that in computing  regulatory
capital,  savings  institutions should add back any unrealized losses and deduct
any unrealized  gains,  net of income taxes,  on debt  securities  reported as a
separate component of GAAP capital.

      At December  31, 2004,  Peoples  Federal  exceeded  all of its  regulatory
capital  requirements,  with  tangible,  core and  risk-based  capital ratios of
16.9%, 16.9% and 28.7%, respectively.

      Any  savings  institution  that fails any of the capital  requirements  is
subject to possible  enforcement  actions by the Office of Thrift Supervision or
the FDIC.  Such actions  could include a capital  directive,  a cease and desist
order,  civil  money  penalties,   the  establishment  of  restrictions  on  the
institution's  operations,  termination  of federal  deposit  insurance  and the
appointment  of a conservator  or receiver.  The Office of Thrift  Supervision's
capital regulation provides that such actions,  through enforcement  proceedings
or otherwise, could require one or more of a variety of corrective actions.

      Prompt Corrective  Action. The following table shows the amount of capital
associated  with the  different  capital  categories  set  forth  in the  prompt
corrective action regulations.

<TABLE>
<CAPTION>
                                            Total                    Tier 1                  Tier 1
       Capital Category              Risk Based Capital        Risk Based Capital       Leverage Capital
------------------------------       ------------------        ------------------       ----------------
<S>                                     <C>                       <C>                     <C>
Well capitalized                         10% or more               6% or more              5% or more

Adequately capitalized                   8% or more                4% or more              4% or more

Undercapitalized                        Less than 8%              Less than 4%            Less than 4%
--------------------------------------------------------------------------------------------------------

Significantly undercapitalized          Less than 6%              Less than 3%            Less than 3%
</TABLE>


                                      -20-
<PAGE>

      In addition,  an institution is "critically  undercapitalized" if it has a
ratio of  tangible  equity to total  assets  that is equal to or less than 2.0%.
Under  specified  circumstances,  a federal banking agency may reclassify a well
capitalized  institution as adequately capitalized and may require an adequately
capitalized  institution  or an  undercapitalized  institution  to  comply  with
supervisory  actions as if it were in the next lower  category  (except that the
FDIC  may  not  reclassify  a  significantly   undercapitalized  institution  as
critically undercapitalized).

      An institution  generally  must file a written  capital  restoration  plan
which  meets  specified  requirements  within  45  days  of the  date  that  the
institution   receives   notice  or  is  deemed  to  have   notice  that  it  is
undercapitalized, significantly undercapitalized or critically undercapitalized.
A federal  banking  agency must provide the  institution  with written notice of
approval or  disapproval  within 60 days after  receiving a capital  restoration
plan,  subject to extensions by the agency.  An institution which is required to
submit a  capital  restoration  plan  must  concurrently  submit  a  performance
guaranty  by  each  company  that   controls  the   institution.   In  addition,
undercapitalized  institutions are subject to various  regulatory  restrictions,
and the  appropriate  federal  banking  agency  also  may  take  any  number  of
discretionary supervisory actions.

      At  December  31,  2004,  Peoples  Federal  was deemed a well  capitalized
institution for purposes of the above  regulations and as such is not subject to
the above mentioned restrictions.

      Safety and Soundness Guidelines.  The Office of Thrift Supervision and the
other  federal  banking  agencies  have  established  guidelines  for safety and
soundness,   addressing  operational  and  managerial  standards,   as  well  as
compensation matters for insured financial institutions. Institutions failing to
meet  these  standards  are  required  to  submit   compliance  plans  to  their
appropriate federal  regulators.  The Office of Thrift Supervision and the other
agencies have also established  guidelines  regarding asset quality and earnings
standards  for insured  institutions.  Peoples  Federal  believes  that it is in
compliance with these guidelines and standards.

