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, 2003

                                       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

<PAGE>

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, 2003: $6.1
million.

As of March 26, 2004, 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 $23.8 million. This figure
is based on the closing sales price of $20.39 per share of the Registrant's
Common Stock on March 26, 2004. 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 26, 2004: 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 2004 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, 2003, the net loan portfolio of Peoples
Federal totaled $100.3 million, representing approximately 84.8% 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, 2003, single-family residential loans
amounted to $74.7 million or 72.9% of the total loan portfolio. In addition to
single-family residential loans, Peoples Federal also offers:

     o    Multi-family (more than four units) residential loans, which amounted
          to 2.1% of the total loan portfolio at December 31, 2003;

     o    Construction loans, which amounted to 3.8% of the loan portfolio at
          December 31, 2003;

     o    Non-residential and land loans which amounted to 13.8% of the total
          loan portfolio at December 31, 2003;

                                       1
<PAGE>

     o    Commercial loans, which amounted to 3.2% of the total loan portfolio
          at December 31, 2003; and

     o    Consumer and other loans, which amounted to 4.2% of the total loan
          portfolio at December 31, 2003.

         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 by readily marketable securities,
and (ii) $500,000. At December 31, 2003, Peoples Federal's regulatory limit on
loans-to-one borrower was $3.2 million and its five largest loans or groups of
loans-to-one borrower, including related entities, aggregated $1.7 million, $1.1
million, $1.0 million, $1.0 million and $1.0 million. Each of Peoples Federal's
five largest loans or groups of loans were performing in accordance with its
contractual terms at December 31, 2003.

         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,
                                            -------------------------------------------------------------------------
                                                      2003                    2002                    2001
                                            ------------------------  ----------------------  -----------------------
                                              Amount       Percent      Amount     Percent      Amount     Percent
                                            ---------     ----------  ----------  ----------  ----------  -----------
                                                                    (Dollars In Thousands)
<S>                                            <C>          <C>        <C>          <C>        <C>          <C>
  Real estate loans:
    One-to four-family.................       $ 74,663       72.9%     $70,092       72.0%     $72,086       73.5%
    Multi-family.......................          2,168        2.1        2,490        2.6        1,509        1.5
    Construction.......................          3,908        3.8        4,397        4.5        2,549        2.6
    Non-residential(1).................         14,142       13.8       12,695       13.0       13,784       14.0
Commercial.............................          3,282        3.2        2,856        2.9        2,754        2.8
Consumer and other loans(2)............          4,343        4.2        4,872        5.0        5,452        5.6
                                              --------      ------     -------      ------     -------      ------
        Total loans receivable.........        102,506      100.0%      97,402      100.0%      98,134      100.0%
                                                            ======                  ======                  ======
  Less:
  Undisbursed loans in process.........          1,361                     894                     563
  Deferred loan origination fees.......             81                      42                      80
  Allowance for loan losses............            771                     764                     719
                                              --------                 -------                 -------
    Loans receivable, net..............       $100,293                 $95,702                 $96,772
                                              ========                 =======                 =======
</TABLE>

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


                                       2
<PAGE>

         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.

         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,
                                                 ------------------------------------
                                                     2003         2002        2001
                                                 ------------------------------------
                                                             (In Thousands)

<S>                                                <C>         <C>         <C>
LOAN ORIGINATIONS:
  Real estate loans:
    One-to four-family .........................   $ 22,337    $ 15,743    $ 17,146
    Multi-family ...............................         --       1,052       1,298
    Construction ...............................      3,194       3,300         930
    Non-residential ............................      4,846       3,524       2,042
  Commercial ...................................      4,718       1,979       1,024
  Consumer and other loans (1) .................      5,050       3,218       2,035
                                                   --------    --------    --------
Total loans originated .........................     40,145      28,816      24,475
                                                   --------    --------    --------

LOAN PRINCIPAL REDUCTIONS:
  Loan principal repayments ....................     35,516      29,639      23,160
                                                   --------    --------    --------
Increase (decrease) due to other items, net(2)..        (38)       (247)         --
                                                   --------    --------    --------
Net increase (decrease) in loan portfolio ......   $  4,591    $ (1,070)   $  1,315
                                                   ========    ========    ========
</TABLE>
--------------------------------
(1)  Includes home equity loans.
(2)  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-


                                       3
<PAGE>

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, 2003 Peoples Federal was within each of
the above lending limits.

