10-Q 1 d120690d10q.htm 10-Q 10-Q
Table of Contents

 

 

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 December 31, 2020

OR

 

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. 001-35226

 

 

IF Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   45-1834449

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

201 East Cherry Street, Watseka, Illinois   60970
(Address of Principal Executive Offices)   Zip Code

(815) 432-2476

(Registrant’s telephone number)

 

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, $0.01 par value   IROQ   The Nasdaq Stock Market LLC

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    YES  ☒    NO  ☐

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

 

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

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

The Registrant had 3,240,376 shares of common stock, par value $0.01 per share, issued and outstanding as of February 4, 2021.

 

 

 


Table of Contents

IF Bancorp, Inc.

Form 10-Q

Index

 

         Page  
Part I. Financial Information

 

Item 1.

  Condensed Consolidated Financial Statements      1  
  Condensed Consolidated Balance Sheets as of December 31, 2020 (unaudited) and June 30, 2020      1  
  Condensed Consolidated Statements of Income for the Three Months and Six Months Ended December 31, 2020 and 2019 (unaudited)      2  
  Condensed Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended December 31, 2020 and 2019 (unaudited)      3  
  Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2020 and 2019 (unaudited)      4  
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2020 and 2019 (unaudited)      6  
  Notes to Condensed Consolidated Financial Statements (unaudited)      7  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      37  

Item 3.

  Quantitative and Qualitative Disclosures about Market Risk      54  

Item 4.

  Controls and Procedures      54  
Part II. Other Information

 

Item 1.

  Legal Proceedings      55  

Item 1A.

  Risk Factors      55  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      55  

Item 3.

  Defaults upon Senior Securities      55  

Item 4.

  Mine Safety Disclosures      55  

Item 5.

  Other Information      55  

Item 6.

  Exhibits      55  
  Signature Page      56  

 


Table of Contents

Part I. – Financial Information

 

Item 1.

Financial Statements

IF Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amount)

 

     December 31,     June 30,  
     2020     2020  
     (Unaudited)        

Assets

    

Cash and due from banks

   $ 6,789     $ 31,529  

Interest-bearing demand deposits

     876       1,938  
  

 

 

   

 

 

 

Cash and cash equivalents

     7,665       33,467  
  

 

 

   

 

 

 

Interest-bearing time deposits in banks

     3,000       3,000  

Available-for-sale securities

     167,551       162,394  

Loans, net of allowance for loan losses of $6,449 and $6,234 at December 31, 2020 and June 30, 2020, respectively

     506,786       509,817  

Premises and equipment, net of accumulated depreciation of $8,354 and $8,016 at December 31, 2020 and June 30, 2020, respectively

     10,046       10,193  

Federal Home Loan Bank stock, at cost

     4,198       3,028  

Foreclosed assets held for sale

     377       386  

Accrued interest receivable

     2,188       1,908  

Bank-owned life insurance

     9,484       9,345  

Mortgage servicing rights

     756       715  

Deferred income taxes

     678       630  

Other

     670       634  
  

 

 

   

 

 

 

Total assets

   $ 713,399     $ 735,517  
  

 

 

   

 

 

 

Liabilities and Equity

    

Liabilities

    

Deposits

    

Demand

   $ 35,555     $ 87,486  

Savings, NOW and money market

     274,769       232,723  

Certificates of deposit

     264,702       269,152  

Brokered certificates of deposit

     12,339       12,339  
  

 

 

   

 

 

 

Total deposits

     587,365       601,700  
  

 

 

   

 

 

 

Repurchase agreements

     4,571       3,738  

Federal Home Loan Bank advances

     24,000       34,500  

Line of credit and other borrowings

     3,000       3,000  

Advances from borrowers for taxes and insurance

     1,468       519  

Accrued post-retirement benefit obligation

     3,334       3,306  

Accrued interest payable

     334       537  

Other

     4,409       5,653  
  

 

 

   

 

 

 

Total liabilities

     628,481       652,953  
  

 

 

   

 

 

 

Commitments and Contingencies

    

Stockholders’ Equity

    

Common stock, $.01 par value per share, 100,000,000 shares authorized, 3,240,376 shares issued and outstanding at both December 31, 2020 and June 30, 2020

     32       32  

Additional paid-in capital

     49,427       49,239  

Unearned ESOP shares, at cost, 202,073 and 211,695 shares at December 31, 2020 and June 30, 2020, respectively

     (2,021     (2,117

Retained earnings

     33,547       31,207  

Accumulated other comprehensive income, net of tax

     3,933       4,203  
  

 

 

   

 

 

 

Total stockholders’ equity

     84,918       82,564  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 713,399     $ 735,517  
  

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

1


Table of Contents

IF Bancorp, Inc.

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in thousands except per share amounts)

 

     Three Months Ended December 31,     Six Months Ended December 31,  
     2020     2019     2020     2019  

Interest and Dividend Income

        

Interest and fees on loans

   $ 5,366     $ 5,794     $ 10,719     $ 11,691  

Securities:

        

Taxable

     803       911       1,643       1,830  

Tax-exempt

     9       23       20       53  

Federal Home Loan Bank dividends

     38       13       72       36  

Deposits with other financial institutions

     22       48       49       187  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and dividend income

     6,238       6,789       12,503       13,797  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest Expense

        

Deposits

     1,073       2,219       2,308       4,502  

Borrowings and repurchase agreements

     115       229       257       368  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     1,188       2,448       2,565       4,870  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Interest Income

     5,050       4,341       9,938       8,927  

Provision (Credit) for Loan Losses

     (49     (30     266       (84
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Interest Income After Provision for Loan Losses

     5,099       4,371       9,672       9,011  
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest Income

        

Customer service fees

     74       95       141       197  

Other service charges and fees

     103       87       218       152  

Insurance commissions

     169       192       329       354  

Brokerage commissions

     231       234       456       469  

Gain (loss) on sales of available-for-sale securities

     —         (8     204       (7

Mortgage banking income, net

     103       116       193       161  

Gain on sale of loans

     484       144       1,047       284  

Bank-owned life insurance income, net

     69       69       139       139  

Other

     230       294       487       542  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     1,463       1,223       3,214       2,291  
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest Expense

        

Compensation and benefits

     2,978       2,706       5,855       5,371  

Office occupancy

     217       242       446       497  

Equipment

     422       387       845       773  

Federal deposit insurance

     46       —         90       28  

Stationary, printing and office

     20       26       53       56  

Advertising

     136       97       220       218  

Professional services

     152       155       252       271  

Supervisory examinations

     38       41       73       85  

Audit and accounting services

     18       18       91       87  

Organizational dues and subscriptions

     20       19       42       38  

Insurance bond premiums

     38       37       87       78  

Telephone and postage

     44       48       94       98  

Loss (gain) on foreclosed assets, net

     (19     —         (10     2  

Other

     418       482       871       849  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     4,528       4,258       9,009       8,451  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Before Income Tax

     2,034       1,336       3,877       2,851  

Provision for Income Tax

     571       372       1,083       787  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 1,463     $ 964     $ 2,794     $ 2,064  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings Per Share:

        

Basic

   $ 0.48     $ 0.32     $ 0.92     $ 0.65  

Diluted

   $ 0.48     $ 0.31     $ 0.91     $ 0.64  

Dividends declared per common share

   $ —       $ —       $ 0.15     $ 0.15  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2


Table of Contents

IF Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

 

     Three Months Ended December 31,  
     2020     2019  

Net Income

   $ 1,463     $ 964  

Other Comprehensive Income

    

Unrealized depreciation on available-for-sale securities, net of taxes of $(111) and $(197), for 2020 and 2019, respectively

     (278     (498

Less: reclassification adjustment for realized losses included in net income, net of taxes of $0 and $(2), for 2020 and 2019, respectively

     —         (6
  

 

 

   

 

 

 
     (278     (492

Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $2 and $2 for 2020 and 2019, respectively

     6       4  
  

 

 

   

 

 

 

Other comprehensive loss, net of tax

     (272     (488
  

 

 

   

 

 

 

Comprehensive Income

   $ 1,191     $ 476  
  

 

 

   

 

 

 

 

        Six Months Ended December 31,     
     2020     2019  

Net Income

   $ 2,794     $ 2,064  

Other Comprehensive Income

    

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of $(53) and $148, for 2020 and 2019, respectively

     (131     370  

Less: reclassification adjustment for realized gains (losses) included in net income, net of taxes of $58 and $(2), for 2020 and 2019, respectively

     146       (5
  

 

 

   

 

 

 
     (277     375  

Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $3 and $3 for 2020 and 2019, respectively

     7       7  
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (270     382  
  

 

 

   

 

 

 

Comprehensive Income

   $ 2,524     $ 2,446  
  

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3


Table of Contents

IF Bancorp, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share amounts)

