Company Quick10K Filing
Quick10K
IF Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$19.96 4 $71
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-06-12 Other Events, Exhibits
8-K 2019-05-30 Officers
8-K 2019-04-26 Earnings, Exhibits
8-K 2019-02-13 Other Events, Exhibits
8-K 2019-01-30 Earnings, Exhibits
8-K 2018-12-06 Other Events, Exhibits
8-K 2018-11-19 Shareholder Vote
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-08-29 Earnings, Exhibits
8-K 2018-08-15 Other Events, Exhibits
8-K 2018-05-30 Officers
8-K 2018-04-30 Earnings, Exhibits
8-K 2018-03-08 Amend Bylaw, Exhibits
8-K 2018-02-14 Other Events, Exhibits
8-K 2018-01-31 Earnings, Exhibits
INFY Infosys 44,140
NRG NRG Energy 9,800
DOCU Docusign 9,270
CF CF Industries 9,100
CHS Chico's FAS 431
SKYL SKY Resort 0
LEXE Liberty Expedia Holdings 0
OLMM Onelife Technologies 0
HGIT Hines Global Income Trust 0
GOVX Geovax Labs 0
IROQ 2019-03-31
Part I. - Financial Information
Item 1. Financial Statements
Note 1: Basis of Financial Statement Presentation
Note 2: New Accounting Pronouncements
Note 3: Stock-Based Compensation
Note 4: Earnings per Common Share ("Eps")
Note 5: Securities
Note 6: Loans and Allowance for Loan Losses
Note 7: Federal Home Loan Bank Stock
Note 8: Accumulated Other Comprehensive Income (Loss)
Note 9: Changes in Accumulated Other Comprehensive Income (Aoci) By Component
Note 10: Income Taxes
Note 11: Regulatory Capital
Note 12: Disclosures About Fair Value of Assets and Liabilities
Note 13: Commitments
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 d929326dex311.htm
EX-31.2 d929326dex312.htm
EX-32 d929326dex32.htm

IF Bancorp Earnings 2019-03-31

IROQ 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d929326d10q.htm 10-Q 10-Q

 

 

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, 2019

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)

N/A

(Former name or former address, if changed since last report)

 

 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES  ☒    NO  ☐

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

 

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

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

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

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, par value $0.01 per share   IROQ   Nasdaq Capital Market

The Registrant had 3,581,052 shares of common stock, par value $0.01 per share, issued and outstanding as of May 2, 2019.

 

 

 


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, 2019 (unaudited) and June 30, 2018      1  
   Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended March 31, 2019 and 2018 (unaudited)      2  
   Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Nine Months Ended March 31, 2019 and 2018 (unaudited)      3  
   Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended March 31, 2019 and 2018 (unaudited)      4  
   Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2019 and 2018 (unaudited)      6  
   Notes to Condensed Consolidated Financial Statements (unaudited)      7  
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      37  
Item 3.    Quantitative and Qualitative Disclosures about Market Risk      52  
Item 4.    Controls and Procedures      52  
Part II. Other Information  
Item 1.    Legal Proceedings      53  
Item 1A.    Risk Factors      53  
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      53  
Item 3.    Defaults upon Senior Securities      53  
Item 4.    Mine Safety Disclosures      53  
Item 5.    Other Information      53  
Item 6.    Exhibits      54  
  

Signature Page

     55  

 


Part I. – Financial Information

Item 1. Financial Statements

IF Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amount)

 

     March 31,
2019
    June 30,
2018
 
Assets    (Unaudited)        

Cash and due from banks

   $ 5,607     $ 4,240  

Interest-bearing demand deposits

     951       514  
  

 

 

   

 

 

 

Cash and cash equivalents

     6,558       4,754  
  

 

 

   

 

 

 

Interest-bearing time deposits in banks

     2,500       1,750  

Available-for-sale securities

     130,927       125,996  

Loans, net of allowance for loan losses of $6,378 and $5,945 at March 31, 2019 and June 30, 2018, respectively

     492,504       476,480  

Premises and equipment, net of accumulated depreciation of $7,213 and $6,717 at March 31, 2019 and June 30, 2018, respectively

     10,680       10,226  

Federal Home Loan Bank stock, at cost

     2,430       3,285  

Foreclosed assets held for sale

     1,610       219  

Accrued interest receivable

     2,254       1,821  

Bank-owned life insurance

     9,005       8,803  

Mortgage servicing rights

     861       866  

Deferred income taxes

     2,674       4,003  

Other

     522       720  
  

 

 

   

 

 

 

Total assets

   $ 662,525     $ 638,923  
  

 

 

   

 

 

 

Liabilities and Equity

    

Liabilities

    

Deposits

    

Demand

   $ 22,256     $ 21,350  

Savings, NOW and money market

     195,615       195,491  

Certificates of deposit

     258,274       229,236  

Brokered certificates of deposit

     41,534       34,344  
  

 

 

   

 

 

 

Total deposits

     517,679       480,421  
  

 

 

   

 

 

 

Repurchase agreements

     2,242       2,281  

Federal Home Loan Bank advances

     54,000       67,500  

Advances from borrowers for taxes and insurance

     1,227       309  

Accrued post-retirement benefit obligation

     2,796       2,770  

Accrued interest payable

     594       188  

Other

     3,881       3,779  
  

 

 

   

 

 

 

Total liabilities

     582,419       557,248  
  

 

 

   

 

 

 

Commitments and Contingencies

    

Stockholders’ Equity

    

Common stock, $.01 par value per share, 100,000,000 shares authorized, 3,581,052 and 3,871,408 shares issued and outstanding at March 31, 2019 and June 30, 2018, respectively

     36       39  

Additional paid-in capital

     48,708       48,361  

Unearned ESOP shares, at cost, 235,751 and 250,185 shares at March 31, 2019 and June 30, 2018, respectively

     (2,358     (2,502

Retained earnings

     34,351       38,885  

Accumulated other comprehensive loss, net of tax

     (631     (3,108
  

 

 

   

 

 

 

Total stockholders’ equity

     80,106       81,675  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 662,525     $ 638,923  
  

