10-Q 1 d22735d10q.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 March 31, 2021

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 May 5, 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 March  31, 2021 (unaudited) and June 30, 2020

     1  
 

Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended March 31, 2021 and 2020 (unaudited)

     2  
 

Condensed Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended March 31, 2021 and 2020 (unaudited)

     3  
 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended March 31, 2021 and 2020 (unaudited)

     4  
 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2021 and 2020 (unaudited)

     6  
 

Notes to Condensed Consolidated Financial Statements (unaudited)

     7  

Item 2.

 

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

     35  

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)

 

     March 31,
2021
    June 30,
2020
 
     (Unaudited)        

Assets

    

Cash and due from banks

   $ 29,786     $ 31,529  

Interest-bearing demand deposits

     3,470       1,938  
  

 

 

   

 

 

 

Cash and cash equivalents

     33,256       33,467  
  

 

 

   

 

 

 

Interest-bearing time deposits in banks

     2,500       3,000  

Available-for-sale securities

     175,760       162,394  

Loans, net of allowance for loan losses of $6,351 and $6,234 at March 31, 2021 and June 30, 2020, respectively

     504,454       509,817  

Premises and equipment, net of accumulated depreciation of $8,524 and $8,016 at March 31, 2021 and June 30, 2020, respectively

     9,936       10,193  

Federal Home Loan Bank stock, at cost

     4,198       3,028  

Foreclosed assets held for sale

     207       386  

Accrued interest receivable

     2,034       1,908  

Bank-owned life insurance

     9,274       9,345  

Mortgage servicing rights

     930       715  

Deferred income taxes

     1,840       630  

Other

     1,057       634  
  

 

 

   

 

 

 

Total assets

   $ 745,446     $ 735,517  
  

 

 

   

 

 

 

Liabilities and Equity

    

Liabilities

    

Deposits

    

Demand

   $ 44,769     $ 87,486  

Savings, NOW and money market

     304,035       232,723  

Certificates of deposit

     256,091       269,152  

Brokered certificates of deposit

     12,339       12,339  
  

 

 

   

 

 

 

Total deposits

     617,234       601,700  
  

 

 

   

 

 

 

Repurchase agreements

     6,701       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

     1,449       519  

Accrued post-retirement benefit obligation

     3,349       3,306  

Accrued interest payable

     221       537  

Other

     6,008       5,653  
  

 

 

   

 

 

 

Total liabilities

     661,962       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 March 31, 2021 and June 30, 2020

     32       32  

Additional paid-in capital

     49,516       49,239  

Unearned ESOP shares, at cost, 197,261 and 211,695 shares at March 31, 2021 and June 30, 2020, respectively

     (1,973     (2,117

Retained earnings

     34,621       31,207  

Accumulated other comprehensive income, net of tax

     1,288       4,203  
  

 

 

   

 

 

 

Total stockholders’ equity

     83,484       82,564  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 745,446     $ 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
March 31,
    Nine Months Ended
March 31,
 
     2021     2020     2021      2020  

Interest and Dividend Income

         

Interest and fees on loans

   $ 5,169     $ 5,738     $ 15,888      $ 17,429  

Securities:

         

Taxable

     697       975       2,340        2,805  

Tax-exempt

     9       11       29        64  

Federal Home Loan Bank dividends

     29       17       101        53  

Deposits with other financial institutions

     22       58       71        245  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest and dividend income

     5,926       6,799       18,429        20,596  
  

 

 

   

 

 

   

 

 

    

 

 

 

Interest Expense

         

Deposits

     789       2,000       3,097        6,502  

Borrowings and repurchase agreements

     113       209       370        577  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest expense

     902       2,209       3,467        7,079  
  

 

 

   

 

 

   

 

 

    

 

 

 

Net Interest Income

     5,024       4,590       14,962        13,517  

Provision for Loan Losses

     (101     282       165        198  
  

 

 

   

 

 

   

 

 

    

 

 

 

Net Interest Income After Provision for Loan Losses

     5,125       4,308       14,797        13,319  
  

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest Income

         

Customer service fees

     64       90       205        287  

Other service charges and fees

     97       66       315        218  

Insurance commissions

     186       149       515        503  

Brokerage commissions

     261       238       717        707  

Net realized gains on sales of available-for-sale securities

     116       146       320        139  

Mortgage banking income, net

     255       (2     448        159  

Gain on sale of loans

     239       148       1,286        432  

Bank-owned life insurance income, net

     207       66       346        205  

Other

     222       273       709        815  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total noninterest income

     1,647       1,174       4,861        3,465  
  

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest Expense

         

Compensation and benefits

     3,041       2,887       8,896        8,258  

Office occupancy

     242       242       688        739  

Equipment

     397       399       1,242        1,172  

Federal deposit insurance

     44       —         134        28  

Stationary, printing and office

     7       29       60        85  

Advertising

     124       162       344        380  

Professional services

     116       67       368        338  

Supervisory examinations

     36       32       109        117  

Audit and accounting services

     17       17       108        104  

Organizational dues and subscriptions

     5       7       47        45  

Insurance bond premiums

     50       42       137        120  

Telephone and postage

     49       55       143        153  

Loss on foreclosed assets, net

     28       2       18        4  

Other

     456       415       1,327        1,264  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total noninterest expense

     4,612       4,356       13,621        12,807  
  

 

 

   

 

 

   

 

 

    

 

 

 

Income Before Income Tax

     2,160       1,126       6,037        3,977  

Provision for Income Tax

     600       316       1,683        1,103  
  

 

 

   

 

 

   

 

 

    

 

 

 

Net Income

   $ 1,560     $ 810     $ 4,354      $ 2,874  
  

 

 

   

 

 

   

 

 

    

 

 

 

Earnings Per Share:

         

Basic

   $ 0.51     $ 0.27     $ 1.43      $ 0.92  

Diluted

   $ 0.50     $ 0.26     $ 1.42      $ 0.90  

Dividends declared per common share

   $ 0.15     $ 0.15     $ 0.30      $ 0.30  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2


Table of Contents

IF Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(Dollars in thousands)

 

     Three Months Ended March 31,  
     2021     2020  

Net Income

   $ 1,560     $ 810  

Other Comprehensive Income (Loss)

    

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of
$(1,025) and $705, for 2021 and 2020, respectively

     (2,569     1,767  

Less: reclassification adjustment for realized gains included in net income, net of taxes of $33 and $42, for 2021 and 2020, respectively

     83       104  
  

 

 

   

 

 

 
     (2,652     1,663  

Postretirement health plan amortization of transition obligation and prior service cost

and change in net loss, net of taxes of $3 and $1 for 2021 and 2020, respectively

     7       2  
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (2,645     1,665  
  

 

 

   

 

 

 

Comprehensive Income (Loss)

   $ (1,085   $ 2,475  
  

 

 

   

 

 

 

 

     Nine Months Ended March 31,  
     2021     2020  

Net Income

   $ 4,354     $ 2,874  

Other Comprehensive Income (Loss)

    

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of
$(1,078) and $852, for 2021 and 2020, respectively

     (2,700     2,138  

Less: reclassification adjustment for realized gains included in net income, net of taxes of $91 and $40, for 2021 and 2020, respectively

     229       99  
  

 

 

   

 

 

 
     (2,929     2,039  

Postretirement health plan amortization of transition obligation and prior service cost

and change in net loss, net of taxes of $6 and $5 for 2021 and 2020, respectively

     14       8  
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (2,915     2,047  
  

 

 

   

 

 

 

Comprehensive Income

   $ 1,439     $ 4,921  
  

 

 

   

 

 

 

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 March 31, 2021

              

Balance, January 1, 2021

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

Net income

     —          —          —         1,560       —         1,560  

Other comprehensive income (loss)

     —          —          —         —         (2,645     (2,645

Dividends on common stock, $0.15 per share

     —          —          —         (486     —         (486

Stock equity plan

     —          36        —         —         —         36  

ESOP shares earned, 4,811 shares

     —          53        48       —         —         101  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2021

   $ 32      $ 49,516      $ (1,973   $ 34,621     $ 1,288     $ 83,484  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

For the three months ended March 31, 2020

              

Balance, January 1, 2020

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

Net income

     —          —          —         810       —         810  

Other comprehensive income

     —          —          —         —         1,665       1,665  

Dividends on common stock, $0.15 per share

     —          —          —         (486     —         (486

Stock equity plan

     —          56        —         —         —         56  

Stock repurchase, 22,795 shares, average price $19.43 each

     —          —          —         (443     —         (443

ESOP shares earned, 4,811 shares

     —          54        48       —         —         102  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2020

   $ 32      $ 49,151      $ (2,165   $ 29,802     $ 2,612     $ 79,432  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

4


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

For the nine months ended March 31, 2021

             

Balance, July 1, 2020

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

Net income

     —         —          —         4,354       —         4,354  

Other comprehensive income (loss)

     —         —          —         —         (2,915     (2,915

Dividends on common stock, $0.30 per share

     —         —          —         (940     —         (940

Stock equity plan

     —         149        —         —         —         149  

ESOP shares earned, 14,434 shares

     —         128        144       —         —         272  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2021

   $ 32     $ 49,516      $ (1,973   $ 34,621     $ 1,288     $ 83,484  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

For the nine months ended March 31, 2020

             

Balance, July 1, 2019

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

Net income

     —         —          —         2,874       —         2,874  

Other comprehensive income

     —         —          —         —         2,047       2,047  

Dividends on common stock, $0.30 per share

     —         —          —         (973     —         (973

Stock equity plan

     —         167        —         —         —         167  

Stock repurchase, 337,876 shares, average price $22.08 each

     (4     —          —         (7,455     —         (7,459

ESOP shares earned, 14,434 shares

     —         171        144       —         —         315  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2020

   $ 32     $ 49,151      $ (2,165   $ 29,802     $ 2,612     $ 79,432  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

     Nine Months Ended
March 31,
 
     2021     2020  

Operating Activities

    

Net income

   $ 4,354     $ 2,874  

Items not requiring (providing) cash

    

Depreciation

     508       500  

Provision for loan losses

     165       198  

Amortization of premiums and discounts on securities

     621       141  

Deferred income taxes

     (47     251  

Net realized gains on loan sales

     (1,286     (432

Net realized gains on sales of available-for-sale securities

     (320     (139

Loss on foreclosed assets held for sale

     18       4  

Bank-owned life insurance income, net

     (346     (205

ESOP compensation expense

     272       315  

Stock equity plan expense

     149       167  

Changes in

    

Originations of loans held for sale

     (44,211     (21,635

Proceeds from sales of loans held for sale

     45,754       22,415  

Accrued interest receivable

     (126     117  

Other assets

     (423     (143

Accrued interest payable

     (316     134  

Post-retirement benefit obligation

     63       44  

Other liabilities

     (131     167  
  

 

 

   

 

 

 

Net cash provided by operating activities

     4,698       4,773  
  

 

 

   

 

 

 

Investing Activities

    

