10-Q - PFSB - Equibles

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2024

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 000-56602

PFS Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)



Maryland	92-2956265
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

1730 Fourth Street, ** Peru , Illinois **	61354
(Address of Principal Executive Offices)	(Zip Code)

( 815 ) 223-4300

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol(s)		Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. YES ☐ NO ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

YES

☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b 2 of the Exchange Act:

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒

1,725,000 shares of the registrant’s common stock, par value $0.01 per share, were issued and outstanding as of May 10, 2024.

Table of Contents

PFS Bancorp, Inc.

Form 10-Q

Index


		Page
	Part I. – Financial Information	2

Item 1.	Financial Statements	2

	Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023	2

	Consolidated Statements of Income for the Three Months Ended March 31, 2024 and 2023 (unaudited)	3

	Consolidated Statements of Comprehensive Income (Loss) for the Three a Months Ended March 31, 2024 and 2023 (unaudited)	4

	Consolidated Statements of Equity Capital for the Three Months Ended March 31, 2024 and 2023 (unaudited)	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited)	6

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42

Item 4.	Controls and Procedures	42

	Part II. – Other Information	43

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	43

Item 3.	Defaults upon Senior Securities	43

Item 4.	Mine Safety Disclosures	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

	Signature Page	45

Table of Contents Part I. – Financial Information

Item 1.	Financial Statements

PFS Bancorp, Inc.

Consolidated Balance Sheets

March 31, 2024 (Unaudited) and December 31, 2023

(In thousands)


	****	March 31,			December 31,
		2024		****	2023
Assets
Cash and cash equivalents — cash and due from bank		$	18,163		$	20,202
Available-for-sale debt securities (net of credit losses of $0 at March 31, 2024 and December 31, 2023, respectively, amortized cost of $73,626 and $67,949 at March 31, 2024 and December 31, 2023, respectively)			68,739			63,513
Held-to-maturity debt securities (net of allowance for credit losses of $0 as of March 31, 2024 and December 31, 2023)			8,946			8,947
Equity securities			138			115
Loans, net of allowance for credit losses of $706 and $675 at March 31, 2024 and December 31, 2023			91,227			90,715
Premises and equipment, net of accumulated depreciation of $2,788 and $2,748 at March 31, 2024 and December 31, 2023			2,065			2,037
Federal Home Loan Bank stock			347			347
Interest receivable			676			689
Cash surrender value of bank-owned life insurance			3,901			3,877
Deferred income taxes			1,968			1,831
Mortgage servicing rights			300			300
Other			741			880

Total assets		$	197,211		$	193,453

Liabilities and Equity Capital

Liabilities
Deposits
Demand		$	18,121		$	20,810
Savings, NOW and money market			78,352			75,676
Time			63,508			59,675

Total deposits			159,981			156,161
Deferred compensation			941			921
Income tax payable			174			257
Interest payable and other liabilities			629			595

Total liabilities			161,725			157,934

Equity Capital
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, none issued			—			—
Common Stock, $0.01 par value, 14,000,000 shares authorized, 1,725,000 issued, 1,685,000 outstanding at March 31, 2024 and December 31, 2023			17			17
Additional Paid in Capital			15,604			15,605
Unallocated common stock of ESOP			(1,311)			(1,325)
Treasury stock - 40,000 share at March 31, 2024 and December 31, 2023			(400)			(400)
Retained earnings			25,072			24,796
Accumulated other comprehensive income (loss)			(3,496)			(3,174)

Total equity capital			35,486			35,519

Total liabilities and equity capital		$	197,211		$	193,453

See Notes to Consolidated Financial Statements

Table of Contents PFS Bancorp, Inc.

Consolidated Statements of Income

For the Three Months Ended March 31, 2024 (Unaudited) and 2023 (Unaudited)

(In Thousands)


	2024		****	2023

Interest and Dividend Income
Loans, including fees	$	1,073		$	860
Debt securities
Taxable		350			256
Tax-exempt		139			124
Dividends		7			6
Other		314			171

Total interest and dividend income		1,883			1,417

Interest Expense
Deposits		649			317

Net Interest Income		1,234			1,100

Provision for Credit Losses		26			5

Net Interest Income After Provision for Credit Losses		1,208			1,095

Noninterest Income
Commission income		12			4
Customer service fees		107			94
Net realized gain on loan sales		2			2
Loan servicing fees		17			19
Other		48			30

Total noninterest income		186			149

Noninterest Expense
Salaries and employee benefits		588			520
Occupancy		81			74
Depreciation		40			37
Data processing		139			131
Professional fees		90			75
Marketing		36			36
Printing and office supplies		14			22
Foreclosed assets, net		—			1
Deposit insurance premiums		37			35
Other		35			53

Total noninterest expense		1,060			984

Income Before Income Taxes		334			260

Provision for Income Taxes		58			47

Net Income	$	276		$	213

Earnings (Loss) per share-basic and diluted	$	0.18			—
Weighted-average shares outstanding-basic and diluted		1,553,900			—

See Notes to Consolidated Financial Statements

Table of Contents PFS Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Loss)

For the Three Months Ended March 31, 2024 (Unaudited) and 2023 (Unaudited)

(In Thousands)


	2024		****	2023

Net Income	$	276		$	213

Other Comprehensive Income (Loss)
Unrealized gains (losses) on available-for-sale debt securities, net of taxes of $129 and $(35) for the three months ended March 31, 2024 and 2023, respectively		(322)			90

Other comprehensive income (loss)		(322)			90

Comprehensive Income (Loss)	$	(46)		$	303

See Notes to Consolidated Financial Statements

Table of Contents PFS Bancorp, Inc.

Consolidated Statements of Equity Capital

For the Three Months Ended March 31, 2024 (Unaudited) and 2023 (Unaudited)

(In Thousands)

For the three months ended March 31:


									****			****	Accumulated				****
							Unallocated						Other
	Common			Additional			Common Stock			Retained			Comprehensive		Treasury
	Stock		****	Paid-in Capital		****	of ESOP			Earnings			Income (loss)		Stock			Total
Balance, December 31, 2022	$	—		$	—		$	—		$	23,828		$	(3,689)	$	—		$	20,139

Net income		—			—			—			213			—		—			213
Adoption of ASC No. 2016-13, Financial Instruments-Credit Losses (Topic 326), net of taxes of $(15).		—			—			—			(40)			—		—			(40)
Other comprehensive loss		—			—			—			—			90		—			90
Balance, March 31, 2023	$	—		$	—		$	—		$	24,001		$	(3,599)	$	—		$	20,402

Balance, December 31, 2023	$	17		$	15,605		$	(1,325)		$	24,796		$	(3,174)		(400)		$	35,519

Net income		—			—			—			276			—		—			276
ESOP shares committed to be released (1,380 shares)		—			(1)			14			—			—		—			13
Other comprehensive loss		—			—			—			—			(322)		—			(322)

Balance, March 31, 2024	$	17		$	15,604		$	(1,311)		$	25,072		$	(3,496)	$	(400)		$	35,486

See Notes to Consolidated Financial Statements

Table of Contents PFS Bancorp, Inc.

Consolidated Statements of Cash Flows Three Months Ended March 31, 2024 (Unaudited) and 2023 (Unaudited) (In Thousands)


	****	2024		****	2023
Operating Activities
Net income		$	276		$	213
Items not requiring (providing) cash
Depreciation			40			37
Provision for credit losses			26			5
Amortization of premiums and discounts on debt securities			62			121
Deferred income taxes			(8)			30
Change in fair value of equity securities			(23)			(1)
Net realized (gain) loss on loan sales			(2)			(2)
Earnings on cash surrender value of life insurance			(24)			(23)
ESOP compensation expense			13			—
Changes in
Interest receivable			13			63
Other assets and income tax receivable			139			(326)
Interest payable and other liabilities			(29)			(97)
Net cash provided by operating activities			483			20

Investing Activities
Purchases of available-for-sale debt securities			(7,483)			—
Proceeds from maturities of available-for-sale debt securities			1,745			1,988
Purchase of held-to-maturity debt securities			—			(2,698)
Proceeds from maturities of held-to-maturity debt securities			—			1
Net change in loans			(536)			1,105
Purchase of premises and equipment			(68)			(11)
Purchase of FHLB stock			—			—
Net cash used in investing activities			(6,342)			385

Financing Activities
Net increase (decrease) in demand deposits, money market,
NOW and savings accounts			(13)			3,408
Net increase in certificates of deposit			3,833			1,358
Net cash provided by (used in) financing activities			3,820			4,766
Increase (Decrease) in Cash and Cash Equivalents			(2,039)			5,171
Cash and Cash Equivalents, Beginning of Year			20,202			12,651
Cash and Cash Equivalents, End of Year		$	18,163		$	17,822
Supplemental Cash Flows Information
Interest paid		$	648		$	335
Income taxes paid		$	155		$	(28)

See Notes to Consolidated Financial Statements

Table of Contents Note 1: Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

PFS Bancorp, Inc, a Maryland corporation (the “Company”) was formed to serve as the stock holding company for Peru Federal Savings Bank (“Bank”) as part of the mutual-to-stock conversion. Upon completion of the conversion, which occurred on October 17, 2023 the Company became 100% owner of the Bank. 100% of the common stock of PFS Bancorp, Inc is held by the public. The cost of reorganization and the issuing of common stock totaling $1.6 million were deferred and deducted from the sales proceeds of the offering.

The Bank is a federal chartered mutual savings bank. The Bank is primarily engaged in providing a full range of banking and financial services to individual and corporate customers in northern Illinois, primarily LaSalle County, from its two facilities located in Peru, Illinois. The Bank is subject to competition from other financial institutions. The Bank is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. Peru Federal Savings Bank has a wholly owned subsidiary, PFSB Financial Services Inc. PFSB was inactive in 2024 and 2023.