         MATURITY OF LOAN PORTFOLIO. The following table presents certain
information at December 31, 2003, 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, 2003
                                        ---------------------------------------------------------------------------
                                                                                    Consumer and           Total
                                              Real Estate         Commercial            Other              Loans
                                        ----------------- ------------------ ------------------ -------------------
                                                                      (In Thousands)

<S>                                              <C>                 <C>                <C>               <C>
AMOUNTS DUE IN:
 One year or less.................               $ 3,893             $2,059             $3,232              $9,184
 More than one year to five years.                17,276              1,223              1,111              19,610
 More than five years.............                73,712                 --                 --              73,712
                                                 -------             ------             ------            --------
     Total amount due..............              $94,881             $3,282             $4,343            $102,506
                                                 =======             ======             ======            ========
</TABLE>

         Of the $93.3 million of loans due after December 31, 2004, $15.9
million have fixed-rates of interest and $77.4 million have floating or
adjustable interest rates.

         The following table sets forth the dollar amount of all loans, before
net items, as of December 31, 2003 which have fixed interest rates or which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>

                                                    Fixed-Rates              Floating or Adjustable-Rates         Total
                                                -------------------          ----------------------------     ---------------
                                                                                   (In Thousands)
<S>                                                   <C>                              <C>                      <C>
Real estate loans:
  One-to four-family.................                 $13,821                          $60,842                  $ 74,663
  Multi-family.......................                      --                            2,168                     2,168
  Construction.......................                     689                            3,219                     3,908
  Non-residential....................                   1,379                           12,763                    14,142
Commercial...........................                     644                            2,638                     3,282
Consumer and other loans.............                   1,621                            2,722                     4,343
                                                      -------                          -------                  --------
     Total loans.....................                 $18,154                          $84,352                  $102,506
                                                      =======                          =======                  ========
</TABLE>

         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

                                       4
<PAGE>

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, 2003, $74.7 million or 72.9% 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, 2003, $13.8 million, or 18.5%, 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, 2003, $60.9
million, or 81.5%, 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 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

                                       5
<PAGE>

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.

         CONSTRUCTION LOANS. Peoples Federal also originates loans for the
construction of one- to four-family and multi-family residences. At December 31,
2003, $3.9 million or 3.8% of the loan portfolio consisted of residential
construction loans, $2.6 million of which was originated for the construction of
single-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.

         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, 2003, Peoples
Federal's non-residential real estate loans amounted to $14.1 million or 13.8%
of the total loan portfolio. In addition, at December 31, 2003, 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


                                       6
<PAGE>

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 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, 2003, the
average balance of the loans in Peoples Federal's non-residential real estate
portfolio was $172,000 and its largest non-residential real estate loan at such
date was $1.0 million secured by a modular home subdivision. This loan was
current at December 31, 2003.

         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, 2003, Peoples
Federal had $3.4 million in land loans which loans had an average balance of
$60,000. Peoples Federal's largest land loan at December 31, 2003 amounted to
$267,000.

         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 home equity
loans, automobile loans, and loans secured by deposit accounts in Peoples
Federal and other miscellaneous loans. At December 31, 2003, $4.3 million or
4.2% of Peoples Federal's total loan portfolio consisted of consumer and other
loans.

     At December 31, 2003, Peoples Federal's home equity loans amounted to
$1.7 million or 1.6% 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. 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, 2003, Peoples Federal's



                                       7
<PAGE>

automobile, mobile home and recreational vehicle loans amounted to $1.5 million
or 1.4% of the total loan portfolio.