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

1


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,
 
     2019     2018     2019      2018  

Interest and Dividend Income

         

Interest and fees on loans

   $ 5,747     $ 4,849     $ 16,973      $ 14,512  

Securities:

         

Taxable

     828       730       2,481        2,026  

Tax-exempt

     29       32       92        102  

Federal Home Loan Bank dividends

     41       26       110        71  

Deposits with other financial institutions

     68       38       134        102  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest and dividend income

     6,713       5,675       19,790        16,813  
  

 

 

   

 

 

   

 

 

    

 

 

 

Interest Expense

         

Deposits

     1,829       1,170       5,106        3,082  

Federal Home Loan Bank advances and repurchase agreements

     440       200       1,287        568  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest expense

     2,269       1,370       6,393        3,650  
  

 

 

   

 

 

   

 

 

    

 

 

 

Net Interest Income

     4,444       4,305       13,397        13,163  

Provision for Loan Losses

     61       110       436        468  
  

 

 

   

 

 

   

 

 

    

 

 

 

Net Interest Income After Provision for Loan Losses

     4,383       4,195       12,961        12,695  
  

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest Income

         

Customer service fees

     80       75       286        296  

Other service charges and fees

     53       62       208        262  

Insurance commissions

     160       129       497        472  

Brokerage commissions

     228       239       751        644  

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

     —         —         —          13  

Mortgage banking income, net

     25       121       177        256  

Gain on sale of loans

     48       23       227        173  

Gain (Loss) on foreclosed assets, net

     (82     (24     16        (24

Bank-owned life insurance income, net

     67       65       202        311  

Other

     189       223       725        655  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total noninterest income

     768       913       3,089        3,058  
  

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest Expense

         

Compensation and benefits

     2,625       2,417       7,839        7,312  

Office occupancy

     240       206       680        569  

Equipment

     345       315       1,016        973  

Federal deposit insurance

     41       44       127        129  

Stationary, printing and office

     30       45       93        111  

Advertising

     130       123       385        337  

Professional services

     75       154       289        421  

Supervisory examinations

     35       43       123        123  

Audit and accounting services

     18       18       103        106  

Organizational dues and subscriptions

     7       4       41        50  

Insurance bond premiums

     36       40       114        112  

Telephone and postage

     50       62       183        201  

Other

     429       363       1,622        1,571  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total noninterest expense

     4,061       3,834       12,615        12,015  
  

 

 

   

 

 

   

 

 

    

 

 

 

Income Before Income Tax

     1,090       1,274       3,435        3,738  

Provision for Income Tax

     286       280       910        2,497  
  

 

 

   

 

 

   

 

 

    

 

 

 

Net Income

   $ 804     $ 994     $ 2,525      $ 1,241  
  

 

 

   

 

 

   

 

 

    

 

 

 

Earnings Per Share:

         

Basic

   $ 0.24     $ 0.27     $ 0.72      $ 0.34  

Diluted

   $ 0.24     $ 0.27     $ 0.71      $ 0.33  

Dividends declared per common share

   $ 0.125     $ 0.10     $ 0.25      $ 0.20  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2


IF Bancorp, Inc.

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

(Dollars in thousands)

 

     Three Months
Ended March 31,
 
     2019     2018  

Net Income

   $ 804     $ 994  

Other Comprehensive Income (Loss)

    

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of $718 and $(874), for 2019 and 2018, respectively

     1,799       (1,689

Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $2 and $9 for 2019 and 2018, respectively

     5       50  
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     1,804       (1,639
  

 

 

   

 

 

 

Comprehensive Income (Loss)

   $ 2,608     $ (645
  

 

 

   

 

 

 
     Nine Months
Ended March 31,
 
     2019     2018  

Net Income

   $ 2,525     $ 1,241  

Other Comprehensive Income (Loss)

    

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of
$1,350 and $(1,125), for 2019 and 2018, respectively

     2,497       (2,352

Less: reclassification adjustment for realized gains included in net income, net of taxes of $0 and $4, for 2019 and 2018, respectively

     —         9  
  

 

 

   

 

 

 
     2,497       (2,361

Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $35 and $7 for 2019 and 2018, respectively

     (20     46  
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     2,477       (2,315
  

 

 

   

 

 

 

Comprehensive Income (Loss)

   $ 5,002     $ (1,074
  

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3


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 (Loss)
    Total  

For the three months ended March 31, 2019

              

Balance, January 1, 2019

   $ 36      $ 48,600      $ (2,406   $ 34,726     $ (2,435   $ 78,521  

Net income

     —          —          —         804       —         804  

Other comprehensive income

     —          —          —         —         1,804       1,804  

Dividends on common stock, $0.125 per share

     —          —          —         (447     —         (447

Stock equity plan

     —          56        —         —         —         56  

Stock repurchase, 35,356 shares, average price $20.72 each

     —          —          —         (732     —         (732

ESOP shares earned, 4,811 shares

     —          52        48       —         —         100  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2019

   $ 36      $ 48,708      $ (2,358   $ 34,351     $ (631   $ 80,106  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

For the three months ended March 31, 2018

              

Balance, January 1, 2018

   $ 39      $ 48,146      $ (2,598   $ 39,138     $ (1,249   $ 83,476  

Net income

     —          —          —         994       —         994  

Other comprehensive loss

     —          —          —         —         (1,639     (1,639

Dividends on common stock, $0.10 per share

     —          —          —         (390     —         (390

Stock equity plan

     —          57        —         —         —         57  

Stock repurchase, 49,000 shares, average price $20.00 each

     —          —          —         (980     —         (980

ESOP shares earned, 4,811 shares

     —          47        48       —         —         95  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2018

   $ 39      $ 48,250      $ (2,550   $ 38,762     $ (2,888   $ 81,613  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4


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

For the nine months ended March 31, 2019

             

Balance, July 1, 2018

   $ 39     $ 48,361      $ (2,502   $ 38,885     $ (3,108   $ 81,675  

Net income

     —         —          —         2,525       —         2,525  

Other comprehensive income

     —         —          —         —         2,477       2,477  

Dividends on common stock, $0.25 per share

     —         —          —         (900     —         (900

Stock equity plan

     —         169        —         —         —         169  

Stock repurchase, 290,356 shares, average price $21.23 each

     (3     —          —         (6,159     —         (6,162

ESOP shares earned, 14,434 shares

     —         178        144       —         —         322  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2019