Financial information for dates and periods before October 17,2023 relate to the Bank only.

Jumpstart Our Business Startups Act

The Jumpstart Our Business Act (the JOBS Act), which was signed into law on April 5, 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion during the most recently completed fiscal year qualifies as an “emerging growth company”. The Company qualifies as an “emerging growth company” and believes that it will continue to qualify as an “emerging growth company” until December 31, 2028.

As an “emerging growth company” the Company has elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, the financial statements may not be comparable to the financial statements of companies that comply with such new or revised accounting standards.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, mortgage servicing rights, and fair values of financial instruments.

Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At March 31, 2024 and December 31, 2023, cash equivalents consisted of due from bank accounts.

At March 31, 2024 and December 31, 2023, the Company’s cash accounts exceeded federally insured limits by $1,029 and $1,329, respectively.

Debt Securities

Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income 7

Table of Contents (loss). Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and the allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale debt securities totaled $365 and $346 at March 31, 2024 and December 31, 2023 respectively and is excluded from the estimate of credit losses.

The Company uses a current expected loss (“CECL”) model to estimate the allowance for credit losses on securities held to maturity. The CECL model considers historical loss rates and other qualitative adjustments, as well as a new forward-looking component that considers reasonable and supportable forecasts over the expected life of each security.

Management believes the Company will collect all amounts owed on securities held to maturity issued by the U.S. government or a U.S. government-sponsored agency since these securities are either explicitly or implicitly guaranteed by the U.S. government, and have a long history of no credit losses. Management evaluates all other securities held to maturity using a probability of default method. The probability of default method estimates the probability a security with a certain credit rating will default during its remaining contractual term (probability of default) and how much loss is expected to be incurred if a security defaults (loss give default rate). The Company obtains information from (e.g., Moody’s) to estimate the probability of default for each credit rating based on the remaining term of the security and the loss given default rate.

Accrued interest receivable on held-to-maturity debt securities totaled $33 and $33 at March 31, 2024 and December 31, 2023 respectively and is excluded from the estimate of credit losses.

Equity Securities

The Company measures equity securities at fair value with changes in fair value recognized in net income. Gains and losses on the sale of equity securities are recorded on the trade date and are determined using the specific identification method.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded on the statements of income.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for credit losses, and for loans 8

Table of Contents amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of direct origination costs are recognized as income or expensed when received or incurred since capitalization of these fees and costs would not have a significant impact on the consolidated financial statements.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The Company maintains lending policies and procedures designed to focus lending efforts on the type, location, and duration of loans most appropriate for its business model and markets. The Company’s principal lending activity is the origination of residential and commercial real estate loans, commercial loans, and consumer loans. The primary lending market is in LaSalle County, Illinois. Generally, loans are collateralized by assets of the borrower and guaranteed by the principals of the borrowing entity.

The Board of Directors reviews and approves the Company’s lending policy on an annual basis. Quarterly, the Board Loan Committee reviews the allowance for credit losses and reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans.

Allowance for Credit Losses on Loans and Unfunded Commitments

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 Company’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.

The Company uses a current expected credit loss (“CECL”) model to estimate the allowance for credit losses on loans. The CECL model considers historical loss rates and other qualitative adjustments, as well as new forward-looking component that considers reasonable and supportable forecasts over the expected life of each loan. To develop the allowance for credit losses on loans estimate under the CECL model, the Company segments the loan portfolio into loan pools based on loan type and similar credit risk elements, performs an individual evaluation of certain collateral dependent and other credit-deteriorated 9

Table of Contents loans, calculates the historical loss rates for the segmented loan pools, applies the loss rates over the calculated life of the collectively evaluated loan pools; adjusts for forecasted macro-level economic conditions and other anticipated changes in credit quality; and determines qualitative adjustments based on factors and conditions unique to the Company’s loan portfolio.

Under the CECL model, loans that do not share similar risk characteristics with the loans in their respective pools are individually evaluated for expected credit losses and are excluded from the collectively evaluated loan credit loss estimates. Management evaluates nonaccrual loans, and other loans with evidence of credit deterioration. For loans individually evaluated, a specific reserve is estimated based on either the fair value of collateral or the discounted value of expected future cash flows.

Management evaluates all collectively evaluated loan pools using the weighted average remaining life (“remaining life”) methodology. The remining life methodology applies calculated quarterly net loss rates to collectively evaluated loan pools on a periodic basis based on the estimated remining life of each pool. The estimated losses under the remaining life methodology are then adjusted for qualitative factors deemed appropriate by management.

The estimated remining life of each pool is determined using quarterly, pool-based attrition measurements using the Company’s loan-level historical data. The Company’s historical call report data is utilized for historical loss rate calculations, and the lookback period for each collectively evaluated loan pool is determined by management based upon the estimated remaining life of the pool. Forecasted historical loss rates are calculated using the Company’s historical data based on the lookback, forecast, and reversion period inputs by management. Management elected to utilize a 2-year forecast period, with immediate reversion to historical losses after the forecast period.

The quantitative analysis described above is supplemented with other qualitative factors based on the risks presented for each collectively evaluated loan pool. These qualitative factors include: past due loan trends; collateral value trends, changes to lending policies, quality of loan review, expertise of management, regulatory environment, micro and macro economic conditions, and effects of changes in credit concentrations.

Unfunded commitments are evaluated using the same pool methodology and assumptions as the allowance for credit losses on collectively evaluated loans, adjusted for estimated funding rates based on historical rates. A reserve is maintained for these unfunded commitments to absorb estimated probable credit losses over noncancelable loan commitments. The allowance for losses on unfunded commitments is included in other liabilities on the balance sheet.

The Company may modify loans to borrowers experiencing financial difficulty and grant concessions that could include principal loan forgiveness, maturity date extension, interest rate, interest-only period, and payment deferral.

The Company excludes accrued interest receivable from the amortized cost basis of loans when estimating credit losses and when presenting required disclosures in the financial statements. Accrued interest on loans totaling $278 and $652 at March 31, 2024 and December 31, 2023, respectively, was excluded from the amortized cost basis of loans. Accrued interest is written off at the same time as when a loan is moved to non-accrual status.

Risk characteristics applicable to each segment of the loan portfolio are described as follows.

Residential 1-4 Family Real Estate: The residential 1-4 family real estate are generally secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Company’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Commercial Real Estate: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Company’s market areas. 10

Table of Contents Construction and Land Development Real Estate: Construction and land development real estate loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions, and the availability of long-term financing. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Company’s market areas.

Commercial: The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations. Commercial business loans also include Small Business Administration (SBA) Paycheck Protection Program (PPP) loans which are covered by a 100% government guaranty. As of March 31, 2024 and December 31, 2023, the Company had no PPP loans outstanding.

Consumer: The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Company’s market area) and the creditworthiness of a borrower.

Premises and Equipment

Land is carried at cost. Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets.

The estimated useful lives for each major depreciable classification of premises and equipment are as follows:

Buildings and improvements		5-50 years
Equipment		3-7 years

Federal Home Loan Bank Stock

Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.

Bank-owned Life Insurance

The Company has purchased life insurance policies on certain key executives. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Mortgage Servicing Rights

Mortgage servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets. Under the servicing assets and liabilities accounting guidance (ASC 860-50), servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. The Company has elected to initially and subsequently measure the mortgage servicing rights for consumer mortgage loans using the fair value method. Under the fair value method, the servicing rights are carried in the balance sheet at fair value and the changes in fair value are reported in earnings in the period in which the changes occur.

Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to 11

Table of Contents service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. These variables change from quarter to quarter as market conditions and projected interest rates change and may have an adverse impact on the value of the mortgage servicing right and may result in a reduction to noninterest income.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned in loan servicing fees in non-interest income.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company—put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Income Taxes

The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to the management’s judgment. With a few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2019.

The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company files consolidated income tax returns with its subsidiary.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income and other comprehensive income (loss), net of applicable income taxes. Other comprehensive income (loss) includes unrealized appreciation (depreciation) on available-for-sale securities and reclassification adjustment for realized losses included in net income. 12

Table of Contents Revenue Recognition

The majority of the Company’s revenues come from interest income and other sources, including loans and securities, which are outside the scope of Financial Accounting Standards Board Accounting Standards Update 2014-09, Revenues from Contracts with Customers (Topic 606). The Company’s services that fall within the scope of Topic 606 are presented within noninterest income in the accompanying consolidated statements of income and are recognized as revenue as the Company satisfies its obligation to the customer.

A description of the Company’s revenue streams accounted for under Topic 606 are as follows:

Customer service fees. The Company generates revenues through fees charged to depositors related to deposit account maintenance fees, overdrafts, interchange income, wire transfers and additional miscellaneous services provided at the request of the depositor. For deposit-related services, revenue is recognized when performance obligations are satisfied, which is, generally, at a point in time.

Commission Income. Brokerage commissions and fees primarily relate to investment advisory and brokerage activities as well as the sale of other non-deposit investment products to customers of the Company. The Company’s performance obligation for investment advisory services is generally satisfied, and related revenue recognized, over the period in which the services are provided. Fees earned for brokerage activities, such as facilitating securities transactions, are generally recognized at the time of transaction execution. Commissions or fees earned on the sale of other non-deposit investment products are primarily recognized on a monthly basis based on the executed sales dates. Payment for these services is generally received shortly after month end.

Gains/Losses on Sales of Foreclosed Assets. The Company records a gain or loss from the sale of foreclosed assets when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of foreclosed assets to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

Rate Lock Commitments

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitment). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Rate lock commitments are recorded only to the extent of fees received since recording the estimated fair value of these commitments would not have a significant impact on the financial statements.

