PFS Bancorp Inc.
03/25/2026 | Press release | Distributed by Public on 03/25/2026 13:36
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our consolidated financial condition and results of operations. The information in this section has been derived from the consolidated financial statements, which appear elsewhere in this annual report. You should read the information in this section in conjunction with the other business and financial information provided in this annual report.
Overview
Our business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations, in residential real estate loans and, to a lesser extent, commercial real estate loans, agricultural mortgage loans, construction and land development loans, commercial loans, home equity loans and lines of credit, and consumer loans. We also invest in securities, which have historically consisted primarily of U.S. government and agency securities, mortgage-backed securities and obligations issued by U.S. government sponsored enterprises, and state and municipal securities. We offer a variety of deposit accounts including checking accounts, savings accounts and certificate of deposit accounts. Peru Federal is subject to comprehensive regulation and examination by the OCC.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for credit losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service charges on deposit accounts, other service charges and fees, and income from bank owned life insurance. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contract services, director fees, FDIC deposit insurance premiums, and other expenses.
We invest in bank owned life insurance to provide us with a funding source to offset some costs of our benefit plan obligations. Bank owned life insurance provides us with non-interest income that is nontaxable. Federal regulations generally limit our investment in bank owned life insurance to 25% of our Tier 1 capital plus our allowance for credit losses. At December 31, 2025, our investment in bank owned life insurance was $4.1 million, which was within this investment limit.
Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.
Business Strategy
Our principal objective is to build long-term value for our stockholders by operating a profitable community-oriented financial institution dedicated to meeting the banking needs of our customers by emphasizing personalized and efficient customer service. Highlights of our current business strategy include:
| ● | Continue to focus on originating one- to four-family residential mortgage loans for retention in our portfolio.We are primarily a one- to four-family residential mortgage loan lender for borrowers in our primary market area. At December 31, 2025, $69.2 million, or 63.2% of our total loan portfolio, consisted of residential mortgage loans. We expect that residential mortgage lending will remain our primary lending activity. |
| ● | Grow and diversify our loan portfolio prudently by increasing originations of commercial real estate loans and commercial loans.Although we intend to continue our historical focus on the origination of residential mortgage loans, we intend to prudently increase our originations of commercial real estate loans and commercial loans to diversify our loan portfolio and increase yield. At December 31, 2025, commercial real estate loans (including agricultural real estate loans) amounted to $29.4 million, or 26.9% of total loans, and commercial loans amounted to $5.7 million, or 5.2% of total loans. Commercial real estate loans and commercial loans have higher credit risk than one- to four-family residential mortgage loans. |
| ● | Maintain our strong asset quality through conservative loan underwriting.We intend to maintain strong asset quality through what we believe are our conservative underwriting standards and credit monitoring processes. At December 31, 2025, our nonperforming assets totaled $245,000, or 0.37% of total assets. |
| ● | Continue to grow low-cost "core" deposits.We consider our core deposits to include all deposits other than certificates of deposit. We will continue our efforts to increase our core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our interest rate spread and net interest margin. Core deposits totaled $92.5 million, or 55.2% of total deposits, at December 31, 2025. |
| ● | Remain a community-oriented institution and relying on high quality service to maintain and build a loyal local customer base. We were established in 1887 and have been operating continuously in Peru, Illinois, since that time. Through the goodwill we have developed over years of providing timely, efficient banking services, we believe that we have been able to attract a loyal base of local retail customers on which we hope to continue to build our banking business. |
| ● | Grow organically and through opportunistic branching.We intend to grow our balance sheet organically on a managed basis, and the capital we are raised in the stock offering will enable us to increase our lending and investment capacity. In addition to organic growth, we may also consider expansion opportunities in our market area or in contiguous markets that we believe would enhance both our franchise value and stockholder returns. These opportunities may include establishing loan production offices, establishing new, or de novo, branch offices and/or acquiring branch offices. The capital we are raising in the stock offering would help us fund any such opportunities that may arise. We have no current plans or intentions regarding any such expansion activities. |
Critical Accounting Policies and Use of Critical Accounting Estimates
The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an "emerging growth company" we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
The following represent our critical accounting policies:
Allowance for Credit Losses.The allowance for credit losses is the estimated amount considered necessary to cover inherent, but unconfirmed, credit losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for credit losses which is charged against income. In determining the allowance for credit losses, management makes significant estimates and has identified this policy as one of our most critical accounting policies.