 

     Common
Stock
     Additional
Paid-In
Capital
     Unearned
ESOP Shares
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Total  

For the three months ended December 31, 2020

              

Balance, October 1, 2020

   $ 32      $ 49,326      $ (2,069   $ 32,053     $ 4,205     $ 83,547  

Net income

     —          —          —         1,463       —         1,463  

Other comprehensive loss

     —          —          —         —         (272     (272

Dividends paid on unearned ESOP

     —          —          —         31       —         31  

Stock equity plan

     —          54        —         —         —         54  

ESOP shares earned, 4,811 shares

     —          47        48       —         —         95  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2020

   $ 32      $ 49,427      $ (2,021   $ 33,547     $ 3,933     $ 84,918  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

For the three months ended December 31, 2019

              

Balance, October 1, 2019

   $ 32      $ 48,925      $ (2,261   $ 29,156     $ 1,435     $ 77,287  

Net income

     —          —          —         964       —         964  

Other comprehensive loss

     —          —          —         —         (488     (488

Dividends paid on unearned ESOP

     —          —          —         34       —         34  

Stock equity plan

     —          56        —         —         —         56  

Stock repurchase, 10,900 shares, average price $21.40 each

     —          —          —         (233     —         (233

ESOP shares earned, 4,811 shares

     —          60        48       —         —         108  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2019

   $ 32      $ 49,041      $ (2,213   $ 29,921     $ 947     $ 77,728  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4


Table of Contents

IF Bancorp, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share amounts)

 

     Common
Stock
    Additional
Paid-In
Capital
     Unearned
ESOP Shares
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Total  

For the six months ended December 31, 2020

             

Balance, July 1, 2020

   $ 32     $ 49,239      $ (2,117   $ 31,207     $ 4,203     $ 82,564  

Net income

     —         —          —         2,794       —         2,794  

Other comprehensive loss

     —         —          —         —         (270     (270

Dividends on common stock, $0.15 per share

     —         —          —         (454     —         (454

Stock equity plan

     —         113        —         —         —         113  

ESOP shares earned, 9,622 shares

     —         75        96       —         —         171  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2020

   $ 32     $ 49,427      $ (2,021   $ 33,547     $ 3,933     $ 84,918  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

For the six months ended December 31, 2019

             

Balance, July 1, 2019

   $ 36     $ 48,813      $ (2,309   $ 35,356     $ 565     $ 82,461  

Net income

     —         —          —         2,064       —         2,064  

Other comprehensive income

     —         —          —         —         382       382  

Dividends on common stock, $0.15 per share

     —         —          —         (487     —         (487

Stock equity plan

     —         111        —         —         —         111  

Stock repurchase, 315,081 shares, average price $22.27 each

     (4     —          —         (7,012     —         (7,016

ESOP shares earned, 9,622 shares

     —         117        96       —         —         213  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2019

   $ 32     $ 49,041      $ (2,213   $ 29,921     $ 947     $ 77,728  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5


Table of Contents

IF Bancorp, Inc.

Condensed Consolidated Statement of Cash Flows (Unaudited)

(Dollars in thousands)

 

     Six Months Ended December 31,  
     2020     2019  

Operating Activities

    

Net income

   $ 2,794     $ 2,064  

Items not requiring (providing) cash

    

Depreciation

     338       327  

Provision (credit) for loan losses

     266       (84

Amortization of premiums and discounts on securities

     337       185  

Deferred income taxes

     60       321  

Net realized gains on loan sales

     (1,047     (284

Net realized losses (gains) on sales of available-for-sale securities

     (204     7  

Loss (gain) on foreclosed assets held for sale

     (10     2  

Bank-owned life insurance income, net

     (139     (139

Originations of loans held for sale

     (30,676     (14,997

Proceeds from sales of loans held for sale

     32,234       15,562  

ESOP compensation expense

     171       213  

Stock equity plan expense

     113       111  

Changes in

    

Accrued interest receivable

     (280     (175

Other assets

     (36     (159

Accrued interest payable

     (203     905  

Post-retirement benefit obligation

     38       31  

Other liabilities

     (1,244     (321
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,512       3,569  
  

 

 

   

 

 

 

Investing Activities

    

Net change in interest-bearing time deposits

     —         —    

Purchases of available-for-sale securities

     (29,863     (17,598

Proceeds from sales of available-for-sale securities

     7,830       6,132  

Proceeds from maturities and pay-downs of available-for-sale securities

     16,355       11,283  

Net change in loans

     1,960       (3,169

Purchase of premises and equipment

     (191     (91

Proceeds from sale of foreclosed assets

     272       571  

Purchase of Federal Home Loan Bank stock

     (1,170     (424
  

 

 

   

 

 

 

Net cash used in investing activities

     (4,807     (3,296
  

 

 

   

 

 

 

Financing Activities

    

Net decrease in demand deposits, money market, NOW and savings accounts

     (9,885     (42,125

Net decrease in certificates of deposit, including brokered certificates

     (4,450     (15,572

Net increase in advances from borrowers for taxes and insurance

     949       346  

Proceeds from Federal Home Loan Bank advances

     72,000       31,500  

Repayments of Federal Home Loan Bank advances

     (82,500     (22,000

Proceeds from other borrowings

     —         5,000  

Net increase in repurchase agreements

     833       1,325  

Dividends paid

     (454     (487

Purchases of Common Stock

     —         (7,016
  

 

 

   

 

 

 

Net cash used in financing activities

     (23,507     (49,029
  

 

 

   

 

 

 

Net Decrease in Cash and Cash Equivalents

     (25,802     (48,756

Cash and Cash Equivalents, Beginning of Period

     33,467       59,600  
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 7,665     $ 10,844  
  

 

 

   

 

 

 

Supplemental Cash Flows Information

    

Interest paid

   $ 2,768     $ 3,965  

Income taxes paid

   $ 1,689     $ 513  

Foreclosed assets acquired in settlement of loans

   $ 253     $ 230  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6


Table of Contents

IF Bancorp, Inc.

Form 10-Q (Unaudited)

(Table dollar amounts in thousands)

Notes to Condensed Consolidated Financial Statements

Note 1: Basis of Financial Statement Presentation

IF Bancorp, Inc., (“IF Bancorp” or the “Company”) is a Maryland corporation whose principal activity is the ownership and management of its wholly owned subsidiary, Iroquois Federal Savings and Loan Association (“Iroquois Federal” or the “Association”). The unaudited condensed consolidated financial statements include the accounts of the Company, the Association, and the Association’s wholly owned subsidiary, L.C.I. Service Corporation. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and with instructions for Form 10–Q and Regulation S–X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from these estimates. In the opinion of management, the preceding unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of December 31, 2020 and June 30, 2020, and the results of its operations for the three month and six month periods ended December 31, 2020 and 2019. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. The results of operations for the three month and six month periods ended December 31, 2020 are not necessarily indicative of the results that may be expected for the entire year.

COVID-19

We are subject to risks and uncertainties as a result of the COVID-19 pandemic. Given the ongoing and dynamic nature of circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic.

The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted. The Company’s future results of operations and liquidity could be adversely impacted. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity, or results of operations is uncertain.

Revenue Recognition

Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

 

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The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit and investments securities, as well as revenue related to our mortgage servicing activities and bank owned life insurance, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC 606, and which are presented in our income statements as components of noninterest income are as follows:

 

   

Customer Service Fees - The Company generates revenue from fees charged for deposit account maintenance, overdrafts, wire transfers, and check fees. The revenue related to deposit fees is recognized at the time the performance obligation is satisfied.

 

   

Insurance Commissions - The Company’s insurance agency, Iroquois Insurance Agency, receives commissions on premiums of new and renewed business policies. Iroquois Insurance Agency records commission revenue on direct bill policies as the cash is received. For agency bill policies, Iroquois Insurance Agency retains its commission portion of the customer premium payment and remits the balance to the carrier. In both cases, the carrier holds the performance obligation.

 

   

Brokerage Commissions - The primary brokerage revenue is recorded at the beginning of each quarter through billing to customers based on the account asset size on the last day of the previous quarter. If a withdrawal of funds takes place, a prorated refund may occur; this is reflected within the same quarter as the original billing occurred. All performance obligations are met within the same quarter that the revenue is recorded.

 

   

Other - The Company generates revenue through service charges from the use of its ATM machines and interchange income from the use of Company issued credit and debit cards. The revenue is recognized at the time the service is used, and the performance obligation is satisfied.