   $ 36     $ 48,708      $ (2,358   $ 34,351     $ (631   $ 80,106  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

For the nine months ended March 31, 2018

             

Balance, July 1, 2017

   $ 39     $ 47,940      $ (2,694   $ 39,051     $ (367   $ 83,969  

Net income

     —         —          —         1,241       —         1,241  

Other comprehensive loss

     —         —          —         —         (2,315     (2,315

Reclassification of stranded tax effects due to tax reform

     —         —          —         206       (206     —    

Dividends on common stock, $0.20 per share

     —         —          —         (756     —         (756

Stock equity plan

     —         169        —         —         —         169  

Stock repurchase, 49,000 shares, average price $20.00 each

     —         —          —         (980     —         (980

ESOP shares earned, 14,434 shares

     —         141        144       —         —         285  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2018

   $ 39     $ 48,250      $ (2,550   $ 38,762     $ (2,888   $ 81,613  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5


IF Bancorp, Inc.

Condensed Consolidated Statement of Cash Flows (Unaudited)

(Dollars in thousands)

 

     Nine Months Ended
March 31,
 
     2019     2018  

Operating Activities

    

Net income

   $ 2,525     $ 1,241  

Items not requiring (providing) cash

    

Depreciation

     496       370  

Provision for loan losses

     436       468  

Amortization of premiums and discounts on securities

     47       128  

Deferred income taxes

     (56     1,639  

Net realized gains on loan sales

     (227     (173

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

     —         (13

Loss (Gain) on foreclosed assets held for sale

     (16     24  

Bank-owned life insurance income, net

     (202     (311

Originations of loans held for sale

     (11,221     (14,615

Proceeds from sales of loans held for sale

     11,659       13,493  

ESOP compensation expense

     322       285  

Stock equity plan expense

     169       169  

Changes in

    

Accrued interest receivable

     (433     (467

Other assets

     198       (77

Accrued interest payable

     406       93  

Post-retirement benefit obligation

     41       (296

Other liabilities

     (345     (377
  

 

 

   

 

 

 

Net cash provided by operating activities

     3,799       1,581  
  

 

 

   

 

 

 

Investing Activities

    

Net change in interest bearing time deposits

     (750     —    

Purchases of available-for-sale securities

     (10,495     (32,514

Proceeds from the sales of available-for-sale securities

     —         5,966  

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

     9,364       12,833  

Net change in loans

     (22,998     (17,453

Purchase of premises and equipment

     (950     (3,915

Proceeds from sale of foreclosed assets

     4,957       257  

Redemption of Federal Home Loan Bank stock

     2,295       1,666  

Purchase of Federal Home Loan Bank stock

     (1,440     (1,328

Proceeds from settlement of bank-owned life insurance policies

     —         397  
  

 

 

   

 

 

 

Net cash used in investing activities

     (20,017     (34,091
  

 

 

   

 

 

 

Financing Activities

    

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

     1,030       26,991  

Net increase in certificates of deposit, including brokered certificates

     36,228       12,669  

Net increase in advances from borrowers for taxes and insurance

     918       356  

Proceeds from Federal Home Loan Bank advances

     111,500       85,500  

Repayments of Federal Home Loan Bank advances

     (125,000     (90,000

Net increase (decrease) in repurchase agreements

     (39     551  

Dividends paid

     (453     (366

Stock purchase per stock repurchase plan

     (6,162     (980
  

 

 

   

 

 

 

Net cash provided by financing activities

     18,022       34,721  
  

 

 

   

 

 

 

Net Increase in Cash and Cash Equivalents

     1,804       2,211  

Cash and Cash Equivalents, Beginning of Period

     4,754       7,766  
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 6,558     $ 9,977  
  

 

 

   

 

 

 

Supplemental Cash Flows Information

    

Interest paid

   $ 5,987     $ 3,557  

Income taxes paid, net of refunds

   $ 175     $ 1,980  

Foreclosed assets acquired in settlement of loans

   $ 6,332     $ 179  

Dividends payable

   $ 447     $ 390  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6


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., a Maryland corporation (the “Company”), became the holding company for Iroquois Federal Savings and Loan Association (the “Association”) upon completion of the Association’s conversion from the mutual form of organization to the stock holding company form of organization (the “Conversion”) on July 7, 2011. In connection with the conversion, the Company completed its initial public offering of common stock, 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. The Company also established a charitable foundation, Iroquois Federal Foundation, to which the Company donated 314,755 shares of Company stock and $450,000 cash. IF Bancorp, Inc.’s common stock trades on the NASDAQ Capital Market under the symbol “IROQ”.

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, 2019 and June 30, 2018, and the results of its operations for the three month and nine month periods ended March 31, 2019 and 2018. 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, 2018. The results of operations for the three month and nine month periods ended March 31, 2019 are not necessarily indicative of the results that may be expected for the entire year.

Note 2:    New Accounting Pronouncements

In May, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance implements a common revenue standard that clarifies the principles for recognizing revenue. The core principal of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. The guidance does not apply to revenue associated with financial instruments, including loans and investments securities that are accounted for under other GAAP, which comprises a significant portion of our revenue stream. ASU 2014-09 became effective for the Company on July 1, 2018 and had no material effect on how we recognize revenue or to our consolidated financial statements. See below for additional information related to revenue generated from contracts with customers.

 

7


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.

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.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 became effective for the Company on July 1, 2018, and the adoption did not have material impact on our consolidated financial statements. The guidance also emphasizes the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies that entities should not make use of a practicability exception in determining the fair value of loans. Accordingly, we refined the calculation used to determine the disclosed fair value of our loans held for investment portfolio as part of adopting this standard. The refined calculation did not have a significant impact on our fair value disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the existing standards for lease accounting effectively bringing most leases onto the balance sheets of the related lessees by requiring them to recognize a right-of-use asset and a corresponding lease liability, while leaving lessor accounting largely unchanged with only targeted changes incorporated into the update. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods with early adoption permitted. The Company is currently reviewing the amendments to ensure it is fully compliant by the adoption date. As permitted by the amendments, the Company is anticipating electing an accounting policy to not recognize lease assets and lease liabilities for leases with a term of twelve months or less. The impact is not expected to have a material effect on the Company’s financial position or results of operations since the Company does not have a material amount of lease agreements. The Company continues to evaluate the amendments and does not expect to early adopt.