Management performs a quarterly evaluation of the allowance for credit losses. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change.
The allowance for credit on loans and unfunded commitments ("allowance") represents management's estimate of the reserve necessary to adequately account for probable losses that could ultimately be realized from current loan exposures. In determining the adequacy of the allowance, management relies predominately on a disciplined credit review and approval process. The review process is directed by overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty.
The allowance for credit losses is established as losses are estimated to have occurred through a provision for credit losses charged to income. Credit losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for credit losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to loans that are individually evaluated. For those loans that are individually evaluated, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the individually evaluated loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical charge-off experience and expected loss given default derived from the Bank's internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.
Deferred Tax Assets.We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Determining the proper valuation allowance for deferred taxes is critical in properly valuing the deferred tax asset and the related recognition of income tax expense or benefit. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.
Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Peru Federal estimates the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of gain or loss recorded. For a detailed description of the fair values measured at each level of the fair value hierarchy and the methodology we use, see note 15 of the notes to consolidated financial statements.
Selected Financial Data
The following selected consolidated financial data sets forth certain financial highlights of the Company and should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
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At December 31, |
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2025 |
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2024 |
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(In thousands) |
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Selected Financial Condition Data: |
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Total assets |
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$ |
206,911 |
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$ |
197,637 |
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Cash and cash equivalents |
|
15,494 |
|
16,256 |
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Available-for-sale debt securities |
|
66,930 |
|
66,658 |
||
|
Held-to-maturity debt securities |
|
6,205 |
|
8,168 |
||
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Loans, net |
|
108,869 |
|
96,274 |
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Premises and equipment, net |
|
1,992 |
|
2,101 |
||
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Federal Home Loan Bank stock |
|
354 |
|
347 |
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Cash surrender value of bank owned life insurance |
|
4,086 |
|
3,979 |
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Total deposits |
|
166,478 |
|
159,587 |
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Federal Home Loan Bank advances |
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- |
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- |
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Total stockholders' equity |
|
39,053 |
|
36,675 |
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For the Years Ended December 31, |
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2025 |
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2024 |
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(In thousands) |
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Selected Operating Data: |
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Total interest and dividend income |
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$ |
8,939 |
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$ |
8,014 |
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Total interest expense |
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3,296 |
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2,982 |
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Net interest income |
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5,643 |
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5,032 |
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Provision (credit) for credit losses |
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148 |
|
165 |
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Net interest income after provision (credit) for credit losses |
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5,495 |
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4,867 |
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Total noninterest income |
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928 |
|
885 |
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Total noninterest expense |
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4,347 |
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4,645 |
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Income before income taxes |
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2,076 |
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1,107 |
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Provision for income taxes |
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405 |
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202 |
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Net income |
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$ |
1,671 |
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$ |
905 |
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At or For the Years Ended December 31, |
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2025 |
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2024 |
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Performance Ratios: |
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Return on average assets |
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0.81 |
% |
0.46 |
% |
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Return on average equity |
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4.38 |
2.48 |
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Interest rate spread (1) |
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2.54 |
2.16 |
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Net interest margin (2) |
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2.88 |
2.69 |
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Noninterest expense as a percentage of average assets |