Net change in interest bearing time deposits

     500       —    

Purchases of available-for-sale securities

     (57,719     (29,681

Proceeds from the sales of available-for-sale securities

     12,891       6,132  

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

     27,063       19,741  

Net change in loans

     4,473       (7,487

Purchase of premises and equipment

     (251     (116

Proceeds from sale of foreclosed assets

     414       572  

Purchase of Federal Home Loan Bank stock

     (1,170     (1,234

Proceeds from settlement of bank-owned life insurance death claim

     417       —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (13,382     (12,073
  

 

 

   

 

 

 

Financing Activities

    

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

     28,595       (34,901

Net decrease in certificates of deposit, including brokered certificates

     (13,061     (38,992

Net increase in advances from borrowers for taxes and insurance

     930       525  

Proceeds from Federal Home Loan Bank advances

     72,000       58,500  

Repayments of Federal Home Loan Bank advances

     (82,500     (29,000

Proceeds from other borrowings

     —         5,000  

Net increase in repurchase agreements

     2,963       1,389  

Dividends paid

     (454     (487

Purchase of common stock

     —         (7,459
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     8,473       (45,425
  

 

 

   

 

 

 

Net Decrease in Cash and Cash Equivalents

     (211     (52,725

Cash and Cash Equivalents, Beginning of Period

     33,467       59,600  
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 33,256     $ 6,875  
  

 

 

   

 

 

 

Supplemental Cash Flows Information

    

Interest paid

   $ 3,783     $ 6,945  

Income taxes paid, net of refunds

   $ 2,137     $ 786  

Foreclosed assets acquired in settlement of loans

   $ 253     $ 230  

Dividends payable

   $ 486     $ 487  

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 March 31, 2021 and June 30, 2020, and the results of its operations for the three month and nine month periods ended March 31, 2021 and 2020. 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 nine month periods ended March 31, 2021 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 engaged a firm specializing in ALLL modeling and have begun transition modeling so we will be ready for the required adoption. As of March 31, 2021, 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, with funds from any contributions on ESOP assets. Contributions will be applied to repay interest on the loan first, and then the remainder will be applied to principal. The 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

 

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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 March 31, 2021 and June 30, 2020 are as follows (dollars in thousands):

 

     March 31, 2021      June 30, 2020  

Allocated shares

     145,469        127,102  

Shares committed for release

     14,434        19,245  

Unearned shares

     197,261        211,695  
  

 

 

    

 

 

 

Total ESOP shares

     357,164        358,042  
  

 

 

    

 

 

 

Fair value of unearned ESOP shares (1)

   $ 4,245      $ 3,652  
  

 

 

    

 

 

 

 

(1)

Based on closing price of $21.52 and $17.25 per share on March 31, 2021, and June 30, 2020, respectively.

During the nine months ended March 31, 2021, 878 ESOP shares were paid to ESOP participants due to separation from service. During the nine months ended March 31, 2020, 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 vested in equal installments over 7 years, and became fully vested in December, 2020. Vesting of both the restricted stock and options started 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 March 31, 2021, 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 nine months ended March 31, 2021 (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, March 31, 2021

     153,143      $ 16.63        2.7      $ 749 (1) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable, March 31, 2021

     153,143      $ 16.63        2.7      $ 749 (1) 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Based on closing price of $21.52 per share on March 31, 2021.

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 nine months ended March 31, 2021.

There were 22,286 options that vested during the nine months ended March 31, 2021 and 22,286 stock options that vested during the nine months ended March 31, 2020. Stock-based compensation expense and related tax benefit was considered nominal for stock options for the nine months ended March 31, 2021 and 2020. 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 March 31, 2021.

The following table summarizes non-vested restricted stock activity for the nine months ended March 31, 2021:

 

     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, March 31, 2021

     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 $127,000 and $36,000, respectively, for both the nine months ended March 31, 2021, and for the nine months ended March 31, 2020. Unrecognized compensation expense for non-vested restricted stock awards was $451,000 at March 31, 2021, and is expected to be recognized over 2.7 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 nine month periods ended March 31, 2021 and 2020. The factors used in the earnings per common share computation are as follows:

 

    Three Months Ended     Three Months Ended     Nine Months Ended     Nine Months Ended  
    March 31, 2021     March 31, 2020     March 31, 2021     March 31, 2020  

Net income

  $ 1,560     $ 810     $ 4,354     $ 2,874  
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic weighted average shares outstanding

    3,240,376       3,256,972       3,240,376       3,352,546  

Less: Average unallocated ESOP shares

    (199,667     (218,912     (204,478     (223,723
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic average shares outstanding

    3,040,709       3,038,060       3,035,898       3,128,823  
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted effect of restricted stock awards and stock options

    49,989       51,662       33,508       53,740  
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted average shares outstanding

    3,090,698       3,089,722       3,069,406       3,182,563  
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share

  $ 0.51     $ 0.27     $ 1.43     $ 0.92  
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per common share

  $ 0.50     $ 0.26     $ 1.42     $ 0.90  
 

 

 

   

 

 

   

 

 

   

 

 

 

Note 5: Securities

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

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  

Available-for-sale securities:

           

March 31, 2021:

           

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

   $ 7,523      $ 563      $ —        $ 8,086  

Mortgage-backed:

           

GSE residential

     156,560        4,307        (2,118      158,749  

Small Business Administration

     7,719        66        (111      7,674  

State and political subdivisions

     1,251        —          —          1,251  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 173,053      $ 4,936      $ (2,229    $ 175,760  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 $156,560,000, and a market value of approximately $158,749,000 at March 31, 2021, the Company held no securities at March 31, 2021 with a book value that exceeded 10% of total equity.

All mortgage-backed securities at March 31, 2021 and June 30, 2020 were issued by GSEs.

 

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The amortized cost and fair value of available-for-sale securities at March 31, 2021, 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

     6,031        6,491  

Five to ten years

     3,976        4,106  

After ten years

     6,486        6,414  
  

 

 

    

 

 

 
     16,493        17,011  

Mortgage-backed securities

     156,560        158,749  
  

 

 

    

 

 

 

Totals

   $ 173,053      $ 175,760  
  

 

 

    

 

 

 

The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $78,413,000 and $66,186,000 as of March 31, 2021 and June 30, 2020, respectively.

The carrying value of securities sold under agreement to repurchase amounted to $6.7 million at March 31, 2021 and $3.7 million at June 30, 2020. At March 31, 2021, approximately $5.5 million of our repurchase agreements had an overnight maturity, while the remaining $1.2 million in repurchase agreements had a monthly maturity. 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 $327,000 and $167,000 and gross losses of $7,000 and $28,000, resulting from sales of available-for-sale securities were realized for the nine month period ended March 31, 2021, and 2020, respectively. The tax provision applicable to these net realized gains amounted to approximately $91,000 and $40,000 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 March 31, 2021 and June 30, 2020 was $71,670,000 and $24,574,000, respectively, which is approximately 41% and 15% of the Company’s available-for-sale investment portfolio. These declines in fair value at March 31, 2021 and June 30, 2020, resulted from increases in market interest rates and are considered temporary.

 

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The following table shows the gross unrealized losses of the Company’s securities and the fair value of the Company’s securities 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 March 31, 2021 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
 

March 31, 2021:

               

Mortgage-backed:

               

GSE residential

     64,851        (2,101     2,411        (17     67,261        (2,118

Small Business Administration

     4,408        (111     —          —         4,408        (111
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 69,259      $ (2,212   $ 2,411      $ (17   $ 71,670      $ (2,229
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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 March 31, 2021 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 March 31, 2021 and June 30, 2020.

Note 6: Loans and Allowance for Loan Losses

Classes of loans include:

 

     March 31, 2021      June 30, 2020  

Real estate loans:

     

One- to four-family, including home equity loans

   $ 116,363      $ 128,876  

Multi-family

     105,895        96,195  

Commercial

     149,639        145,113  

Home equity lines of credit

     7,814        8,551  

Construction

     20,783        22,042  

Commercial

     103,326        107,581  

Consumer

     7,498        7,529  
  

 

 

    

 

 

 

Total loans

     511,318        515,887  

Less:

     

Unearned fees and discounts, net

     513        (164

Allowance for loan losses

     6,351        6,234  
  

 

 

    

 

 

 

Loans, net

   $ 504,454      $ 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, home equity lines of credits, commercial business loans, 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 up to 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 semi-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 credit, real estate construction, commercial business loans, and consumer loans.

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

 

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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 borrower.

The Company offers USDA Rural Development loans which are originated and sold servicing released. 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.

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.

 

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Table of Contents

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 and multi-family real estate properties amounting to $267,047,000 and $256,015,000 as of March 31, 2021 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 $3,701,000 and $4,181,000 at March 31, 2021 and June 30, 2020, respectively. All of these purchased loans are secured by single family homes located out of our primary market area primarily in the Midwest. The Company’s loans receivable also include commercial loan participations of $24,833,000 and $23,950,000 at March 31, 2021 and June 30, 2020, respectively, of which $7,559,000 and $8,126,000, at March 31, 2021 and June 30, 2020 were outside our primary market area.

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 nine month periods ended March 31, 2021 and 2020 and the year ended June 30, 2020:

 

                                                                                   
     Three Months Ended March 31, 2021
Real Estate Loans
 
     One- to
Four-Family
     Multi-
Family
     Commercial      Home Equity
Lines of
Credit
 

Allowance for loan losses:

           

Balance, beginning of period

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

Provision charged to expense

     (56      (3      (24      —    

Losses charged off

     —          —          —          —    

Recoveries

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 955      $ 1,741      $ 1,758      $ 79  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 955      $ 1,741      $ 1,758      $ 79  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Loans:

           

Ending balance

   $ 116,363      $ 105,895      $ 149,639      $ 7,814  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,328      $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 115,035      $ 105,895      $ 149,639      $ 7,814  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended March 31, 2021 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of period

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

Provision charged to expense

     69        (80      (7      (101

Losses charged off

     —          —          (7      (7

Recoveries

     —          4        6        10  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 199      $ 1,560      $ 59      $ 6,351  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 199      $ 1,560      $ 59      $ 6,351  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 20,783      $ 103,326      $ 7,498      $ 511,318  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 65      $ —        $ 1,393  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 20,783      $ 103,261      $ 7,498      $ 509,925  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended March 31, 2021
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

     (76      227        52        (8

Losses charged off

     (15      —          —          —    

Recoveries

     2        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 955      $ 1,741      $ 1,758      $ 79  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 955      $ 1,741      $ 1,758      $ 79  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 116,363      $ 105,895      $ 149,639      $ 7,814  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,328      $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 115,035      $ 105,895      $ 149,639      $ 7,814  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended March 31, 2021 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of period

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

Provision charged to expense

     (41      1        10        165  

Losses charged off

     —          (40      (23      (78

Recoveries

     —          16        12        30  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 199      $ 1,560      $ 59      $ 6,351  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 199      $ 1,560      $ 59      $ 6,351  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Loans:

           

Ending balance

   $ 20,783      $ 103,326      $ 7,498      $ 511,318  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 65      $ —        $ 1,393  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 20,783      $ 103,261      $ 7,498      $ 509,925  
  

 

 

    

 

 

    

 

 

    

 

 

 
     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  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended March 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