      Capital  Distributions.  Office of Thrift  Supervision  regulations govern
capital  distributions  by savings  institutions,  which include cash dividends,
stock  repurchases  and other  transactions  charged to the capital account of a
savings  institution to make capital  distributions.  A savings institution must
file an  application  for Office of Thrift  Supervision  approval of the capital
distribution  if either (1) the total capital  distributions  for the applicable
calendar  year exceed the sum of the  institution's  net income for that year to
date plus the institution's retained net income for the preceding two years, (2)
the  institution  would not be at least  adequately  capitalized  following  the
distribution,  (3)  the  distribution  would  violate  any  applicable  statute,
regulation,  agreement or Office of Thrift Supervision-imposed condition, or (4)
the  institution is not eligible for expedited  treatment of its filings.  If an
application  is not  required  to be  filed,  savings  institutions  which are a
subsidiary  of a holding  company (as well as certain other  institutions)  must
still  file a notice  with the  Office  of Thrift  Supervision  at least 30 days
before  the  board of  directors  declares  a  dividend  or  approves  a capital
distribution.

      Community Reinvestment Act and the Fair Lending Laws. Savings institutions
have a responsibility  under the Community  Reinvestment Act of 1977 ("CRA") and
related  regulations of the Office of Thrift Supervision to help meet the credit
needs of their communities, including low- and moderate-income neighborhoods. In
addition,  the Equal Credit  Opportunity Act and the Fair Housing Act (together,
the "Fair Lending Laws") prohibit lenders from  discriminating  in their lending
practices  on the  basis of  characteristics  specified  in those  statutes.  An
institution's  failure to comply with the provisions of CRA could, at a minimum,
result in regulatory restrictions on its activities.  Failure to comply with the
Fair Lending Laws could  result in  enforcement  actions by the Office of Thrift
Supervision,  as well as other federal regulatory agencies and the Department of
Justice.


                                      -21-
<PAGE>

      Qualified  Thrift Lender Test.  All savings  institutions  are required to
meet a qualified  thrift  lender or QTL test to avoid  certain  restrictions  on
their operations.  A savings  institution can comply with the QTL test by either
qualifying  as a  domestic  building  and loan  association  as  defined  in the
Internal  Revenue  Code or meeting the second prong of the QTL test set forth in
the HOLA, as described  below. A savings  institution that does not meet the QTL
test  must  either  convert  to a bank  charter  or  comply  with the  following
restrictions on its operations:

      o     the  institution  may not engage in any new activity or make any new
            investment,  unless such activity or investment is permissible for a
            national bank;

      o     the branching powers of the institution shall be restricted to those
            of a national bank;

      o     the  institution  shall not be eligible  to obtain any new  advances
            from its  FHLB,  other  than  special  liquidity  advances  with the
            approval of the Office of Thrift Supervision; and

      o     payment  of  dividends  by the  institution  shall be subject to the
            rules regarding payment of dividends by a national bank.

Upon the expiration of three years from the date the savings  institution ceases
to be a QTL,  it must  cease any  activity  and not retain  any  investment  not
permissible  for a national  bank and  immediately  repay any  outstanding  FHLB
advances (subject to safety and soundness considerations).

      Currently,  the prong of the QTL test  that is not  based on the  Internal
Revenue  Code  requires  that 65% of an  institution's  "portfolio  assets"  (as
defined)  consist of certain  housing and  consumer-related  assets on a monthly
average basis in nine out of every 12 months.  Assets that qualify without limit
for inclusion as part of the 65% requirement include:

      o     loans  made to  purchase,  refinance,  construct,  improve or repair
            domestic residential housing;

      o     home equity loans;

      o     most mortgage-backed securities;

      o     stock issued by the FHLB of Indianapolis; and

      o     direct or indirect obligations of the FDIC.

In addition,  the following assets, among others, may be included in meeting the
test subject to an overall limit of 20% of the savings  institution's  portfolio
assets: 50% of residential  mortgage loans originated and sold within 90 days of
origination;  100% of consumer loans (limited to 10% of total portfolio assets);
and stock  issued by the FHLMC or the FNMA.  Portfolio  assets  consist of total
assets minus the sum of (1) goodwill and other intangible  assets,  (2) property
used by the savings  institution to conduct its business,  and (3) liquid assets
up to 20% of the institution's total assets. At December 31, 2004, the qualified
thrift investments of Peoples Federal were approximately  80.9% of its portfolio
assets.