 

8


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, this update will be effective for interim and annual periods beginning after December 15, 2019. As we prepare for the adoption of ASU 2016-13, we have established a team to review the requirements as published, monitor developments and new guidance, and review and collect data that will be required to calculate and report the allowance when ASU 2016-13 becomes effective. This team has determined that our best option for compliance with ASU 2016-13 is an outsourced model. Therefore, we have entered an agreement with a firm specializing in ALLL modeling to begin transition modeling so we will be ready for the required adoption. We expect to have the new model in place and run parallel models beginning with quarter ending June 30, 2019. The Company has not yet determined the impact the adoption of ASU 2016-13 will have on the consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which amends ASC 230 to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASC 230 lacks consistent principles for evaluating the classification of cash payments and receipts in the statement of cash flows. This has led to diversity in practice and, in certain circumstances, financial statement restatements. Therefore, the FASB issued the ASU with the intent of reducing diversity in practice with respect to eight types of cash flows. The amendment became effective for the Company on July 1, 2018, and the adoption of ASU-2016-15 did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification”. ASU 2017-09 was issued to provide clarity and reduce both 1) diversity in practice and 2) cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award. Diversity in practice has arisen in part because some entities apply modification accounting under Topic 718 for modifications to terms and conditions that they consider substantive, but do not when they conclude that particular modifications are not substantive. Others apply modification accounting for any change to an award, except for changes that they consider purely administrative in nature. Still others apply modification accounting when a change to an award changes the fair value, the vesting, or the classification of the award. In practice, it appears that the evaluation of a change in fair value, vesting, or classification may be used to evaluate whether a change is substantive. ASU 2017-09 include guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. ASU 2017-09 became effective for the Company on July 1, 2018, and did not have a material impact on the Company’s 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

 

9


to their compensation, relative to total compensation of all active participants. Participants will vest 100% in their accrued benefits under the employee stock ownership plan after six vesting years, with prorated vesting in years two through five. Vesting is accelerated upon retirement, death or disability of the participant or a change in control of the Association. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Since the Association’s annual contributions are discretionary, benefits payable under the ESOP cannot be estimated. Participants receive the shares at the end of employment.

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

A summary of ESOP shares at March 31, 2019 and June 30, 2018 are as follows (dollars in thousands):

 

     March 31,
2019
     June 30,
2018
 

Allocated shares

     109,018        96,133  

Shares committed for release

     14,434        19,245  

Unearned shares

     235,751        250,185  
  

 

 

    

 

 

 

Total ESOP shares

     359,203        365,563  
  

 

 

    

 

 

 

Fair value of unearned ESOP shares (1)

   $ 4,699      $ 5,979  
  

 

 

    

 

 

 

 

(1)

Based on closing price of $19.93 and $23.90 per share on March 31, 2019, and June 30, 2018, respectively.

During the nine months ended March 31, 2019, 6,360 ESOP shares were paid to ESOP participants due to separation from service. During the nine months ended March 31, 2018, 6,116 ESOP shares were paid to ESOP participants due to separation from service.

At the annual meeting on November 19, 2012, the IF Bancorp, Inc. 2012 Equity Incentive Plan (the “Equity Incentive Plan”) was approved by stockholders. The purpose of the Equity Incentive Plan is to promote the long-term financial success of the Company and its Subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s stockholders. The Equity Incentive Plan authorizes the issuance or delivery to participants of up to 673,575 shares of the Company common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock unit awards, provided that the maximum number of shares of Company common stock that may be delivered pursuant to the exercise of stock options (all of which may be granted as incentive stock options) is 481,125 and the maximum number of shares of Company stock that may be issued as restricted stock awards or restricted stock units is 192,450.

On December 10, 2013, 85,500 shares of restricted stock and 167,000 in stock options were awarded to senior officers and directors of the Association. The restricted stock vests in equal installments over 10 years and the stock options vest in equal installments over 7 years. 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, 2019, there were 90,050 shares of restricted stock and 314,125 stock option shares available for future grants under this plan.

 

10


The following table summarizes stock option activity for the nine months ended March 31, 2019 (dollars in thousands):

 

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

Outstanding, June 30, 2018

     153,143      $ 16.63        

Granted

     —          —          

Exercised

     —          —          

Forfeited

     —          —          
  

 

 

    

 

 

       

Outstanding, March 31, 2019

     153,143      $ 16.63        4.7      $ 505  (1) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable, March 31, 2019

     108,571      $ 16.63        4.7      $ 358  (1) 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Based on closing price of $19.93 per share on March 31, 2019.

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, 2019.

There were 22,286 options that vested during the nine months ended March 31, 2019 compared to 22,285 stock options that vested during the nine months ended March 31, 2018. Stock-based compensation expense and related tax benefit was considered nominal for stock options for the nine months ended March 31, 2019 and 2018. Total unrecognized compensation cost related to non-vested stock options was $94,000 at March 31, 2019 and is expected to be recognized over the remaining weighted-average period of 1.7 years.

The following table summarizes non-vested restricted stock activity for the nine months ended March 31, 2019:

 

     Shares      Weighted-Average
Grant-Date Fair
Value
 

Balance, June 30, 2018

     60,375      $ 16.79  

Granted

     —          —    

Forfeited

     —          —    

Earned and issued

     10,062        16.79  
  

 

 

    

 

 

 

Balance, March 31, 2019

     50,313      $ 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 $35,000, respectively, for both the nine months ended March 31, 2019, and for the nine months ended March 31, 2018. Unrecognized compensation expense for non-vested restricted stock awards was $799,000 and is expected to be recognized over 4.7 years with a corresponding credit to paid-in capital.