Off-Balance-Sheet Instruments

In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments, including commitments to extend credit, unfunded commitments under lines of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

Legal Contingencies

Various legal claims arise from time to time in the normal course of business. In the opinion of management, any liability resulting from such proceedings would not have a material impact on the consolidated financial statements of the Company.

Advertising

Advertising costs are expensed as incurred. 13

Table of Contents Note 2:  Restriction on Cash and Due From Banks

Effective March 12, 2021, the Federal Reserve’s board of directors approved the final rule reducing the required reserve requirement ratios to zero percent, effectively eliminating the requirement to maintain reserve balances in cash or on deposit with the Federal Reserve Bank. This reduction in the required reserves does not have a defined timeframe and may be revised by the Federal Reserve’s board in the future.

Note 3:  Debt Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of debt securities are as follows:


					Gross			Gross
		Amortized			Unrealized			Unrealized
	****	Cost		****	Gains		****	Losses		****	Fair Value
Available-for-sale Debt Securities:
March 31, 2024:
U.S. Government and federal agencies		$	8,050		$	—			(259)		$	7,791
Mortgage-backed:
Government sponsored enterprises (GSEs)- residential			44,133			38			(3,988)			40,183
State and political subdivisions			21,443			115			(793)			20,765

		$	73,626		$	153		$	(5,040)		$	68,739


					Gross			Gross
		Amortized			Unrealized			Unrealized
	****	Cost		****	Gains		****	Losses		****	Fair Value
Available-for-sale Debt Securities:
December 31, 2023:
U.S. Government and federal agencies		$	8,016		$	—		$	(197)		$	7,819
Mortgage-backed:
Government sponsored enterprises (GSEs)- residential			38,158			51			(3,691)			34,518
State and political subdivisions			21,775			139			(738)			21,176

		$	67,949		$	190		$	(4,626)		$	63,513


					Gross			Gross
		Amortized			Unrealized			Unrealized
	****	Cost		****	Gains		****	Losses		****	Fair Value
Held-to-maturity Debt Securities:
March 31, 2024
U.S. Government and Federal agencies		$	860		$	—		$	(150)		$	710
Mortgage-backed:
GSE residential			—			—			—			—
Certificates of Deposit			8,086			78			(9)			8,155

		$	8,946		$	78		$	(159)		$	8,865

Held-to-maturity Debt Securities:
December 31, 2023
U.S. Government and Federal agencies		$	861		$	—		$	(135)		$	726
Mortgage-backed:
GSE residential			—			—			—			—
Certificates of Deposit			8,086			58			(14)			8,130

		$	8,947		$	58		$	(149)		$	8,856

Table of Contents

The amortized cost and fair value of available-for-sale securities and held-to-maturity debt securities at March 31, 2024, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


		Available-for-sale						Held-to-maturity
		Amortized			Fair			Amortized			Fair
	****	Cost		****	Value		****	Cost		****	Value
Within one year		$	979		$	964		$	978		$	976
One to five years			7,891			7,605			7,108			7,179
Five to ten years			11,618			11,190			—			—
After ten years			9,005			8,797			860			710
			29,493			28,556			8,946			8,865
Mortgage-backed securities			44,133			40,183			—			—

Totals		$	73,626		$	68,739		$	8,946		$	8,865

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $11,854 at March 31, 2024 and $12,218 at December 31, 2023.

There were no sales of securities for the three months ended March 31, 2024 and 2023.

Available-for-sale investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost.

Total fair value of these investments at March 31, 2024 and December 31, 2023, was $57,204 and $51,210. The following table shows the total available-for-sale securities and aggregate depreciation by security type:


		Number of
		securities in a		Aggregate
	****	loss position	****	depreciation

March 31, 2024

U.S. Government and Federal agencies		13		(3.22)	%
Mortgage-backed:
Government sponsored enterprises (GSEs) - residential		181		(9.91)	%
State and political subdivisions		39		(5.69)	%

Total Portfolio		233		(8.10)	%

December 31, 2023

U.S. Government and Federal agencies		13		(2.46)	%
Mortgage-backed:
Government sponsored enterprises (GSEs) - residential		175		(10.66)	%
State and political subdivisions		37		(5.60)	%

Total Portfolio		225		(8.28)	%

These unrealized losses relate principally to the changes in interest rates and are not due to changes in the financial condition of the issuer, the quality of the underlying assets, or applicable credit enhancements. In analyzing whether and allowance for credit losses on debt securities is required, management considers whether the securities are issued by a government body or agency, whether a rating agency has downgraded the securities, industry analysts’ reports, the financial condition and 15

Table of Contents performance of the issuer, and the quality of any underlying assets or credit enhancements. Since management has the ability to hold debt securities for the foreseeable future, no allowance for credit losses related to debt securities has been recorded at March 31, 2024 and December 31, 2023.

Management has evaluated the Company’s held-to-maturities securities unrealized losses and have concluded that no anticipated credit losses are expected and therefore no reserve for losses related to held-to-maturity securities has been included in the Company’s allowance for credit losses.

The following table shows the Company’s investments’ gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be impaired, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2024 and December 31, 2023:


		March 31, 2024
		Less than 12 Months						12 Months or More						Total
		Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
	****	Value		****	Losses		****	Value		****	Losses		****	Value		****	Losses
Available-for-sale Debt Securities:
U.S. Government and federal agencies		$	2,427		$	(18)		$	5,364		$	(241)		$	7,791		$	(259)
State and political subdivisions			1,761			(11)			11,391			(782)			13,152			(793)
Mortgage backed securities-GSE  residential			6,931			(90)			29,330			(3,898)			36,261			(3,988)
Total AFS securities		$	11,119		$	(119)		$	46,085		$	(4,921)		$	57,204		$	(5,040)


	****	December 31, 2023
		Less than 12 Months						12 Months or More						Total
		Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
	****	Value		****	Losses		****	Value		****	Losses		****	Value		****	Losses
Available-for-sale Debt Securities:
U.S. Government and federal agencies		$	2,637		$	(6)		$	5,182		$	(191)		$	7,819		$	(197)
State and political subdivisions			3,424			(15)			9,025			(723)			12,449			(738)
Mortgage backed securities-GSE residential			—			—			30,942			(3,691)			30,942			(3,691)
Total AFS securities		$	6,061		$	(21)		$	45,149		$	(4,605)		$	51,210		$	(4,626)

Note 4: Equity Securities

Equity securities comprised the following as of March 31, 2024 and December 31, 2023 and are included in the consolidated balance sheet:


	****	March 31,			December 31,
		2024		****	2023
Community Development Corp. Stock		$	50		$	50
FHLMC Preferred Stock			88			65
Total		$	138		$	115

Community Development Corp. Stock is considered an equity security without a readily determinable fair value. The FHLMC Preferred Stock is presented on the balance sheet at fair value. The table below details changes in the carrying amount of the FHLMC Preferred Stock for the three months ended March 31, 2024 and year ended December 31, 2023.


	****	March 31,			December 31,
		2024		****	2023
Net gain and losses recognized during the period on equity securities		$	23		$	27
Less: Net gains and losses recognized during the period on equity securities sold during the period			—			—
Unrealized gains and losses recognized during the period on equity securities still held at the reporting date		$	23		$	27

Table of Contents Note 5: Loans and Allowance for Credit Losses

Classes of loans at March 31, 2024 and December 31, 2023 include:


	****	March 31,			December 31,
		2024		****	2023
Mortgage loans on real estate
Residential 1-4 family		$	62,469		$	62,842
Commercial			19,216			17,739
Construction and land development			2,113			2,780
Total mortgage loans on real estate			83,798			83,361
Commercial loans			5,095			5,000
Consumer			3,040			3,029
			91,933			91,390
Less
Allowance for credit losses			706			675

Net loans		$	91,227		$	90,715

Accrued interest on loans totaled $278 and $295 at March 31, 2024 and December 31, 2023, respectively, and is included in interest receivable on the consolidated balance sheets.

The company participates in the U.S. Department of Agriculture’s Rural Development Section 502 Guaranteed Loan Program. This program assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas. Eligible applicants may, purchase, build, rehabilitate, or relocate a dwelling in an eligible rural area with 100% financing. The program provides a 90% loan note guarantee to approved lenders in order to reduce the risk of extending 100% loans to eligible rural homebuyers. As of March 31, 2024 and December 31, 2023, the company held $2,729 and $2,752 respectively, of USDA Guaranteed loans in the Residential 1-4 Family portfolio of loans.