Note 2: New Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For public companies eligible to be smaller reporting companies (SRC), this update will be effective for interim and annual periods beginning after December 15, 2022. As we prepare for the adoption of ASU 2016-13, we have established a team to review the requirements as published, monitor developments and new guidance, and review and collect data that will be required to calculate and report the allowance when ASU 2016-13 becomes effective. We have entered an agreement with a firm specializing in ALLL modeling and have begun transition modeling so we will be ready for the required adoption. As of December 31, 2020, model installation was not completed to a point a reliable parallel test could determine the final expected impact that the adoption of ASU 2016-13 will have on the consolidated financial statements.

Note 3: Stock-based Compensation

In connection with the conversion to stock form, the Association established an ESOP for the exclusive benefit of eligible employees (all salaried employees who have completed at least 1,000 hours of service in a twelve-month period and have attained the age of 21). The ESOP borrowed funds from the Company in an amount sufficient to purchase 384,900 shares (approximately 8% of the common stock issued in the stock offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Association and dividends received by the ESOP. Contributions will be applied to repay interest on the loan first, and then the remainder will be applied to principal. The

 

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loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest 100% in their accrued benefits under the employee stock ownership plan after six vesting years, with prorated vesting in years two through five. Vesting is accelerated upon retirement, death or disability of the participant or a change in control of the Association. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Since the Association’s annual contributions are discretionary, benefits payable under the ESOP cannot be estimated. Participants receive the shares at the end of employment.

The Company is accounting for its ESOP in accordance with ASC Topic 718, Employers Accounting for Employee Stock Ownership Plans. Accordingly, the debt of the ESOP is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheets. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends, if any, on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.

A summary of ESOP shares at December 31, 2020 and June 30, 2020 are as follows (dollars in thousands):

 

     December 31, 2020      June 30, 2020  

Allocated shares

     146,347        127,102  

Shares committed for release

     9,622        19,245  

Unearned shares

     202,073        211,695  
  

 

 

    

 

 

 

Total ESOP shares

     358,042        358,042  
  

 

 

    

 

 

 

Fair value of unearned ESOP shares (1)

   $ 4,452      $ 3,652  
  

 

 

    

 

 

 

 

(1)

Based on closing price of $22.03 and $17.25 per share on December 31, 2020, and June 30, 2020, respectively.

During the six months ended December 31, 2020, no ESOP shares were paid to ESOP participants due to separation from service. During the six months ended December 31, 2019, 1,161 ESOP shares were paid to ESOP participants due to separation from service.

The IF Bancorp, Inc. 2012 Equity Incentive Plan (the “Equity Incentive Plan”) was approved by stockholders in 2012. The purpose of the Equity Incentive Plan is to promote the long-term financial success of the Company and its Subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s stockholders. The Equity Incentive Plan authorizes the issuance or delivery to participants of up to 673,575 shares of the Company common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock unit awards, provided that the maximum number of shares of Company common stock that may be delivered pursuant to the exercise of stock options (all of which may be granted as incentive stock options) is 481,125 and the maximum number of shares of Company stock that may be issued as restricted stock awards or restricted stock units is 192,450.

On December 10, 2013, 85,500 shares of restricted stock and 167,000 in stock options were awarded to senior officers and directors of the Association. The restricted stock vests in equal installments over 10 years and the stock options vest in equal installments over 7 years, both starting in December 2014. On December 10, 2015, 16,900 shares of restricted stock were awarded to senior officers and directors of the Association. The restricted stock vests in equal installments over 8 years, starting in December 2016. As of December 31, 2020, there were 90,050 shares of restricted stock and 314,125 stock option shares available for future grants under this plan.

 

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The following table summarizes stock option activity for the six months ended December 31, 2020 (dollars in thousands):

 

     Options      Weighted-Average
Exercise Price/Share
     Weighted-Average
Remaining Contractual
Life (in years)
     Aggregate Intrinsic
Value
 

Outstanding, June 30, 2020

     153,143      $
16.63
 
     

Granted

     —          —          

Exercised

     —          —          

Forfeited

     —          —          
  

 

 

    

 

 

       

Outstanding, December 31, 2020

     153,143      $ 16.63        2.9      $ 827 (1) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable, December 31, 2020

     153,143      $ 16.63        2.9      $ 827 (1) 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Based on closing price of $22.03 per share on December 31, 2020.

Intrinsic value for stock options is defined as the difference between the current market value and the exercise price. There were no stock options granted during the six months ended December 31, 2020.

There were 22,286 stock options that vested during the six months ended December 31, 2020 and 22,286 stock options that vested during the six months ended December 31, 2019. Stock-based compensation expense and related tax benefit was considered nominal for stock options for the six months ended December 31, 2020 and 2019. Compensation cost related to non-vested stock options was recognized over the seven year vesting period ending in December, 2020, leaving no unrecognized compensation cost at December 31, 2020.

The following table summarizes non-vested restricted stock activity for the six months ended December 31, 2020:

 

     Shares      Weighted-Average Grant-
Date Fair Value
 

Balance, June 30, 2020

     40,250      $ 16.79  

Granted

     —          —    

Forfeited

     —          —    

Earned and issued

     10,062        16.79  
  

 

 

    

 

 

 

Balance, December 31, 2020

     30,188      $ 16.79  
  

 

 

    

 

 

 

The fair value of the restricted stock awards is amortized to compensation expense over the vesting period (ten years) and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest. At the date of grant the par value of the shares granted was recorded in equity as a credit to common stock and a debit to paid-in capital. Stock-based compensation expense and related tax benefit for restricted stock, which was recognized in non-interest expense, was $85,000 and $24,000, respectively, for the six months ended December 31, 2020, and was $85,000 and $24,000, respectively, for the six months ended December 31, 2019. Unrecognized compensation expense for non-vested restricted stock awards was $494,000 at December 31, 2020, and is expected to be recognized over 2.9 years with a corresponding credit to paid-in capital.

 

 

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Note 4: Earnings Per Common Share (“EPS”)

Basic and diluted earnings per common share are presented for the three month and six month periods ended December 31, 2020 and 2019. The factors used in the earnings per common share computation follow:

 

     Three Months Ended      Three Months Ended      Six Months Ended      Six Months Ended  
     December 31, 2020      December 31, 2019      December 31, 2020      December 31, 2019  

Net income (loss)

   $ 1,463      $ 964      $ 2,794      $ 2,064  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted average shares outstanding

     3,240,376        3,266,353        3,240,376        3,399,814  

Less: Average unallocated ESOP shares

     (204,478      (223,723      (206,884      (226,129
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic average shares outstanding

     3,035,898        3,042,630        3,033,492        3,173,685  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted effect of restricted stock awards and stock options

     36,598        57,282        24,141        54,778  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted average shares outstanding

     3,072,496        3,099,912        3,057,633        3,228,463  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 0.48      $ 0.32      $ 0.92      $ 0.65  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.48      $ 0.31      $ 0.91      $ 0.64  
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 5: Securities

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

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  

Available-for-sale securities:

           

December 31, 2020:

           

U.S. Government and federal agency and Government sponsored enterprises (GSE’s)

   $ 7,525      $ 645      $ —        $ 8,170  

Mortgage-backed:

           

GSE residential

     148,886        5,908        (273      154,521  

Small Business Administration

     3,471        138        —          3,609  

State and political subdivisions

     1,251        —          —          1,251  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 161,133      $ 6,691      $ (273    $ 167,551  
  

 

 

    

 

 

    

 

 

    

 

 

 

June 30, 2020:

           

U.S. Government and federal agency and Government sponsored enterprises (GSE’s)

   $ 7,528      $ 708      $ —        $ 8,236  

Mortgage-backed:

           

GSE residential

     143,033        6,044        (222      148,855  

Small Business Administration

     3,578        62        —          3,640  

State and political subdivisions

     1,449        215        (1      1,663  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 155,588      $ 7,029      $ (223    $ 162,394  
  

 

 

    

 

 

    

 

 

    

 

 

 

With the exception of Mortgage-backed GSE residential securities with a book value of approximately $148,886,000 and a market value of approximately $154,521,000 at December 31, 2020, the Company held no securities at December 31, 2020 with a book value that exceeded 10% of total equity.

All mortgage-backed securities at December 31, 2020 and June 30, 2020 were issued by GSEs.

 

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The amortized cost and fair value of available-for-sale securities at December 31, 2020, 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 Securities  
     Amortized
Cost
     Fair
Value
 

Within one year

   $ —        $ —    

One to five years

     6,034        6,545  

Five to ten years

     4,246        4,435  

After ten years

     1,967        2,050  
  

 

 

    

 

 

 
     12,247        13,030  

Mortgage-backed securities

     148,886        154,521  
  

 

 

    

 

 

 

Totals

   $ 161,133      $ 167,551  
  

 

 

    

 

 

 

The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $78,898,000 and $66,186,000 as of December 31, 2020 and June 30, 2020, respectively.