      Federal Home Loan Bank System.  Peoples Federal is a member of the FHLB of
Indianapolis,  which  is one of 12  regional  FHLBs  that  administers  the home
financing credit function of savings institutions. Each FHLB serves as a reserve
or  central  bank for its  members  within  its  assigned  region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB  System.  It makes loans to members  (i.e.,  advances) in  accordance  with
policies and  procedures  established  by the Board of Directors of the FHLB. At
December 31, 2004, Peoples Federal had $17.5 million in FHLB advances.

      As a member, Peoples Federal is required to purchase and maintain stock in
the FHLB of  Indianapolis  in an  amount  equal to at least 1% of its  aggregate
unpaid  residential  mortgage  loans or similar  obligations at the beginning of
each year.  At December  31, 2004,  Peoples  Federal had $975,000 in FHLB stock,
which was in compliance with this requirement.


                                      -22-
<PAGE>

      The FHLBs are  required to provide  funds for the  resolution  of troubled
savings  institutions  and to contribute to affordable  housing programs through
direct loans or interest subsidies on advances targeted for community investment
and  low-  and  moderate-income  housing  projects.   These  contributions  have
adversely  affected the level of FHLB dividends paid in the past and could do so
in the  future.  These  contributions  also could have an adverse  effect on the
value of FHLB  stock  in the  future.  For the year  ended  December  31,  2004,
dividends to Peoples Federal amounted to $35,000. The dividends from the FHLB in
2004 were stock dividends.

      Federal Reserve System.  The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction  accounts (primarily
NOW and Super NOW checking  accounts) and  non-personal  time deposits.  Because
required   reserves  must  be  maintained  in  the  form  of  vault  cash  or  a
noninterest-bearing  account  at a  Federal  Reserve  Bank,  the  effect of this
reserve requirement is to reduce an institution's earning assets.

                                    TAXATION

Federal Taxation

      General.  PFS Bancorp and Peoples Federal are subject to the corporate tax
provisions  of the  Internal  Revenue  Code,  and Peoples  Federal is subject to
certain additional provisions which apply to thrift and other types of financial
institutions.  The following  discussion of federal taxation is intended only to
summarize  certain pertinent federal income tax matters relevant to the taxation
of PFS Bancorp and Peoples Federal and is not a comprehensive  discussion of the
tax rules applicable to PFS Bancorp and Peoples Federal.

      Bad Debt  Reserves.  In 1996,  legislation  was enacted that  repealed the
reserve method of accounting (including the percentage of taxable income method)
previously used by many savings institutions to calculate their bad debt reserve
for federal income tax purposes.  Savings institutions with $500 million or less
in assets may, however,  continue to use the experience method.  Peoples Federal
must  recapture  that portion of its reserve which exceeds the amount that could
have been taken  under the  experience  method  for  post-1987  tax  years.  The
legislation  also  requires  savings  institutions  to account for bad debts for
federal income tax purposes on the same basis as commercial  banks for tax years
beginning  after  December  31,  1995.  This  change in  accounting  method  and
recapture  of excess bad debt  reserves is  adequately  provided  for in Peoples
Federal's deferred tax liability.

      At December 31, 2004, the federal  income tax reserves of Peoples  Federal
included $1.2 million for which no federal income tax has been provided. Because
of  these  federal  income  tax  reserves  and  the  liquidation  account  to be
established  for the  benefit  of  certain  depositors  of  Peoples  Federal  in
connection  with the  conversion,  the retained  earnings of Peoples Federal are
substantially restricted.

      Distributions.  If Peoples  Federal were to distribute cash or property to
its stockholders, and the distribution was treated as being from its accumulated
bad  debt  reserves,  the  distribution  would  cause  Peoples  Federal  to have
additional  taxable income. A distribution is from accumulated bad debt reserves
if (a) the reserves  exceed the amount that would have been  accumulated  on the
basis of actual loss  experience,  and (b) the  distribution is a "non-qualified
distribution."  A  distribution   with  respect  to  stock  is  a  non-qualified
distribution to the extent that, for federal income tax purposes,

      o     it is in redemption of shares,

      o     it is pursuant to a liquidation of the institution, or

      o     in the case of a current distribution,  together with all other such
            distributions  during the taxable year, it exceeds the institution's
            current and post-1951 accumulated earnings and profits.