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, 2019 and 2018. The factors used in the earnings per common share computation are as follows:

 

     Three Months
Ended
March 31,
2019
     Three Months
Ended
March 31,
2018
     Nine Months
Ended
March 31,
2019
     Nine Months
Ended
March 31,
2018
 

Net income

   $ 804      $ 994      $ 2,525      $ 1,241  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted average shares outstanding

     3,597,762        3,917,819        3,762,126        3,932,988  

Less: Average unallocated ESOP shares

     (238,157      (257,402      (242,968      (262,213
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic average shares outstanding

     3,359,605        3,660,417        3,519,158        3,670,775  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted effect of restricted stock awards and stock options

     45,749        38,126        57,472        35,806  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted average shares outstanding

     3,405,354        3,698,543        3,576,630        3,706,581  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 0.24      $ 0.27      $ 0.72      $ 0.34  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.24      $ 0.27      $ 0.71      $ 0.33  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11


The Company announced a stock repurchase plan on December 5, 2018, which allowed the Company to repurchase up to 290,356 shares of its common stock, or approximately 7.5% of its then current outstanding shares. As of March 31, 2019, all 290,356 shares had been repurchased under this plan at an average price of $21.23 per share.

On December 10, 2013, the Company awarded 85,500 shares of restricted stock and 167,000 in stock options to officers and directors of the Association as part of the IF Bancorp, Inc. 2012 Equity Incentive Plan. The restricted stock vests over 10 years and the stock options vest over 7 years, both starting in December 2014. On December 10, 2015, the Company awarded 16,900 shares of restricted stock to officers and directors of the Association as part of this plan. This restricted stock vests over 8 years, starting in December 2016.

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, 2019:

           

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

   $ 24,792      $ 202      $ (102    $ 24,892  

Mortgage-backed:

           

GSE residential

     98,610        394        (998      98,006  

Small Business Administration

     5,193        —          (30      5,163  

State and political subdivisions

     2,725        141        —          2,866  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 131,320      $ 737      $ (1,130    $ 130,927  
  

 

 

    

 

 

    

 

 

    

 

 

 

June 30, 2018:

           

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

   $ 24,757      $ —        $ (835    $ 23,922  

Mortgage-backed:

           

GSE residential

     100,534        24        (3,499      97,059  

Small Business Administration

     1,965        —          (74      1,891  

State and political subdivisions

     2,980        144        —          3,124  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 130,236      $ 168      $ (4,408    $ 125,996  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

12


With the exception of U.S. Government and federal agency and GSE securities, and mortgage-backed GSE residential securities with a book value of approximately $24,792,000 and $98,610,000, respectively, and a market value of approximately $24,892,000 and $98,006,000, respectively, at March 31, 2019, the Company held no securities at March 31, 2019 with a book value that exceeded 10% of total equity.

All mortgage-backed securities at March 31, 2019 and June 30, 2018 were issued by GSEs.

The amortized cost and fair value of available-for-sale securities at March 31, 2019, 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

   $ 1,149      $ 1,183  

One to five years

     10,058        9,956  

Five to ten years

     18,137        18,435  

After ten years

     3,366        3,347  
  

 

 

    

 

 

 
     32,710        32,921  

Mortgage-backed securities

     98,610        98,006  
  

 

 

    

 

 

 

Totals

   $ 131,320      $ 130,927  
  

 

 

    

 

 

 

The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $51,735,000 and $64,625,000 as of March 31, 2019 and June 30, 2018, respectively.

The carrying value of securities sold under agreement to repurchase amounted to $2,242,000 at March 31, 2019 and $2,281,000 at June 30, 2018. At March 31, 2019, approximately $777,000 of our repurchase agreements had an overnight maturity, while the remaining $1,465,000 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.

There were no sales of available-for-sale securities for the nine months ended March 31, 2019. Gross gains of $20,000 and gross losses of $7,000, resulting from sales of available-for-sale securities were realized for the nine month period ended March 31, 2018. The tax provision applicable to these net realized gains amounted to approximately $4,000. No gross gains or gross losses resulting from sales of available-for-sale securities were realized for the three month periods ended March 31, 2019 and 2018.

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, 2019 and June 30, 2018 was $83,346,000 and $119,180,000, respectively, which is approximately 64% and 95% of the Company’s available-for-sale investment portfolio. These declines in fair value at March 31, 2019 and June 30, 2018, resulted from increases in market interest rates and are considered temporary.

 

13


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, 2019 and June 30, 2018:

 

     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, 2019:

               

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

   $ —        $ —       $ 8,778      $ (102   $ 8,778      $ (102

Mortgage-backed:

               

GSE residential

     5,396        (89     63,966        (909     69,362        (998

Small Business Administration

     3,391        (19     1,815        (11     5,206        (30
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 8,787      $ (108   $ 74,559      $ (1,022   $ 83,346      $ (1,130
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

June 30, 2018:

               

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

   $ 15,541      $ (439   $ 8,381      $ (396   $ 23,922      $ (835

Mortgage-backed:

               

GSE residential

     59,478        (1,836     33,889        (1,663     93,367        (3,499

Small Business Administration

     —          —         1,891        (74     1,891        (74
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 75,019      $ (2,275   $ 44,161      $ (2,133   $ 119,180      $ (4,408
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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, 2019 and June 30, 2018, 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, 2019 and June 30, 2018.

Note 6:    Loans and Allowance for Loan Losses

Classes of loans include:

 

     March 31,
2019
     June 30,
2018
 

Real estate loans:

     

One-to four-family, including home equity loans

   $ 129,266      $ 134,977  

Multi-family

     106,400        107,436  

Commercial

     152,019        140,944  

Home equity lines of credit

     9,058        9,058  

Construction

     14,521        13,763  

Commercial

     80,350        68,720  

Consumer

     6,964        7,366  
  

 

 

    

 

 

 

Total loans

     498,578        482,264  

Less:

     

Unearned fees and discounts, net

     (304      (161

Allowance for loan losses

     6,378        5,945  
  

 

 

    

 

 

 

Loans, net

   $ 492,504      $ 476,480  
  

 

 

    

 

 

 

 

14


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.