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2.11 |
2.35 |
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Efficiency ratio (3) |
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66.15 |
78.50 |
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Average interest-earning assets as a percentage of average interest-bearing liabilities |
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129.72 |
133.32 |
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- |
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Capital Ratios: |
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Average equity as a percentage of average assets |
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18.5 |
% |
18.6 |
% |
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Total capital as a percentage of risk-weighted assets |
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32.5 |
33.7 |
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Tier 1 capital as a percentage of risk-weighted assets |
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31.7 |
33.0 |
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Common equity Tier 1 capital as a percentage of risk-weighted assets |
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31.7 |
33.0 |
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Tier 1 capital as a percentage of average assets |
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16.3 |
15.9 |
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- |
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Asset Quality Ratios: |
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Allowance for credit losses as a percentage of total loans |
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0.77 |
% |
0.72 |
% |
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Allowance for credit losses as a percentage of non-performing loans |
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110.50 |
82.94 |
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Allowance for credit losses as a percentage of non-accrual loans |
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397.17 |
201.15 |
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Non-accrual loans as a percentage of total loans |
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0.19 |
0.36 |
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Net recoveries (charge-offs) as a percentage of average outstanding loans |
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- |
0.22 |
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Non-performing loans as a percentage of total loans |
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0.70 |
0.87 |
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Non-performing loans as a percentage of total assets |
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0.37 |
0.43 |
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Total non-performing assets as a percentage of total assets |
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0.37 |
0.43 |
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- |
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Other Ratios: |
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Total loans as a percentage of total deposits |
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65.8 |
% |
60.77 |
% |
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Other Data: |
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Number of offices |
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2 |
2 |
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Number of full-time employees |
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25 |
24 |
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Number of part-time employees |
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1 |
1 |
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(1) |
Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. |
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(2) |
Represents net interest income as a percentage of average interest-earning assets. |
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(3) |
Represents noninterest expenses divided by the sum of net interest income and noninterest income. |
Comparison of Financial Condition at December 31, 2025 and December 31, 2024
Total Assets. Total assets were $207.0 million at December 31, 2025, an increase of $9.4 million, or 4.8%, compared to $197.6 million at December 31, 2024. This increase was primarily due to an increase of $12.7 million in loans funded with $6.9 million in new deposits and decrease in cash and cash equivalents of $762,000.
Cash and Due From Banks. Cash and due from banks decreased by $762,000, or 4.7%, to $15.5 million at December 31, 2025 from $16.3 million at December 31, 2024. The decrease was a result of investing funds in new loans and available-for-sale securities.
Available-For-Sale Investment Securities. Investment securities increased $272,000, or 0.4%, to $66.9 million at December 31, 2025 from $66.7 million at December 31, 2024. Mortgage-backed securities increased $2.0 million, or 5.1%, to $40.9 million at December 31, 2025 from $38.9 million at December 31, 2024. U.S. government agency securities decreased by $686,000, or 8.6%, to $7.3 million at December 31, 2025 from $8.0 million at December 31, 2024. Municipal securities decreased $1.1 million, or 5.6%, to $18.7 million at December 31, 2025 from $19.8 million at December 31, 2024. Aggregate securities purchases of $7.1 million during the year ended December 31, 2025 were partially offset by sales, calls, maturities and repayments of $9.4 million.
The average yield on investment securities increased to 3.27% for the year ended December 31, 2025 from 3.05% for the year ended December 31, 2024, as a result of the maturity of lower yielding securities and the effects of the rising market interest rate environment.
Held-To-Maturity Investment Securities.Investment securities decreased by $2.0 million, or 24.4%, to $6.2 million at December 31, 2025 from $8.2 million at December 31, 2024. Certificates of deposit decreased $1.8 million, or 24.3%, to $5.6 million at December 31, 2025 from $7.4 million at December 31, 2024. U.S. government agency securities decreased by $115,000, or 14.1%, to $700,000 at December 31, 2025 from $815,000 at December 31, 2024. There were calls, maturities and repayments of $2.0 million during the year ended December 31, 2025. There were no purchases of held-to maturity securities during the year ended December 31, 2025.
Loans, Net.Loans, net, increased by $12.7 million, or 13.2%, to $108.9 million at December 31, 2025 from $96.2 million at December 31, 2024. During the year ended December 31, 2025, loan originations totaled $30.1 million, comprised of $10.0 million of one-to-four family residential mortgage loans, $14.5 million of commercial real estate loans, $2.5 million of commercial loans, and $3.1 million of consumer loans.