         Peoples Federal offers loans secured by deposit accounts in Peoples
Federal, which loans amounted to $745,000 or .7% of Peoples Federal's total loan
portfolio at December 31, 2003. 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, 2003, Peoples
Federal's commercial business loans amounted to $3.3 million or 3.2% of Peoples
Federal's total loan portfolio. Such loans generally are made to small
businesses located in Peoples Federal's market area. Approximately 1.1% or $1.1
million of these loans are subject to Uniform Commercial Code filings but are
not secured by real estate 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.

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.

                                       8
<PAGE>

         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 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, 2003, 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, 2003
                               -------------------------------------------------------------------------------------
                                            30-59                                              90 or More Days
                                        Days Overdue               60-89 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......               $1,718         1.67%      $  986            .96%       $923           .90%
 Non-residential.........                  102          .10           16            .02          --            --
Commercial................                   8          .01          122            .12          --            --
Consumer and other loans..                  48          .05           66            .06          47           .05
                                        ------         ----       ------           ----        ----           ---
  Total loans.............              $1,876         1.83%      $1,190           1.16%       $970           .95%
                                        ======         ====       ======           ====        ====           ===
</TABLE>

       NON-PERFORMING ASSETS. The following table presents information with
respect to Peoples Federal's nonperforming assets at the dates indicated.
Peoples Federal did not have any troubled debt restructurings or accruing loans
90 or more days past due at any of the dates shown.

<TABLE>
<CAPTION>

                                                                           At December 31,
                                                     ---------------------------------------------------------
                                                             2003                  2002                2001
                                                     --------------------- --------------------- -------------
                                                                        (Dollars In Thousands)

<S>                                                          <C>                  <C>                 <C>
Nonaccruing loans:
  Real estate loans:
    One-to four-family..........................             $  923                $  816             $  320
    Non-residential.............................                 --                    --                607
    Construction................................                 --                    --                765
  Commercial....................................                 --                    --                  8
  Consumer and other loans......................                 47                    85                134
                                                             ------                ------             ------
      Total nonaccruing loans...................                970                   901              1,834
Real estate owned(1)............................                169                   228                101
                                                             ------                ------             ------
Total nonperforming assets......................             $1,139                $1,129             $1,935
                                                             ======                ======             ======
Total nonperforming assets as a percentage
  of total assets...............................                .96%                  .95%              1.62%
</TABLE>

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

       If the $970,000 of nonaccruing loans of Peoples Federal at December 31,
2003 had been current in accordance with their terms during 2003, the gross
income on such loans would have been approximately


                                       9
<PAGE>

$30,000 for the year ended December 31, 2003. No interest income was actually
recorded by Peoples Federal on such loans for the year ended December 31, 2003.

         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, 2003 amounted
to $1.9 million, all of which was classified as substandard. The largest
classified asset at December 31, 2003 consisted of a non-residential loan, with
an outstanding balance of $514,000 as of such date. This loan represents a 50%
participation interest acquired by Peoples Federal in May 2000. This loan was
advanced for the acquisition of land and the construction of a RV park. The loan
was restructured in October 2002 with similar terms extended for another year in
November 2003. This loan was classified as substandard as of August 31, 2002.
Additionally, the classified assets are comprised of a $405,000 non-residential
real estate loan, $923,000 are one-to four-family real estate loans and $60,000
consists of consumer loans. The $405,000 represents a 50% participation interest
acquired by Peoples Federal in October 1997. The $923,000 represents fourteen
one-to-four family real estate loans. Peoples Federal does not presently
anticipate incurring any material loss on these loans.

