Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Management's discussion and analysis is intended to enhance your understanding of our financial condition and results of operations. The financial information in this section is derived from the accompanying consolidated financial statements. You should read the financial information in this section in conjunction with the business and financial information contained in this report and in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as "estimate," "project," "believe," "intend," "anticipate," "assume," "plan," "seek," "expect," "will," "may," "should," "indicate," "would," "believe," "contemplate," "continue," "intend," "target" and words of similar meaning. These forward-looking statements include, but are not limited to:

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not undertake any obligation to update any forward-looking statements after the date of this report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Summary of Significant Accounting Policies

A summary of our accounting policies is described in Note 1 of the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes to our significant policies described in such Form 10-K under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Comparison of Financial Condition at September 30, 2025 and December 31, 2024

Total Assets. Total assets increased $5.3 million, or 2.7%, from $197.6 million at December 31, 2024 to $203.0 million at September 30, 2025. The increase was primarily comprised of an increase in net loans of $12.7 million funded by a $3.5 increase in deposits and a $7.2 million decrease in cash and cash equivalents.

Cash and Due from Banks. Cash and due from banks decreased by $7.2 million, or 44.2%, to $9.1 million at September 30, 2025 compared to $16.3 million at December 31, 2024. This decrease was primarily due to the funding of the increase in loans.

Available-for-Sale Investment Securities. Available-for-sale investment securities increased by $2.0 million, or 3.0%, to $68.7 million at September 30, 2025 from $66.7 million at December 31, 2024. The increase was a result of purchases of available-for-sale securities of $7.1 million during the nine months ended September 30, 2025 which was partially offset by principal payments on mortgage-backed securities and collateralized mortgage obligation securities and by maturities. The

market value adjustment on available-for-sale investment securities improved by $2.2 million during the nine months ended September 30, 2025 due to decreases in market interest rates.

Held-to-Maturity Investment Securities. Held-to-maturity investment securities decreased by $1.8 million, or 21.9%, to $6.4 million at September 30, 2025 from $8.2 million at December 31, 2024, due to maturities. There were no purchases of held-to-maturity securities during the nine months ended September 30, 2025.

Loans, Net. Loans, net, increased $12.7 million or 13.2%, to $109.0 million at September 30, 2025 compared to $96.3 million at December 31, 2024. One-to four-family residential mortgage loans increased $2.7 million, or 4.1%, from $65.7 million at December 31, 2024 to $68.4 million at September 30, 2025. Commercial real estate loans increased $8.0 million, or 37.4%, from $21.4 million at December 31, 2024 to $29.4 million at September 30, 2025. Construction and land development loans increased by $62,000, or 3.8%, from $1.6 million at December 31, 2024 to $1.7 million at September 30, 2025. Commercial loans increased $1.3 million, or 27.7%, from $4.7 million at December 31, 2024 to $6.0 million at September 30, 2025. Consumer loans increased $715,000, or 20.6%, from $3.5 million at December 31, 2024 to $4.2 million at September 30, 2025.

During the nine months ended September 30, 2025, the Company originated $27.4 million in loans consisting of $8.1 million in one-to four-family residential mortgage loans, $14.4 million in commercial real estate loans, $2.5 million in commercial loans and $2.4 million in consumer loans.

Deposits. Deposits increased $3.5 million, or 2.2%, from $159.6 million at December 31, 2024 to $163.1 million at September 30, 2025. Non-maturity deposits decreased $1.8 million, or 2.0%, from $91.0 million at December 31, 2024 to $89.2 million at September 30, 2025. Time deposits increased by $5.4 million, or 7.7% from $68.6 million at December 31, 2024 to $73.9 at September 30, 2025. The majority of the time deposit increase were into certificates of deposit with maturities of less than one year.

Total Stockholders' Equity. Total stockholders' equity was $38.4 million at September 30, 2025, an increase of $1.6 million or 4.4%, from $36.7 million at December 31, 2024. The increase is due to net income of $1.1 million, a positive change in accumulated other comprehensive income of $1.7 million. In addition, the Company purchased $1.2 million of treasury shares during the nine months ended September 30, 2025.

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are 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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Comparison of Operating Results for the Three Months Ended September 30, 2025 and 2024

General. Net income for the three months ended September 30, 2025 was $416,000, an increase of $174,000, or 71.9%, compared to $242,000 for the three months ended September 30, 2024.

Interest and Dividend Income. Interest and dividend income for the three months ended September 30, 2025 increased by $241,000, or 11.9%, from $2.0 million for the three months ended September 30, 2024 to $2.3 million for the three months ended September 30, 2025. This increase is a result of a $292,000, or 24.2%, increase in loan interest and fees, and a $32,000, or 5.9%, increase in interest from available-for-sale investments, partially offset by a $59,000, or 36.0%, decrease in interest on cash and cash equivalents, and a $23,000, or 23%, decrease in interest from held-to-maturity investments .