During the year ended December 31, 2025, one-to-four family residential mortgage loans increased $3.5 million, or 5.3%, to $69.2 million at December 31, 2025 from $65.7 million at December 31, 2024, commercial real estate loans increased $8.0 million, or 37.4%, to $29.4 million from $21.4 million at December 31, 2024, construction and land development loans decreased $104,000 or 6.5%, to $1.5 million from $1.6 million at December 31, 2024, commercial loans increased by $1.0 million, or 21.3%, to $5.7 million at December 31, 2025 from $4.7 million at December 31, 2024 and consumer loans increased by $258,000, or 7.4%, to $3.7 million at December 31, 2025 from $3.5 million at December 31, 2024.
Increases in loan balances reflect our strategy to grow our loan portfolio, continuing to focus primarily on owner-occupied one-to-four family residential real estate loan and commercial loans. Management intends to continue this strategy in future periods.
Deposits. Deposits increased by $6.9 million, or 4.3%, to $166.5 million at December 31, 2025 from $159.6 at December 31, 2024. Core deposits (defined as deposits other than certificates of deposit) increased by $420,000, or 1.5%, to $92.5 million at December 31, 2025 from $91.0 million at December 31, 2024. Certificates of deposit increased $6.4 million, or 9.3%, to $75.0 million at December 31, 2025 from $68.6 million at December 31, 2024. The increase in deposits was primarily due to organic growth. The increase in certificates of deposit was due to the shift from core deposits to higher yielding certificates of deposit due to the increase in market interest rates.
Management continued its strategy of pursuing growth in demand accounts and lower cost core deposits with market conditions affecting this strategy in the current year. Management intends to continue its efforts to increase core deposits, with an emphasis on growth in consumer and business demand deposits.
Total Stockholders' Equity. Total equity capital increased by $2.4, or 6.5%, to $39.1 million at December 31, 2025 from $36.7 million at December 31, 2024. The increase resulted from net income during the year ended December 31, 2025, a decrease in accumulated other comprehensive loss (as a result of market value adjustment of available-for-sale securities due to the increase in market interest rates during the year) partially offset by treasury stock purchases.
Average Balances and Yields
The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are calculated using daily average balances. Non-accrual loans are included in average balances only. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Net deferred loan fees/costs are immaterial.
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Year Ended December 31, |
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2025 |
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2024 |
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Average |
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Average |
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Outstanding |
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Average |
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Outstanding |
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Average |
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Balance |
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Interest |
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Yield/Rate |
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Balance |
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Interest |
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Yield/Rate |
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(Dollars in thousands) |
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Interest-earning assets: |
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Cash and cash equivalents |
$ |
15,022 |
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|
545 |
3.63 |
% |
$ |
16,624 |
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$ |
760 |
4.57 |
% |
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Available-for-sale debt securities |
69,062 |
|
2,260 |
3.27 |
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68,765 |
|
2,096 |
3.05 |
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Held-to-maturity debt securities |
7,169 |
|
322 |
4.50 |
|
8,698 |
|
399 |
4.58 |
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Equity securities |
359 |
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3 |
0.78 |
|
146 |
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3 |
1.71 |
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Loans, net |
103,944 |
|
5,793 |
5.57 |
|
92,853 |
|
4,738 |
5.10 |
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Federal Home Loan Bank stock |
352 |
|
16 |
4.73 |
|
347 |
|
18 |
5.42 |
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Total interest-earning assets |
195,908 |
|
8,939 |
4.72 |
% |
187,433 |
|
8,014 |
4.28 |
% |
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Noninterest-earning assets |
9,618 |
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|
9,908 |
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Total assets |