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

Provision charged to expense

     74        121        (5      2  

Losses charged off

     (27      —          —          —    

Recoveries

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 1,038      $ 1,683      $ 1,680      $ 92  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,038      $ 1,683      $ 1,680      $ 92  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
                                                                                   

Loans:

           

Ending balance

   $ 129,185      $ 107,107      $ 143,396      $ 9,131  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,591      $ —        $ 4      $ 16  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 127,594      $ 107,107      $ 143,392      $ 9,115  
  

 

 

    

 

 

    

 

 

    

 

 

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

Allowance for loan losses:

           

Balance, beginning of period

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

Provision charged to expense

     27        57        6        282  

Losses charged off

     —          —          (6      (33

Recoveries

     —          —          3        3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 244      $ 1,667      $ 70      $ 6,474  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 244      $ 1,667      $ 70      $ 6,474  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 20,897      $ 83,812      $ 7,154      $ 500,682  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 41      $ 7      $ 1,659  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 20,897      $ 83,771      $ 7,147      $ 499,023  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended March 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

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

Provision charged to expense

     44        41        57        3  

Losses charged off

     (40      —          —          —    

Recoveries

     3        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 1,038      $ 1,683      $ 1,680      $ 92  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,038      $ 1,683      $ 1,680      $ 92  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 129,185      $ 107,107      $ 143,396      $ 9,131  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,591      $ —        $ 4      $ 16  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 127,594      $ 107,107      $ 143,392      $ 9,115  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended March 31, 2020 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of period

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

Provision charged to expense

     31        (6      28        198  

Losses charged off

     —          —          (34      (74

Recoveries

     —          14        5        22  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 244      $ 1,667      $ 70      $ 6,474  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 244      $ 1,667      $ 70      $ 6,474  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

19


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Loans:

           

Ending balance

   $ 20,897      $ 83,812      $ 7,154      $ 500,682  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 41      $ 7      $ 1,659  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 20,897      $ 83,771      $ 7,147      $ 499,023  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 uncollectibility 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.

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, delinquency trends 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; (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 (“TDR”) 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.

 

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Table of Contents

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.

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 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.

 

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Table of Contents

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  

March 31, 2021:

        

Pass

   $ 115,838      $ 105,630      $ 148,491      $ 7,814      $ 20,783      $ 97,042      $ 7,496      $ 503,094  

Watch

     —          —          966        —          —          6,219        2        7,187  

Substandard

     525        265        182        —          —          65        —          1,037  

Doubtful

     —          —          —          —          —          —          —          —    

Loss

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 116,363      $ 105,895      $ 149,639      $ 7,814      $ 20,783      $ 103,326      $ 7,498      $ 511,318  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents

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
 

March 31, 2021:

                    

Real estate loans:

                    

One- to four-family

   $ 637      $ —        $ 224      $ 861      $ 115,502      $ 116,363      $ 121  

Multi-family

     —          —          —          —          105,895        105,895        —    

Commercial

     —          399        —          399        149,240        149,639        —    

Home equity lines of credit

     —          —          —          —          7,814        7,814        —    

Construction

     —          —          —          —          20,783        20,783        —    

Commercial

     —          —          17        17        103,309        103,326        —    

Consumer

     24        16        —          40        7,458        7,498        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 661      $ 415      $ 241      $ 1,317      $ 510,001      $ 511,318      $ 121  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 Association 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.

 

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Table of Contents

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 TDRs that were classified as impaired.

The following tables present impaired loans:

 

          Three Months Ended
March 31, 2021
    Nine Months Ended
March 31, 2021
 
    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
 

March 31, 2021:

                 

Loans without a specific valuation allowance

                 

Real estate loans:

                 

One- to four-family

  $ 1,328     $ 1,328     $ —       $ 1,331     $ 14     $ 9     $ 1,343     $ 49     $ 42  

Multi-family

    —         —         —         —         —         —         —         —         —    

Commercial

    —         —         —         —         —         —         —         —         —    

Home equity line of credit

    —         —         —         —         —         —         —         —         —    

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    65       65       —         67       1       1       73       2       2  

Consumer

    —         —         —         —         —         —         —         —         —    

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

    1,328       1,328       —         1,331       14       9       1,343       49       42  

Multi-family

    —         —         —         —         —         —         —         —         —    

Commercial

    —         —         —         —         —         —         —         —         —    

Home equity line of credit

    —         —         —         —         —         —         —         —         —    

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    65       65       —         67       1       1       73       2       2  

Consumer

    —         —         —         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,393     $ 1,393     $ —       $ 1,398     $ 15     $ 10     $ 1,416     $ 51     $ 44  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents
     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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

          Three Months Ended
March 31, 2020
    Nine Months Ended
March 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
 

March 31, 2020:

                 

Loans without a specific valuation allowance

                 

Real estate loans:

                 

One- to four-family

  $ 1,591     $ 1,591     $ —       $ 1,613     $ 13     $ 15     $ 1,641     $ 47     $ 48  

Multi-family

    —         —         —         —         —         —         —         —         —    

Commercial

    4       4       —         5       —         —         11       —         —    

Home equity line of credit

    16       16       —         17       —         —         19       —         —    

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    41       41       —         44       —         —         51       —         —    

Consumer

    7       7       —         8       —         —         9       —         —    

Loans with a specific valuation allowance

                 

Real estate loans:

                 

One- to four-family

    —         —         —         —         —         —         —         —         —    

Multi-family

    —         —         —         —         —         —         —         —         —    

Commercial

    —         —         —         —         —         —         —         —         —    

Home equity line of credit

    —         —         —         —         —         —         —         —         —    

 

25


Table of Contents

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    —         —         —         —         —         —         —         —         —    

Consumer

    —         —         —         —         —         —         —         —         —    

Total:

                 

Real estate loans:

                 

One- to four-family

    1,591       1,591       —         1,613       13       15       1,641       47       48  

Multi-family

    —         —         —         —         —         —         —         —         —    

Commercial

    4       4       —         5       —         —         11       —         —    

Home equity line of credit

    16       16       —         17       —         —         19       —         —    

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    41       41       —         44       —         —         51       —         —    

Consumer

    7       7       —         8       —         —         9       —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,659     $ 1,659     $ —       $ 1,687     $ 13     $ 15     $ 1,731     $ 47     $ 48  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 March 31, 2021 and June 30, 2020:

 

     March 31,
2021
     June 30,
2020
 

Mortgages on real estate:

     

One- to four-family

   $ 103      $ 81  

Multi-family

     —          —    

Commercial

     —          —    

Home equity lines of credit

     —          15  

Construction loans

     —          —    

Commercial business loans

     17        304  

Consumer loans

     —          5  
  

 

 

    

 

 

 

Total

   $ 120      $ 405  
  

 

 

    

 

 

 

At March 31, 2021 and June 30, 2020, the Company had a number of loans that were modified in TDRs and that were 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 March 31, 2021 and June 30, 2020. With the exception of a single one- to four-family residential loans for $121,000, all were performing according to the terms of the restructuring as of March 31, 2021, 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 March 31, 2021, all loans listed were 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.

 

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Table of Contents
     March 31,
2021
     June 30,
2020
 

Real estate loans

     

One- to four-family

   $ 1,225      $ 1,256  

Multi-family

     —          —    

Commercial

     —          —    

Home equity lines of credit

     —          15  
  

 

 

    

 

 

 

Total real estate loans

     1,225        1,271  
  

 

 

    

 

 

 

Construction

     —          —    

Commercial

     48        59  

Consumer loans

     —          —    
  

 

 

    

 

 

 

Total

   $ 1,273      $ 1,330  
  

 

 

    

 

 

 

Modifications

During the nine month period ended March 31, 2021, no loans were modified as TDRs.

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.

During the nine month period ended March 31, 2020, no loans were modified as TDRs.

See “COVID-19 Modifications” below for a discussion of certain modifications that are not designated as TDRs.

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 163 loans with current balances of $86.7 million have received COVID-19 modifications. These modifications allowed borrowers to pay interest only for up to six months. As of March 31, 2021, 147 of these loans totaling $58.1 million have returned to principal and interest payments, leaving 16 loans for $28.6 million still under temporary modifications.

TDR’s with Defaults

The Company had one TDR, a one- to four-family residential loan for $121,000 that was in default as of March 31, 2021, 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 March 31, 2021. 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 adverse economic environment and negative 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.

 

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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 March 31, 2021, the carrying value of foreclosed residential real estate properties as a result of obtaining physical possession was $7,000. In addition, as of March 31, 2021, 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 $4,198,000 of Federal Home Loan Bank stock as of March 31, 2021 and $3,028,000 as of June 30, 2020. The FHLB provides liquidity and funding through advances.

Note 8: Accumulated Other Comprehensive Income

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

 

     March 31,
2021
     June 30,
2020
 

Net unrealized gains on securities available-for-sale

   $ 2,707      $ 6,805  

Net unrealized postretirement health benefit plan obligations

     (906      (926
  

 

 

    

 

 

 
     1,801        5,879  

Tax effect

     (513      (1,676
  

 

 

    

 

 

 

Total

   $ 1,288      $ 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 nine month periods ended March 31, 2021 and 2020, were as follows:

 

     Amounts Reclassified from AOCI       
     Three Months Ended
March 31,
     Nine Months Ended
March 31,
      
     2021      2020      2021      2020     

Affected Line Item in the Condensed
Consolidated Statements of Income

Realized gains on available-for-sale securities

   $ 116      $ 146      $ 320      $ 139      Net realized gains 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

     10      $ 3        20      $ 13  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total reclassified amount before tax

     126        149        340        152     

Tax expense

     36        43        97        45      Provision for Income Tax
  

 

 

    

 

 

    

 

 

    

 

 

    

Total reclassification out of AOCI

   $ 90      $ 106      $ 243      $ 107      Net Income
  

 

 

    

 

 

    

 

 

    

 

 

    

 

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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
March 31,
     Nine Months Ended
March 31,
 
     2021      2020      2021      2020  

Computed at the statutory rate

   $ 454      $ 236      $ 1,268      $ 835  

Decrease resulting from

           

Tax exempt interest

     (2      (2      (6      (13

Cash surrender value of life insurance

     (43      (14      (72      (43

State income taxes

     154        86        442        299  

Other

     37        10        51        25  
  

 

 

    

 

 

    

 

 

    

 

 

 

Actual expense

   $ 600      $ 316      $ 1,683      $ 1,103  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 recently enacted 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

 

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statutes. The federal banking agencies have issued a final ruling setting the minimum capital for 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% on January 1, 2022. The Association “opted in” to elect the Community Bank Leverage Ratio, effective with the quarter ended March 31, 2020.