       ALLOWANCE FOR LOAN LOSSES. At December 31, 2003, Peoples Federal's
allowance for loan losses amounted to $771,000, or .75%, 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


                                       10
<PAGE>

allowance consists of a formula allowance, a specific allowance and an
unallocated 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,
                             ---------------------------------------------------------------------------------------
                                        2003                         2002                         2001
                              ---------------------------- ---------------------------- -----------------------------
                                              Percent of                   Percent of                   Percent of
                                               Loans in                     Loans in                     Loans in
                                                 Each                         Each                         Each
                                             Category to                  Category to                   Category to
                                 Amount      Total Loans      Amount      Total Loans     Amount        Total Loans
                              -------------- ------------- -------------- ------------- -------------- --------------
                                                             (Dollars In Thousands)

<S>                              <C>         <C>              <C>         <C>             <C>           <C>
 Allocated:
Real estate loans:
 One-to four-family.......       $320         72.9%           $300         72.0%          $315           73.5%
  Multi-family............         --          2.1              --          2.6             --            1.5
  Construction............         --          3.8              --          4.5             --            2.6
  Non-residential.........        130         13.8             123         13.0             85           14.0
Commercial................        100          3.2              90          2.9             80            2.8
Consumer and other loans..        170          4.2             202          5.0            189            5.6
Unallocated...............         51           --              49           --             50             --
                                 ----        -----            ----        -----           ----          -----
    Total.................       $771        100.0%           $764        100.0%          $719          100.0%
                                 ====        =====            ====        =====           ====          =====
</TABLE>

                                       11
<PAGE>

         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,
                                                  ------------------------------------------
                                                     2003             2002           2001
                                                  ----------       ----------     ----------

                                                      (Dollars In Thousands)

<S>                                                <C>               <C>            <C>
    Total loans outstanding, net.........          $100,293          $95,702        $96,772
                                                   ========          =======        =======
    Average loans outstanding, net.......          $ 97,021          $95,104        $98,674
                                                   ========          =======        =======
    Balance at beginning of period.......          $    764          $   719        $   691
  CHARGE-OFFS:
  Real estate loans:
     One-to four-family..................                (5)              --             --
     Multi-family........................                --               --             --
     Non-residential.....................                --               --             --
    Consumer and other loans.............               (42)             (59)           (20)
                                                   --------          -------       --------
          Total charge-offs..............               (47)             (59)           (20)
                                                   --------          -------       --------
   RECOVERIES:
   Real estate loans:
     One-to four-family..................                --               --             --
     Multi-family........................                --               --             --
     Non-residential.....................                --               --             --
    Consumer and other loans.............                 2               12             --
                                                   --------          -------       --------
          Total recoveries...............                 2               12             --
                                                   --------          -------       --------
    Net charge-offs......................               (45)             (47)           (20)
    Provision for losses on loans........                52               92             48
                                                   --------          -------       --------
    Balance at end of period.............          $    771          $   764       $    719
                                                   ========          =======       ========
    Allowance for loan losses as a percent
     of total loans outstanding..........               .75%             .78%           .73%
                                                   ========          =======       ========
    Allowance for loan losses as a percent
     of total non-performing loans.......             79.48%           84.79%         39.20%
                                                   ========          =======       ========
    Ratio of net charge-offs to
      average loans outstanding..........               .05%             .05%           .02%
                                                   ========          =======       ========

</TABLE>


                                       12
<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. During 2003, 2002, and
2001 investment securities have become a larger component of Peoples Federal's
assets.

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

<TABLE>
<CAPTION>

                                                                 December 31,
                           ------------------------------------------------------------------------------------------
                                       2003                          2002                          2001
                           ----------------------------- ----------------------------- ------------------------------
                             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.......       $   152       $    152       $    161       $    161        $   169         $   169
  Available for sale:
    FHLMC stock.......            20          1,208             20          1,226             20           1,366
  U.S. government agency
    securities........           500            483          1,341          1,346             --              --
  Corporate debt
     securities.......         8,194          8,325         12,446         12,570          4,597           4,587
                           ---------      ---------      ---------       --------       --------        --------
    Total.............       $ 8,866       $ 10,168       $ 13,968       $ 15,303        $ 4,786         $ 6,122
                           =========      =========      =========       ========       ========        ========