 

15


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 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

 

16


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.

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 $270,863,000 and $260,671,000 as of March 31, 2019 and June 30, 2018, 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 $5,038,000 and $5,855,000 at March 31, 2019 and June 30, 2018, 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 $27,954,000 and $32,874,000 at March 31, 2019 and June 30, 2018, respectively, of which $9,820,000 and $11,009,000, at March 31, 2019 and June 30, 2018 were outside our primary market area.

 

17


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, 2019 and 2018 and the year ended June 30, 2018:

 

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

Allowance for loan losses:

           

Balance, beginning of period

   $ 1,023      $ 1,668      $ 1,804      $ 103  

Provision charged to expense

     (13      —          (77      2  

Losses charged off

     —          —          —          (15

Recoveries

     21        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 1,031      $ 1,668      $ 1,727      $ 90  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 17      $ —        $ 1      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,014      $ 1,668      $ 1,726      $ 90  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 129,266      $ 106,400      $ 152,019      $ 9,058  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,831      $ —        $ 25      $ 23  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 127,435      $ 106,400      $ 151,994      $ 9,035  
  

 

 

    

 

 

    

 

 

    

 

 

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

Allowance for loan losses:

           

Balance, beginning of period

   $ 170      $ 1,481      $ 70      $ 6,319  

Provision charged to expense

     29        116        4        61  

Losses charged off

     —          —          (8      (23

Recoveries

     —          —          —          21  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 199      $ 1,597      $ 66      $ 6,378  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 5      $ —        $ 23  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 199      $ 1,592      $ 66      $ 6,355  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 14,521      $ 80,350      $ 6,964      $ 498,578  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 172      $ 3      $ 2,054  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 14,521      $ 80,178      $ 6,961      $ 496,524  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended March 31, 2019
Real Estate Loans
 
     One-to Four-
Family
     Multi-Family      Commercial      Home Equity
Lines of
Credit
 

Allowance for loan losses:

           

Balance, beginning of period

   $ 997      $ 1,650      $ 1,604      $ 91  

Provision charged to expense

     12        18        123        14  

Losses charged off

     —          —          —          (15

Recoveries

     22        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 1,031      $ 1,668      $ 1,727      $ 90  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 17      $ —        $ 1      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 1,014      $ 1,668      $ 1,726      $ 90  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 129,266      $ 106,400      $ 152,019      $ 9,058  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 1,831      $ —        $ 25      $ 23  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 127,435      $ 106,400      $ 151,994      $ 9,035  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

18


     Nine Months Ended March 31, 2019 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of period

   $ 168      $ 1,373      $ 62      $ 5,945  

Provision charged to expense

     31        224        14        436  

Losses charged off

     —          —          (13      (28

Recoveries

     —          —          3        25  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 199      $ 1,597      $ 66      $ 6,378  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 5      $ —        $ 23  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 199      $ 1,592      $ 66      $ 6,355  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 14,521      $ 80,350      $ 6,964      $ 498,578  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 172      $ 3      $ 2,054  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 14,521      $ 80,178      $ 6,961      $ 496,524  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Year Ended June 30, 2018
Real Estate Loans
 
     One-to Four-
Family
     Multi-Family      Commercial      Home Equity
Lines of
Credit
 

Allowance for loan losses:

           

Balance, beginning of year

   $ 2,519      $ 1,336      $ 1,520      $ 76  

Provision charged to expense

     85        314        84        39  

Losses charged off

     (1,608      —          —          (24

Recoveries

     1        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of year

   $ 997      $ 1,650      $ 1,604      $ 91  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ 3      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 997      $ 1,650      $ 1,601      $ 91  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 134,977      $ 107,436      $ 140,944      $ 9,058  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 7,904      $ 1,329      $ 50      $ 26  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 127,073      $ 106,107      $ 140,894      $ 9,032  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Year Ended June 30, 2018 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of year

   $ 75      $ 1,242      $ 67      $ 6,835  

Provision charged to expense

     93        161        1        777  

Losses charged off

     —          (30      (14      (1,676

Recoveries

     —          —          8        9  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of year

   $ 168      $ 1,373      $ 62      $ 5,945  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ —        $ —        $ 3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 168      $ 1,373      $ 62      $ 5,942  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 13,763      $ 68,720      $ 7,366      $ 482,264  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 30      $ 3      $ 9,342  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 13,763      $ 68,690      $ 7,363      $ 472,922  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

19


     Three Months Ended March 31, 2018
Real Estate Loans
 
     One-to Four-
Family
     Multi-Family      Commercial      Home Equity
Lines of
Credit
 

Allowance for loan losses:

           

Balance, beginning of period

   $ 2,517      $ 1,460      $ 1,535      $ 78  

Provision charged to expense

     36        (20      30        (5

Losses charged off

     (1,528      —          —          —    

Recoveries

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 1,025      $ 1,440      $ 1,565      $ 73  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 36      $ —        $ 4      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 989      $ 1,440      $ 1,561      $ 73  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 135,888      $ 93,890      $ 137,979      $ 7,363  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 8,156      $ 1,346      $ 71      $ 30  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 127,732      $ 92,544      $ 137,908      $ 7,333  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended March 31, 2018 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of period

   $ 124      $ 1,341      $ 67      $ 7,122  

Provision charged to expense

     45        23        1        110  

Losses charged off

     —          —          (2      (1,530

Recoveries

     —          —          1        1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 169      $ 1,364      $ 67      $ 5,703  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 31      $ 1      $ 72  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 169      $ 1,333      $ 66      $ 5,631  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 14,930      $ 66,003      $ 7,794      $ 463,847  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 61      $ 5      $ 9,669  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 14,930      $ 65,942      $ 7,789      $ 454,178  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended March 31, 2018
Real Estate Loans
 
     One-to Four-
Family
     Multi-Family      Commercial      Home Equity
Lines of
Credit
 

Allowance for loan losses:

           