The following tables present the balance in the allowance for credit losses based on portfolio segment as of March 31, 2024 and December 31, 2023:


	For the Three Months Ended
	March 31, 2024
	Mortgage Loans on Real Estate
					Construction
	Residential				and Land
	1-4 Family		Commercial		Development		Commercial
Allowance for credit losses:
Balance, beginning of period	$	247	$	332	$	15	$	65
Provision charged to expense		9		16		(4)		10
Losses charged off		—		—		—		—
Recoveries		—		—		—		—
Balance, end of period	$	256	$	348	$	11	$	75

Allowance for credit losses for unfunded loan commitments
Balance, beginning of period	$	2	$	10	$	8	$	2
Provision charged to expense		2		(3)		(6)		2
Losses charged off		—		—		—		—
Recoveries		—		—		—		—
Balance, end of period	$	4	$	7	$	2	$	4

Table of Contents


	****	For the Three Months Ended
		March 31, 2024 (Continued)
	****	Consumer		****	Total
Allowance for credit losses:
Balance, beginning of period		$	16		$	675
Provision charged to expense			—			31
Losses charged off			—			—
Recoveries			—			—
Balance, end of year		$	16		$	706

Allowance for credit losses for unfunded loan commitments
Balance, beginning of year		$	—		$	22
Provision charged to expense			—			(5)
Losses charged off			—			—
Recoveries			—			—
Balance, end of year		$	—		$	17


	****	For the Three Months Ended
		March 31, 2023
		Mortgage Loans on Real Estate
						Construction
		Residential				and Land
		1-4 Family		Commercial		Development		Commercial
Allowance for credit losses:
Balance, beginning of period		$	262	$	218	$	11	$	36
Provision charged to expense			(4)		6		(10)		(2)
CECL Adoption Adjustment			(19)		74		6		(5)
Losses charged off			—		—		—		—
Recoveries			—		—		—		—
Balance, end of year		$	239	$	298	$	7	$	29

Allowance for credit losses for unfunded loan commitments
Balance, beginning of year		$	—	$	—	$	—	$	—
Provision charged to expense			1		8		4		3
CECL Adoption Adjustment			—		—		—		—
Losses charged off			—		—		—		—
Recoveries			—		—		—		—
Balance, end of year		$	1	$	8	$	4	$	3

Table of Contents


	****	For the Three Months Ended
		March 31, 2023 (Continued)
	****	Consumer		****	Total
Allowance for credit losses:
Balance, beginning of period		$	16		$	543
Provision charged to expense			(1)			(11)
CECL Adoption Adjustment			(1)			55
Losses charged off			—			—
Recoveries			—			—
Balance, end of year		$	14		$	587

Allowance for credit losses for unfunded loan commitments
Balance, beginning of year		$	—		$	—
Provision charged to expense			—			16
CECL Adoption Adjustment			—			—
Losses charged off			—			—
Recoveries			—			—
Balance, end of year		$	—		$	16


The provision for credit losses is determined by the Company as the amount that is added to ACL accounts to bring the ACL to that, in management's judgement, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The following table presents the components of the provision for credit losses:

	Three months ended March 31,
	2024		2023
Provision for credit losses:
Loans	$	31	$	(11)
Unfunded loan commitments		(5)		16
Total	$	26	$	5

Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. All commercial and land development loans are graded at inception of the loan. Subsequently, analyses are performed on an annual basis and grade changes are made, as necessary. Interim grade reviews may take place if circumstances of the borrower warrant a timelier review. The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. The Company uses the following definitions for risk ratings:

Pass — Loans classified as pass are well protected by the ability of the borrower to pay or by the value of the asset or underlying collateral.

Special Mention — Loans classified as watch represent loans with the minimum level of acceptable credit risk and servicing requirements and the borrower has the capacity to perform according to the terms and repayment is expected. However, one or more elements of uncertainty exist. 19

Table of Contents Substandard — Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss — Loans classified as loss are the portion of the loan that is considered uncollectible so that its continuance as an asset is not warranted. The amount of the loss determined will be charged-off.

The Company evaluates the loan risk grading system definitions and allowance for credit loss methodology on an ongoing basis. No significant changes were made to either during the three months ended March 31, 2024 or during the year ended 20

Table of Contents December 31, 2023. The following tables represents loans, as of March 31, 2024 and December 31, 2023, by grading category and year in which the loans were originated:


		March 31, 2024
																				Revolving
																				Lines of
	****	2024		****	2023		****	2022		****	2021		****	2020		****	Prior		****	Credit		****	Total
Pass
Residential 1-4 Family		$	1,102		$	6,922		$	9,473		$	8,056		$	15,568		$	19,929		$	847		$	61,897
Commercial Real Estate			1,648			4,019			4,181			3,603			1,386			4,223			—			19,060
Construction and Land Development			—			1,931			—			—			48			134			—			2,113
Commercial			544			3,273			333			239			17			132			546			5,084
Consumer			423			1,223			623			516			221			34			—			3,040
Total Pass		$	3,717		$	17,368		$	14,610		$	12,414		$	17,240		$	24,452		$	1,393		$	91,194
Special Mention
Residential 1-4 Family		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Commercial Real Estate			—			—			—			—			—			—			—			—
Construction and Land Development			—			—			—			—			—			—			—			—
Commercial			—			—			—			—			—			—			—			—
Consumer			—			—			—			—			—			—			—			—
Total Special Mention		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Substandard
Residential 1-4 Family		$	—		$	—		$	—		$	—		$	—		$	562		$	10		$	572
Commercial Real Estate			—			—			—			—			—			156			—			156
Construction and Land Development			—			—			—			—			—			—			—			—
Commercial			—			—			—			—			—			—			11			11
Consumer			—			—			—			—			—			—			—			—
Total Substandard		$	—		$	—		$	—		$	—		$	—		$	718		$	21		$	739
Total		$	3,717		$	17,368		$	14,610		$	12,414		$	17,240		$	25,170		$	1,414		$	91,933


		December 31, 2023
																				Revolving
																				Lines of
	****	2023		****	2022		****	2021		****	2020		****	2019		****	Prior		****	Credit		****	Total
Pass
Residential 1-4 Family		$	6,760		$	9,720		$	8,273		$	15,866		$	5,981		$	14,832		$	839		$	62,271
Commercial Real Estate			3,166			4,229			3,666			1,419			1,546			2,384			—			16,410
Construction and Land Development			2,594			—			—			49			—			137			—			2,780
Commercial			3,470			360			246			47			13			134			730			5,000
Consumer			1,352			699			589			252			101			36			—			3,029
Total Pass		$	17,342		$	15,008		$	12,774		$	17,633		$	7,641		$	17,523		$	1,569		$	89,490
Special Mention
Residential 1-4 Family		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Commercial Real Estate			660			—			—			—			—			513			—			1,173
Construction and Land Development			—			—			—			—			—			—			—			—
Commercial			—			—			—			—			—			—			—			—
Consumer			—			—			—			—			—			—			—			—
Total Special Mention		$	660		$	—		$	—		$	—		$	—		$	513		$	—		$	1,173
Substandard
Residential 1-4 Family		$	—		$	—		$	—		$	—		$	40		$	531		$	—		$	571
Commercial Real Estate			—			—			—			—			—			156			—			156
Construction and Land Development			—			—			—			—			—			—			—			—
Commercial			—			—			—			—			—			—			—			—
Consumer			—			—			—			—			—			—			—			—
Total Substandard		$	—		$	—		$	—		$	—		$	40		$	687		$	—		$	727
Total		$	18,002		$	15,008		$	12,774		$	17,633		$	7,681		$	18,723		$	1,569		$	91,390

Table of Contents The following tables present the Company’s loan portfolio aging analysis as of March 31, 2024 and December 31, 2023:


	****			****			****	Greater		****	2024		****			****	Total		****
		30-59 Days			60-89 Days			Than			Total Past						Loans
		Past Due			Past Due			90 Days			Due			Current			Receivable
Mortgage loans on real estate:
Residential 1-4 family		$	119		$	—		$	175		$	294		$	62,175		$	62,469
Commercial			509			—			156			665			18,551			19,216
Construction and land development			—			—			—			—			2,113			2,113

Total real estate loans			628			—			331			959			82,839			83,798

Commercial			—			—			11			11			5,084			5,095
Consumer			—			—			—			—			3,040			3,040

Total		$	628		$	—		$	342		$	970		$	90,963		$	91,933


							2023				Total
	30-59 Days		60-89 Days		Greater Than		Total Past				Loans		****
	Past Due		Past Due		90 Days		Due		Current		Receivable
Mortgage loans on real estate:
Residential 1-4 family	$	959	$	170	$	142	$	1,271	$	61,571	$	62,842
Commercial		—		—		156		156		17,583		17,739
Construction and land development		—		—		—		—		2,780		2,780

Total real estate loans		959		170		298		1,427		81,934		83,361

Commercial		15		—		—		15		4,985		5,000
Consumer		—		—		—		—		3,029		3,029

Total	$	974	$	170	$	298	$	1,442	$	89,948	$	91,390

During the three months ended March 31, 2024, there was no accrued interest that was written off, related to loans placed in nonaccrual. During the twelve months ended December 31, 2023 accrued interest that was written off, related to loans placed in nonaccrual during the year, amounted to $17 all related to Commercial Real Estate loans.

Collateral-Dependent Loans

At March 31, 2024, the Company held loans that were individually evaluated for impairment due to financial difficulties experienced by the borrower and for which the repayment, on the basis of our assessment, is expected to be provided substantially through the sale or operations of the collateral. The ACL for these collateral dependent loans is primarily based on the fair value of the underlying collateral at the reporting date. The following describes the types of collateral that secure collateral dependent loans:

●	One-to-four family mortgages are primarily secured by first liens on residential real estate.
●	Commercial real estate loans are primarily secured by office and industrial buildings.
---	---
●	Commercial and industrial loans are primarily secured by accounts receivables, inventory, and equipment.
---	---
●	Home equity loans are primarily secured by titles on automobiles and recreational vehicles.
---	---

Table of Contents

The following table presents information regarding collateral dependent loans as of March 31, 2024 and December 31, 2023:


	March 31, 2024					December 31, 2023
	Loan		Specific			Loan			Specific
	Balance		Allowance		****	Balance		****	Allowance
Mortgage loans on real estate:
Residential 1-4 family		572		—		$	618		$	1
Commercial		156		—			1,301			—
Construction and land development		—		—			—			—

Total real estate loans		728		—			1,919			1

Commercial		11		11			—			—
Consumer		—		—			—			—

Total	$	739	$	11		$	1,919		$	1


											Total			Interest
		Nonaccrual			Nonaccrual						Nonaccrual			Income
		Loans with No			Loans with an			Total			Loans at			Recognized on
		Allowance for			Allowance for			Nonaccrual			Beginning of			Nonaccrual
	****	Credit Losses		****	Credit Losses		****	Loans		****	Year		****	Loans
March 31, 2024
Residential - First Mortgage			185			—			185			177			—
Commercial real estate			156			—			156			156			—
Construction and land development			—			—			—			—			—
Commercial and Industrial			—			11			11			—			—
Consumer			—			—			—			—			—

Total		$	341		$	11		$	352		$	333		$	—


											Total
		Nonaccrual			Nonaccrual						Nonaccrual			Income
		Loans with No			Loans with an			Total			Loans at			Recognized on
		Allowance for			Allowance for			Nonaccrual			Beginning of			Nonaccrual
	****	Credit Losses		****	Credit Losses		****	Loans		****	Year		****	Loans
December 31, 2023
Residential - First Mortgage			177			—			177			117			—
Commercial real estate			156			—			156			—			—
Construction and land development			—			—			—			—			—
Commercial and Industrial			—			—			—			—			—
Consumer			—			—			—			—			—

Total		$	333		$	—		$	333		$	117		$	—

There were no loans 90+ days past due still accruing interest as of March 31, 2024 and December 31, 2023. There were no new loans modified due to borrower experiencing financial difficulties during the three months ended March 31, 2024 or 2023.