As of March 31, 2021, the Association met all capital adequacy requirements to which it is subject and 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 and Liabilities

Fair value is the price that would be received to sell an asset, or paid to transfer a liability, 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 or liabilities
Level 2    Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; 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 or liabilities
Level 3    Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2021 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)
 

March 31, 2021:

           

Available-for-sale securities:

           

US Government and federal agency

   $ 8,086      $ —        $ 8,086      $ —    

Mortgage-backed securities – GSE residential

     158,749        —          158,749        —    

Small Business Administration

     7,674        —          7,674        —    

State and political subdivisions

     1,251        —          1,251        —    

Mortgage servicing rights

     930        —          —          930  

 

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            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:

           

US Government and federal agency

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

Mortgage-backed securities – 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  

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 condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended March 31, 2021. 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 March 31, 2021 or June 30, 2020. 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 March 31, 2021 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:

 

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     Mortgage
Servicing Rights
 

Balance, July 1, 2020

   $ 715  

Total realized and unrealized gains and losses included in net income

     110  

Servicing rights that result from asset transfers

     321  

Payments received and loans refinanced

     (216
  

 

 

 

Balance, March 31, 2021

   $ 930  
  

 

 

 

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

   $ 110  
  

 

 

 

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.

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2021 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)
 

March 31, 2021:

           

Foreclosed assets

   $ —        $ —        $ —        $ —    

June 30, 2020:

           

Foreclosed assets

   $ 200      $ —        $ —        $ 200  

The following table presents recoveries (losses) recognized on assets measured on a non-recurring basis for the three months and nine months ended March 31, 2021 and 2020:

 

     Three Months Ended
March 31,
     Nine Months Ended
March 31,
 
     2021      2020      2021      2020  

Impaired loans (collateral-dependent)

   $ —        $ —        $ —        $ 13  

Foreclosed and repossessed assets held for sale

   $ —        $ —        $ (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 condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

 

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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.

Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at March 31, 2021 and June 30, 2020.

 

     Fair Value at
March 31, 2021
  

Valuation Technique

  

Unobservable Inputs

   Range (Weighted
Average)

Mortgage servicing rights

   $930    Discounted cash flow    Discount rate    9.5% – 11.5% (9.5%)
         Constant prepayment rate    11.6% - 17.3% (11.6%)
         Probability of default    0.04% - 0.12% (0.11%)
     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%)

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 March 31, 2021 and June 30, 2020.

 

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Table of Contents
     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)
 

March 31, 2021:

           

Financial assets

           

Cash and cash equivalents

   $ 33,256      $ 33,256      $ —        $ —    

Interest-bearing time deposits in banks

     2,500        2,500        —          —    

Loans, net of allowance for loan losses

     504,454        —          —          507,048  

Federal Home Loan Bank stock

     4,198        —          4,198        —    

Accrued interest receivable

     2,034        —          2,034        —    

Financial liabilities

           

Deposits

     617,234        —          348,804        269,171  

Repurchase agreements

     6,701        —          6,701        —    

Federal Home Loan Bank advances

     24,000        —          24,787        —    

Lines of credit

     3,000        —          3,000        —    

Advances from borrowers for taxes and insurance

     1,449        —          1,449        —    

Accrued interest payable

     221        —          221        —    

Unrecognized financial instruments (net of contract amount)

     —          —          —          —    

Commitments to originate loans

     —          —          —          —    

 

     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)
 

June 30, 2020:

           

Financial assets

           

Cash and cash equivalents

   $ 33,467      $ 33,467      $ —        $ —    

Interest-bearing time deposits in banks

     3,000        3,000        —          —    

Loans, net of allowance for loan losses

     509,817        —          —          513,221  

Federal Home Loan Bank stock

     3,028        —          3,028        —    

Accrued interest receivable

     1,908        —          1,908        —    

Financial liabilities

           

Deposits

     601,700        —          320,209        283,304  

Repurchase agreements

     3,738        —          3,738        —    

Federal Home Loan Bank advances

     34,500        —          35,472        —    

Lines of credit

     3,000        —          3,000        —    

Advances from borrowers for taxes and insurance

     519        —          519        —    

Accrued interest payable

     537        —          537        —    

Unrecognized financial instruments (net of contract amount)

           

Commitments to originate loans

     —          —          —          —    

 

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In accordance with the Company’s adoption of ASU 2016-01 as of July 1, 2018, the methods utilized to measure the fair value of financial instruments at March 31, 2021, represent an approximation of exit price; however, an actual exit price may differ.

Note 13: Commitments

Commitments to Originate Loans

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

Lines of Credit

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

 

Item 2.

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

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, but rather are statements based on management’s current expectations regarding its business strategies and their intended results and IF Bancorp, Inc.’s (“the Company”) future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on our actual results include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets and changes in the quality or composition of the Association’s loan or investment portfolios. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus that has caused the COVID-19 pandemic can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, our forward-looking statements are subject to additional risks, uncertainties and assumptions.

Additional factors that may affect our results, including those resulting from the COVID-19 pandemic, are discussed under “Item 1A. - Risk Factors”, in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020, and the Company’s other filings with the SEC including in Part II, Item 1A of this report. These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. IF Bancorp, Inc. assumes no obligation to update any forward-looking statement, except as may be required by law.

 

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Overview

On July 7, 2011 we completed our initial public offering of common stock in connection with the Association’s mutual-to-stock conversion, selling 4,496,500 shares of common stock at $10.00 per share, including 384,900 shares sold to the Association’s employee stock ownership plan, and raising approximately $45.0 million of gross proceeds. We also established a charitable foundation, Iroquois Federal Foundation, to which we contributed 314,755 shares of our common stock. As of March 31, 2021, the Company repurchased 1,674,479 shares of common stock under stock repurchase plans.

The Company is a savings and loan holding company and is subject to regulation by the Board of Governors of the Federal Reserve System. The Company’s business activities are limited to oversight of its investment in the Association.

The Association is primarily engaged in providing a full range of banking and mortgage services to individual and corporate customers within a 100-mile radius of its locations in Watseka, Danville, Clifton, Hoopeston, Savoy, Champaign and Bourbonnais, Illinois and Osage Beach, Missouri. The principal activity of the Association’s wholly-owned subsidiary, L.C.I. Service Corporation (“L.C.I.”), is the sale of property and casualty insurance. The Association is subject to regulation by the Office of the Controller of the Currency and the Federal Deposit Insurance Corporation.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities and other interest-earning assets, and the interest paid on our interest-bearing liabilities, consisting primarily of savings and transaction accounts, certificates of deposit, repurchase agreements, and Federal Home Loan Bank of Chicago advances. Our results of operations also are affected by our provision for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of customer service fees, brokerage commission income, insurance commission income, net realized gains on loan sales, mortgage banking income, and income on bank-owned life insurance. Noninterest expense consists primarily of compensation and benefits, occupancy and equipment, data processing, professional fees, marketing, office supplies, federal deposit insurance premiums, and foreclosed assets. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Our net interest rate spread (the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities) was 2.74% and 2.51% for the nine months ended March 31, 2021 and 2020, respectively. Net interest income increased to $15.0 million for the nine months ended March 31, 2021, from $13.5 million for the nine months ended March 31, 2020.

Our emphasis on conservative loan underwriting has historically resulted in relatively low levels of non-performing assets. Our non-performing loans totaled $241,000, or 0.1%, of total loans at March 31, 2021 and $709,000, or 0.1%, of total loans at June 30, 2020. Our non-performing assets totaled $448,000 or 0.1% of total assets at March 31, 2021, and $1.1 million, or 0.2% of total assets at June 30, 2020.

At March 31, 2021, the Association was categorized as “well capitalized” under regulatory capital requirements.

Our net income for the nine months ended March 31, 2021 was $4.4 million, compared to a net income of $2.9 million for the nine months ended March 31, 2020.

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended March 31, 2021 and 2020 is intended to assist in understanding the financial condition and results of operations of the Association. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report on Form 10-Q.

 

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Recent Developments: COVID-19 and the CARES Act

The COVID-19 pandemic has caused economic and social disruption on an unprecedented scale. While some industries have been impacted more severely than others, all businesses have been impacted to some degree. This disruption has resulted in the shuttering of businesses and schools across the country, significant job loss, restrictions on travel and social distancing protocols, highly volatile financial markets and aggressive measures by the federal government.

Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and healthcare providers. The Consolidated Appropriations Act of 2021 was signed into law on December 27, 2020, and is intended to provide critical support to the American people and to further strengthen our economic recovery. The Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues (Economic Aid Act), which was part of the Consolidated Appropriations Act of 2021, extends the Paycheck Protection Program (PPP) to include a second round of funding to certain businesses that received funding under the original PPP. In addition to the general impact of COVID-19, certain provisions of the CARES Act and the Economic Aid Act, as well as other recent legislative and regulatory relief efforts are expected to have a material impact on our operations.

Due to the uncertainty surrounding the ongoing and future effects of the COVID-19 pandemic, it is not possible to determine the overall impact of the pandemic on the Company’s business. To the extent that customers are not able to fulfill their contractual obligations to the Company, the Company’s business operations, asset valuations, financial condition, cash flows and results of operations could be materially impacted. Material adverse impacts may include valuation impairments on our intangible assets, investments, loans, deferred tax assets, or other real estate owned, or a combination of any of these.

The ultimate impact of the COVID-19 pandemic on the Company’s operations and financial performance will depend on future developments related to the duration, extent and severity of the pandemic and the length of time that business and school closures, restrictions on travel and social distancing measures remain in place. The Company’s operations rely on third-party vendors to process, record and monitor transactions. If any of these vendors are unable to provide these services, our ability to serve customers could be disrupted. The pandemic could negatively impact customers’ ability to conduct banking and other financial transactions. The Company’s operations could be adversely impacted if key personnel or a significant number of employees were unable to work due to illness or restrictions.

Financial position and results of operations

As of March 31, 2021, we do not believe that the COVID-19 pandemic has not had a significant negative impact on our financial condition and results of operations. While the general element of our allowance for loan losses increased in our prior fiscal year due to COVID-related changes in the economic forecast, the majority of our provision for loan losses in the nine months ended March 31, 2021, were due to a change in loan portfolio mix, and to a lesser extent, additional reserves for all loans that remain under temporary COVID-19 modifications. Refer to our discussions in MD&A below for additional information on COVID-19 modifications. Should economic conditions worsen, we could experience further increases in our required allowance for loan losses and record additional credit loss expense. The execution of the payment deferrals discussed in the following commentary assisted our ratio of past due loans to total loans. It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

Our fee income could be reduced due to COVID-19. We are working with COVID-19 affected customers by temporarily waiving fees when appropriate including insufficient funds and overdraft fees, and ATM fees. At this time, we do not anticipate a material impact on our fee income due to COVID-19.

 

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Our interest income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

Capital and liquidity

As of March 31, 2021, all of our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit losses.

We maintain access to multiple sources of liquidity. Wholesale funding markets have remained open to us and rates have become more stable in the past couple months. If funding costs become elevated for an extended period of time, it could have an adverse effect on our net interest margin. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

Asset valuation

Currently, we do not expect COVID-19 to affect our ability to account timely for the assets on our balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP. As of March 31, 2021 we did not have any impairment with respect to our intangible assets, premises and equipment or other long-lived assets.