The average balance of loans during the three months ended September 30, 2025, increased by $12.7 million or 13.6%, from the average balance for the three months ended September 30, 2024, while the average yield on loans increased to 5.64% for the three months ended September 30, 2025, from 5.16% for the three months ended September 30, 2024. The increase in average yield on loans was due to higher market interest rates and increases in higher yielding commercial loans.

The average balance of available-for-sale debt securities decreased by $228,000, or 0.3%, to $69.8 million for the three months ended September 30, 2025, from $70.1 million for the three months ended September 30, 2024, while the average yield on available-for-sale debt securities increased to 3.27% for the three months ended September 30, 2025 from 3.08% for the three months ended September 30, 2024. This increase in yield was due to higher market interest rates.

The average balance of held-to-maturity debt securities decreased by $1.9 million, or 22.4%, to $6.6 million for the three months ended September 30, 2025, from $8.5 million for the nine months ended September 30, 2024, while the average yield on held-to-maturity debt securities decreased to 4.67% for the three months ended September 30, 2025, from 4.69% for the three months ended September 30, 2024. This decrease in yield due to maturity of higher yielding investments during the current period.

Interest Expense. Interest expense for the three months ended September 30, 2025 increased by $54,000, or 6.8%, to $829,000 for the three months ended September 30, 2025 from $776,000 for the three months ended September 30, 2024.

This increase is a result of higher interest bearing deposit balances. The Company experienced a small increase in the average rate for NOW savings and money market deposits while the average rate for regular savings and time deposits decreased as market interest rates began to decline during the period for these deposit products.

The average balance of regular savings deposits increased by $6.0 million, or 20.6%, to $35.1 million for the three months ended September 30, 2025, from $29.1 million for the three months ended September 30, 2024, while the average rate on regular savings deposits decreased to 0.14% for the three months ended September 30, 2025, from 0.18% for the three months ended September 30, 2024.

The average balance of NOW savings deposits increased by $262,000, or 1.4%, to $19.0 million for the three months ended September 30, 2025, from $18.8 million for the three months ended September 30, 2024, while the average rate on NOW savings deposits increased to 0.27% for the three months ended September 30, 2025, from 0.25% for the three months ended September 30, 2024.

The average balance of money market deposits decreased by $1.8, or 6.6%, to $25.5 million for the three months ended September 30, 2025, from $27.3 million for the three months ended September 30, 2024, while the average rate on money market deposits increased to 1.65% for the three months ended September 30, 2025, from 1.64% for the three months ended September 30, 2024. This decrease in rate and balance resulted from a shift of higher balance money market accounts into higher yielding certificates of deposits.

The average balance of time deposits increased by $8.4 million, or 13.0%, to $73.2 million for the three months ended September 30, 2025, from $64.8 million for the three months ended September 30, 2024, while the average rate on time deposits decreased to 3.82% for the three months ended September 30, 2025, from 3.94% for the three months ended September 30, 2024. This decrease in rate resulted from lower market interest rates.

Net Interest Income. Net interest income for the three months ended September 30, 2025 was $1.4 million, an increase of $188,000, or 15.1%, from the $1.2 million for the three months ended September 30, 2024. The increase was due to the net interest rate spread increasing to 2.46% for the three months ended September 30, 2025, from 2.10% for the three months ended September 30, 2024 despite a decrease in average net interest earning assets of $4.4 million, or 9.4%, to $42.3 million for the three months ended September 30, 2025, from $46.7 million for the three months ended September 30, 2024.

Provision for Credit Losses. The provision for credit losses for the three months ended September 30, 2025, was $40,000 compared to $113,000 for the three months ended September 30, 2024. The decrease was due to a larger specific reserve for the three months ended September 30, 2024 while there were no specific reserves during the three months ended September 30, 2025. The allowance for credit losses was $847,000, or 0.77% of total loans, at September 30, 2025.

Noninterest Income. Noninterest income increased $89,000, or 53.0%, to $257,000 for the three months ended September 30, 2025, compared to $168,000 for the three months ended September 30, 2024. Customer service fee income increased $5,000, other noninterest income increased by $86,000 due to increase market value of equity securities, and loan servicing decreased by $2,000.