                                      -23-
<PAGE>

The amount of additional taxable income created by a non-qualified  distribution
is an amount  that when  reduced by the tax  attributable  to it is equal to the
amount of the distribution.

      Minimum Tax. The Internal Revenue Code imposes an alternative  minimum tax
at a rate of 20%. The  alternative  minimum tax  generally  applies to a base of
regular  taxable  income plus  certain  tax  preferences  ("alternative  minimum
taxable  income" or "AMTI")  and is payable to the extent such AMTI is in excess
of an exemption amount. Tax preference items include the following:

      o     depreciation, and

      o     75% of the excess (if any) of

            (1)   adjusted  current  earnings as defined in the Internal Revenue
                  Code, over

            (2)   AMTI determined without regard to this preference and prior to
                  reduction by net operating losses.

      Capital Gains and Corporate  Dividends-Received  Deduction.  Corporate net
capital gains are taxed at a maximum rate of 35%.  Corporations which own 20% or
more of the stock of a corporation distributing a dividend may deduct 80% of the
dividends  received.  Corporations  which  own less  than 20% of the  stock of a
corporation  distributing  a dividend may deduct 70% of the dividends  received.
However,  a  corporation  that  receives  dividends  from a  member  of the same
affiliated group of corporations may deduct 100% of the dividends received.

      Other Matters.  Federal  legislation is introduced  from time to time that
would  limit the  ability of  individuals  to deduct  interest  paid on mortgage
loans.  Individuals  are currently not permitted to deduct  interest on consumer
loans.  Significant  increases  in tax  rates  or  further  restrictions  on the
deductibility of mortgage interest could adversely affect Peoples Federal.

      Peoples  Federal's  federal  income  tax  returns  for the tax year  ended
December 31, 2003,  2002 and 2001 are open under the statute of limitations  and
are subject to review by the Internal Revenue  Service.  Peoples Federal has not
been audited by the Internal Revenue Service since 1998.

State Taxation

      Peoples  Federal  is  subject  to  Indiana's  Financial  Institutions  Tax
("FIT"),  which is imposed at a flat rate of 8.5% on  "adjusted  gross  income."
"Adjusted  gross  income,"  for purposes of FIT,  begins with taxable  income as
defined by Section  63 of the  Internal  Revenue  Code and,  thus,  incorporates
federal tax law to the extent that it affects the computation of taxable income.
Federal taxable income is then adjusted by several Indiana modifications.  Other
applicable  state taxes include  generally  applicable  sales and use taxes plus
real and personal property taxes.

      Peoples Federal's state income tax returns have not been audited in recent
years.

Item 2. Description of Property
-------------------------------

Properties

      At December 31, 2004,  Peoples  Federal  conducted  its business  from its
headquarters office located in Aurora, Indiana and two branch offices.


                                      -24-
<PAGE>

      The  following  table sets forth certain  information  relating to Peoples
Federal's offices at December 31, 2004.

<TABLE>
<CAPTION>
                                                                         Net Book Value of
                                                                           Property and
                                                           Lease             Leasehold
                                         Owned or        Expiration       Improvements at          Deposits at
Location                                  Leased            Date         December 31, 2004      December 31, 2004
----------------------------             --------      --------------    -----------------      -----------------
                                                                                     (In Thousands)
<S>                                       <C>          <C>                      <C>                  <C>
Second and Bridgeway Streets
Aurora, Indiana                            Owned            N/A                 $383                 $72,597

330 Industrial Access Road
Rising Sun, Indiana                        Owned            N/A                  333                  11,408

705 E. Main Street
Vevay, Indiana                            Leased       Month to Month             27                   2,934
</TABLE>

Item 3. Legal Proceedings
-------------------------

      PFS  Bancorp and Peoples  Federal  are not  involved in any pending  legal
proceedings other than nonmaterial  legal proceedings  occurring in the ordinary
course of business.

Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

      Not applicable

                                     PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
--------------------------------------------------------------------------------
Issuer Purchases of Equity Securities
-------------------------------------

(a)   The information required herein, to the extent applicable, is incorporated
      by  reference  from page 2 of  Peoples  Federal's  2004  Annual  Report to
      Stockholders filed as Exhibit 13 hereto ("2004 Annual Report").