$ |
205,526 |
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$ |
197,341 |
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Interest-bearing liabilities: |
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Regular savings deposits |
$ |
33,355 |
|
$ |
48 |
0.14 |
% |
$ |
30,064 |
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$ |
51 |
0.17 |
% |
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NOW savings deposits |
19,395 |
|
47 |
0.24 |
|
18,949 |
|
47 |
0.20 |
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Money market deposits |
25,866 |
|
428 |
1.65 |
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27,403 |
|
447 |
1.63 |
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Time deposits |
72,410 |
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2,773 |
3.83 |
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64,173 |
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2,437 |
3.80 |
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Total interest-bearing deposits |
151,026 |
|
3,296 |
2.18 |
% |
140,589 |
|
2,982 |
2.12 |
% |
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Federal Home Loan Bank advances |
- |
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- |
- |
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- |
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- |
- |
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Other interest-bearing liabilities |
- |
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- |
- |
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- |
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- |
- |
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Total interest-bearing liabilities |
151,026 |
|
3,296 |
2.18 |
% |
140,589 |
|
2,982 |
2.12 |
% |
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Noninterest-bearing demand deposits |
21,101 |
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25,438 |
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Other noninterest-bearing liabilities |
3,374 |
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2,853 |
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Total liabilities |
175,501 |
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168,880 |
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Total stockholders' equity |
30,025 |
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|
28,461 |
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Total liabilities and stockholders' equity |
$ |
205,526 |
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$ |
197,341 |
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Net interest income |
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$ |
5,643 |
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$ |
5,032 |
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Net interest rate spread (1) |
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2.54 |
% |
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2.16 |
% |
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|
Net interest-earning assets (2) |
$ |
44,882 |
|
|
|
|
$ |
46,844 |
|
|
|
|
|||||
|
Net interest margin (3) |
|
|
|
2.88 |
% |
|
|
|
2.69 |
% |
|||||||
|
Average interest-earning assets to interest-bearing liabilities |
129.72 |
% |
|
|
|
133.32 |
% |
|
|
|
|||||||
| (1) | Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. |
| (2) | Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. |
| (3) | Net interest margin represents net interest income divided by average total interest-earning assets. |
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2025 vs. 2024 |
|||||||
|
|
|
Increase (Decrease) Due to: |
|
Total Increase |
|||||
|
|
|
Volume |
|
Rate |
|
(Decrease) |
|||
|
|
|
(In thousands) |
|||||||
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
(73) |
|
$ |
(142) |
|
$ |
(215) |
|
Available-for-sale debt securities |
|
9 |
|
155 |
|
164 |
|||
|
Held-to-maturity debt securities |
|
(70) |
|
(7) |
|
(77) |
|||
|
Equity securities |
|
3 |
|
(3) |
|
- |
|||
|
Loans, net |
|
566 |
|
489 |
|
1,055 |
|||
|
Federal Home Loan Bank stock |
|
- |
|
(2) |
|
(2) |
|||
|
Total interest-earning assets |
|
435 |
|
490 |
|
925 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|||
|
Regular savings deposits |
|
5 |
|
(8) |
|
(3) |
|||
|
NOW savings deposits |
|
1 |
|
(1) |
|
- |
|||
|
Money market deposits |
|
(25) |
|
6 |
|
(19) |
|||
|
Time deposits |
|
313 |
|
23 |
|
336 |
|||
|
Total deposits |
|
294 |
|
20 |
|
314 |
|||
|
Federal Home Loan Bank advances |
|
- |
|
- |
|
- |
|||
|
Other interest-bearing liabilities |
|
- |
|
- |
|
- |
|||
|
Total interest-bearing liabilities |
|
294 |
|
20 |
|
314 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
$ |
141 |
|
$ |
470 |
|
$ |
611 |
Comparison of Operating Results for the Years Ended December 31, 2025 and December 31, 2024
General.Net income for the year ended December 31, 2025 was $1.7 million, an increase of $766,000, or 84.6%, compared to $905,000 for the year ended December 31, 2024. The increase in net income was primarily due to an increase in net interest income of $611,000, and a decrease in noninterest expense of $298,000.