Our Business Continuity and Pandemic Response Plan

The Company maintains a Disaster Recovery/Business Continuity Plan to ensure the maintenance or recovery of operations, including services to customers, when confronted with adverse events such as natural disasters, technological failures, human error, cybercrime, terrorism or pandemic outbreak. When the COVID-19 pandemic declaration was announced, the Disaster Planning/Recovery team activated the Disaster Recovery Plan, including the Pandemic Response Plan, with a focus on maintaining virtually all customer services in the event of a total or partial closure of banking offices and/or staffing shortages. The team implemented protocols for employee safety, reviewed critical business processes, identified staff who could work remotely, and began mobilizing and preparing the equipment that would be required. An Employee Telecommuting Agreement was developed to establish controls and expectations for those working remotely, including adherence to security and privacy policies. Timely communication was provided to employees and customers. ATM and vault cash was increased at all locations in anticipation of greater demand. The Company’s quick and decisive plan implementation resulted in minimal impacts to operations as a result of the COVID-19 pandemic. Prior technology planning enabled the successful deployment of certain operations and other personnel to remote environments thereby reducing the number of employees working from physical banking offices. In addition, bank lobbies were closed and customer traffic limited to drive-up facilities, with the exception of the Hoopeston lobby which remained open with protective screening. This reduced the number of employees required to be on-site at any given time and allowed teams to rotate in and out at periodic intervals, helping to facilitate the effective implementation of social distancing standards. The Danville and Watseka offices are now open with masks required and other safety protocols in place. The Hoopeston office lobby remains open with floor-to-ceiling shields in place along with full drive-up service and in-office appointments as needed. The Bourbonnais, Champaign, Clifton and Savoy offices are open as drive-up facilities and offer in-office appointments as needed.

We do not anticipate any material cost related to the deployment of safety protocols, including PPE or the remote working strategy. No material operational or internal control challenges or risks have been identified to date. Our COVID-19

 

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Response Team continues to anticipate and respond to COVID-19 developments. We don’t anticipate any significant challenges to our ability to maintain our systems and controls and we do not currently face any material resource constraint through the implementation of our business continuity plans.

Lending operations and accommodations to borrowers

We are working with customers directly affected by the COVID-19 pandemic. We continue to offer and provide short-term assistance in accordance with regulatory guidelines. As a result of the current economic environment caused by COVID-19, we are engaging in more frequent communication with borrowers to better understand their situation and the challenges faced by them, allowing us to respond proactively as needs and issues arise.

In keeping with regulatory guidance to work with borrowers during this unprecedented situation, the Company is executing payment deferrals for our lending clients that are adversely affected by the pandemic. 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 allowed 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. At March 31, 2021, we have 163 loans with current balances of $86.7 million that have received COVID-19 modifications. These modifications allowed borrowers to pay interest only for up to six months. As of March 31, 2021, 147 of these loans totaling $58.1 million have returned to principal and interest payments, leaving 16 loans for $28.6 million still under temporary modifications. These 16 loans include 8 one- to four-family loans totaling $2.0 million, 4 multi-family loans totaling $22.0 million, 3 commercial real estate loans for $3.4 million and one commercial business loan for $1.2 million.

With the passage of the Paycheck Protection Program (“PPP”), administered by the SBA, the Company has actively participated in assisting our customers with applications for resources through the program. Most PPP loans have a five-year term and earn interest at 1%. We believe that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. While we closed 305 SBA PPP loans representing $26.3 million in funding during 2020 and another 245 SBA PPP loans representing $16.5 million in funding as of March 31, 2021, after SBA forgiveness to date, we have 313 loans totaling $27.9 million remaining in our portfolio at March 31, 2021. It is our understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, we could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings.

In response to the COVID-19 pandemic, management identified food and accommodations as industries that were most likely to be adversely impacted in the near-term by economic disruption caused by the pandemic. As of March 31, 2021, our food and accommodation loans were $5.3 million, or 1.0% of total loans. These loans are mostly real estate loans on restaurants and bars, and include $1.2 million in COVID-19 modifications. As of March 31, 2021, none of these loans were 30 or more days past due.

Retail operations

The Danville and Watseka lobbies are now open with masks required and other safety protocols in place. The Hoopeston office lobby remains open with floor-to-ceiling shields in place, along with full drive-up service and in-office appointments as needed. The Bourbonnais, Champaign, Clifton and Savoy offices are open as drive-up facilities and offer in-office appointments. Most banking transactions can be accomplished through the drive-ups, including opening deposit accounts, signing loan and other documents, and in-person Notary services. Online Banking and the Mobile Banking App are available for customers who wish to open an account, check their balance, transfer funds, and pay bills. Checks can be deposited using Mobile Banking and customers can start the loan application process for mortgages and personal loans

 

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through our Online Banking. Our network of over 50,000 ATMs are available for cash withdrawals with no service charge. Although some of our lobbies remain closed, we continue to operate and serve our customers with uninterrupted access to their account information and the ability to complete banking transactions.

Critical Accounting Policies

We define critical accounting policies as those policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income. We consider the following to be our critical accounting policies.

Allowance for Loan Losses. We believe that the allowance for loan losses and related provision for loan losses are particularly susceptible to change in the near term, due to changes in credit quality which are evidenced by trends in charge-offs and in the volume and severity of past due loans. In addition, our portfolio is comprised of a substantial amount of commercial real estate loans which generally have greater credit risk than one- to four-family residential mortgage and consumer loans because these loans generally have larger principal balances and are non-homogenous.

The allowance for loan losses is maintained at a level to provide for probable credit losses inherent in the loan portfolio at the balance sheet date. Based on our estimate of the level of allowance for loan losses required, we record a provision for loan losses as a charge to earnings to maintain the allowance for loan losses at an appropriate level. The estimate of our credit losses is applied to two general categories of loans:

 

   

loans that we evaluate individually for impairment under ASC 310-10, “Receivables;” and

 

   

groups of loans with similar risk characteristics that we evaluate collectively for impairment under ASC 450-20, “Loss Contingencies.”

The allowance for loan losses is evaluated on a regular basis by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio. The factors used to evaluate the collectability of the loan portfolio include, but are not limited to, current economic conditions, our historical loss experience, the nature and volume of the loan portfolio, the financial strength of the borrower, and the estimated value of any underlying collateral. This evaluation is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available. Actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results. See “Allowance for Loan Loss Activity” below.

Income Tax Accounting. The provision for income taxes is based upon income in our consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date. Under U.S. GAAP, a valuation allowance is required to be recognized if it is more likely than not that a deferred tax asset will not be realized. The determination as to whether we will be able to realize the deferred tax assets is highly subjective and dependent upon judgment concerning our evaluation of both positive and negative evidence, our forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. Positive evidence includes the existence of taxes paid in available carryback years as well as the probability that taxable income will be generated in future periods, while negative evidence includes any cumulative losses in the current year and prior two years and general business and economic trends. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. Any required valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings. Positions taken in our tax returns may be subject to challenge by the taxing authorities upon examination. The benefit of an uncertain tax position is initially recognized in the financial statements only when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both

 

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initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Differences between our position and the position of tax authorities could result in a reduction of a tax benefit or an increase to a tax liability, which could adversely affect our future income tax expense.

There are no material changes to the critical accounting policies disclosed in IF Bancorp, Inc.’s Form 10-K for fiscal year ended June 30, 2020.

Comparison of Financial Condition at March 31, 2021 and June 30, 2020

Total assets increased $9.9 million, or 1.4%, to $745.4 million at March 31, 2021 from $735.5 million at June 30, 2020. The increase was primarily due to a $13.4 million increase in investments securities, partially offset by a $5.4 million decrease in net loans.    

Net loans receivable, including loans held for sale, decreased by $5.4 million, or 1.1%, to $504.5 million at March 31, 2021 from $509.8 million at June 30, 2020. The decrease in net loans receivable during this period was due primarily to a $12.5 million, or 9.7%, decrease in one- to four-family loans, a $1.3 million, or 5.7%, decrease in construction loans, a $4.3 million, or 4.0%, decrease in commercial business loans, a $737,000, or 8.6%, decrease in home equity lines of credit and a $31,000, or 0.4%, decrease in consumer loans, partially offset by a $9.7 million, or 10.1%, increase in multi-family loans, and a $4.5 million, or 3.1%, increase in commercial real estate loans.

Investment securities, consisting entirely of securities available for sale, increased $13.4 million, or 8.2%, to $175.8 million at March 31, 2021 from $162.4 million at June 30, 2020. We had no securities classified as held to maturity at March 31, 2021 or June 30, 2020.

Between June 30, 2020 and March 31, 2021, Federal Home Loan Bank stock increased $1.2 million to $4.2 million, deferred income taxes increased $1.2 million to $1.8 million, accrued interest receivable increased $126,000 to $2.0 million and mortgage servicing rights increased $215,000 to $930,000, while premises and equipment decreased $257,000 to $9.9 million, and foreclosed assets held for sale decreased $179,000 to $207,000. The increase in Federal Home Loan Bank stock was the result of a higher stock requirement due to an increased balance of Federal Home Loan Bank advances during the period, the increase in deferred income taxes was mostly due to a decrease in unrealized gains on sale of available-for-sale securities, the accrued interest receivable was due to an increase in the average balance of loans and securities, and the increase in mortgage servicing rights was the result of an increase in the number of loans serviced and an increase in the valuation. The decrease in premises and equipment was due to an increase in accumulated depreciation, and the decrease in foreclosed assets held for sale was due to the sale of property.

At both March 31, 2021, and June 30, 2020, our investment in bank-owned life insurance was $9.3 million. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Federal regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses, and that limit totaled $21.9 million at March 31, 2021.

Deposits increased $15.5 million, or 2.6%, to $617.2 million at March 31, 2021 from $601.7 million at June 30, 2020. Savings, NOW, and money market accounts increased $71.3 million, or 30.6%, to $304.0 million, while noninterest bearing demand accounts decreased $42.7 million, or 48.8%, to $44.8 million, certificates of deposit, excluding brokered certificates of deposit, decreased $13.1 million, or 4.9%, to $256.1 million, and brokered certificates of deposit were $12.3 million at both March 31, 2021 and June 30, 2020. The large decrease in noninterest bearing demand accounts, was due to approximately $45.3 million in deposits from a public entity that collects real estate taxes that was included in deposits at June 30, 2020, and then subsequently withdrawn when tax monies were distributed. The large increase in savings, NOW and money market account balances was due to other public entity customers who received deposits when these tax monies were distributed, and a general increase in new money from customers.

Repurchase agreements increased $3.0 million, or 79.3%, to $6.7 million. Borrowings consisted of advances from the Federal Home Loan Bank of Chicago and a line of credit from CIBC Bank USA. The FHLB advances decreased $10.5 million, or 30.4%, to $24.0 million at March 31, 2021 from $34.5 million at June 30, 2020, while the line of credit balance was $3.0 million at both March 31, 2021 and June 30, 2020.

 

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Advances from borrowers for taxes and insurance increased $930,000, or 179.2%, to $1.4 million at March 31, 2021, from $519,000 at June 30, 2020. Accrued interest payable decreased $316,000, or 58.8%, to $221,000 at March 31, 2021, from $537,000 at June 30, 2020. The increase in advances from borrowers for taxes and insurance was attributable to the timing of the payment of real estate taxes and insurance, while the decrease in accrued interest payable resulted from a decrease in average cost of interest-bearing liabilities.