    The  following   table  sets  forth  certain   information  for  all  equity
compensation  plans  and  individual  compensation  arrangements  (whether  with
employees or  non-employees,  such as  directors),  in effect as of December 31,
2004.

                      EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
                                 Number of Shares to be Issued Upon      Weighted-Average           Number of Shares Remaining
                                    the Exercise of Outstanding          Exercise Price of                   Available
                                              Options,                      Outstanding        for Future Issuance (Excluding Shares
        Plan Category                  Warrants and Rights(1)                 Options              Reflected in the First Column)
-------------------------------  ----------------------------------      -----------------     -------------------------------------
<S>                                            <C>                            <C>                             <C>
Equity Compensation Plans
   Approved by Security Holders                92,098                         $ 13.22                         129,401
Equity Compensation Plans Not
   Approved by Security Holders                    --                              --                              --
                                               ------                         -------                         -------
Total                                          92,098                         $ 13.22                         129,401
                                               ======                         =======                         =======
</TABLE>


                                      -25-
<PAGE>

----------
(1)   Includes  12,782  shares that have been granted to directors and employees
      and held in the 2002  Recognition  and Retention Plan Trust as of December
      31, 2004 and 79,316 in stock  options that have been granted from the 2002
      Stock Option Plan.

(b)   Not applicable.

(c)   Not applicable.

Item 6. Management's Discussion and Analysis or Plan of Operation
-----------------------------------------------------------------

      The  information  required  herein is incorporated by reference from pages
5 to 13 of the 2004 Annual Report.

Item 7. Financial Statements
----------------------------

      The information required herein is incorporated by reference from pages 14
to 42 of the 2004 Annual Report.

Item  8.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
Financial Disclosure
--------------------

      Not applicable

Item 8A. Controls and Procedures
--------------------------------

      The Company's  management  reviews the system of internal  controls with a
view towards  continuous  improvement.  In this regard,  management became aware
that security access logs were not being  completely  reviewed on a daily basis.
The Company's Audit Committee was advised by its independent  registered  public
accounting  firm  that  this was a  significant  deficiency  as  defined  in the
auditing literature.  Management has implemented  corrective action with respect
to this matter and has provided for complete  daily  reviews of security  access
logs.  The  Company's  Chief  Executive  Officer  and  Chief  Financial  Officer
evaluated  the  disclosure  controls  and  procedures  (as  defined  under  Rule
13a-15(c) and 15d-15(e) of the  Securities and Exchange Act of 1934, as amended)
as of the end of the  period  covered  by this  annual  report.  Based  upon the
evaluation and the  corrective  actions  discussed  above,  the Chief  Executive
officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures are effective.

Item 8B. Other Information
--------------------------

      Not applicable

                                    PART III

Item 9. Directors and Executive Officers of the Registrant
----------------------------------------------------------

      The  information  required  herein is  incorporated  by reference from the
sections   captioned   "Information  with  Respect  to  Nominees  for  Director,
Continuing   Directors  and  Executive  Officers,"  "-Section  16(a)  Beneficial
Ownership  Reporting  Compliance"  and "Code of Ethics for Directors,  Executive
Officers and Financial  Professionals" in the Registrant's Proxy Statement to be
filed with the  Securities and Exchange  Commission  within 120 days of December
31, 2004 ("Proxy Statement").

Item 10. Executive Compensation
-------------------------------

      The  information  required  herein is  incorporated  by reference from the
section captioned "Executive Compensation" in the Proxy Statement.


                                      -26-
<PAGE>

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
--------------------------------------------------------------------------------
Related Stockholder Matters
---------------------------

      The  information  required  herein is  incorporated  by reference from the
section captioned  "Beneficial  Ownership of Common Stock by Certain  Beneficial
Owners and Management" in the Proxy Statement and Item 5 of this Form 10- KSB.

Item 12. Certain Relationships and Related Transactions
-------------------------------------------------------

      The  information  required  herein is  incorporated  by reference from the
section captioned "Indebtedness of Management and Related Party Transactions" in
the Proxy Statement.