Interest and Dividend Income.Interest and dividend income increased by $925,000 or 11.6%, to $8.9 million at December 31, 2025 from $8.0 million at December 31, 2024. The increase in interest income is attributed to a $1.1 million, or 22.3%, increase in loan interest and a $160,000, or 7.6% increase in interest from debt securities partially offset by a decrease of $290,000, or 24.9% in other interest and dividend income.
The average balance on loans during the year ended December 31, 2025 increased by $11.1 million, or 11.9%, from the year ended December 31, 2024. The average yield on loans increased to 5.57% for the year ended December 31, 2025 from 5.10% for the year ended December 31, 2024 due to the origination of higher yielding loans.
The average balance of available-for-sale investment securities increased $297,000 to $69.1 million for the year ended December 31, 2025 from $68.8 million for the year ended December 31, 2024. The average yield on available-for-sale investment securities increased to 3.27% for the year ended December 31, 2025 from 3.05% for the year ended December 31, 2024. The increase in the average yield on available-for-sale investment securities was primarily due to the rising market interest rate environment. Interest income on cash and cash equivalents, comprised primarily of deposits in other financial
institutions and overnight deposits, decreased by $215,000, or 28.3%, for the year ended December 31, 2025, due to a decrease in average balance of $1.6 million and a decrease in the average yield to 3.63% for the year ended December 31, 2025 from 4.57% for the year ended December 31, 2024. The increase in average yield was due to the rise in market interest rates.
Interest Expense.Total interest expense increased $314,000, or 10.5%, to $3.3 million for the year ended December 31, 2025 from $3.0 million for the year ended December 31, 2024. The increase was primarily due to the increase in the average cost of deposits to 2.18% for the year ended December 31, 2025 from 2.12% for the year ended December 31, 2024, reflecting the rising market interest rate environment. The average balance of deposits increased by $10.4 million, or 7.4%, to $151.0 million for the year ended December 31, 2025 from $140.6 million for the year ended December 31, 2024.
Net Interest Income.Net interest income increased $611,000, or 12.1%, to $5.6 million for the year ended December 31, 2025 compared to $5.0 million for the year ended December 31, 2024. The increase reflects the increase in the interest rate spread to 2.54% for the year ended December 31, 2025 from 2.16% for the year ended December 31, 2024, while average net interest-earning assets decreased $2.0 million year-to-year. The net interest margin increased to 2.88% for the year ended December 31, 2025 from 2.69% for the year ended December 31, 2024. Both the interest rate spread and net interest margin increased due to a greater increase in yield on interest-bearing assets (0.44%) primary due to higher yielding loans compared to the increase in the cost of interest-bearing liabilities (0.06%).
Provision(Credit) for Credit Losses.The provision for credit losses decreased by $17,000, to $148,000 for the year ended December 31, 2025 from a provision of $165,000 for the year ended December 31, 2024. The allowance for credit losses increased by $142,000, or 20.3%, to $842,000 at December 31, 2025 from $700,000 at December 31, 2024. The allowance for credit losses represented 0.77% of total loans at December 31, 2025 and 0.72% of total loans as of December 31, 2024. The determination of the adequacy of the allowance for credit losses was based primarily on the low balances of nonperforming loans, delinquent loans and net charge offs in both periods.
Total non-accrual loans were $212,000 at December 31, 2025, compared to $348,000 at December 31, 2024. Classified loans totaled $722,000 at December 31, 2025, compared to $844,000 at December 31, 2024, and total past due greater than 30 days were $1.1 million and $1.0 million at those respective dates. As a percentage of nonperforming loans, the allowance for credit losses was 110.5% at December 31, 2025 compared to 82.9% at December 31, 2024.
The allowance for credit losses reflects the estimate management believes to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at December 31, 2025 and 2024. While management believes the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our consolidated financial condition and results of operations. Furthermore, as an integral part of its examination process, the OCC will periodically review our allowance for credit losses. The OCC may have judgements different than those of management, and we may determine to increase our allowance as a result of these regulatory reviews. Any material increases in the allowance for credit losses may adversely affect our financial condition and results of operations.