Total equity increased $920,000, or 1.1%, to $83.5 million at March 31, 2021 from $82.6 million at June 30, 2020. Equity increased due to net income of $4.4 million, and ESOP and stock equity plan activity of $421,000. These increases were partially offset by a decrease of $2.9 million in accumulated other comprehensive income, net of tax, and the accrual of approximately $940,000 in dividends to our shareholders, of which about half were still payable as of March 31, 2021, and were paid on April 16, 2021.

Comparison of Operating Results for the Nine Months Ended March 31, 2021 and 2020

General. Net income increased $1.5 million to $4.4 million for the nine months ended March 31, 2021, from $2.9 million for the nine months ended March 31, 2020. The increase in net income was due to an increase in net interest income, a decrease in provision for loan losses and an increase in noninterest income partially offset by an increase in noninterest expense.

Net Interest Income. Net interest income increased by $1.4 million, or 10.7%, to $15.0 million for the nine months ended March 31, 2021 from $13.5 million for the nine months ended March 31, 2020. The increase was due to a decrease of $3.6 million in interest expense, partially offset by a decrease of $2.2 million in interest and dividend income. A $42.6 million, or 6.5%, increase in the average balance of interest earning assets was partially offset by a $31.4 million, or 5.6%, increase in the average balance of interest-bearing liabilities. Our interest rate spread increased by 23 basis points to 2.74% for the nine months ended March 31, 2021, compared to 2.51% for the nine months ended March 31, 2020, while our net interest margin increased by 11 basis points to 2.86% for the nine months ended March 31, 2021 compared to 2.75% for the nine months ended March 31, 2020.

Interest and Dividend Income. Interest and dividend income decreased $2.2 million, or 10.5%, to $18.4 million for the nine months ended March 31, 2021 from $20.6 million for the nine months ended March 31, 2020. The decrease in interest and dividend income was due to a $1.5 million decrease in interest income on loans, a $500,000 decrease in interest on securities, and a $126,000 decrease in other interest income. The decrease in interest income on loans resulted from a 57 basis point decrease in the average yield on loans to 4.11% for the nine months ended March 31, 2021 from 4.68% for the nine months ended March 31, 2020, partially offset by a $18.7 million, or 3.8%, increase in the average balance of loans to $514.9 million for the nine months ended March 31, 2021, from $496.2 million for the nine months ended March 31, 2020. The decrease in interest income on securities was due to a 66 basis point decrease in the average yield of securities to 1.98% from 2.64%, partially offset by a $14.3 million, or 9.9%, increase in the average balance of securities to $159.5 million for the nine months ended March 31, 2021 from $145.2 million for the nine months ended March 31, 2020. The decrease in other interest income was a result of a 190 basis point decrease in the average yield of other investments, partially offset by a $9.6 million increase in the average balance of other investments, including Federal Home Loan Bank stock dividends and deposits with other financial institutions, to $23.4 million from $13.8 million.

Interest Expense. Interest expense decreased $3.6 million, or 51.0%, to $3.5 million for the nine months ended March 31, 2021, from $7.1 million for the nine months ended March 31, 2020. The decrease was primarily due to lower market rates during the nine months ended March 31, 2021, partially offset by an increase in the average balance of interest-bearing liabilities.

Interest expense on interest-bearing deposits decreased $3.4 million, or 52.4%, to $3.1 million for the nine months ended March 31, 2021 from $6.5 million for the nine months ended March 31, 2020. This decrease was due to a 91 basis point

 

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decrease in the average cost of interest-bearing deposits to 0.74% for the nine months ended March 31, 2021 from 1.65% for the nine months ended March 31, 2020, partially offset by an increase of $31.4 million in the average balance of interest-bearing deposits to $556.4 million for the nine months ended March 31, 2021, from $525.0 million for the nine months ended March 31, 2020.

Interest expense on borrowings decreased $207,000, or 35.9%, to $370,000 for the nine months ended March 31, 2021 from $577,000 for the nine months ended March 31, 2020. This decrease was mostly due to a 75 basis point decrease in the average cost of such borrowings to 1.35% for the nine months ended March 31, 2021 from 2.10% for the nine months ended March 31, 2020.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable credit losses inherent in our loan portfolio. We recorded a provision for loan losses of $165,000 for the nine months ended March 31, 2021, compared to a provision for loan losses of $198,000 for the nine months ended March 31, 2020. The allowance for loan losses was $6.4 million, or 1.24% of total loans, or 1.31% of total loans excluding PPP loans, at March 31, 2021, compared to $6.5 million, or 1.29% of total loans, at March 31, 2020, and $6.2 million, or 1.21% of total loans, or 1.27% of total loans excluding PPP loans, at June 30, 2020. During the nine months ended March 31, 2021, net charge-offs of $48,000 were recorded, while during the nine months ended March 31, 2020, net charge-offs of $52,000 were recorded.

The following table sets forth information regarding the allowance for loan losses and nonperforming assets at the dates indicated:

 

    At or for the
Nine Months Ended
March 31, 2021
    At or for the
Year Ended

June 30, 2020
 

Allowance to non-performing loans

    2635.27     879.27

Allowance to total loans outstanding at the end of the period

    1.24     1.21

Allowance to total loans outstanding, excluding PPP loans, at end of period

    1.31     1.27

Net charge-offs to average total loans outstanding during the period, annualized

    0.01     0.04

Total non-performing loans to total loans

    0.05     0.14

Total non-performing assets to total assets

    0.06     0.15

Noninterest Income. Noninterest income increased $1.4 million, or 40.3%, to $4.9 million for the nine months ended March 31, 2021 from $3.5 million for the nine months ended March 31, 2020. The increase was primarily due to an increase in gain on sale of loans, an increase in mortgage banking income, net, an increase in net realized gains on sale of available-for-sale securities, an increase in other service charges and fees and an increase in bank-owned life insurance income, net, partially offset by a decrease in customer service fees. For the nine months ended March 31, 2021, gain on sale of loans increased $854,000 to $1.3 million, mortgage banking income, net increased $289,000 to $448,000, net realized gain on sale of available-for-sale securities increased $181,000 to $320,000, other service charges and fees increased $97,000 to $315,000 and bank-owned life insurance income, net, increased $141,000 to $346,000, while customer service fees decreased $82,000 to $205,000 from the nine months ended March 31, 2020. The increase in gain on sale of loans and the increase in mortgage banking income, net, resulted from an increase in the loans originated and sold through the FHLBC Mortgage Partnership Finance program and an increase in the value of our mortgage servicing rights in the nine months ended March 31, 2021. The increase in net realized gains on sale of available-for-sale securities was due to more securities sold for a gain in the nine months ended March 31, 2021 and the increase in other service charges and fees was due to an increase in the number of fees charged in the nine months ended March 31, 2021. The increase in bank-owned life insurance income, net, was due to the receipt of death benefit proceeds in the nine months ended March 31, 2021. The decrease in customer services fees was due to fewer customer services performed and more customer fees waived, partially as a result of COVID-19, in the nine months ended March 31, 2021.

 

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Noninterest Expense. Noninterest expense increased $814,000, or 6.4%, to $13.6 million for the nine months ended March 31, 2021 from $12.8 million for the nine months ended March 31, 2020. The largest components of this increase were compensation and benefits, which increased $638,000, or 7.7%, equipment expense, which increased $70,000, or 6.0%, and federal deposit insurance, which increased $106,000, or 378.6%. These increases were partially offset by a decrease in office occupancy, which decreased $51,000, or 6.9%. Compensation and benefits increased due to staffing changes, normal salary increases and increased medical costs. Equipment expense increased as a result of more technology upgrades in the nine months ended March 31, 2021, and federal deposit insurance premium increased as a result of receiving an FDIC small bank assessment credit in the nine months ended March, 2020. Office occupancy decreased due to extra repairs required in the nine months ended March 31, 2020.

Income Tax Expense. We recorded a provision for income tax of $1.7 million for the nine months ended March 31, 2021, compared to a provision for income tax of $1.1 million for the nine months ended March 31, 2020, reflecting effective tax rates of 27.9% and 27.7%, respectively.

Comparison of Operating Results for the Three Months Ended March 31, 2021 and 2020

General. Net income increased $750,000 to $1.6 million net income for the three months ended March 31, 2021 from $810,000 net income for the three months ended March 31, 2020. The increase was primarily due to an increase in net interest income, an increase in noninterest income, and a decrease in provision for loan losses, partially offset by an increase in noninterest expense and an increase in provision for income taxes.

Net Interest Income. Net interest income increased $434,000 to $5.0 million for the three months ended March 31, 2021 from $4.6 million for the three months ended March 31, 2020. The increase was the result of a decrease in interest expense of $1.3 million, partially offset by a decrease of $873,000 in interest and dividend income. We had a $45.8 million, or 7.0%, increase in the average balance of interest earning assets, partially offset by a $29.5 million, or 5.2%, increase in average balance of interest-bearing liabilities. Our interest rate spread increased by 18 basis points to 2.76% for the three months ended March 31, 2021 from 2.58% for the three months ended March 31, 2020, and our net interest margin increased by 7 basis points to 2.86% for the three months ended March 31, 2021 from 2.79% for the three months ended March 31, 2020.

Interest and Dividend Income. Interest and dividend income decreased $873,000, or 12.8%, to $5.9 million for the three months ended March 31, 2021 from $6.8 million for the three months ended March 31, 2020. The decrease in interest and dividend income was primarily due to a $569,000 decrease in interest income on loans and a $280,000 decrease in interest income on securities. The decrease in interest income on securities resulted from a 104 basis point, or 38.3%, decrease in the average yield on securities to 1.67% from 2.71%, partially offset by a $24.1 million, or 16.6%, increase in the average balance of securities to $169.5 million from $145.4 million. The decrease in interest on loans resulted from a 56 basis point, or 12.2%, decrease in the average yield on loans to 4.06% from 4.62%, partially offset by a $12.7 million, or 2.6%, increase in the average balance of loans to $509.6 million from $496.9 million.

Interest Expense. Interest expense decreased $1.3 million, or 59.2%, to $902,000 for the three months ended March 31, 2021 from $2.2 million for the three months ended March 31, 2020. The decrease was primarily due to a 95 basis point decrease in the average cost of interest-bearing liabilities, partially offset by a $29.5 million increase in the average balance of interest-bearing liabilities.

Interest expense on interest-bearing deposits decreased by $1.2 million, or 60.6%, to $789,000 for the three months ended March 31, 2021 from $2.0 million for the three months ended March 31, 2020. This decrease was due to a 97 basis point, or 63.4%, decrease in the average cost of interest-bearing deposits to 0.56% for the three months ended March 31, 2021 from 1.53% for the three months ended March 31, 2020, partially offset by a $40.2 million, or 7.7%, increase in the average balance of interest-bearing deposits to $564.5 for the three months ended March 31, 2021 from $524.4 for the three months ended March 31, 2020.