Noninterest Expense. Noninterest expense increased $76,000, or 7.6%, to $1.1 million for the three months ended September 30, 2025, from $1.1 million for the three months ended September 30, 2024. During the three months ended September 30, 2025, salaries and benefits increased $45,000 primarily due to stock incentive plan expenses, occupancy expenses increased $2,000, deposit insurance premiums increased $1,000, professional fees increased $39,000 primarily due to additional attorney fees related to the stock incentive plan, and other non-interest expense increased by $7,000, while printing and office supplies decreased by $4,000, depreciation decreased by $5,000, and data processing expense decreased by $10,000 primarily due to savings from contract renegotiation.

Provision for Income Taxes. The provision for income taxes increased $100,000, or 555.6%, to $118,000 for the three months ended September 30, 2025, compared to $18,000 for the three months ended September 30, 2024. The increase was a primarily due to a $274,000, or 105.4% increase in income before taxes for the three months ended September 30, 2025 compared to the three months ended September 30, 2024.

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Comparison of Operating Results for the nine months Ended September 30, 2025 and 2024

General. Net income for the nine months ended September 30, 2025 was $1.1 million, an increase of $347,000, or 43.8%, compared to $792,000 for the nine months ended September 30, 2024 as a result of net interest income increasing by $460,000, non-interest income increasing $71,000, partially offset non-interest expenses increasing by $25,000, and provision for income taxes increasing by $152,000.

Interest and Dividend Income. Interest and dividend income for the nine months ended September 30, 2025 increased by $742,000, or 12.6%, from $5.9 million for the nine months ended September 30, 2024 to $6.6 million for the nine months ended September 30, 2025. This increase is a result of a $821,000, or 24.0%, increase in loan interest and fees, and a $93,000, or 5.0%, increase in interest from debt securities, partially offset by a $170,000, or 28.1%, decrease in interest on cash and cash equivalents.

The average balance of loans during the nine months ended September 30, 2025, increased by $10.5 million or 11.4%, from the average balance for the nine months ended September 30, 2024, while the average yield on loans increased to 5.52% for the nine months ended September 30, 2025, from 4.95% for the nine months ended September 30, 2024. The increase in average yield on loans was due to higher market interest rates.

The average balance of available-for-sale debt securities increased by $953,000, or 1.4%, to $69.5 million for the nine months ended September 30, 2025, from $68.5 million for the nine months ended September 30, 2024, while the average yield on available-for-sale debt securities increased to 3.27% for the nine months ended September 30, 2025 from 3.04% for the nine months ended September 30, 2024. This increase in yield was due to higher market interest rates.

The average balance of held-to-maturity debt securities decreased by $1.4 million, or 15.9%, to $7.4 million for the nine months ended September 30, 2025, from $8.8 million for the nine months ended September 30, 2024, while the average yield on held-to-maturity debt securities decreased to 4.45% for the nine months ended September 30, 2025, from 4.48% for the nine months ended September 30, 2024. This decrease in yield due to maturity of higher yielding investments during the current period.

Interest Expense. Interest expense for the nine months ended September 30, 2025 increased by $282,000, or 12.8%, to $2.5 million for the nine months ended September 30, 2025 from $2.2 million for the nine months ended September 30, 2024. This increase is a result of higher market interest rates. This increase is a result of higher interest bearing deposit balances. The Company experienced increases in the average rate on money market and time deposits while the average rate for regular savings and NOW savings decreased as market interest rates began to decline during the period for these deposit products.

The average balance of regular savings deposits increased by $2.3 million, or 7.5%, to $33.0 million for the nine months ended September 30, 2025, from $30.7 million for the nine months ended September 30, 2024, while the average rate on regular savings deposits decreased to 0.15% for the nine months ended September 30, 2025, from 0.17% for the nine months ended September 30, 2024.

The average balance of NOW savings deposits increased by $1.2 million, or 6.4%, to $20.0 million for the nine months ended September 30, 2025, from $18.8 million for the nine months ended September 30, 2024, while the average rate on NOW savings deposits decreased to 0.25% for the nine months ended September 30, 2025, from 0.26% for the nine months ended September 30, 2024.

The average balance of money market deposits decreased by $1.8 million, or 6.5%, to $25.8 million for the nine months ended September 30, 2025, from $27.6 million for the nine months ended September 30, 2024, while the average rate on money market deposits increased to 1.64% for the nine months ended September 30, 2025, from 1.60% for the nine months ended September 30, 2024. This increase in rate resulted from higher market interest rates.

The average balance of time deposits increased by $8.2 million, or 12.9%, to $71.6 million for the nine months ended September 30, 2025, from $63.4 million for the nine months ended September 30, 2024, while the average rate on time deposits increased to 3.84% for the nine months ended September 30, 2025, from 3.72% for the nine months ended September 30, 2024. This increase in rate resulted from higher market interest rates.