The carrying value of securities sold under agreement to repurchase amounted to $4.6 million at December 31, 2020 and $3.7 million at June 30, 2020. At December 31, 2020, approximately $2.8 million of our repurchase agreements had an overnight maturity, while the remaining $1.8 million in repurchase agreements had a term of 30 to 90 days. All of our repurchase agreements were secured by U.S. Government, federal agency and GSE securities. The right of offset for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default. The collateral is held by the Company in a segregated custodial account. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional securities. The Company closely monitors collateral levels to ensure adequate levels are maintained.

Gross gains of $204,000 and $21,000 and gross losses of $0 and $28,000 resulting from sales of available-for-sale securities were realized for the six months ended December 31, 2020, and 2019, respectively. Tax provision applicable to these net realized gains was $58,000 and $(2,000), respectively.

Certain 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 December 31, 2020 and June 30, 2020, was $24,150,000 and $24,574,000, respectively, which is approximately 14% and 15% of the Company’s available-for-sale investment portfolio. These declines in fair value at December 31, 2020 and June 30, 2020, resulted from increases in market interest rates and are considered temporary.

 

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The following table shows the Company’s gross unrealized investment losses and the fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2020 and June 30, 2020:

 

     Less Than 12 Months     12 Months or More     Total  

Description of

Securities

   Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
 

December 31, 2020:

               

Mortgage-backed:

               

GSE residential

     21,456        (256     2,421        (17     23,877        (273
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 21,456      $ (256   $ 2,421      $ (17   $ 23,877      $ (273
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

June 30, 2020:

               

Mortgage-backed:

               

GSE residential

   $ 22,162      $ (116   $ 2,351      $ (106   $ 24,513      $ (222

State and political subdivisions

     61        (1     —          —         61        (1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 22,223      $ (117   $ 2,351      $ (106   $ 24,574      $ (223
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The unrealized losses on the Company’s investment in residential mortgage-backed securities and U.S. Government and federal agency and Government sponsored enterprises at December 31, 2020 and June 30, 2020, were mostly the result of a decline in market value that was attributable to changes in interest rates and not credit quality, and the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2020 and June 30, 2020.

Note 6: Loans and Allowance for Loan Losses

Classes of loans include:

 

     December 31, 2020      June 30, 2020  

Real estate loans:

     

One- to four-family, including home equity loans

   $ 123,493      $ 128,876  

Multi-family

     105,836        96,195  

Commercial

     152,448        145,113  

Home equity lines of credit

     7,858        8,551  

Construction

     13,870        22,042  

Commercial

     101,528        107,581  

Consumer

     8,265        7,529  
  

 

 

    

 

 

 

Total loans

     513,298        515,887  

Less:

     

Unearned fees and discounts, net

     63        (164

Allowance for loan losses

     6,449        6,234  
  

 

 

    

 

 

 

Loans, net

   $ 506,786      $ 509,817  
  

 

 

    

 

 

 

 

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The Company believes that sound loans are a necessary and desirable means of employing funds available for investment. Recognizing the Company’s obligations to its depositors and to the communities it serves, authorized personnel are expected to seek to develop and make sound, profitable loans that resources permit and that opportunity affords. The Company maintains lending policies and procedures designed to focus our lending efforts on the types, locations, and duration of loans most appropriate for our business model and markets. The Company’s lending activity includes the origination of one- to four-family residential mortgage loans, multi-family loans, commercial real estate loans, commercial business loans, home equity lines of credit, and to a lesser extent, consumer loans (consisting primarily of automobile loans), construction loans and land loans. The primary lending market includes the Illinois counties of Vermilion, Iroquois, Champaign and Kankakee, as well as the adjacent counties in Illinois and Indiana. The Company also has a loan production and wealth management office in Osage Beach, Missouri, which serves the Missouri counties of Camden, Miller, and Morgan. Generally, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals. The loans are expected to be repaid from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

Management reviews and approves the Company’s lending policies and procedures on a routine basis. Management routinely (at least quarterly) reviews our allowance for loan losses and reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Our underwriting standards are designed to encourage relationship banking rather than transactional banking. Relationship banking implies a primary banking relationship with the borrower that includes, at minimum, an active deposit banking relationship in addition to the lending relationship. The integrity and character of the borrower are significant factors in our loan underwriting. As a part of underwriting, tangible positive or negative evidence of the borrower’s integrity and character are sought out. Additional significant underwriting factors beyond location, duration, the sound and profitable cash flow basis underlying the loan and the borrower’s character are the quality of the borrower’s financial history, the liquidity of the underlying collateral and the reliability of the valuation of the underlying collateral.

The Company’s policies and loan approval limits are established by the Board of Directors. The loan officers generally have authority to approve one- to four-family residential mortgage loans up to $100,000, other secured loans up to $50,000, and unsecured loans up to $10,000. Managing Officers (those with designated loan approval authority), generally have authority to approve one- to four-family residential mortgage loans up to $375,000, other secured loans up to $375,000, and unsecured loans up to $100,000. In addition, any two individual officers may combine their loan authority limits to approve a loan. Our Loan Committee may approve one- to four-family residential mortgage loans, commercial real estate loans, multi-family real estate loans and land loans up to $2,000,000 in aggregate loans, and unsecured loans up to $500,000. All loans above these limits must be approved by the Operating Committee, consisting of the Chairman and at least four other Board members. At no time is a borrower’s total borrowing relationship to exceed our regulatory lending limit. Loans to related parties, including executive officers and the Company’s directors, are reviewed for compliance with regulatory guidelines and the Board of Directors at least annually.

The Company conducts internal loan reviews that validate the loans against the Company’s loan policy quarterly for mortgage, consumer, and small commercial loans on a sample basis, and all larger commercial loans on an annual basis. The Company also receives independent loan reviews performed by a third party on larger commercial loans to be performed annually. In addition to compliance with our policy, the third party loan review process reviews the risk assessments made by our credit department, lenders and loan committees. Results of these reviews are presented to management and the Board of Directors.

The Company’s lending can be summarized into six primary areas: one- to four-family residential mortgage loans, commercial real estate and multi-family real estate loans, home equity lines of credits, real estate construction, commercial business loans, and consumer loans.

 

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One- to four-family Residential Mortgage Loans

The Company offers one- to four-family residential mortgage loans that conform to Fannie Mae and Freddie Mac underwriting standards (conforming loans) as well as non-conforming loans. In recent years there has been an increased demand for long-term fixed-rate loans, as market rates have dropped and remained near historic lows. As a result, the Company has sold a substantial portion of the fixed-rate one- to four-family residential mortgage loans with terms of 15 years or greater. Generally, the Company retains fixed-rate one- to four-family residential mortgage loans with terms of less than 15 years, although this has represented a small percentage of the fixed-rate loans originated in recent years due to the favorable long-term rates for borrowers.

The Company offers USDA Rural Development loans and sells the servicing. The Company also offers FHA and VA loans that are originated through a nationwide wholesale lender.

In addition, the Company also offers home equity loans that are secured by a second mortgage on the borrower’s primary or secondary residence. Home equity loans are generally underwritten using the same criteria used to underwrite one- to four-family residential mortgage loans.

As one- to four-family residential mortgage and home equity loan underwriting are subject to specific regulations, the Company typically underwrites its one- to four-family residential mortgage and home equity loans to conform to widely accepted standards. Several factors are considered in underwriting including the value of the underlying real estate and the debt to income ratio and credit history of the borrower.

Commercial Real Estate and Multi-Family Real Estate Loans

Commercial real estate mortgage loans are primarily secured by office buildings, owner-occupied businesses, strip mall centers, churches and farm loans secured by real estate. In underwriting commercial real estate and multi-family real estate loans, the Company considers a number of factors, which include the projected net cash flow to the loan’s debt service requirement, the age and condition of the collateral, the financial resources and income level of the borrower and the borrower’s experience in owning or managing similar properties. Personal guarantees are typically obtained from commercial real estate and multi-family real estate borrowers. In addition, the borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates. The repayment of these loans is primarily dependent on the cash flows of the underlying property. However, the commercial real estate loan generally must be supported by an adequate underlying collateral value. The performance and the value of the underlying property may be adversely affected by economic factors or geographical and/or industry specific factors. These loans are subject to other industry guidelines that are closely monitored by the Company.

Home Equity Lines of Credit

In addition to traditional one- to four-family residential mortgage loans and home equity loans, the Company offers home equity lines of credit that are secured by the borrower’s primary or secondary residence. Home equity lines of credit are generally underwritten using the same criteria used to underwrite one- to four-family residential mortgage loans. As home equity lines of credit underwriting is subject to specific regulations, the Company typically underwrites its home equity lines of credit to conform to widely accepted standards. Several factors are considered in underwriting including the value of the underlying real estate and the debt to income ratio and credit history of the borrower.