Balance, beginning of period

   $ 2,519      $ 1,336      $ 1,520      $ 76  

Provision charged to expense

     78        104        45        22  

Losses charged off

     (1,572      —          —          (25

Recoveries

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 1,025      $ 1,440      $ 1,565      $ 73  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 36      $ —        $ 4      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 989      $ 1,440      $ 1,561      $ 73  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 135,888      $ 93,890      $ 137,979      $ 7,363  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ 8,156      $ 1,346      $ 71      $ 30  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 127,732      $ 92,544      $ 137,908      $ 7,333  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

20


     Nine Months Ended March 31, 2018 (Continued)  
     Construction      Commercial      Consumer      Total  

Allowance for loan losses:

           

Balance, beginning of period

   $ 75      $ 1,242      $ 67      $ 6,835  

Provision charged to expense

     94        122        3        468  

Losses charged off

     —          —          (10      (1,607

Recoveries

     —          —          7        7  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 169      $ 1,364      $ 67      $ 5,703  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 31      $ 1      $ 72  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 169      $ 1,333      $ 66      $ 5,631  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

           

Ending balance

   $ 14,930      $ 66,003      $ 7,794      $ 463,847  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: individually evaluated for impairment

   $ —        $ 61      $ 5      $ 9,669  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance: collectively evaluated for impairment

   $ 14,930      $ 65,942      $ 7,789      $ 454,178  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

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

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

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

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

 

21


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 significant 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.

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.

 

22


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.

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, 2019:

        

Pass

   $ 127,307      $ 106,238      $ 150,708      $ 9,037      $ 14,521      $ 77,677      $ 6,933      $ 492,421  

Watch

     —          —          1,051        —          —          1,521        —          2,572  

Substandard

     1,869        162        260        21        —          1,152        31        3,495  

Doubtful

     90        —          —          —          —          —          —          90  

Loss

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 129,266      $ 106,400      $ 152,019      $ 9,058      $ 14,521      $ 80,350      $ 6,964      $ 498,578  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

23


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

June 30, 2018:

                       

Pass

   $ 127,410      $ 107,320      $ 139,805      $ 9,035      $ 13,763      $ 66,545      $ 7,362      $ 471,240  

Watch

     —          —          1,089        —          —          1,204        1        2,294  

Substandard

     1,265        116        50        23        —          941        3        2,398  

Doubtful

     6,302        —          —          —          —          30        —          6,332  

Loss

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 134,977      $ 107,436      $ 140,944      $ 9,058      $ 13,763      $ 68,720      $ 7,366      $ 482,264  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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, 2019:

                    

Real estate loans:

                    

One-to four-family

   $ 1,189      $ —        $ 477      $ 1,666      $ 127,600      $ 129,266      $ 262  

Multi-family

     1,029        —          —          1,029        105,371        106,400        —    

Commercial

     —          8        17        25        151,994        152,019        —    

Home equity lines of credit

     53        —          21        74        8,984        9,058        21  

Construction

     —          —          —          —          14,521        14,521        —    

Commercial

     —          61        168        229        80,121        80,350        —    

Consumer

     46        —          31        77        6,887        6,964        31  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,317      $ 69      $ 714      $ 3,100      $ 495,478      $ 498,578      $ 314  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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, 2018:

                    

Real estate loans:

                    

One-to four-family

   $ 1,426      $ 207      $ 6,633      $ 8,266      $ 126,711      $ 134,977      $ 293  

Multi-family

     —          —          2        2        107,434        107,436        —    

Commercial

     80        13        37        130        140,814        140,944        —    

Home equity lines of credit

     14        23        —          37        9,021        9,058        —    

Construction

     354        —          —          354        13,409        13,763        —    

Commercial

     76        —          30        106        68,614        68,720        —    

Consumer

     10        29        1        40        7,326        7,366        1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,960      $ 272      $ 6,703      $ 8,935      $ 473,329      $ 482,264      $ 294  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

24


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.

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 $1.5 million in TDRs that were classified as impaired.

The following tables present impaired loans:

 

                      Three Months Ended
March 31, 2019
    Nine Months Ended
March 31, 2019
 
    Recorded
Balance
    Unpaid
Principal
Balance
    Specific
Allowance
    Average
Investment
in Impaired
Loans
    Interest
Income
Recognized
    Interest on
Cash
Basis
    Average
Investment
in Impaired
Loans
    Interest
Income
Recognized
    Interest on
Cash
Basis
 

March 31, 2019:

                 

Loans without a specific valuation allowance

                 

Real estate loans:

                 

One-to four-family

  $ 1,741     $ 1,741     $ —       $ 1,752     $ 11     $ 20     $ 1,773     $ 50     $ 57  

Multi-family

    —         —         —         —         —         —         1       —         —    

Commercial

    24       24       —         30       —         —         36       —         —    

Home equity line of credit

    23       23       —         23       —         1       24       1       2  

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    167       167       —         176       —         —         194       5       7  

Consumer

    3       3       —         3       —         —         3       —         —    

Loans with a specific valuation allowance

                 

Real estate loans:

                 

One-to four-family

    90       90       17       90       1       1       90       4       4  

Multi-family

    —         —         —         —         —         —         —         —         —    

Commercial

    1       1       1       1       —         —         2       —         —    

Home equity line of credit

    —         —         —         —         —         —         —         —         —    

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    5       5       5       5       —         —         7       —         —    

Consumer

    —         —         —         —         —         —         —         —         —    

Total:

                 

Real estate loans:

                 

One-to four-family

    1,831       1,831       17       1,842       12       21       1,863       54       61  

Multi-family

    —         —         —         —         —         —         1       —         —    

Commercial

    25       25       1       31       —         —         38       —         —    

Home equity line of credit

    23       23       —         23       —         1       24       1       2  

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    172       172       5       181       —         —         201       5       7  

Consumer

    3       3       —         3       —         —         3       —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 2,054     $ 2,054     $ 23     $ 2,080     $ 12     $ 22     $ 2,130     $ 60     $ 70  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


                     Year Ended June 30, 2018  
     Recorded
Balance
     Unpaid
Principal
Balance
     Specific
Allowance
     Average
Investment
in Impaired
Loans
     Interest
Income
Recognized
     Interest on
Cash
Basis
 

June 30, 2018:

                 