Net Interest Income. Net interest income for the nine months ended September 30, 2025 was $4.2 million, an increase of $460,000, or 12.4%, from the $3.7 million for the nine months ended September 30, 2024. The increase was due to an decrease in average net interest earning assets of $1.2 million, or 2.6%, to $45.1 million for the nine months ended September 30, 2025, from $46.3 million for the nine months ended September 30, 2024 while the net interest rate spread increased to 2.35% for the nine months ended September 30, 2025, from 2.15% for the nine months ended September 30, 2024.

Provision for Credit Losses. The provision for credit losses for the nine months ended September 30, 2025, was $153,000 compared to $146,000 for the nine months ended September 30, 2024. The increase was due to increase in loan balances, and no specific reserves were recorded during the quarter. The allowance for credit losses was $847,000, or 0.77% of total loans, at September 30, 2025.

Noninterest Income. Noninterest income increased $71,000, or 13.2%, to $608,000 for the nine months ended September 30, 2025, compared to $537,000 for the nine months ended September 30, 2024. Commission income decreased $4,000, Customer service fees income increased $8,000, other noninterest income increased by $73,000 and loan servicing fees decreased by $6,000.

Noninterest Expense. Noninterest expense increased $25,000, or 0.8%, to $3.2 million for the nine months ended September 30, 2025, from $3.2 million for the nine months ended September 30, 2024. During the nine months ended September 30, 2025, salaries and benefits increased $45,000 primarily due to stock incentive plan expenses, occupancy expenses increased $24,000, printing and office supplies increased $6,000, deposit insurance premiums increased by $6,000, professional fees increased $33,000 primarily due to additional attorney fees related to the stock incentive plan, other non-interest expenses increased by $5,000, while depreciation decreased by $20,000 and data processing expense decreased by $76,000 primarily due to savings from contract renegotiation.

Provision for Income Taxes. The provision for income taxes increased $152,000, or 93.3%, to $315,000 for the nine months ended September 30, 2025, compared to $163,000 for the nine months ended September 30, 2024. The increase was primarily due to a $499,000, or 52.3% increase in income before taxes for the nine months ended September 30, 2025 compared to nine months ended September 30, 2024.

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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 September 30, 2025, we had no borrowings from the Federal Home Loan Bank of Chicago but had the capacity to borrow $48.5 million. At September 30, 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. For further information, see the consolidated statements of cash flows contained in the consolidated financial statements appearing elsewhere in this report.

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 nine months ended September 30, 2025, cash flows from operations, investing, and financial activities resulted in a net decrease in cash and cash equivalents of $7.1 million. Net cash provided from operating activities amounted to $1.5 million, primarily due to net income of $1.1 million, $16,000 from net amortization of premiums and discount from available-for-sale debt securities, $70,000 from the decrease in other assets and income tax receivable, and $193,000 from the increase in interest payable and other liabilities, partially offset by the change in fair value of equity securities of $111,000, earnings of $80,000 on cash surrender value of life insurance and decrease in interest receivable of $22,000. Net cash provided by financing activities amounted to $2.2 million, primarily due to a net increase in certificates of deposit of $5.4 million, partially offset by a decrease in demand deposits, money markets, NOW and savings accounts of $1.8 million and $1.2 million of treasury stock purchased. Net cash used in investing activities amounted to $10.9 million, primarily due to purchases of available-for-sale investments of $7.1 million, an increase in loans of $12.8 million, partially offset with proceeds from maturities of available-for-sale investment securities of $7.3 million and maturities of held-to-maturity debt securities of $1.8 million.

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, Inc. is a separate legal entity from Peru Federal Savings Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations. The Company's primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company is governed by applicable bank regulations. At September 30, 2025, the Company (on an unconsolidated basis) had liquid assets of $5.6 million.

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At September 30, 2025, the Bank 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 appearing elsewhere in this report.

Off-Balance Sheet Arrangements

At September 30, 2025, we had $5.8 million of outstanding commitments to originate loans, $595,000 of which represents the balance of remaining funds to be disbursed on construction loans in process, $3.7 million in unused commercial line of credit commitments, $1.1 million of unfunded home equity loans, $50,000 of unfunded consumer line of credit, and $298,000 of commitments to fund new closed-end residential real estate loans. At September 30, 2025, certificates of deposit that are scheduled to mature on or before September 30, 2026 totaled $61.1 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed.

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:

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, and 300 basis point increments or decreases instantaneously by 100, 200, and 300 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 September 30, 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. The estimated changes presented in the table are within Board of Director-approved policy guidelines.

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Change in Net Interest Income.The following table sets forth, at September 30, 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 estimated changes presented in the table are within Board of Director-approved policy guidelines.

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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 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.

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