Commercial Business Loans

The Company originates commercial non-mortgage business (term) loans and lines of credit. These loans are generally originated to small- and medium-sized companies in the Company’s primary market area. Commercial business loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture, and are primarily secured by business assets other than real estate, such as business equipment and inventory, accounts receivable or stock. The Company also offers agriculture loans that are not secured by real estate.

 

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Table of Contents

The commercial business loan portfolio consists primarily of secured loans. When making commercial business loans, the Company considers the financial statements, lending history and debt service capabilities of the borrower, the projected cash flows of the business and the value of any collateral. The cash flows of the underlying borrower, however, may not perform consistently with historical or projected information. Further, the collateral securing loans may fluctuate in value due to individual economic or other factors. Loans are typically guaranteed by the principals of the borrower. The Company has established minimum standards and underwriting guidelines for all commercial loan types.

Commercial business loans also include Small Business Administration (SBA) Paycheck Protection Program (PPP) loans which are covered by a 100% government guaranty. As of December 31, 2020, the Company had 191 PPP loans totaling $17.4 million.

Real Estate Construction Loans

The Company originates construction loans for one- to four-family residential properties and commercial real estate properties, including multi-family properties. The Company generally requires that a commitment for permanent financing be in place prior to closing the construction loan. The repayment of these loans is typically through permanent financing following completion of the construction. Real estate construction loans are inherently more risky than loans on completed properties as the unimproved nature and the financial risks of construction significantly enhance the risks of commercial real estate loans. These loans are closely monitored and subject to other industry guidelines.

Consumer Loans

Consumer loans consist of installment loans to individuals, primarily automotive loans. These loans are underwritten utilizing the borrower’s financial history, including the Fair Isaac Corporation (“FICO”) credit scoring and information as to the underlying collateral. Repayment is expected from the cash flow of the borrower. Consumer loans may be underwritten with terms up to seven years, fully amortized. Unsecured loans are limited to twelve months. Loan-to-value ratios vary based on the type of collateral. The Company has established minimum standards and underwriting guidelines for all consumer loan collateral types.

Loan Concentration

The loan portfolio includes a concentration of loans secured by commercial real estate properties amounting to $264,821,000 and $256,015,000 as of December 31, 2020 and June 30, 2020, respectively. Generally, these loans are collateralized by multi-family and nonresidential properties. The loans are expected to be repaid from cash flows or from proceeds from the sale of the properties of the borrower.

Purchased Loans and Loan Participations

The Company’s loans receivable included purchased loans of $3,768,000 and $4,181,000 at December 31, 2020 and June 30, 2020, respectively. All of these purchased loans are secured by single family homes located out of our primary market area, but still primarily in the Midwest. The Company’s loans receivable also include commercial loan participations of $24,913,000 and $23,950,000 at December 31, 2020 and June 30, 2020, respectively, of which $7,528,000 and $8,126,000, at December 31, 2020 and June 30, 2020 were outside our primary market area.

 

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Table of Contents

Allowance for Loan Losses

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of the three month and six month periods ended December 31, 2020 and 2019 and the year ended June 30, 2020:

 

     Three Months Ended December 31, 2020
Real Estate Loans
 
     One- to
Four-Family
     Multi-Family      Commercial      Home Equity
Lines of
Credit
 

Allowance for loan losses:

           

Balance, beginning of period

   $ 1,033      $ 1,741      $ 1,874      $ 82  

Provision charged to expense

     (24      3        (92      (3

Losses charged off

     —          —          —          —    

Recoveries

     2        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 1,011      $ 1,744      $ 1,782      $ 79  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,011      $ 1,744      $ 1,782      $ 79  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 123,493      $ 105,836      $ 152,448      $ 7,858  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,335      $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 122,158      $ 105,836      $ 152,448      $ 7,858  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                           
     Three Months Ended December 31, 2020 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of period

   $ 85      $ 1,624      $ 67      $ 6,506  

Provision charged to expense

     45        20        2        (49

Losses charged off

     —          (11      (3      (14

Recoveries

     —          3        1        6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 130      $ 1,636      $ 67      $ 6,449  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 130      $ 1,636      $ 67      $ 6,449  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 13,870      $ 101,528      $ 8,265      $ 513,298  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 51      $ 3      $ 1,389  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 13,870      $ 101,477      $ 8,262      $ 511,909  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Six Months Ended December 31, 2020
Real Estate Loans
 
     One- to
Four-Family
     Multi-Family      Commercial      Home Equity
Lines of
Credit
 

Allowance for loan losses:

           

Balance, beginning of period

   $ 1,044      $ 1,514      $ 1,706      $ 87  

Provision charged to expense

     (20      230        76        (8

Losses charged off

     (15      —          —          —    

Recoveries

     2        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 1,011      $ 1,744      $ 1,782      $ 79  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,011      $ 1,744      $ 1,782      $ 79  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 123,493      $ 105,836      $ 152,448      $ 7,858  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,335      $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 122,158      $ 105,836      $ 152,448      $ 7,858  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
                                                                           
     Six Months Ended December 31, 2020 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of period

   $ 240      $ 1,583      $ 60      $ 6,234  

Provision charged to expense

     (110      81        17        266  

Losses charged off

     —          (40      (16      (71

Recoveries

     —          12        6        20  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 130      $ 1,636      $ 67      $ 6,449  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 130      $ 1,636      $ 67      $ 6,449  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 13,870      $ 101,528      $ 8,265      $ 513,298  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 51      $ 3      $ 1,389  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 13,870      $ 101,477      $ 8,262      $ 511,909  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Year Ended June 30, 2020
Real Estate Loans
 
     One- to
Four-Family
     Multi-Family      Commercial      Home Equity
Lines of
Credit
 

Allowance for loan losses:

           

Balance, beginning of year

   $ 1,031      $ 1,642      $ 1,623      $ 89  

Provision charged to expense

     50        (128      83        (2

Losses charged off

     (40      —          —          —    

Recoveries

     3        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of year

   $ 1,044      $ 1,514      $ 1,706      $ 87  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,044      $ 1,514      $ 1,706      $ 87  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 128,876      $ 96,195      $ 145,113      $ 8,551  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,336      $ —        $ —        $ 15  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 127,540      $ 96,195      $ 145,113      $ 8,536  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                           
     Year Ended June 30, 2020 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of year

   $ 213      $ 1,659      $ 71      $ 6,328  

Provision charged to expense

     27        84        14        128  

Losses charged off

     —          (191      (37      (268

Recoveries

     —          31        12        46  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of year

   $ 240      $ 1,583      $ 60      $ 6,234  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 240      $ 1,583      $ 60      $ 6,234  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 22,042      $ 107,581      $ 7,529      $ 515,887  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 304      $ 5      $ 1,660  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 22,042      $ 107,277      $ 7,524      $ 514,227  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
         Three Months Ended December 31, 2019    
Real Estate Loans
 
     One- to
Four-Family
     Multi-Family      Commercial      Home Equity
Lines of
Credit
 

Allowance for loan losses:

           

Balance, beginning of period

   $ 990      $ 1,602      $ 1,657      $ 90  

Provision charged to expense

     14        (40      28        —    

Losses charged off

     (13      —          —          —    

Recoveries

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 991      $ 1,562      $ 1,685      $ 90  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 991      $ 1,562      $ 1,685      $ 90  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 127,679      $ 102,756      $ 148,299      $ 8,867  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,470      $ —        $ 6      $ 18  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 126,209      $ 102,756      $ 148,293      $ 8,849  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                           
     Three Months Ended December 31, 2019 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of period

   $ 204      $ 1,664      $ 70      $ 6,277  

Provision charged to expense

     13        (54      9        (30

Losses charged off

     —          —          (13      (26

Recoveries

     —          —          1        1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 217      $ 1,610      $ 67      $ 6,222  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 217      $ 1,610      $ 67      $ 6,222  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 18,749      $ 82,692      $ 7,355      $ 496,397  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 48      $ 8      $ 1,550  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 18,749      $ 82,644      $ 7,347      $ 494,847  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
                                                                   
     Six Months Ended December 31, 2019
Real Estate Loans
 
     One- to
Four-Family
     Multi-Family      Commercial      Home Equity
Lines of
Credit
 

Allowance for loan losses:

           

Balance, beginning of period

   $ 1,031      $ 1,642      $ 1,623      $ 89  

Provision charged to expense

     (30      (80      62        1  

Losses charged off

     (13      —          —          —    

Recoveries

     3        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 991      $ 1,562      $ 1,685      $ 90  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 991      $ 1,562      $ 1,685      $ 90  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 127,679      $ 102,756      $ 148,299      $ 8,867  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,470      $ —        $ 6      $ 18  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 126,209      $ 102,756      $ 148,293      $ 8,849  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                           
     Six Months Ended December 31, 2019 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of period

   $ 213      $ 1,659      $ 71      $ 6,328  

Provision charged to expense

     4        (63      22        (84

Losses charged off

     —          —          (28      (41

Recoveries

     —          14        2        19  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 217      $ 1,610      $ 67      $ 6,222  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 217      $ 1,610      $ 67      $ 6,222  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 18,749      $ 82,692      $ 7,355      $ 496,397  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 48      $ 8      $ 1,550  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 18,749      $ 82,644      $ 7,347      $ 494,847  
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

The allowance for loan losses represents an estimate of the amount of losses believed inherent in our loan portfolio at the balance sheet date. The allowance calculation involves a high degree of estimation that management attempts to mitigate through the use of objective historical data where available. Loan losses are charged against the allowance for loan losses when management believes the uncollectability of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Overall, we believe the reserve to be consistent with prior periods and adequate to cover the estimated losses in our loan portfolio.