Noninterest Income.Noninterest income totaled $928,000 for the year ended December 31, 2025, an increase of $43,000, or 4.9%, from $885,000 for the year ended December 31, 2024. The increase was primarily due to a $43,000 increase in other non-interest income and a $13,000 increase in the customer service fees partially offset by a decrease of commission income of $5,000.
Noninterest Expense.Noninterest expense decreased $298,000, or 6.4%, to $4.3 million for the year ended December 31, 2025, compared to $4.6 million for the year ended December 31, 2024. The decrease was due primarily to a $92,000, or 16.9%, decrease in data processing costs and a $393,000, or 68.3% decrease in other non-interest expense related to a one-time consulting fee in 2024 while salaries and employee benefits increased $154,000 primarily due to stock incentive plan costs.
Provision for Income Taxes.The provision for income taxes increased by $203,000, or 100.5%, to $405,000 for the year ended December 31, 2025, compared to $202,000 for the year ended December 31, 2024. The increase was due primarily to
a $969,000, or 87.5%, increase in pretax income. The effective tax rates were 19.5% and 18.2% for the years ended December 31, 2025 and 2024, respectively. The increase in the effective tax rate was primarily due to the lower level of tax-exempt income from municipal securities during 2025.
Management of Market Risk
General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. All directors participate in discussions during the regular board meetings evaluating the interest rate risk inherent in our assets and liabilities, and the level of risk that is appropriate. These discussions take into consideration our business strategy, operating environment, capital, liquidity and performance objectives consistent with the policy and guidelines approved by them.
Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we are using to manage interest rate risk are:
| ● | maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations; |
| ● | maintaining a high level of liquidity; |
| ● | growing our core deposit accounts; |
| ● | managing our investment securities portfolio so as to reduce the average maturity and effective life of the portfolio; and |
| ● | continuing to diversify our loan portfolio by adding more commercial real estate loans and commercial loans, which typically have shorter maturities and/or balloon payments. |
By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates.
We have not engaged in hedging activities, such as engaging in futures or options. We do not anticipate entering into similar transactions in the future.
Economic Value of Equity. We compute amounts by which the net present value of our assets and liabilities (economic value of equity or "EVE") would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200, 300 and 400 basis point increments or decreases instantaneously by 100 or 200 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.
The following table sets forth, as of December 31, 2025, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2025 |
||||||||||||
|
|
|
|
|
|
Estimated Increase |
|
EVE as a Percentage of Present |
|||||
|
|
|
|
|
|
(Decrease) in EVE |
|
Value of Assets (3) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
Change in Interest |
|
Estimated |
|
|
|
|
|
|
|
|
(Decrease) |
|
|
Rates (basis points) (1) |
|
EVE (2) |
|
Amount |
|
Percent |
|
EVE Ratio (4) |
|
(basis points) |
||
|
(Dollars in thousands) |
||||||||||||
|
|
33,918 |
|
(12,999) |
(27.71) |
18.71 |
(430.00) |
||||||
|
|
38,695 |
|
(8,222) |
(17.52) |
20.48 |
(253.00) |
||||||
|
|
43,202 |
|
(3,715) |
(7.92) |
22.01 |
(100.00) |
||||||
|
Level |
|
46,917 |
|
- |
- |
23.01 |
- |
|||||
|
(100) |
|
48,236 |
|
1,319 |
2.81 |
23.00 |
(1.00) |
|||||
|
(200) |
|
|
47,687 |
|
770 |
1.64 |
22.23 |
(78.00) |
||||
|
(300) |
|
46,164 |
|
(753) |
(1.60) |
21.07 |
(194.00) |
|||||
| (1) | Assumes an immediate uniform change in interest rates at all maturities. |
| (2) | EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts. |
| (3) | Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets. |
| (4) | EVE Ratio represents EVE divided by the present value of assets. |
The table above indicates that at December 31, 2025, we would experience a 17.5% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 1.64% increase in EVE in the event of an instantaneous 200 basis point decrease in interest rates.