Table of Contents Note 6: Premises and Equipment

Major classifications of premises and equipment, stated at cost, are as follows:


	March 31,			December 31,
	2024		****	2023
Land	$	732		$	732
Buildings and improvements		3,020			3,020
Equipment		1,101			1,033
		4,853			4,785
Less accumulated depreciation		(2,788)			(2,748)
Net premises and equipment	$	2,065		$	2,037

Note 7: Mortgage Servicing Rights

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage loans serviced for others was $23,420 and $23,987 at March 31, 2024 and December 31, 2023, respectively.

The following summarizes the activity in mortgage servicing rights measured using the fair value method for the period ended March 31, 2024 and December 31, 2023:


	March 31,			December 31,
	2024		****	2023
Fair value as of the beginning of year	$	300		$	315
Additions
Servicing obligations that result from asset transfers		—			—
Less loans refinanced		—			—
Changes in fair value due to changes in valuation inputs or assumptions		—			(15)
Fair value at the end of year	$	300		$	300

The estimated fair value of mortgage servicing rights is determined using a valuation model that calculates the present value of expected future servicing and ancillary income, net of expected servicing costs. The model incorporates various assumptions, such as discount rates and prepayment speeds based on market data from independent organizations. Information about the estimated fair value of mortgage servicing rights at March 31, 2024 and December 31, 2023 follows:


	March 31,			December 31,
	2024		****	2023
Range of discount rates	9.75-12.25	%		9.75-12.25	%
Range of prepayment speeds (1)	86-282			86-282
Weighted average default rate	1.24	%		1.24

Management did not utilize a valuation model to calculate the fair value of mortgage servicing rights at March 31, 2024 but utilized market information to determine fair value.

Note 8: Time Deposits

Time deposits in denominations of $250 or more were $13,169 on March 31, 2024 and $10,748 on December 31, 2023. 24

Table of Contents At March 31, 2024, the scheduled maturities of time deposits are as follows:


2024	$	39,852
2025		16,002
2026		5,437
2027		1,738
2028		458
Thereafter		21
	$	63,508

Note 9: Borrowings

As of March 31, 2024 and December 31, 2023 the Company had no borrowed funds.

The Company has a master contract agreement with the Federal Home Loan Bank that provides for borrowing up to the maximum range of 60-80% of the book value of the Bank’s qualifying loans based on the pledged loan class and range of 90-98% of qualifying investment securities pledged. The FHLB provides both fixed and floating rate advances. Floating rates are based on, but not directly tied to, short-term market rates of interest, such as Secured Overnight Financing Rate (SOFR), federal funds, or treasury bill rates. Advances with call provisions permit the FHLB to request payment beginning on the call date and quarterly thereafter. FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity.

At March 31, 2024, the Company’s available and unused portion of this borrowing agreement totaled approximately $45.6 million. At December 31, 2023, the Company’s available and unused portion of this borrowing agreement totaled approximately $45.4 million.

At March 31, 2024, the Company’s available and unused unsecured line of credit with Banker’s Bank of Wisconsin totaled $4.0 million. At December 31, 2023, the Company’s available and unused unsecured line of credit with Banker’s Bank of Wisconsin totaled $4.0 million.

Note 10: Income Taxes

Income tax (benefit) was $58 and $47 for the three months ended March 31, 2024 and 2023.

Deferred tax assets are deferred tax consequences attributable to deductible temporary differences and carryforwards. After the deferred tax asset has been measured using the applicable enacted tax rate and provisions of the enacted tax law, it is then necessary to assess the need for a valuation allowance. A valuation allowance is needed when, based on the weight of the available evidence, it is more likely than not that some portion of the deferred asset will not be realized. As required by generally accepted accounting principles, available evidence is weighted heavily on cumulative losses, with less weight placed on future projected profitability. The realization of deferred tax assets is dependent on the existence of taxable income of the appropriate character (e.g., ordinary or capital) within the carry-back and carry-forward periods available under the tax law, which would consider future reversals of existing taxable temporary differences and available tax planning strategies. As of March 31, 2024, and December 31, 2023 the Company has determined that no allowance is deemed necessary. The net deferred assets were $1,968 and $1,831 as of March 31, 2024 and December 31, 2023, respectively.

The Board of Directors and management continue to assess the deferred tax assets in light of recent changes in market conditions, forecasted future projected income and available tax planning strategies. As such, there may be deferred tax impairment in subsequent periods.

The Company files income tax returns in the U.S. federal jurisdiction and the State of Illinois. During the three months ended March 31, 2024 and 2023, the Company recognized no interest or penalties.

Table of Contents Note 11: Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), included in equity capital, are as follows:


	March 31,			December 31,
	2024		****	2023
Net unrealized gain (loss) on available-for-sale debt securities	$	(4,887)		$	(4,436)

Tax effect		1,391			1,262

Net-of-tax amount	$	(3,496)		$	(3,174)

Note 12: Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustment to regulatory capital not reflected in these consolidated financial statements.

Quantitative measures established by regulatory reporting standards ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined) to risk weighted assets (as defined), common equity Tier I capital (as defined) to total risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

Management believes, as of March 31, 2024 and December 31, 2023, that the Bank meets all capital adequacy requirements to which it is subject. As of March 31, 2024, the most recent notification from regulatory agencies categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum capital ratios as set forth in the able below. There are no conditions or events since that notification that management believes have changed the Bank’s category. 26

Table of Contents The Bank’s actual capital amounts and ratios are also presented in the table.


	****											Minimum to Be Well
												Capitalized Under
												Prompt
							Minimum Capital					Corrective Action
	****	Actual				****	Requirement				****	Provisions
	****	Amount		****	Ratio	****	Amount		****	Ratio	****	Amount		****	Ratio	****
As of March 31, 2024:

Leverage ratio (to average assets)		$	30,910		15.9	%	$	7,801		4.0	%	$	9,751		5.0	%
Common Equity Tier 1 (to risk weighted assets)		$	30,910		33.6	%	$	4,134		4.5	%	$	5,972		6.5	%
Tier 1 Capital ratio (to risk weighted assets)		$	30,910		33.6	%	$	5,512		6.0	%	$	7,350		8.0	%
Total Capital (to risk-weighted assets)		$	31,633		34.4	%	$	7,350		8.0	%	$	9,187		10.0	%

As of December 31, 2023:

Leverage ratio (to average assets)		$	30,629		15.7	%	$	7,800		4.0	%	$	9,750		5.0	%
Common Equity Tier 1 (to risk weighted assets)		$	30,629		33.4	%	$	4,131		4.5	%	$	5,967		6.5	%
Tier 1Capital ratio (to risk-weighted assets)		$	30,629		33.4	%	$	5,508		6.0	%	$	7,344		8.0	%
Total Capital (to risk-weighted assets)		$	31,326		34.1	%	$	7,344		8.0	%	$	9,180		10.0	%

The net unrealized gain or loss on available-for-sale securities, net of tax is not included in computing regulatory capital.

Note 13: Related Party Transactions

At March 31, 2024 and December 31, 2023, the Company had loans outstanding to executive officers, directors, significant shareholders, and their affiliates (related parties), in the amount of $1,071 and $1,053, respectively.

Deposits from related parties held by the Company at March 31, 2024 and December 31, 2023 totaled $1,024 and $992, respectively.

In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.

A summary of loans to directors, executive officers, and their affiliates as of March 31, 2024 and December 31, 2023 is as follows:


	****	March 31,			December 31,
		2024		****	2023
Beginning balance		$	1,053		$	1,195
New Loans			54			—
Repayments			(36)			(142)

Ending balance		$	1,071		$	1,053

The Company’s Board-approved law firm is Duncan & Brandt, P.C, which is solely owned by the Company’s Vice Chairman Jonathan Brandt. The Company pays an annual retainer to Duncan & Brandt of $15 and $13 for the three months ended March 31, 2024 and 2023, respectively. In addition to the annual retainer, the firm received various fees for legal services rendered in the normal course of business of $3 and $1 for the three months ended March 31, 2024 and 2023.

Table of Contents Note 14: Employee Benefits

The Company has a retirement savings 401(k) plan covering substantially all employees. Employees may contribute a percentage of their compensation, up to the maximum allowable by the IRS, with the Company matching 50 percent of the employee’s contribution on the first 5 percent of the employee’s compensation. Employer contributions charged to expense for the three months ended March 31, 2024 and 2023 were $20 and $22, respectively.

Also, the Company has deferred compensation agreements with directors. The agreements provide for the payment of benefits at termination or retirement. The charge to expense for the agreements was $6 and $8 for the three months ended March 31, 2024 and 2023, respectively. The liability accrued for these plans totaled $941 and $921 at March 31, 2024 and December 31, 2023, respectively.