The Company’s methodology for assessing the appropriateness of the allowance for loan losses consists of two key elements: (1) specific allowances for estimated credit losses on individual loans that are determined to be impaired through the Company’s review for identified problem loans; and (2) a general allowance based on estimated credit losses inherent in the remainder of the loan portfolio.

The specific allowance is measured by determining the present value of expected cash flows, the loan’s observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expense. Factors used in identifying a specific problem loan include: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of the collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency. In addition for loans secured by real estate, the Company also considers the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage.

 

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Table of Contents

The Company establishes a general allowance for loans that are not deemed impaired to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. The general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on the Company’s historical loss experience and management’s evaluation of the collectability of the loan portfolio. In certain instances, the historical loss experience could be adjusted if similar risks are not inherent in the remaining portfolio. The allowance is then adjusted for qualitative factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These qualitative factors may include: (1) Management’s assumptions regarding the minimal level of risk for a given loan category, and includes amounts for anticipated losses which may not be reflected in our current loss history experience; (2) changes in lending policies and procedures, including changes in underwriting standards, and charge-off and recovery practices not considered elsewhere in estimating credit losses; (3) changes in international, national, regional and local economics and business conditions and developments that affect the collectability of the portfolio, including the conditions of various market segments; (4) changes in the nature and volume of the portfolio and in the terms of loans; (5) changes in the experience, ability, and depth of the lending officers and other relevant staff; (6) changes in the volume and severity of past due loans, the volume of non-accrual loans, the volume of troubled debt restructured and other loan modifications, and the volume and severity of adversely classified loans; (7) changes in the quality of the loan review system; (8) changes in the value of the underlying collateral for collateral-dependent loans; (9) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and (10) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. The applied loss factors are re-evaluated quarterly to ensure their relevance in the current environment.

Although the Company’s policy allows for a general valuation allowance on certain smaller-balance, homogenous pools of loans classified as substandard, the Company has historically evaluated every loan classified as substandard, regardless of size, for impairment as part of the review for establishing specific allowances. The Company’s policy also allows for general valuation allowance on certain smaller-balance, homogenous pools of loans which are loans criticized as special mention or watch. A separate general allowance calculation is made on these loans based on historical measured weakness, and which is no less than twice the amount of the general allowance calculated on the non-classified loans.

There have been no changes to the Company’s accounting policies or methodology from the prior periods.

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 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 more timely review. The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Watch,” “Substandard,” “Doubtful,” and “Loss.” 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.

Watch – Loans classified as watch have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of any pledged collateral. 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.

 

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Table of Contents

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.

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

Residential One- to Four-Family and Equity Lines of Credit Real Estate: The residential one- to four-family real estate loans are generally secured by owner-occupied one- to four-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 and Multi-family Real Estate: Commercial and multi-family 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.

Construction Real Estate: Construction 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.

Consumer: The consumer loan portfolio consists of various term 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.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity:

 

     Real Estate Loans                              
     One- to Four-
Family
     Multi-Family      Commercial      Home Equity
Lines of Credit
     Construction      Commercial      Consumer      Total  

December 31, 2020:

                       

Pass

   $ 122,964      $ 105,569      $ 151,232      $ 7,858      $ 13,870      $ 99,991      $ 8,262      $ 509,746  

Watch

     —          —          979        —          —          1,469        —          2,448  

Substandard

     529        267        237        —          —          68        3        1,104  

Doubtful

     —          —          —          —          —          —          —          —    

Loss

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 123,493      $ 105,836      $ 152,448      $ 7,858      $ 13,870      $ 101,528      $ 8,265      $ 513,298  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents
     Real Estate Loans                              
     One- to Four-
Family
     Multi-Family      Commercial      Home Equity
Lines of Credit
     Construction      Commercial      Consumer      Total  

June 30, 2020:

                       

Pass

   $ 127,279      $ 95,925      $ 143,727      $ 8,402      $ 22,042      $ 105,605      $ 7,524      $ 510,504  

Watch

     775        —          1,073        134        —          1,651        —          3,633  

Substandard

     822        270        313        15        —          81        5        1,506  

Doubtful

     —          —          —          —          —          244        —          244  

Loss

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 128,876      $ 96,195      $ 145,113      $ 8,551      $ 22,042      $ 107,581      $ 7,529      $ 515,887  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The accrual of interest on 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 instances, loans are placed on non-accrual or are charged-off at an earlier date if collection of principal and interest is considered doubtful.

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

The following tables present the Company’s loan portfolio aging analysis:

 

                                                                                                        
     30-59 Days
Past Due
     60-89  Days
Past Due
     90 Days or
Greater
     Total Past
Due
     Current      Total Loans
Receivable
     Total Loans
90 Days Past
Due &
Accruing
 

December 31, 2020:

                    

Real estate loans:

                    

One- to four-family

   $ 599      $ 147      $ 226      $ 972      $ 122,521      $ 123,493      $ 123  

Multi-family

     —          —          —          —          105,836        105,836        —    

Commercial

     42        —          —          42        152,406        152,448        —    

Home equity lines of credit

     23        —          —          23        7,835        7,858        —    

Construction

     —          —          —          —          13,870        13,870        —    

Commercial

     303        —          17        320        101,208        101,528        17  

Consumer

     26        40        —          66        8,199        8,265        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 993      $ 187      $ 243      $ 1,423      $ 511,875      $ 513,298      $ 140  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                                                      
     30-59 Days
Past Due
     60-89  Days
Past Due
     90 Days or
Greater
     Total Past
Due
     Current      Total Loans
Receivable
     Total Loans
90 Days Past
Due &
Accruing
 

June 30, 2020:

                    

Real estate loans:

                    

One- to four-family

   $ 1,034      $ 225      $ 385      $ 1,644      $ 127,232      $ 128,876      $ 304  

Multi-family

     —          —          —          —          96,195        96,195        —    

Commercial

     172        95        —          267        144,846        145,113        —    

Home equity lines of credit

     —          —          —          —          8,551        8,551        —    

Construction

     —          —          —          —          22,042        22,042        —    

Commercial

     —          4        244        248        107,333        107,581        —    

Consumer

     24        43        —          67        7,462        7,529        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,230      $ 367      $ 629      $ 2,226      $ 513,661      $ 515,887      $ 304  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

23


Table of Contents

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loans and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis by either the present value of the expected future cash flows, the loan’s observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. Significantly restructured loans are considered impaired in determining the adequacy of the allowance for loan losses.

The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlements with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring. Included in certain loan categories in the impaired loans are $1.3 million in troubled debt restructurings that were classified as impaired.