Item 13. Exhibits
-----------------

      (a) The  following  documents  are  filed as part of this  report  and are
incorporated herein by reference from the Registrant's 2004 Annual Report:

            Report of Independent Registered Public Accountants.

            Consolidated  Statements  of Financial  Condition as of December 31,
            2004 and December 31, 2003.

            Consolidated Statements of Earnings for the Years Ended December 31,
            2004 and 2003.

            Consolidated  Statements of Shareholders' Equity for the Years Ended
            December 31, 2004 and 2003.

            Consolidated  Statements of Cash Flows for the Years Ended  December
            31, 2004 and 2003.

            Notes to Consolidated Financial Statements.

      The following exhibits are filed as part of the Form 10-KSB, and this list
includes the Exhibit Index:

<TABLE>
<CAPTION>
             No.     Exhibits                                                                        Location
             ---     --------                                                                        --------
<S>         <C>      <C>                                                                          <C>
             3.1     Articles of Incorporation of PFS Bancorp, Inc.                                     (1)

             3.2     Bylaws of PFS Bancorp, Inc.                                                        (1)

             4.0     Stock Certificate of PFS Bancorp, Inc.                                             (1)

            10.1     PFS Bancorp, Inc. 2002 Stock Option Plan                                           (2)

            10.2     PFS Bancorp, Inc. 2002 Recognition and Retention Plan and
                            Trust Agreement                                                             (2)

            10.3     Executive Officers and Directors Deferred Compensation Plan                  Filed Herewith

            13.0     Annual Report to Stockholders                                                Filed Herewith

            31.1     Certification of Chief Executive Officer Pursuant to Rules 13a-14 and
                            15d-14 of the Securities and Exchange Act of 1934 and Section 302
                            of the Sarbanes-Oxley Act of 2002                                     Filed Herewith

            31.2     Certification of Chief Financial Officer Pursuant to Rules 13a-14 and
                            15d-14 of the Securities Exchange Act of 1934 and Section 302 of
                            the Sarbanes-Oxley Act of 2002                                        Filed Herewith

            32.0     Certifications Pursuant Section 906 of the Sarbanes-Oxley Act of 2002
                            (18 U.S.C. 1350)                                                      Filed Herewith
</TABLE>

----------

      (1)  Incorporated  herein by  reference  from PFS  Bancorp's  Registration
Statement  on Form SB-2,  as amended,  filed with the SEC on June 22, 2001 (File
No. 333-63696).


                                      -27-
<PAGE>

      (2)  Incorporated  herein  by  reference  from  PFS  Bancorp's  Definitive
Schedule 14A filed with the SEC on March 25, 2002 (File No. 000-33233).

Item 14. Principal Accountant Fees and Services
-----------------------------------------------

      The  information  required  herein is  incorporated  by reference from the
section captioned  "Ratification of Appointment of Auditors - Audit Fees" in the
proxy statement.


                                      -28-
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) 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.

                              PFS BANCORP, INC.


                              By /s/ Mel E. Green
                                 -----------------------------------------------
                                 Mel E. Green
                                 President, Chief Executive Officer and Director

      Pursuant to the  requirements  of the Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
          Name                                 Title                         Date
--------------------------    --------------------------------------    --------------
<S>                           <C>                                       <C>

/s/ Mel E. Green              President, Chief Executive Officer and    March 29, 2005
--------------------------    Director (principal executive officer)
Mel E. Green


/s/ Stuart M. Suggs           Corporate Treasurer, Vice President,      March 29, 2005
--------------------------    Chief Operating Officer and
Stuart M. Suggs               Chief Financial Officer (principal
                              financial and accounting officer)


/s/ Robert L. Laker           Chairman of the Board                     March 29, 2005
--------------------------
Robert L. Laker


/s/ Jack D. Tandy             Secretary and Director                    March 29, 2005
--------------------------
Jack D. Tandy


/s/ Gilbert L. Houze          Director                                  March 29, 2005
--------------------------
Gilbert L. Houze


/s/ Dale R. Moeller           Director                                  March 29, 2005
--------------------------
Dale R. Moeller


/s/ Carl E. Petty             Director                                  March 29, 2005
--------------------------
Carl E. Petty
</TABLE>


                                      -29-