Note 15: Disclosures About Fair Value of Assets

ASC Topic 820, Fair value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This accounting standard also emphasizes that fair value (i.e., the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. When considering the assumptions that market participants would use in pricing an asset or liability, this accounting standard establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels:

Level 1	In general, fair values determined by Level 1 inputs use quoted market prices for identical assets or liabilities that the entity can access at measurement date.
Level 2	Fair Values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in markets, quoted prices for identical or similar assets or liabilities in markets where there are few transactions and inputs other than quoted prices that observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3	Unobservable inputs for the asset or liability and included situations where there is little, if any, market activity for the asset or liability.

Level 1

In general, fair values determined by Level 1 inputs use quoted market prices for identical assets or liabilities that the entity can access at measurement date.

Level 2

Fair Values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in markets, quoted prices for identical or similar assets or liabilities in markets where there are few transactions and inputs other than quoted prices that observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3

Unobservable inputs for the asset or liability and included situations where there is little, if any, market activity for the asset or liability.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgement and considers factors specific to the asset or liability.

Some assets and liabilities, such as securities available for sale, are measured at fair value on a recurring basis under accounting principles generally accepted in the United States. Other assets and liabilities, such as individually analyzed loans, may be measured at fair value on a nonrecurring basis.

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the three months ended March 31, 2024 or year ended December 31, 2023. 28

Table of Contents Equity Securities

Equity securities with a readily determinable fair value are measured at fair value on a recurring basis. The fair value measurement of equity securities with a readily determinable fair value are based on the quoted price of the security and is considered a Level 1 fair value measurement. Equity securities without a readily determinable fair value are measured at fair value on a nonrecurring basis when transaction prices for identical or similar securities are identified. Fair value measurements on equity securities without a readily determinable fair value are generally considered a Level 2 fair value measurement.

Debt Securities

Securities available for sale may be classified as Level 1, Level 2, or Level 3 measurements within the fair value hierarchy. Level 1 securities included debt securities traded on a national exchange. The fair value measurement of a Level 1 security is based on the quoted price of the security. Level 2 securities include U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities, and mortgage related securities. The fair value measurement of a Level 2 security is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data. Level 3 securities include trust preferred securities that are not traded in a market. The fair value measurement of Level 3 securities are determined by the Company’s Chief Financial Officer (CFO) and reported to the Company’s board of directors. Fair values are calculated using discounted cash flow models that incorporate various assumptions, including expected cash flows and market credit spreads. When comparable sales are available, these are used to validate the models used. Other available industry data, such as information regarding defaults and deferrals, are incorporated into the expected cash flows.

Mortgage Servicing Rights

Management measures mortgage servicing rights through the completion of a proprietary model. Inputs to the model are developed by the accounting staff and are reviewed by management. The model is tested annually using baseline data to check its accuracy.

Mortgage servicing rights are measured at fair value on a recurring basis. Serviced loan pools are stratified by year of origination, and a fair value measurement is obtained for each stratum from an independent firm. The measurement is based on recent sales of mortgage servicing rights with similar characteristics. Since the fair value measurement is based on observable market data, it is considered a Level 2 measurement. 29

Table of Contents Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2024 and December 31, 2023.


			Fair Value Measurements Using
			Quoted Prices
			in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2024:
Available-for Sale debt securities:
U.S. Government and federal agencies	$	7,791	$	1,566	$	6,225	$	—
Mortgage-backed: GSE - residential		40,183		—		40,183		—
State and political Subdivision		20,765		—		20,765		—
Total Available-For-sale debt securities	$	68,739	$	1,566	$	67,173	$	—

Equity securities:
FHLMC stock	$	88	$	88	$	—	$	—
Mortgage servicing rights		300		—		300		—
Total	$	69,127	$	1,654	$	67,473	$	—

December 31, 2023:
Available-for Sale debt securities:
U.S. Government and federal agency	$	7,819	$	1,562	$	6,257	$	—
Mortgage-backed: GSE - residential		34,518		—		34,518		—
State and political subdivision		21,176		—		21,176		—
Total Available-for-sale debt securities	$	63,513	$	1,562	$	61,951	$	—

Equity securities:
FHLMC Stock	$	65	$	65	$	—	$	—
Mortgage servicing rights		300		—		300		—
Total	$	63,878	$	1,627	$	62,251	$	—

The Company estimates the fair value of all financial instruments regardless of whether such instruments are measured at fair value. The following methods and assumptions were used by the Company to estimate fair value of financials instruments not previously discussed.

Cash and cash equivalents — Fair value approximates the carrying value.

Loans — Fair value of variable rate loans that reprice frequently is based on carrying values. Fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. Fair value of individually analyzed and other non-performing loans is estimated using discounted expected cash flows or fair value of the underlying collateral, if applicable.

FHLB stock — Fair value is the redeemable (carrying) value based on the redemption provisions of the Federal Home Loan Bank.

Interest receivable and payable — Fair value approximates the carrying value.

Cash surrender value of bank-owned life insurance — Fair value is based on reported values of the assets. 30

Table of Contents Deposits— Fair value of deposits with no state maturity, such as demand deposits, savings, and money market accounts, by definition, is the amount payable on demand on the reporting date. Fair value of fixed rate time deposits is estimated using discounted cash flows applying interest rates currently being offered on similar time deposits.

The carrying value and estimated fair value of financial instruments follow:


March 31, 2024
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	18,163	$	18,163	$	—	$	—
Available-for-sale debt securities		68,739		1,566		67,173
Held-to-maturity debt securities		8,946				8,865
Equity securities		138		88		50
Loans		91,227						84,881
Interest receivable		676		676
Federal Home Loan Bank Stock		347						347
Cash surrender value of bank-owned life insurance		3,901						3,901
Financial liabilities:
Deposits		159,981						139,867
Interest payable		4		4


December 31, 2023
	****	Carrying Value		****	Level 1		****	Level 2		****	Level 3
Financial assets:	****		****	****		****	****		****			****
Cash and cash equivalents		$	20,202		$	20,202		$	—		$	—
Available-for-sale debt securities			63,513			1,562			61,951
Held-to-maturity debt securities			8,947						8,856
Equity securities			115			65			50
Loans			90,715									83,792
Interest receivable			689			689
Federal Home Loan Bank Stock			347									347
Cash surrender value of bank-owned life insurance			3,877									3,877
Financial liabilities:
Deposits			156,161									148,263
Interest payable			2			2

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2024 and December 31, 2023.


					Fair Value Measurements Using
					Quoted
					Prices
					in Active			Significant
					Markets for			Other			Significant
					Identical			Observable			Unobservable
					Assets			Inputs			Inputs
	****	Fair Value		****	(Level 1)		****	(Level 2)		****	(Level 3)
March 31, 2024:		****			****			****			****
Individually analyzed loans (collateral dependent)		$	—		$	—		$	—		$	—

December 31, 2023:		****	****		****	****		****	****		****	****
Individually analyzed loans (collateral dependent)		$	—		$	—		$	—		$	—

Table of Contents During the three months ended March 31, 2024, one loan for $11 was determined to have credit losses and fully reserved in the allowance for credit losses. During the three months March 31, 2023, there were no loans were determined to have credit losses where a specific valuation allowance was needed.

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Individually Analyzed (Collateral Dependent)

The estimated fair value of collateral-dependent individually analyzed loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent individually analyzed loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the management by comparison to historical results.

Note 16: Commitments, Credit Risk and Contingencies

The Company grants commercial, residential and consumer loans to customers located primarily in LaSalle County, Illinois. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent upon economic conditions in this county.

Lines of Credit

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate, and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.

At March 31, 2024, the Company had granted unused lines of credit to borrowers aggregating approximately $2,254 and $1,292 for commercial lines and open-end consumer lines, respectively. At December 31, 2023, the Company had granted unused lines of credit to borrowers aggregating approximately $1,456 and $959 for commercial lines and open-end consumer lines, respectively.

Note 17: Government Assistance

On October 31, 2012, the Company entered into a settlement agreement on the foreclosure of the Country Aire Subdivision in LaSalle, IL whereby the Company assumed the rights and responsibility as the developer of this subdivision. This subdivision was granted a Tax Incremental Financing (TIF) district by the City of LaSalle in 2004. The previous developer did not complete the terms of the TIF agreement, thus the Company entered into an agreement with the City of LaSalle to meet the requirements of the TIF agreement and then receive the incentives upon completion of all terms of the agreement. The City of LaSalle accepted the subdivision on October 25, 2016. Because the incentives are based on the incremental taxes generated from the sale of the lots and the building of homes the Bank continued to market and sell lots with the final contract in 2019. At December 31, 2019, the Company had met all the requirements and had all lots sold therefore a TIF 32

Table of Contents receivable was recorded for the estimated value of funds to be received from the City of Lasalle over the remaining term of the TIF district. Each year end the Company evaluates the TIF receivable based on the 3^rd^ party TIF administrator’s estimated value of homes, their incremental taxes and the developer’s share of the incremental taxes. The receivable for these funds are included in Other Assets on the Consolidated Balance Sheets and changes to the valuation are adjusted through Other Non-interest Income on the Consolidated Statements of Income.

Note 18: ESOP

In connection with the Conversion, the Company established an Employee Stock Ownership Plan (“ESOP”) for the exclusive benefit of eligible employees. The Company will make annual contributions to the ESOP in amounts as defined by the plan document. These contributions are used to pay debt service. Certain ESOP shares are pledged as collateral for debt. As the debt is repaid, shares are released from collateral and allocated to active participants, based on the proportion of debt service paid in the year. Shares allocated to participants are vested by 20% after one year of service (from the formation of PFS Bancorp, Inc.) 40% after 2 years, 60% after 3 years, 80% after 4 year and are fully vested after 5 years. If an employee retires, once meeting retirement age criteria, the shares are 100% vested.