 

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Interest expense on borrowings decreased by $96,000, or 45.9%, to $113,000 for the three months ended March 31, 2021 from $209,000 for the three months ended March 31, 2020. This decrease was due to a 55 basis point, or 28.9%, decrease in the average cost of borrowings to 1.36% for the three months ended March 31, 2021 from 1.91% for the three months ended March 31, 2020, as well as a decrease in the average balance of borrowings of $10.7 million, or 24.4%, to $33.2 million for the three months ended March 31, 2021, from $43.9 million for the three months ended March 31, 2020.

Provision for Loan Losses. We recorded a credit for loan losses of $(101,000) for the three months ended March 31, 2021, compared to a provision for loan losses of $282,000 for the three months ended March 31, 2020. During the three months ended March 31, 2021, a net recovery of $3,000 was recorded, while a net charge-off of $30,000 was recorded for the three months ended March 31, 2020. See “Allowance for Loan Loss Activity” below for a discussion of the amount of the allowance and provision for loan losses.

Noninterest Income. Noninterest income increased $473,000, or 40.3%, to $1.6 million for the three months ended March 31, 2021 from $1.2 million for the three months ended March 31, 2020. The increase was primarily due to an increase in mortgage banking income, net, an increase in gain on sale of loans, and an increase in bank-owned life insurance income, net, partially offset by a decrease in customer service fees and a decrease in net realized gain (loss) on sales of available-for-sale securities. For the three months ended March 31, 2021, mortgage banking income, net, increased $257,000 to $255,000, gain on sale of loans increased $91,000 to $239,000, and bank-owned life insurance income, net, increased $141,000 to $207,000, while customer service fees decreased $26,000 to $64,000 and net realized gains on sales of available-for-sale securities decreased $30,000 to $116,000. The increase in gain on sale of loans and the increase in mortgage banking income, net, resulted from an increase in the loans originated and sold through the FHLBC Mortgage Partnership Finance program and an increase in the value of our mortgage servicing rights in the three months ended March 31, 2021. The increase in bank-owned life insurance income, net, was due to the receipt of death benefit proceeds in the three months ended March 31, 2021. The decrease in customer services fees was due to fewer customer services performed and more customer fees waived, partially as a result of COVID-19, in the three months ended March 31, 2021, while the decrease in net realized gains on sales of available-for-sale securities was due to more securities sold for a gain in the three months ended March 31, 2020.

Noninterest Expense. Noninterest expense increased $256,000, or 5.9%, to $4.6 million for the three months ended March 31, 2021 from $4.4 million for the three months ended March 31, 2020. The largest components of this increase were compensation and benefits, which increased $154,000, or 5.3%, federal deposit insurance, which increased $44,000, professional services, which increased $49,000, or 73.1%, and loss (gain) on sale of foreclosed assets, which increased $26,000, or 1300.0%. These increases were partially offset by a $38,000, or 23.5%, decrease in advertising expense. Compensation and benefits increased due to staffing changes, normal salary increases and increased medical costs, while our federal deposit insurance premium increased as a result of receiving an FDIC small bank assessment credit in the three months ended March 31, 2020. Professional services increased as a result of additional legal and consultant services in the three months ended March 31, 2021, and loss (gain) on sale of foreclosed assets increased as a result of the loss on sale of a single residential property in the three months ended March 31, 2021. Advertising expense decreased as a result of a decrease in creative marketing expense.

Income Tax Expense. We recorded a provision for income tax of $600,000 for the three months ended March 31, 2021, compared to a provision for income tax of $316,000 for the three months ended March 31, 2020, reflecting effective tax rates of 27.8% and 28.1%, respectively.

Asset Quality

At March 31, 2021, our non-accrual loans totaled $120,000, including $103,000 in one- to four-family loans and $17,000 in commercial business loans. At March 31, 2021, we had a single one- to four-family loan for $121,000, which was delinquent 90 days or greater and still accruing interest.

At March 31, 2021, $1.1 million in loans were classified as substandard, and no loans were classified as doubtful or loss. Loans classified as substandard consisted of $525,000 in one- to four-family loans, $265,000 in multi-family loans, $182,000 in commercial real estate loans, and $65,000 in commercial business loans.

 

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At March 31, 2021, watch assets consisted of $966,000 in commercial real estate loans, $6.2 million in commercial business loans, and $2,000 in consumer loans. Watch loans are higher as a larger credit in the energy industry was affected by declining prices and lower demand exacerbated by the COVID-19 pandemic.

Troubled Debt Restructurings (“TDRs”). TDRs include loans for which economic concessions have been granted to borrowers with financial difficulties. We periodically modify loans to extend the term or make other concessions to help borrowers stay current on their loans and to avoid foreclosure. At both March 31, 2021 and June 30, 2020, we had $1.3 million in TDRs. At March 31, 2021 our TDRs consisted of $1.2 million in one- to four-family loans and $48,000 in commercial business loans.

See “COVID-19 Modifications” in Note 6 to the Notes to our Consolidated Financial Statements for a discussion of certain modifications made that are not designated as TDRs.

Foreclosed Assets. At March 31, 2021, we had $207,000 in foreclosed assets compared to $386,000 as of June 30, 2020. Foreclosed assets at March 31, 2021 consisted of $7,000 in residential real estate properties and $200,000 in commercial non-occupied property, while foreclosed assets at June 30, 2020 consisted of $186,000 in residential real estate properties and $200,000 in commercial non-occupied property.

Allowance for Loan Loss Activity

The Company regularly reviews its allowance for loan losses and makes adjustments to its balance based on management’s analysis of the loan portfolio, the amount of non-performing and classified loans, as well as general economic conditions. Although the Company maintains its allowance for loan losses at a level that it considers sufficient to provide for losses, there can be no assurance that future losses will not exceed internal estimates. In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies, which can order the establishment of additional loss provisions. The following table summarizes changes in the allowance for loan losses over the nine-month periods ended March 31, 2021 and 2020:

 

                             
    

Nine months ended

March 31,

 
         2021              2020      

Balance, beginning of period

   $ 6,234      $ 6,328  

Loans charged off

     

Real estate loans:

     

One- to four-family

     (15      (40

Multi-family

     —          —    

Commercial

     —          —    

HELOC

     —          —    

Construction

     —          —    

Commercial business

     (40      —    

Consumer

     (23      (34
  

 

 

    

 

 

 

Gross charged off loans

     (78      (74
  

 

 

    

 

 

 

Recoveries of loans previously charged off

     

Real estate loans:

     

One- to four-family

     2        3  

Multi-family

     —          —    

Commercial

     —          —    

HELOC

     —          —    

Construction

     —          —    

Commercial business

     16        14  

Consumer

     12        5  
  

 

 

    

 

 

 

Gross recoveries of charged off loans

     30        22  
  

 

 

    

 

 

 

Net charge offs

     (48      (52
  

 

 

    

 

 

 

Provision charged to expense

     165        198  
  

 

 

    

 

 

 

Balance, end of period

   $ 6,351      $ 6,474  
  

 

 

    

 

 

 

 

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The allowance for loan losses has been calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Company’s loans. Management considers such factors as the repayment status of a loan, the estimated net fair value of the underlying collateral, the borrower’s intent and ability to repay the loan, local economic conditions, and the Company’s historical loss ratios. We maintain the allowance for loan losses through the provisions for loan losses that we charge to income. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. The allowance for loan losses increased $117,000 to $6.4 million at March 31, 2021, from $6.2 million at June 30, 2020. The increase was primarily the result of an increase in risk associated with outstanding loans due to a change in portfolio mix, and to a lesser extent, additional reserves for all loans that remain under temporary COVID-19 modifications. This increase was necessary in order to bring the allowance for loan losses to a level that reflects management’s estimate of the potential loss in the Company’s loan portfolio at March 31, 2021.

In its quarterly evaluation of the adequacy of its allowance for loan losses, the Company employs historical data including past due percentages, charge-offs, and recoveries. The Company’s allowance methodology weights the most recent twelve-quarter period’s net charge-offs and uses this information as one of the primary factors for evaluation of allowance adequacy. The most recent four-quarter net charge-offs are given a higher weight of 50%, while quarters 5-8 are given a 30% weight and quarters 9-12 are given only a 20% weight. The average net charge-offs in each period are calculated as net charge-offs by portfolio type for the period as a percentage of the quarter end balance of respective portfolio type over the same period. The Company believes that it is prudent to emphasize more recent historical factors in the allowance evaluation. The following table sets forth the Company’s weighted average historical net charge-offs as of March 31, 2021 and June 30, 2020:

 

Portfolio segment

  March 31, 2021
Net charge-offs
12 quarter weighted
historical
    June 30, 2020
Net charge-offs
12 quarter  weighted
historical
 

Real Estate:

 

One- to four-family

    0.02     0.25

Multi-family

    0.00     0.00

Commercial

    0.00     0.00

HELOC

    0.03     0.11

Construction

    0.00     0.00

Commercial business

    0.10     0.08

Consumer

    0.03     0.06
 

 

 

   

 

 

 

Total portfolio

    0.03     0.09

Additionally, in its quarterly evaluation of the adequacy of the allowance for loan losses, the Company evaluates changes in financial conditions of individual borrowers; changes in local, regional, and national economic conditions; the Company’s historical loss experience; and changes in market conditions for property pledged to the Company as collateral. The Company has identified specific qualitative factors that address these issues and assigns a percentage to each factor based on Management’s judgement.

 

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The qualitative factors are applied to the allowance for loan losses based upon the following percentages by loan type:

 

Portfolio segment

   Qualitative factor
applied at
March 31, 2021
    Qualitative factor
applied at
June 30, 2020
 

Real Estate:

 

One- to four-family

     0.81     0.57

Multi-family

     1.64     1.57

Commercial

     1.20     1.20

HELOC

     0.97     0.90

Construction

     0.96     1.09

Commercial business*

     1.98     1.85

Consumer

     0.72     0.70
  

 

 

   

 

 

 

Total portfolio*

     1.29     1.18

 

*

At March 31, 2021 and June 30, 2020, $27.9 million and $26.2 million, respectively, in PPP loans with no associated allowance, were excluded from the calculation of qualitative factors since they are guaranteed by the SBA.

At March 31, 2021, the amount of our allowance for loan losses attributable to these qualitative factors was approximately $6.2 million, as compared to $5.8 million at June 30, 2020. The general increase in qualitative factors was attributable primarily to an adjustment for COVID-19 concerns and a change in the portfolio mix.

While management believes that our asset quality remains strong, it recognizes that, due to the continued growth in the loan portfolio, and the potential changes in market conditions, our level of nonperforming assets and resulting charge-offs may fluctuate. Higher levels of net charge-offs requiring additional provisions for loan losses could result. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan sales and repayments, advances from the Federal Home Loan Bank of Chicago, and maturities of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. For the three months ended March 31, 2021, the nine months ended March 31, 2021 and the year ended June 30, 2020, our liquidity ratio averaged 25.7%, 24.3% and 22.9% of our total assets, respectively. We believe that we had enough sources of liquidity to satisfy our short- and long-term liquidity needs as of March 31, 2021.