</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, 2003. The
amounts reflect the fair value of Peoples Federal's securities at December 31,
2003.
<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...........   $    9      4.40%    $   43      4.40%      $ 67        4.40%      $ 33      4.40%      $   152
 Corporate debt securities    5,219      2.65      3,106      4.16         --          --         --        --         8,325
 U.S. government agency
    securities............       --        --         --        --        240        3.10        243      4.00           483
 FHLMC Stock..............    1,208      1.77         --        --         --          --         --        --         1,208
                            -------            ---------            ---------               --------                 -------
    Total ................   $6,436               $3,149                 $307                   $276                 $10,168
                            =======            =========            =========               ========                 =======
</TABLE>

                                       13
<PAGE>

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, 2003, $15.0 million or 17.0% of total deposits
consisted of public deposits from local municipalities or local government
agencies. At December 31, 2002, such public deposits amounted to $13.4 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.

                                       14
<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,
                                -----------------------------------------------------------------------------------------------
                                             2003                            2002                            2001
                                ------------------------------- ------------------------------- -------------------------------
                                           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..........      $12,703      14.4%      .46%     $17,505      19.6%      1.10%  $16,810      18.6%      1.29%
 Savings and money market
   deposits..............        23,492      26.6       .65       16,682      18.6       1.70    16,411      18.1       1.59
                                -------     -----               -------     -----              -------     -----
 Total transaction accounts      36,195      41.0       .58       34,187      38.2       1.40    33,221      36.7       1.44
                                -------     -----               -------     -----              -------     -----
Certificate accounts:

 up to 3.99%..............       45,462      51.5      2.25       40,402      45.2       2.82     7,016       7.8       2.90
 4.00% - 5.99%............        5,694       6.4      4.77       11,121      12.4       4.92    34,135      37.7       4.83
 6.00% - 7.99%............          977       1.1      6.32        3,710       4.2       6.44    16,057      17.8       6.42
                                -------    ------                -------     -----              -------     -----
  Total certificate accounts     52,133      59.0      2.60       55,233      61.8       4.35    57,208      63.3       5.04
                                -------     -----                -------     -----              -------     -----
     Total deposits.......      $88,328     100.0%               $89,420     100.0%             $90,429     100.0%
                                =======     =====                =======    ======              =======     =====
</TABLE>


                                       15
<PAGE>

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

<TABLE>
<CAPTION>

                                                                    Year Ended December 31,
                                                        -----------------------------------------------
                                                          2003               2002                2001
                                                        --------           --------            --------
                                                                       (In Thousands)

<S>                                                     <C>                <C>                 <C>
Total deposits at beginning of period.........          $ 89,420           $ 90,429            $ 98,649
Net withdrawals...............................            (3,013)            (3,916)            (10,245)
Interest credited.............................             1,921              2,907               2,025
                                                        --------           --------            --------
  Total deposits at end of period.............          $ 88,328           $ 89,420            $ 90,429
                                                        ========           ========            ========
</TABLE>

         The following table shows the interest rate and maturity information
for Peoples Federal's certificates of deposit at December 31, 2003.

<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>               <C>
up to 3.99%                 $34,656              $ 7,484             $2,411           $  911            $45,462
4.00% - 5.99%                 2,551                2,846                195              102              5,694
6.00% - 7.99%                   499                  478                 --               --                977
                      --------------------- ------------------ ------------------ ------------------ ---------------
  Total                     $37,706              $10,808             $2,606           $1,013            $52,133
                      ===================== ================== ================== ================== ===============
</TABLE>

         As of December 31, 2003, the aggregate amount of outstanding time
certificates of deposit at Peoples Federal in amounts greater than or equal to
$100,000, was approximately $15.7 million. The following table presents the
maturity of these time certificates of deposit at such dates.