In connection with the Company’s initial public stock offering, the ESOP borrowed $1.38 million from the Company for the purpose of purchasing shares of the Company’s common stock. A total of 138,000 shares were purchased with the loan proceeds. Accordingly, common stock acquired by the ESOP is shown as a reduction of shareholder’s equity. The loan is expected to be repaid over a period of up to 25 years.

The annual contribution to the ESOP was made during the year ended December 31, 2023, as loan payments are made annually on December 31^st^ of each year. Compensation expense is recognized over the service period base on the average fair value of the shares and totaled $13 for the three months ended March 31, 2024 and $49 for the year ended December 31, 2023.

At December 31, 2023, there were no shares allocated to participants. There were 6,900 shares committed to be released to participants and 131,100 unallocated shares as of March 31, 2024. The fair value of unallocated ESOP shares totaled $1.2 million and $1.2 million at March 31, 2024 and December 31, 2023, respectively.

Note 19: Earnings Per Share (EPS)

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding, adjusted for weighted average unallocated ESOP shares, during the applicable period. Diluted earnings per share is computed using the weighted average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

Earnings per common share for the three months ended March 31, 2024 and 2023 is presented in the following table:


	Three Months ended March 31,
	2024		2023
	(dollars in thousands, except per share amounts)
Net (loss) income	$	276	$	—
Weighted shares outstanding for basic EPS
Weighted average shares outstanding		1,725,000		—
Less: Weighted average unallocated ESOP shares		(131,100)		—
Less: Weighted average Treasury shares in Rabbi Trust for Deferred Compensation Plan		(40,000)
Weighted average shares outstanding for basic EPS		1,553,900		—
Additional dilutive shares		—		—
Weighted average shares outstanding for dilutive EPS		1,553,900		—
Basic (loss) income per share	$	0.18	$	—
Diluted (loss) income per share	$	0.18	$	—

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Item 2.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, 2023, 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:

●	statements of our goals, intentions and expectations;
●	statements regarding our business plans, prospects, growth and operating strategies;
---	---
●	statements regarding the quality of our loan portfolio; and
---	---
●	estimates of our risks and future costs and benefits.
---	---

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:

●	general economic conditions, either nationally or in our market area, which are worse than expected;
●	changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan and lease losses;
---	---
●	our ability to access cost-effective funding;
---	---
●	fluctuations in real estate values and in the conditions of the residential real estate, commercial real estate, and agricultural real estate markets;
---	---
●	demand for loans and deposits in our market area;
---	---
●	our ability to implement and change our business strategies;
---	---
●	competition among depository and other financial institutions;
---	---
●	inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of our financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments within our loan portfolio;
---	---

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●	adverse changes in the securities markets;
●	changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;
---	---
●	changes in the quality or composition of our loan or investment portfolios;
---	---
●	technological changes that may be more difficult or expensive than expected;
---	---
●	the inability of third-party providers to perform as expected;
---	---
●	a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
---	---
●	our ability to manage market risk, credit risk and operational risk;
---	---
●	our ability to enter new markets successfully and capitalize on growth opportunities;
---	---
●	changes in consumer spending, borrowing and savings habits;
---	---
●	changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
---	---
●	our ability to retain key employees; and
---	---
●	changes in the financial condition, results of operations or future prospects of issuers of securities that we own.
---	---

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 10-K for the year ended December 31, 2023. 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 March 31, 2024 and December 31, 2023

Total Assets. Total assets increased $3.8 million, or 1.9%, from $193.5 million at December 31, 2023 to $197.2 million at March 31, 2024. The increase was primarily comprised of an increase in debt securities of $5.2 million, an increase of $512,000 in net loans partially offset by a $2.0 million decrease in cash and cash equivalents.

Cash and Due from Banks. Cash and due from banks decreased by $2.0 million, or 9.9%, to $18.2 million at March 31, 2024 compared to $20.2 million at December 31, 2023. This decrease was primarily due to funding loans and debt security purchases.

Available-for-Sale Investment Securities. Available-for-sale investment securities increased by $5.2 million, or 8.2%, to $68.7 million at March 31, 2024 from $63.5 million at December 31, 2023. The increase was a result of purchases of available-for-sale securities of $7.5 million during the three months ended March 31, 2024 which was partially offset by principal payments on mortgage-backed securities and collateralized mortgage obligation securities and maturities. The

Table of Contents market value adjustment on available-for-sale investment securities decreased by $451,000 during the three months ended March 31, 2024 due to rising market interest rates.

Held-to-Maturity Investment Securities. Held-to-maturity investment securities were $8.9 million at March 31, 2024 and December 31, 2023. There were no purchases of held-to-maturity securities during the three months ended March 31, 2024.

Loans, Net. Loans, net, increased $512,000, or 0.6%, to $91.2 million at March 31, 2024 compared to $90.7 million at December 31, 2023. One- to four-family residential mortgage loans decreased $373,000, or 0.6%, from $62.8 million at December 31, 2023 to $62.5 million at March 31, 2024. Commercial real estate loans increased $1.5 million, or 8.5%, from $17.7 million at December 31, 2023 to $19.2 million at March 31, 2024. Construction and land development loans decreased by $667,000, or 24.0%, from $2.8 million at December 31, 2023 to $2.1 million at March 31, 2024. Commercial loans increased $95,000, or 1.9%, from $5.0 million at December 31, 2023 to $5.1 million at March 31, 2024. Consumer loans increased $11,000, or 0.4%, from $3.0 million at December 31, 2023 to $3.1 million at March 31, 2024.

During the three months ended March 31, 2024, the Company originated $4.3 million in loans represented by $1.3 million in one- to four-family residential mortgage loans, $2.1 million in commercial real estate loans, $468,000 in commercial loans and $425,000 in consumer loans.

Deposits. Deposits increased $3.8 million, or 2.4%, from $156.2 million at December 31, 2023 to $160.0 million at March 31, 2024. Non-maturity deposits decreased $13,000 and Time deposits increased by $3.8 million as a result of increased market interest rates. 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 $35.4 million at March 31, 2024, a decrease of $46,000 or 0.1%, from $35.5 million at December 31, 2023. The decrease is due to the negative change in accumulated other comprehensive income of $322,000 partially offset by net income from operations of $276,000.

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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.


		For the Three Months Ended March 31,
		2024							2023
		Average							Average
		Outstanding					Average		Outstanding					Average
		Balance			Interest		Yield/Rate		Balance			Interest		Yield/Rate
		(Dollars in thousands)
Interest-earning assets:
Cash and cash equivalents		$	18,346		$	216	4.72	%	$	15,335		$	148	3.85	%
Available-for-sale debt securities			66,538			483	2.90	%		62,365			376	2.41
Held-to-maturity debt securities			9,005			104	4.62	%		3,517			27	3.10
Equity securities			115			2	2.18	%		88			3	3.40
Loans, net			90,760			1,073	4.73	%		84,312			860	4.08
Federal Home Loan Bank stock			347			5	5.54	%		347			3	3.53
Total interest-earning assets			185,111			1,883	4.07	%		165,964			1,417	3.41
Noninterest-earning assets			9,496							9,548
Total assets		$	194,607						$	175,512

Interest-bearing liabilities:
Regular savings deposits		$	31,545			12	0.15	%	$	35,528			17	0.19	%
NOW savings deposits			18,448			12	0.26	%		22,424			10	0.17
Money market deposits			26,924			102	1.51	%		27,322			71	1.04
Time deposits			61,356			523	3.41	%		51,853			219	1.69
Total interest-bearing deposits			138,273			649	1.88	%		137,127			317	0.93
Federal Home Loan Bank advances			—			—	—	%		—			—	—
Other interest-bearing liabilities			—			—	—	%		—			—	—
Total interest-bearing liabilities			138,273			649	1.88	%		137,127			317	0.93
Noninterest-bearing demand deposits			26,121							16,936
Other noninterest-bearing liabilities			2,781							1,191
Total liabilities			167,175							155,254
Total equity capital			27,432							20,258
Total liabilities and equity capital		$	194,607						$	175,512
Net interest income					$	1,234						$	1,100
Net interest rate spread ^(1)^							2.19	%						2.48	%
Net interest-earning assets ^(2)^		$	46,838						$	28,837
Net interest margin ^(3)^							2.67	%						2.65	%
Average interest-earning assets to interest-bearing liabilities			133.87	%						121.03	%
(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.
---	---

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	Year Ended December 31, 2024 vs. 2023
	Increase (Decrease) Due to:				Total Increase
	Volume		Rate		(Decrease)
	(In thousands)
Interest-earning assets:
Cash and cash equivalents	$	29	$	39	$	68
Available-for-sale debt securities		25		82		107
Held-to-maturity debt securities		43		34		77
Equity securities		—		(1)		(1)
Loans, net		66		147		213
Federal Home Loan Bank stock		—		2		2
Total interest-earning assets		163		303		466

Interest-bearing liabilities:
Regular savings deposits		(2)		(3)		(5)
NOW savings deposits		(2)		4		2
Money market deposits		(1)		32		31
Time deposits		40		264		304
Total deposits		35		297		332
Federal Home Loan Bank advances		—		—		—
Other interest-bearing liabilities		—		—		—
Total interest-bearing liabilities		35		297		332

Change in net interest income	$	128	$	6	$	134

Comparison of Operating Results for the Three Months Ended March 31, 2024 and 2023

General. Net income for the three months ended March 31, 2024 was $276,000, an increase of $63,000, or 29.6%, compared to $213,000 for the three months ended March 31, 2023.