We regularly monitor and adjust our investments in liquid assets based upon our assessment of: (i) expected loan demand; (ii) expected deposit flows; (iii) yields available on interest-earning deposits and securities; and (iv) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and medium-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets are affected by our operating, financing, lending and investing activities during any given period. At March 31, 2021, cash and cash equivalents totaled $33.3 million. Interest-bearing time deposits which can offer additional sources of liquidity, totaled $2.5 million at March 31, 2021.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Condensed Consolidated Statement of Cash Flows included in our financial statements. Net cash provided by operating

 

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activities were $4.7 million and $4.8 million for the nine months ended March 31, 2021 and 2020, respectively. Net cash used in investing activities consisted primarily of disbursements for loan originations and the purchase of securities and Federal Home Loan Bank stock, offset by net cash provided by principal collections on loans, proceeds from maturing securities, the sale of securities, the redemption of Federal Home Loan Bank stock, and pay downs on mortgage-backed securities. Net cash used in investing activities was $(13.4) million and $(12.1) million for the nine months ended March 31, 2021 and 2020, respectively. Net cash provided by (used in) financing activities consisted primarily of the activity in deposit accounts, FHLB Advances, dividends paid, and stock repurchases. The net cash provided by (used in) financing activities was $8.5 million and $(45.4) million for the nine months ended March 31, 2021 and 2020, respectively.

The Company must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments. The Company anticipates that it will have sufficient funds available to meet its current commitments principally through the use of current liquid assets and through its borrowing capacity discussed above. The following table summarizes these commitments at March 31, 2021 and June 30, 2020.

 

     March 31, 2021      June 30, 2020  
     (Dollars in thousands)  

Commitments to fund loans

   $ 42,333      $ 16,873  

Lines of credit

     94,836        86,182  

At March 31, 2021, certificates of deposit due within one year of March 31, 2021 totaled $210.7 million, or 34.1% of total deposits. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2022. Moreover, it is our intention as we continue to grow our commercial real estate portfolio, to emphasize lower cost deposit relationships with these commercial loan customers and thereby replace the higher cost certificates with lower cost deposits. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Chicago, which provides an additional source of funds. Federal Home Loan Bank advances were $24.0 million at March 31, 2021. At March 31, 2021, we had the ability to borrow up to an additional $105.0 million from the Federal Home Loan Bank of Chicago and also had the ability to borrow $25.1 million from the Federal Reserve based on current collateral pledged.

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

 

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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% on January 1, 2022. The Association “opted in” to elect the Community Bank Leverage Ratio, effective with the quarter ended March 31, 2020.

As of March 31, 2021, 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. The Association’s Community Bank Leverage Ratio is presented in the table below.

 

     March 31, 2021     June 30, 2020     Minimum to Be Well  
     Actual     Actual     Capitalized  

Community Bank Leverage Ratio

     11.2     10.7     8.0

 

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Average Balances and Yields

The following tables set forth average balance sheets, average yields and costs, and certain other information at and for the periods indicated. Yields and costs are presented on an annualized basis. Tax-equivalent yield adjustments have not been made for tax-exempt securities. All average balances are based on month-end balances, which management deems to be representative of the operations of the Company. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

 

     For the Three Months Ended March 31,  
   2021     2020  
   Average
Balance
    Interest Income/
Expense
     Yield/
Cost
    Average
Balance
    Interest
Income/
Expense
     Yield/
Cost
 
   (Dollars in thousands)  

Assets

              

Loans

   $ 509,608     $ 5,169        4.06   $ 496,919     $ 5,738        4.62

Securities:

              

U.S. government, federal agency and government-sponsored enterprises

     14,756       75        2.03     13,360       84        2.51

Mortgage-backed:

              

GSE-residential

     153,448       622        1.62     130,546       891        2.73

State and political subdivisions

     1,251       9        2.88     1,450       11        3.03
  

 

 

   

 

 

      

 

 

   

 

 

    

Total securities

     169,455       706        1.67     145,356       986        2.71

Other

     24,678       51        0.83     15,684       75        1.91
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     703,741       5,926        3.37     657,959       6,799        4.13

Non-interest earning assets

     31,002            27,778       
  

 

 

        

 

 

      

Total assets

   $ 734,743          $ 685,737       
  

 

 

        

 

 

      

Liabilities and Stockholders’ Equity

              

Interest-bearing liabilities:

              

Interest-bearing checking or NOW

   $ 93,716       33        0.14   $ 65,338       49        0.30

Savings accounts

     60,605       28        0.18     46,657       44        0.38

Money market accounts

     137,231       118        0.34     103,110       270        1.05

Certificates of deposit

     272,984       610        0.89     309,255       1,637        2.12
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing deposits

     564,536       789        0.56     524,360       2,000        1.53

Borrowings and repurchase agreements

     33,182       113        1.36     43,876       209        1.91
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     597,718       902        0.60     568,236       2,209        1.55

Noninterest-bearing liabilities

     52,761            37,844       
  

 

 

        

 

 

      

Total liabilities

     650,479            606,080       

Stockholders’ equity

     84,264            79,657       
  

 

 

        

 

 

      

Total liabilities and stockholders’ equity

   $ 734,743          $ 685,737       
  

 

 

        

 

 

      

Net interest income

     $ 5,024          $ 4,590     
    

 

 

        

 

 

    

Interest rate spread (1)

          2.76          2.58

Net interest margin (2)

          2.86          2.79

Net interest-earning assets (3)

   $ 106,023          $ 89,723       
  

 

 

        

 

 

      

Average interest-earning assets to interest-bearing liabilities

     118          116     

 

(1)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

 

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(2)

Net interest margin represents net interest income divided by average total interest-earning assets.

(3)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

 

     For the Nine Months Ended March 31,  
   2021     2020  
   Average
Balance
     Interest Income/
Expense
     Yield/
Cost
    Average
Balance
     Interest
Income/
Expense
     Yield/
Cost
 
   (Dollars in thousands)  

Assets

                

Loans

   $ 514,903      $ 15,888        4.11   $ 496,178      $ 17,429        4.68

Securities:

                

U.S. government, federal agency and government-sponsored enterprises

     12,280        212        2.30     14,474        284        2.62

Mortgage-backed:

                

GSE-residential

     145,815        2,128        1.95     128,526        2,550        2.65

State and political subdivisions

     1,361        29        2.84     2,158        35        2.16
  

 

 

    

 

 

      

 

 

    

 

 

    

Total securities

     159,456        2,369        1.98     145,158        2,869        2.64

Other

     23,403        172        0.98     13,812        298        2.88
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets

     697,762        18,429        3.52     655,148        20,596        4.19

Non-interest earning assets

     33,000             26,879        
  

 

 

         

 

 

       

Total assets

   $ 730,762           $ 682,027        
  

 

 

         

 

 

       

 

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     For the Nine Months Ended March 31,  
   2021     2020  
   Average
Balance
    Interest Income/
Expense
     Yield/
Cost
    Average
Balance
    Interest
Income/
Expense
     Yield/
Cost
 
   (Dollars in thousands)  

Liabilities and Stockholders’ Equity

              

Interest-bearing liabilities:

              

Interest-bearing checking or NOW

   $ 87,363       108        0.16   $ 61,419       151        0.33

Savings accounts

     55,587       84        0.20     45,124       136        0.40

Money market accounts

     131,281       369        0.37     101,958       922        1.21

Certificates of deposit

     282,168       2,536        1.20     316,454       5,293        2.23
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing deposits

     556,399       3,097        0.74     524,955       6,502        1.65

Borrowings and repurchase agreements

     36,675       370        1.35     36,697       577        2.10
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     593,074       3,467        0.78     561,652       7,079        1.68

Noninterest-bearing liabilities

     53,623            40,931       
  

 

 

        

 

 

      

Total liabilities

     646,697            602,583       

Stockholders’ equity

     84,065            79,444       
  

 

 

        

 

 

      

Total liabilities and stockholders’ equity

   $ 730,762          $ 682,027       
  

 

 

        

 

 

      

Net interest income

     $ 14,962          $ 13,517     
    

 

 

        

 

 

    

Interest rate spread (1)

          2.74          2.51

Net interest margin (2)

          2.86          2.75

Net interest-earning assets (3)

   $ 104,688          $ 93,496       
  

 

 

        

 

 

      

Average interest-earning assets to interest-bearing liabilities

     118          117     

 

(1)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2)

Net interest margin represents net interest income divided by average total interest-earning assets.

(3)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

 

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Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated to the changes due to rate and the changes due to volume in proportion to the relationship of the absolute dollar amounts of change in each.

 

     Three Months Ended March 31,
2021 vs. 2020
    Nine Months Ended March 31,
2021 vs. 2020
 
     Increase (Decrease)
Due to
    Total
Increase
(Decrease)
    Increase (Decrease)
Due to
    Total
Increase
(Decrease)
 
     Volume     Rate     Volume     Rate  
     (In thousands)  

Interest-earning assets:

            

Loans

   $ 869     $ (1,438   $ (569   $ 973     $ (2,514   $ (1,541

Securities

     828       (1,108     (280     400       (900     (500

Other

     158       (182     (24     204       (330     (126
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-earning assets

   $ 1,855     $ (2,728   $ (873   $ 1,577     $ (3,744   $ (2,167
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest-bearing liabilities:

            

Interest-bearing checking or NOW

   $ 87     $ (103   $ (16   $ 75     $ (118   $ (43

Savings accounts

     62       (78     (16     41       (93     (52

Certificates of deposit

     (173     (854     (1,027     (524     (2,233     (2,757

Money market accounts

     431       (583     (152     340       (893     (553
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing deposits

     407       (1,618     (1,211     (68     (3,337     (3,405

Federal Home Loan Bank advances and repurchase agreements

     (44     (52     (96     —         (207     (207
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

   $ 363     $ (1,670   $ (1,307   $ (68   $ (3,544   $ (3,612
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in net interest income

   $ 1,492     $ (1,058   $ 434     $ 1,645     $ (200   $ 1,445  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

An internal interest rate risk analysis is performed at least quarterly to assess the Company’s Earnings at Risk, Capital at Risk, and Value at Risk. As of March 31, 2021 there were no material changes in interest rate risk from the analysis disclosed in the Company’s Form 10-K for the fiscal year ended June 30, 2020, as filed with the Securities and Exchange Commission.

 

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2021. Based upon such evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended March 31, 2021, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Table of Contents

Part II – Other Information

 

Item 1.

Legal Proceedings

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

 

Item 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Item1A.- Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, which could materially affect our business, financial condition or future results of operations. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

 

Item 3.

Defaults Upon Senior Securities

None.

 

Item 4.

Mine Safety Disclosures

None.

 

Item 5.

Other Information

None.

 

Item 6.

Exhibits

 

  31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101    Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of March 31, 2021 and June 30, 2020, (ii) the Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2021 and 2020, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2021 and 2020, (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended March 31, 2021 and 2020, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2021 and 2020, and (vi) the notes to the Condensed Consolidated Financial Statements.*

 

*

This information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

      IF BANCORP, INC.
Date: May 12, 2021      

/s/ Walter H. Hasselbring III

      Walter H. Hasselbring III
      President and Chief Executive Officer
Date: May 12, 2021      

/s/ Pamela J. Verkler

      Pamela J. Verkler
     

Senior Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

 

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