                                                  December 31, 2003
                                              ---------------------------------
                                                    (In Thousands)

3 months or less..........................            $ 5,255
Over 3 months through 6 months............              2,587
Over 6 months through 12 months...........              5,602
Over 12 months............................              2,288
                                                      -------
 Total                                                $15,732
                                                      =======

         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, 2003, Peoples Federal was permitted to borrow up to
$50.2 million from the Federal Home Loan Bank of Indianapolis. Peoples Federal
had $2.0 million in Federal Home Loan Bank advances outstanding at December 31,
2003.


                                       16
<PAGE>


         The following table shows certain information regarding the short-term
borrowings of Peoples Federal at or for the dates indicated:
<TABLE>
<CAPTION>

                                                      At or for the Year Ended December 31,
                                                 --------------------------------------------------
                                                      2003             2002             2001
                                                 --------------- ----------------- ----------------
                                                               (Dollars In Thousands)
<S>                                                 <C>               <C>              <C>
Federal Home Loan Bank open line of credit:
  Average balance outstanding...............        $  175            $  154           $  571
  Maximum amount outstanding at any
    month-end during the period.............         2,500             1,000            1,000
  Balance outstanding at end of period......        $2,000            $1,000           $   --
  Average interest rate during the period...          1.71%             1.30%            6.65%
  Weighted average interest rate at end of
    period..................................          1.75%             1.62%             N/A
</TABLE>

SUBSIDIARIES

         At December 31, 2003, Peoples Federal had no subsidiaries.

TOTAL EMPLOYEES

         Peoples Federal had 29 full-time employees and six part-time employees
at December 31, 2003. 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.


                                       17
<PAGE>

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.

         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.

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.


                                       18
<PAGE>

         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 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;


                                       19
<PAGE>


          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.

         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:


                                       20
<PAGE>



          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.

         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.


                                       21
<PAGE>


         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


                                       22
<PAGE>

also is subject to regulation by the FDIC and to 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



                                       23
<PAGE>

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,

          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 $73,000 of intangible assets, comprised of
pre-paid software, at December 31, 2003 (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.


                                       24
<PAGE>

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, 2003, Peoples Federal exceeded all of its regulatory
capital requirements, with tangible, core and risk-based capital ratios of
18.2%, 18.2% and 31.2%, 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>

         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



                                       25
<PAGE>

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, 2003, 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.


                                       26
<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




                                       27
<PAGE>

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, 2003, the qualified
thrift investments of Peoples Federal were approximately 80.0% 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, 2003, Peoples Federal had $2.0 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, 2003, Peoples Federal had $758,000 in FHLB stock,
which was in compliance with this requirement.

         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, 2003,
dividends to Peoples Federal amounted to $28,000. The dividends from FHLB in
2003 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


                                       28
<PAGE>

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, 2003, the federal income tax reserves of Peoples
Federal included $1.3 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.

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:

                                       29
<PAGE>

          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, 2002, 2001 and 2000 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.


                                       30
<PAGE>


ITEM 2.  DESCRIPTION OF PROPERTY
--------------------------------

PROPERTIES

         At December 31, 2003, Peoples Federal conducted its business from its
headquarters office located in Aurora, Indiana and two branch offices.

         The following table sets forth certain information relating to Peoples
Federal's offices at December 31, 2003.

<TABLE>
<CAPTION>

                                                                  Net Book Value of
                                                                    Property and
                                                    Lease             Leasehold
                                    Owned or     Expiration        Improvements at           Deposits at
Location                             Leased         Date          December 31, 2003       December 31, 2003
------------------------------    ------------  --------------   -------------------    ---------------------
                                                                                (In Thousands)
<S>                                  <C>          <C>                   <C>                     <C>
Second and Bridgeway Streets         Owned           N/A                $407                    $70,143
Aurora, Indiana

330 Industrial Access Road           Owned           N/A                 344                      8,403
Rising Sun, Indiana

705 E. Main Street                   Leased       August 2004             30                      9,782
Vevay, Indiana
</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
-------------------------------------

         The information required herein, to the extent applicable, is
incorporated by reference from page 3 of Peoples Federal's 2003 Annual Report to
Stockholders filed as Exhibit 13 hereto ("2003 Annual Report").