Interest Income. Interest income for the three months ended March 31, 2024 increased by $466,000, or 33.3%, from $1.4 million for the three months ended March 31, 2023 to $1.9 million for the three months ended March 31, 2024. This increase is a result of a 24.8% increase in loan interest and fees, a 45.7% increase in interest from investments, and an 45.9% increase in interest on cash and cash equivalents.

The average balance of loans during the three months ended March 31, 2024, increased by $6.4 million or 7.7%, from the average balance for the three months ended March 31, 2023, while the average yield on loans increased to 4.73% for the three months ended March 31, 2024, from 4.08% for the three months ended March 31, 2023. The increase in average yield on loans was due to the rising interest rate environment.

The average balance of available-for-sale debt securities increased by $4.1 million, or 6.6%, to $66.5 million for the three months ended March 31, 2024, from $62.4 million for the three months ended March 31, 2023, while the average yield on available-for-sale debt securities increased to 2.90% for the three months ended March 31, 2024 from 2.41% for the three months ended March 31, 2023. This increase in yield resulted from the rising interest rate environment.

The average balance of held-to-maturity debt securities increased by $5.5 million, or 157.1%, to $9.0 million for the three months ended March 31, 2024, from $3.5 million for the three months ended March 31, 2023, while the average yield on held-to-maturity debt securities increased to 4.62% for the three months ended March 31, 2024, from 3.10% for the three months ended March 31, 2023. This increase in yield resulted from the rising interest rate environment.

Interest Expense. Interest expense for the three months ended March 31, 2024 increased by $332,000, or 104.7%, to $649,000 for the three months ended March 31, 2024 from $317,000 for the three months ended March 31, 2023. This increase is a result of the rising rate environment and consumer shift from transactional accounts to higher cost time deposits.

Table of Contents The average balance of regular savings deposits decreased by $4.0 million, or 11.3%, to $31.5 million for the three months ended March 31, 2024, from $35.5 million for the three months ended March 31, 2023, while the average rate on regular savings deposits decreased from 0.19% for the three months ended March 31, 2023 to 0.15% for the three months ended March 31, 2024.

The average balance of NOW savings deposits decreased by $4.0 million, or 17.9%, to $18.4 million for the three months ended March 31, 2024, from $22.4 million for the three months ended March 31, 2023, while the average rate on NOW savings deposits increased to 0.26% for the three months ended March 31, 2024, from 0.17% for the three months ended March 31, 2023. This increase in rate resulted from the rising interest rate environment.

The average balance of money market deposits decreased by $398,000, or 1.5%, to $26.9 million for the three months ended March 31, 2024, from $27.3 million for the three months ended March 31, 2023, while the average rate on money market deposits increased to 1.51% for the three months ended March 31, 2024, from 1.04% for the three months ended March 31, 2023. This increase in rate resulted from the rising interest rate environment.

The average balance of time deposits increased by $9.5 million, or 18.3%, to $61.4 million for the three months ended March 31, 2024, from $51.9 million for the three months ended March 31, 2023, while the average rate on time deposits increased to 3.41% for the three months ended March 31, 2024, from 1.69% for the three months ended March 31, 2023. This increase in rate resulted from the rising interest rate environment.

Net Interest Income. Net interest income for the three months ended March 31, 2024 was $1.2 million, an increase of $134,000, or 12.2%, from the $1.1 million for the three months ended March 31, 2023. The increase was due to an increase in average net interest earning assets of $18.0 million, or 62.5%, to $46.8 million for the three months ended March 31, 2024, from $28.8 million for the three months ended March 31, 2023 while the net interest rate spread decreased to 2.19% for the three months ended March 31, 2024, from 2.48% for the three months ended March 31, 2023.

Provision for Credit Losses. The provision for credit losses for the three months ended March 31, 2024, was $26,000 compared to $5,000 for the three months ended March 31, 2023. The allowance for credit losses was $706,000, or 0.77% of total loans, at March 31, 2024.

Noninterest Income. Noninterest income increased $37,000, or 24.8%, to $186,000 for the three months ended March 31, 2024, compared to $149,000 for the three months ended March 31, 2023. Customer service fee income increased $13,000, commission income increased by $8,000 while other noninterest income increased by $18,000.

Noninterest Expense. Noninterest expense increased $76,000, or 7.7%, to $1.1 million for the three months ended March 31, 2024, from $984,000 for the three months ended March 31, 2023. During the three months ended March 31, 2024, salaries and benefits increased $68,000, data processing expense increased $8,000 and professional fees increased $15,000 while Printing and office supplies decreased by $9,000 as well as a decrease of $18,000 in other noninterest expense.

Provision for Income Taxes. The provision for income taxes increased $11,000, or 23.4%, to $58,000 for the three months ended March 31, 2024, compared to $47,000 for the three months ended March 31, 2023. The increase was a primarily due to a $74,000, or 28.5%, increase in pretax income as well as adjustments to deferred taxes related to unrealized losses on available-for-sale securities.

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 March 31, 2024, we had no borrowings from the Federal Home Loan Bank of Chicago but had the capacity to borrow $45.6 million. At March 31, 2024, we had no borrowings from the correspondent bank but had the capacity to borrow $4.0 million. 39

Table of Contents 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 three months ended March 31, 2024, cash flows from operations, investing, and financial activities resulted in a net decrease in cash and cash equivalents of $2.0 million. Net cash provided from operating activities amounted to $483,000, primarily due to net income of $276,000, $62,000 from net amortization of premiums and discount from available-for-sale debt securities and $139,000 from the increase in other assets and income tax receivable, partially offset by an increase in fair value of equity securities of $23,000 and earnings of $24,000 on cash surrender value of life insurance. Net cash provided by financing activities amounted to $3.8 million, primarily due a net increase in certificates of deposit of $3.8 million. Net cash used in investing activities amounted to $6.3 million, primarily due to purchases of available-for-sale investments of $7.5 million, an increase in loans of $536,000, partially offset with proceeds from maturities of available-for-sale investment securities of $1.7 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 March 31, 2024, the Company (on an unconsolidated basis) had liquid assets of $7.2 million.

At March 31, 2024, 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 13 to the notes to consolidated financial statements appearing elsewhere in this report.

Off-Balance Sheet Arrangements

At March 31, 2024, we had $4.1 million of outstanding commitments to originate loans, $220,000 of which represents the balance of remaining funds to be disbursed on construction loans in process, $2.3 million in unused commercial line of credit commitments, $1.2 million of unfunded home equity loans, $50,000 of unfunded consumer line of credit and $340,000 of commitments to fund new closed-end residential real estate loans. At March 31, 2024, certificates of deposit that are scheduled to mature on or before March 31, 2025 totaled $51.8 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:

●	maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations;

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●	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, 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 March 31, 2024 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.


At March 31, 2024
				Estimated Increase (Decrease) in			EVE as a Percentage of Present
				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)
300			33,725		(13,134)	(28.03)	19.96	(458.00)
200			38,331		(8,528)	(18.20)	21.75	(279.00)
100			42,723		(4,136)	(8.83)	23.30	(124.00)
Level			46,859		—	—	24.54	—
(100)			47,609		750	1.60	24.32	(22.00)
(200)			49,361		2,502	5.34	24.42	(12.00)
(300)			49,076		2,217	4.73	23.71	(83.00)
(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.
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Table of Contents Change in Net Interest Income. The following table sets forth, at March 31, 2024, 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.


At March 31, 2024
Change in Interest Rates		Net Interest Income Year 1		Year 1 Change from
(basis points) ^(1)^		Forecast		Level
		(Dollars in thousands)
300		$	5,462	(2.12)	%
200			5,498	(1.47)	%
100			5,536	(0.78)	%
Level			5,580	—	%
(100)			5,542	(0.68)	%
(200)			5,608	0.50	%
(300)			5,528	(0.92)	%
(1)	Assumes an immediate uniform change in interest rates at all maturities.
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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 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information in Item 2 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management of Market Risk” is incorporated in this Item 3 by reference.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2024. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended March 31, 2024, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents Part II – Other Information

Item 1. Legal Proceedings

The Company is not subject to any pending legal proceedings. The Bank is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.

Item 1A. Risk Factors

Not applicable, as the Company is a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended March 31, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as such term is defined in Item 408 of SEC regulations S-K).

Table of Contents Item 6. Exhibits

3.1		Articles of Incorporation of PFS Bancorp, Inc. ^(1)^

3.2		Bylaws of PFS Bancorp, Inc.^(2)^

31		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials for the quarter ended March 31, 2024, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Equity Capital, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements

104		Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)
(1)	Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S 1, as amended (Commission File No. 333 270452), initially filed on March 10, 2023.
---	---
(2)	Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S 1, as amended (Commission File No. 333 270452), initially filed on March 10, 2023.
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Table of Contents

SIGNATURES

Pursuant to the requirements 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.

a	r
	****	PFS BANCORP, INC.


<br><br><br><br><br><br><br><br>Date: May 10, 2024
		Eric J. Heagy
		President, Chief Executive Officer
		and Chief Financial Officer

Exhibit 31

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Eric J. Heagy, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of PFS Bancorp, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---

c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent function:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


<br><br><br><br>Date: May 10, 2024
		Eric J. Heagy
		President, Chief Executive Officer
		and Chief Financial Officer

Exhibit 32

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Eric J. Heagy, President, Chief Executive Officer and Chief Financial Officer of PFS Bancorp, Inc. (the “Company”), certify in his capacity as an officer of the Company that he has reviewed the Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 (the “Report”) and that to the best of his knowledge:

1.	the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


<br><br><br><br>Date: May 10, 2024
		Eric J. Heagy
		President, Chief Executive Officer and
		Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.