The following tables present impaired loans:

 

                          Three Months Ended
December 31, 2020
     Six Months Ended
December 31, 2020
 
     Recorded
Balance
     Unpaid
Principal
Balance
     Specific
Allowance
     Average
Investment in
Impaired
Loans
     Interest Income
Recognized
     Interest on
Cash Basis
     Average
Investment in
Impaired
Loans
     Interest Income
Recognized
     Interest on
Cash Basis
 

December 31, 2020:

                          

Loans without a specific valuation allowance

                          

Real estate loans:

                          

One- to-four family

   $ 1,335      $ 1,335      $ —        $ 1,340      $ 15      $ 35      $ 1,347      $ 15      $ 32  

Multi-family

     —          —          —          —          —          —          —          —          —    

Commercial

     —          —          —          —          —          —          —          —          —    

Home equity line of credit

     —          —          —          —          —          —          —          —          —    

Construction

     —          —          —          —          —          —          —          —          —    

Commercial

     51        51        —          53        —          —          55        —          —    

Consumer

     3        3        —          3        —          —          4        —          —    

Loans with a specific valuation allowance

                          

Real estate loans:

                          

One- to-four family

     —          —          —          —          —          —          —          —          —    

Multi-family

     —          —          —          —          —          —          —          —          —    

Commercial

     —          —          —          —          —          —          —          —          —    

Home equity line of credit

     —          —          —          —          —          —          —          —          —    

Construction

     —          —          —          —          —          —          —          —          —    

Commercial

     —          —          —          —          —          —          —          —          —    

Consumer

     —          —          —          —          —          —          —          —          —    

Total:

                          

Real estate loans:

                          

One- to-four family

     1,335        1,335        —          1,340        15        35        1,347        15        32  

Multi-family

     —          —          —          —          —          —          —          —          —    

Commercial

     —          —          —          —          —          —          —          —          —    

Home equity line of credit

     —          —          —          —          —          —          —          —          —    

Construction

     —          —          —          —          —          —          —          —          —    

Commercial

     51        51        —          53        —          —          55        —          —    

Consumer

     3        3        —          3        —          —          4        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,389      $ 1,389      $ —        $ 1,396      $ 15      $ 35      $ 1,406      $ 15      $ 32  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

24


Table of Contents
                          Year Ended
June 30, 2020
 
     Recorded
Balance
     Unpaid
Principal
Balance
     Specific
Allowance
     Average
Investment in
Impaired
Loans
     Interest
Income Recognized
     Interest on
Cash Basis
 

June 30, 2020:

                 

Loans without a specific valuation allowance

                 

Real estate loans:

                 

One- to four-family

   $ 1,336      $ 1,336      $ —        $ 1,388      $ 61      $ 62  

Multi-family

     —          —          —          —          —          —    

Commercial

     —          —          —          3        —          —    

Home equity line of credit

     15        15        —          18        —          —    

Construction

     —          —          —          —          —          —    

Commercial

     304        304        —          382        23        25  

Consumer

     5        5        —          9        —          —    

Loans with a specific allowance

                 

Real estate loans:

                 

One- to four-family

     —          —          —          —          —          —    

Multi-family

     —          —          —          —          —          —    

Commercial

     —          —          —          —          —          —    

Home equity line of credit

     —          —          —          —          —          —    

Construction

     —          —          —          —          —          —    

Commercial

     —          —          —          —          —          —    

Consumer

     —          —          —          —          —          —    

Total:

                 

Real estate loans:

                 

One- to four-family

     1,336        1,336        —          1,388        61        62  

Multi-family

     —          —          —          —          —          —    

Commercial

     —          —          —          3        —          —    

Home equity line of credit

     15        15        —          18        —          —    

Construction

     —          —          —          —          —          —    

Commercial

     304        304        —          382        23        25  

Consumer

     5        5        —          9        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,660      $ 1,660      $ —        $ 1,800      $ 84      $ 87  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

25


Table of Contents
                          Three Months Ended
December 31, 2019
     Six Months Ended
December 31, 2019
 
     Recorded
Balance
     Unpaid
Principal
Balance
     Specific
Allowance
     Average
Investment in
Impaired
Loans
     Interest Income
Recognized
     Interest on
Cash Basis
     Average
Investment in
Impaired
Loans
     Interest Income
Recognized
     Interest on
Cash Basis
 

December 31, 2019:

                          

Loans without a specific valuation allowance

                          

Real estate loans:

                          

One- to-four family

   $ 1,470      $ 1,470      $ —        $ 1,486      $ 15      $ 15      $ 1,496      $ 29      $ 30  

Multi-family

     —          —          —          —          —          —          —          —          —    

Commercial

     6        6        —          11        —          —          12        —          —    

Home equity line of credit

     18        18        —          18        —                 20        —          —    

Construction

     —          —          —          —          —          —          —          —          —    

Commercial

     48        48        —          52        —          —          54        —          —    

Consumer

     8        8        —          10        —          —          10        —          —    

Loans with a specific valuation allowance

                          

Real estate loans:

                          

One- to-four family

     —          —          —          —          —          —          —          —          —    

Multi-family

     —          —          —          —          —          —          —          —          —    

Commercial

     —          —          —          —          —          —          —          —          —    

Home equity line of credit

     —          —          —          —          —          —          —          —          —    

Construction

     —          —          —          —          —          —          —          —          —    

Commercial

     —          —          —          —          —          —          —          —          —    

Consumer

     —          —          —          —          —          —          —          —          —    

Total:

                          

Real estate loans:

                          

One- to-four family

     1,470        1,470        —          1,486        15        15        1,496        29        30  

Multi-family

     —          —          —          —          —          —          —          —          —    

Commercial

     6        6        —          11        —          —          12        —          —    

Home equity line of credit

     18        18        —          18        —          —          20        —          —    

Construction

     —          —          —          —          —          —          —          —          —    

Commercial

     48        48        —          52        —          —          54        —          —    

Consumer

     8        8        —          10        —          —          10        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,550      $ 1,550      $ —        $ 1,577      $ 15      $ 15      $ 1,592      $ 29      $ 30  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

26


Table of Contents

Interest income recognized on impaired loans includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on non-accruing impaired loans for which the ultimate collectability of principal is not uncertain.

The following table presents the Company’s nonaccrual loans at December 31, 2020 and June 30, 2020:

 

     December 31, 2020      June 30, 2020  

Mortgages on real estate:

     

One- to four-family

   $ 103      $ 81  

Multi-family

     —          —    

Commercial

     —          —    

Home equity lines of credit

     —          15  

Construction

     —          —    

Commercial

     51        304  

Consumer

     3        5  
  

 

 

    

 

 

 

Total

   $ 157      $ 405  
  

 

 

    

 

 

 

At December 31, 2020 and June 30, 2020, the Company had a number of loans that were modified in troubled debt restructurings (TDR’s) and impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.

The following table presents the recorded balance, at original cost, of troubled debt restructurings, as of December 31, 2020 and June 30, 2020. With the exception of a single one- to four-family residential loan for $123,000, all were performing according to the terms of the restructuring as of December 31, 2020, and with the exception of a single one- to four-family residential loan totaling $127,000, all were performing according to the terms of restructuring as of June 30, 2020. As of December 31, 2020, one loan, a commercial business loan for $51,000 was on nonaccrual, while nine one- to four-family residential loans totaling $1.2 million were still accruing. All loans listed as of June 30, 2020 were on nonaccrual except for nine one- to four-family residential loans totaling $1.3 million.

 

     December 31, 2020      June 30, 2020  

Real estate loans

     

One- to four-family

   $ 1,233      $ 1,256  

Multi-family

     —          —    

Commercial

     —          —    

Home equity lines of credit

     —          15  
  

 

 

    

 

 

 

Total real estate loans

     1,233        1,271  
  

 

 

    

 

 

 

Construction

     —          —    

Commercial

     51        59  

Consumer

     —          —    
  

 

 

    

 

 

 

Total

   $ 1,284      $ 1,330  
  

 

 

    

 

 

 

Modifications

During the six month period ended December 31, 2020, no loans were modified.

During the year ended June 30, 2020, the Company modified one commercial business loan in the amount of $61,000. This modification included a decrease in interest rate and a maturity concession.

 

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During the six month period ended December 31, 2019, no loans were modified.

COVID-19 Modifications

Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was signed into law on March 27, 2020, certain COVID-19 loan modifications are not designated as TDRs. The CARES Act allows the Company to presume a loan modification is not a TDR if it is (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the National Emergency or (b) December 31, 2020. This relief was extended by the Economic Aid Act, which was included in the Consolidated Appropriations Act, until the earlier of 60 days after the national emergency termination date or January 1, 2022. A total of 169 loans with current balances of $85.7 million have received COVID-19 modifications. These modifications allowed borrowers to pay interest only for up to six months. As of December 31, 2020, 148 of these loans totaling $58.5 million have returned to principal and interest payments, leaving 21 loans for $27.2 million still under temporary modifications.

TDR’s with Defaults

The Company had one TDR, a one- to four-family residential loan for $123,000 that was in default as of December 31, 2020, and was restructured in prior periods. Although we have received monthly payments on this loan for the past three years, it remains more than 90 days past due. No restructured loans were in foreclosure at December 31, 2020. The Company had one TDR, a one- to four-family residential loan for $127,000 that was in default as of June 30, 2020, and was restructured in prior years. No restructured loans were in foreclosure at June 30, 2020. The Company defines a default as any loan that becomes 90 days or more past due.

Specific loss allowances are included in the calculation of estimated future loss ratios, which are applied to the various loan portfolios for purposes of estimating future losses.

Management considers the level of defaults within the various portfolios, as well as the current economic environment and outlook in the real estate and collateral markets when evaluating qualitative adjustments used to determine the adequacy of the allowance for loan losses. We believe the qualitative adjustments more accurately reflect collateral values in light of the sales and economic conditions that we have recently observed.