                                       31
<PAGE>

         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,
2003.

                                       32
<PAGE>

                                       EQUITY COMPENSATION PLAN INFORMATION
<TABLE>
<CAPTION>

                                 Number of Shares to be Issued    Weighted-Average      Number of Shares Remaining
                                     Upon the Exercise of        Exercise Price of               Available
                                     Outstanding 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             79,266                    $16.85                     129,401
Equity Compensation Plans Not
   Approved by Security Holders                 --                        --                          --
                                            ------                    ------                     -------
Total                                       79,266                    $16.85                     129,401
                                            ======                    ======                     =======
</TABLE>

-------------------
(1)      Includes 17,038 shares that have been granted to directors and
         employees and held in the 2002 Recognition and Retention Plan Trust as
         of December 31, 2003 and 62,228 in stock options that have been granted
         from the 2002 Stock Option Plan.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

         The information required herein is incorporated by reference from pages
6 to 13 of the 2003 Annual Report.

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

         The information required herein is incorporated by reference from pages
14 to 43 of the 2003 Annual Report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

         Not applicable

ITEM 8A. CONTROLS AND PROCEDURES
--------------------------------

         As of the end of the period covered by this Annual Report on Form
10-KSB, the Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.


                                       33
<PAGE>


                                    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, 2003 ("Proxy Statement").

ITEM 10. EXECUTIVE COMPENSATION
-------------------------------

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

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, LIST AND REPORTS ON FORM 8-K
------------------------------------------------

         (a) The following documents are filed as part of this report and are
incorporated herein by reference from the Registrant's 2003 Annual Report:

               Report of Independent Certified Public Accountants.

               Consolidated Statements of Financial Condition as of December 31,
               2003 and December 31, 2002.

               Consolidated Statements of Earnings for the Years Ended December
               31, 2003 and 2002.

               Consolidated Statements of Shareholders' Equity for the Years
               Ended December 31, 2003 and 2002.

                                       34
<PAGE>


               Consolidated Statements of Cash Flows for the Years Ended
               December 31, 2003 and 2002.

               Notes to Consolidated Financial Statements.

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

           No.    Exhibits
          ----    ---------
           3.1    Articles of Incorporation of PFS Bancorp, Inc.*
           3.2    Bylaws of PFS Bancorp, Inc.*
           4.0    Stock Certificate of PFS Bancorp, Inc.*
          13.0    Annual Report to Stockholders
          21.0    List of Subsidiaries
                  (See "Item I. Business - Subsidiaries" in this Form 10-KSB)
          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
          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
          32.1    Certification of Chief Executive Officer Pursuant Section 906
                  of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
          32.2    Certification of Chief Financial Officer Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

--------------------------------
         * Incorporated herein by reference from PFS Bancorp's Registration
Statement on Form SB-2 filed with the SEC on June 22, 2001.

         (b) Reports filed on Form 8-K.

         PFS Bancorp filed an 8-K dated January 29, 2004 and October 31, 2003
under Item 12 in order to file its press release reporting earnings for the
period ended September 30, 2003 and the year ended December 31, 2003. Unaudited
condensed consolidated statements of financial condition were filed.

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.

                                       35


<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, 2004
Mel E. Green                               Director (principal executive officer)


/s/ Stuart M. Suggs
--------------------------------------     Corporate Treasurer, Vice President and      March 29, 2004
Stuart M. Suggs                            Chief Financial Officer (principal
                                           financial and accounting officer)


--------------------------------------     Chairman of the Board                        March --, 2004
Robert L. Laker

/s/ Jack D. Tandy
--------------------------------------     Secretary and Director                       March 29, 2004
Jack D. Tandy


---------------------------------------    Director                                     March --, 2004
Gilbert L. Houze

/s/ Dale R. Moeller
---------------------------------------    Director                                     March 29, 2004
Dale R. Moeller

/s/ Carl E. Petty
---------------------------------------    Director                                     March 29, 2004
Carl E. Petty

</TABLE>