Change in Net Interest Income. The following table sets forth, at December 31, 2025, the calculation of the estimated changes in our net interest income ("NII") that would result from the designated immediate changes in the United States Treasury yield curve. The changes indicated in the following table are within policy guidelines approved by our Board of Directors.
|
|
|
|
|
|
|
|
|
At December 31, 2025 |
||||||
|
Change in Interest Rates |
|
Net Interest Income Year 1 |
|
Year 1 Change from |
||
|
(basis points) (1) |
|
Forecast |
|
Level |
||
|
(Dollars in thousands) |
||||||
|
|
6,235 |
(2.44) |
% |
|||
|
|
6,286 |
(1.64) |
% |
|||
|
|
6,343 |
(0.75) |
% |
|||
|
Level |
|
6,391 |
- |
% |
||
|
(100) |
|
6,381 |
(0.16) |
% |
||
|
(200) |
|
|
6,400 |
0.14 |
% |
|
|
(300) |
|
6,335 |
|
(0.88) |
% |
|
| (1) | Assumes an immediate uniform change in interest rates at all maturities. |
The table above indicates that at December 31, 2025, we would have experienced a 1.64% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 0.14% increase in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurement. Modeling changes in EVE and NII require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. For instance, the EVE and NII tables presented above assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. However, the shape of the yield curve changes constantly and the value and pricing of our assets and liabilities, including our deposits, may not closely correlate with changes in market interest rates. Accordingly, although the EVE and NII tables may provide an indication of our interest rate risk exposure at a particular point in time and in the context of a particular yield curve,
such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and NII and will differ from actual results.
EVE and net interest NII calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.
Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Chicago and from a correspondent bank. At December 31, 2025, we had no borrowings from the Federal Home Loan Bank of Chicago but had the capacity to borrow $50.4 million. At December 31, 2025, we had no borrowings from correspondent banks but had the capacity to borrow $9.0 million.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets depend on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. For the year ended December 31, 2025, cash flows from operations, investing, and financing activities resulted in a net decrease in cash and cash equivalents of $762,000. Net cash provided by operating activities amounted to $2.1 million, primarily due to net income from operations. Net cash used in investing activities amounted to $8.5 million, primarily due to purchases of debt securities of $7.1 million, an increase in loans of $12.7 million and partially offset by proceeds from the maturities of available-for-sale securities of $9.4 million. Net cash provided by financing activities amounted to $5.6 million, primarily due to the increase of deposits.
We believe we maintain a strong liquidity position, and are committed to maintaining it. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.
PFS Bancorp is a separate legal entity from Peru Federal and must provide for its own liquidity to pay its operating expenses and other financial obligations. PFS Bancorp's primary source of income is dividends received from Peru Federal. The amount of dividends that Peru Federal may declare and pay to PFS Bancorp is governed by applicable bank regulations. At December 31, 2025, PFS Bancorp (on an unconsolidated basis) had liquid assets of $5.6 million.
At December 31, 2025, Peru Federal was categorized as well-capitalized under regulatory capital guidelines. Management is not aware of any conditions or events since the most recent notification that would change our category. For further information, see note 12 to the notes to consolidated financial statements.
Off-Balance Sheet Arrangements. At December 31, 2025, we had $5.1 million of outstanding commitments to originate loans, $466,000 of which represents the balance of remaining funds to be disbursed on construction loans in process, $3.4 million in unused commercial line of credit commitments, $119,000 in commitments to fund new closed-end residential real estate loans, and $1.0 of unfunded home equity loans. At December 31, 2025, certificates of deposit that are scheduled to mature on or before December 31, 2026 totaled $63.1 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank of Chicago advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
Impact of Inflation and Changing Prices
The financial statements and related data presented in this annual report have been prepared according to GAAP which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in
increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution's performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
PFS Bancorp Inc. published this content on March 25, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 25, 2026 at 19:36 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]