We may obtain physical possession of real estate collateralizing a residential mortgage loan or home equity loan via foreclosure or in-substance repossession. As of December 31, 2020, the carrying value of foreclosed residential real estate properties as a result of obtaining physical possession was $177,000. In addition, as of December 31, 2020, we had residential mortgage loans and home equity loans with a carrying value of $34,000 collateralized by residential real estate property for which formal foreclosure proceedings were in process.

Note 7: 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. The Company owned $4,197,500 and $3,028,000 of Federal Home Loan Bank stock as of December 31, 2020 and June 30, 2020. The FHLB provides liquidity and funding through advances.

 

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Note 8: Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, included in stockholders’ equity, were as follows at the dates specified:

 

     December 31, 2020      June 30, 2020  

Net unrealized gains on securities available-for-sale

   $ 6,417      $ 6,805  

Net unrealized postretirement health benefit plan obligations

     (916      (926
  

 

 

    

 

 

 
     5,501        5,879  

Tax effect

     (1,568      (1,676
  

 

 

    

 

 

 

Total

   $ 3,933      $ 4,203  
  

 

 

    

 

 

 

Note 9: Changes in Accumulated Other Comprehensive Income (AOCI) by Component

Amounts reclassified from AOCI and the affected line items in the statements of income during the three and six month periods ended December 31, 2020 and 2019, were as follows:

 

     Amounts Reclassified from AOCI      
     Three Months Ended December 31,     Six Months Ended December 31,      
     2020      2019     2020      2019    

Affected Line Item in the Condensed
Consolidated Statements of Income

Realized gains (losses) on available-for-sale securities

   $ —        $ (8   $ 204      $ (7  

Net realized gains (losses) on sale of available-for- sale securities

Amortization of defined benefit pension items:

            

Components are included in computation of net periodic pension cost

Actuarial losses

     8        5       10        10    
  

 

 

    

 

 

   

 

 

    

 

 

   

Total reclassified amount before tax

     8        (3     214        3    

Tax expense (credit)

     2        (1     61        1     Provision for Income Tax
  

 

 

    

 

 

   

 

 

    

 

 

   

Total reclassification out of AOCI

   $ 6      $ (2   $ 153      $ 2     Net Income
  

 

 

    

 

 

   

 

 

    

 

 

   

Note 10: Income Taxes

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:

 

     Three Months Ended
December 31,
     Six Months Ended
December 31,
 
     2020      2019      2020      2019  

Computed at the statutory rate

   $ 427      $ 281      $ 814      $ 599  

Decrease resulting from

           

Tax exempt interest

     (2      (5      (4      (11

Cash surrender value of life insurance

     (14      (14      (29      (29

State income taxes

     153        103        288        213  

Other

     7        7        14        15  
  

 

 

    

 

 

    

 

 

    

 

 

 

Actual expense

   $ 571      $ 372      $ 1,083      $ 787  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Note 11: Regulatory Capital

The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that if undertaken, could have a direct material effect on the Association’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines involving quantitative measures of the Association’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Association’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

The Basel III regulatory capital framework (the “Basel III Capital Rules”) adopted by U.S. federal regulatory authorities, among other things, (i) establish the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting stated requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) set forth the acceptable scope of deductions/adjustments to the specified capital measures. The Basel III Capital Rules became effective for us on January 1, 2015 with certain transition provisions fully phased in on January 1, 2019.

Additionally, the Basel III Capital Rules require that we maintain a capital conservation buffer with respect to each of the CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. The capital conservation buffer was phased in and became fully phased in on January 1, 2019 at 2.5%. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.

As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies were required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies have issued a final rule setting the Community Bank Leverage Ratio at 9%, effective with the quarter ended March 31, 2020. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted, which temporarily reduced the required Community Bank Leverage Ratio to 8% through the end of 2020, and to 8.5% throughout 2021, before returning to 9% in 2022. The Association “opted in” to elect the Community Bank Leverage Ratio, effective with the quarter ended March 31, 2020.

As of December 31, 2020, the Association was categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events that management believes have changed the Association’s prompt corrective action category.

Note 12: Disclosures About Fair Value of Assets

Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

 

Level 1    Quoted prices in active markets for identical assets

 

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Level 2    Observable inputs other than Level 1 prices, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
Level 3    Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying 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 December 31, 2020 and June 30, 2020:

 

            Fair Value Measurements Using  
     Fair Value      Quoted
Prices in
Active
Markets for
Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

December 31, 2020:

           

Available-for-sale securities:

           

U.S. Government and federal agency and Government sponsored enterprises (GSE’s)

   $ 8,170      $ —        $ 8,170      $ —    

Mortgage-backed: GSE residential

     154,521        —          154,521        —    

Small Business Administration

     3,609        —          3,609        —    

State and political subdivisions

     1,251        —          1,251        —    

Mortgage servicing rights

     756        —          —          756  

 

            Fair Value Measurements Using  
     Fair Value      Quoted
Prices in
Active
Markets for
Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

June 30, 2020:

           

Available-for-sale securities:

           

U.S. Government and federal agency and Government sponsored enterprises (GSE’s)

   $ 8,236      $ —        $ 8,236      $ —    

Mortgage-backed: GSE residential

     148,855        —          148,855        —    

Small Business Administration

     3,640        —          3,640        —    

State and political subdivisions

     1,663        —          1,663        —    

Mortgage servicing rights

     715        —          —          715  

 

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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 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 period ended December 31, 2020. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. There were no Level 1 securities as of December 31, 2019 or June 30, 2019. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. For these investments, the inputs used by the pricing service to determine fair value may include one, or a combination of, observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government and federal agency, mortgage-backed securities (GSE—residential) and state and political subdivisions. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. There were no Level 3 securities as of December 31, 2020 or June 30, 2020.

Mortgage Servicing Rights

Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

 

     Mortgage
Servicing Rights
 

Balance, July 1, 2020

   $ 715  

Total realized and unrealized gains and losses included in net income

     (34

Servicing rights that result from asset transfers

     191  

Payments received and loans refinanced

     (116
  

 

 

 

Balance, December 31, 2020

   $ 756  
  

 

 

 

Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date

   $ (34
  

 

 

 

Realized and unrealized gains and losses for items reflected in the table above are included in net income in the consolidated statements of income as noninterest income.

 

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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 December 31, 2020 and June 30, 2020:

 

            Fair Value Measurements Using  
     Fair Value      Quoted Prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

December 31, 2020:

           

Foreclosed assets

   $ 170      $ —        $ —        $ 170  

June 30, 2020:

           

Foreclosed assets

   $ 200      $ —        $ —        $ 200  

The following table presents (losses)/recoveries recognized on assets measured on a non-recurring basis for the three months and six months ended December 31, 2020 and 2019:

 

     Three Months Ended
December 31,
     Six Months Ended
December 31,
 
     2020      2019      2020      2019  

Impaired loans (collateral-dependent)

   $ —        $ 13      $ —        $ 13  

Foreclosed assets

   $ —        $ —        $ (30    $ —    

Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying 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.

Collateral-dependent Impaired Loans, Net of the Allowance for Loan Losses

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired 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 the senior lending officer. Appraisals are reviewed for accuracy and consistency by the senior lending officer. 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 senior lending officer by comparison to historical results.

 

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Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at December 31, 2020 and June 30, 2020.

 

     Fair Value at
December 31,
2020
    

Valuation Technique

  

Unobservable Inputs

   Range (Weighted
Average)

Mortgage servicing rights

   $ 756      Discounted cash flow    Discount rate    9.5% - 11.5% (9.5%)
         Constant prepayment rate    15.2% - 18.1% (15.5%)
         Probability of default    0.04% - 0.12% (0.11%)

Foreclosed assets

     170      Market comparable properties    Comparability adjustments (%)    15.0% (15.0%)

 

     Fair Value at
June 30,
2020
    

Valuation Technique

  

Unobservable Inputs

   Range (Weighted
Average)

Mortgage servicing rights

   $ 715      Discounted cash flow    Discount rate    9.5% - 11.5% (9.5%)
         Constant prepayment rate    13.5% - 17.7% (13.8%)
         Probability of default    0.04% - 0.12% (0.11%)

Foreclosed assets

     200      Market comparable properties    Comparability adjustments (%)    11.1% (11.1%)

 

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Fair Value of Financial Instruments

The following tables present estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2020 and June 30, 2020.

 

     Carrying
Amount
     Fair Value
Measurements
Using

Quoted Prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

December 31, 2020:

           

Financial assets

           

Cash and cash equivalents

   $ 7,665      $ 7,665      $ —        $ —    

Interest-bearing time deposits in banks

     3,000        3,000        —          —    

Loans, net of allowance for loan losses

     506,786        —          —          509,773  

Federal Home Loan Bank stock

     4,198        —          4,198        —    

Accrued interest receivable

     2,188        —          2,188        —