Loans without a specific valuation allowance

                 

Real estate loans:

                 

One-to four-family

   $ 7,904      $ 7,904      $ —        $ 8,739      $ 50      $ 51  

Multi-family

     1,329        1,329        —          1,359        85        85  

Commercial

     47        47        —          86        4        5  

Home equity line of credit

     26        26        —          28        2        2  

Construction

     —          —          —          —          —          —    

Commercial

     30        30        —          57        —          —    

Consumer

     3        3        —          4        1        1  

Loans with a specific allowance

                 

Real estate loans:

                 

One-to four-family

     —          —          —          —          —          —    

Multi-family

     —          —          —          —          —          —    

Commercial

     3        3        3        5        —          —    

Home equity line of credit

     —          —          —          —          —          —    

Construction

     —          —          —          —          —          —    

Commercial

     —          —          —          —          —          —    

Consumer

     —          —          —          —          —          —    

Total:

                 

Real estate loans:

                 

One-to four-family

     7,904        7,904        —          8,739        50        51  

Multi-family

     1,329        1,329        —          1,359        85        85  

Commercial

     50        50        3        91        4        5  

Home equity line of credit

     26        26        —          28        2        2  

Construction

     —          —          —          —          —          —    

Commercial

     30        30        —          57        —          —    

Consumer

     3        3        —          4        1        1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 9,342      $ 9,342      $ 3      $ 10,278      $ 142      $ 144  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

26


                      Three Months Ended
March 31, 2018
    Nine Months Ended
March 31, 2018
 
    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, 2018:

                 

Loans without a specific valuation allowance

                 

Real estate loans:

                 

One-to four-family

  $ 8,105     $ 8,105     $ —       $ 8,949     $ 12     $ 12     $ 8,973     $ 35     $ 37  

Multi-family

    1,346       1,346       —         1,353       21       21       1,368       64       64  

Commercial

    67       67       —         90       —         1       96       4       5  

Home equity line of credit

    30       30       —         30       1       1       31       2       2  

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    —         —         —         —         —         —         —         —         —    

Consumer

    4       4       —         4       —         —         5       1       1  

Loans with a specific valuation allowance

                 

Real estate loans:

                 

One-to four-family

    51       51       36       53       —         —         53       1       1  

Multi-family

    —         —         —         —         —         —         —         —         —    

Commercial

    4       4       4       4       —         —         5       —         —    

Home equity line of credit

    —         —         —         —         —         —         —         —         —    

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    61       61       31       61       —         —         72       —         —    

Consumer

    1       1       1       1       —         —         2       —         —    

Total:

                 

Real estate loans:

                 

One-to four-family

    8,156       8,156       36       9,002       12       12       9,026       36       38  

Multi-family

    1,346       1,346       —         1,353       21       21       1,368       64       64  

Commercial

    71       71       4       94       —         1       101       4       5  

Home equity line of credit

    30       30       —         30       1       1       31       2       2  

Construction

    —         —         —         —         —         —         —         —         —    

Commercial

    61       61       31       61       —         —         72       —         —    

Consumer

    5       5       1       5       —         —         7       1       1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 9,669     $ 9,669     $ 72     $ 10,545     $ 34     $ 35     $ 10,605     $ 107     $ 110  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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, 2019 and June 30, 2018:

 

     March 31,
2019
     June 30,
2018
 

Mortgages on real estate:

     

One-to four-family

   $ 510      $ 6,339  

Multi-family

     —          116  

Commercial

     25        50  

Home equity lines of credit

     —          —    

Construction loans

     —          —    

Commercial business loans

     172        30  

Consumer loans

     —          —    
  

 

 

    

 

 

 

Total

   $ 707      $ 6,535  
  

 

 

    

 

 

 

 

27


At March 31, 2019 and June 30, 2018, 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 TDRs, all of which were performing according to the terms of the restructuring as of March 31, 2019, except for three one-to four-family real estate loans for $146,000, one commercial real estate loan for $1,000, one home equity line of credit for $21,000, and one consumer loan for $3,000. As of March 31, 2019, all loans listed were on nonaccrual except for ten one-to four-family residential loans totaling $1.3 million, two home equity lines of credit totaling $23,000, and one consumer loan for $3,000. All loans listed as of June 30, 2018 were on nonaccrual except for thirteen one- to four-family residential loans totaling $1.6 million, one multi-family loan for $1.2 million, two home equity lines of credit for $26,000, and one consumer loan for $4,000.

 

     March 31,
2019
     June 30,
2018
 

Real estate loans

     

One-to four-family

   $ 1,497      $ 1,588  

Multi-family

     —          1,213  

Commercial

     8        17  

Home equity lines of credit

     23        26  
  

 

 

    

 

 

 

Total real estate loans

     1,528        2,844  
  

 

 

    

 

 

 

Construction

     —          —    

Commercial

     —          30  

Consumer loans

     3        3  
  

 

 

    

 

 

 

Total

   $ 1,531      $ 2,877  
  

 

 

    

 

 

 

TDR Modifications

During the nine month period ended March 31, 2019, one one-to four-family loan for $162,000 was modified as a TDR.

During the year ended June 30, 2018, the Company modified as TDRs three one-to four-family loans totaling $830,000, one home equity line of credit for $24,000, one commercial business loan for $84,000, and one consumer loan for $5,000.

During the nine month period ended March 31, 2018, the Company modified as TDRs two one-to four-family loans totaling $62,000 and one commercial real estate loan with a recorded investment of $15,000.

TDR’s with Defaults

The Company had six TDRs, including three one-to four-family residential loans totaling $146,000, one home equity line of credit for $21,000, one consumer loan for $3,000, and one commercial real estate loan for $1,000 that were in default as of March 31, 2019, and were restructured in prior periods. No restructured loans were in foreclosure at March 31, 2019. The Company had six TDRs, four one- to four-family residential loans for $169,000, one commercial real estate loan for $3,000, and one commercial business loan for $30,000 that were in default as of June 30, 2018, and were restructured in prior years. No restructured loans were in foreclosure at June 30, 2018. 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.

 

28


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, 2019, the carrying value of foreclosed residential real estate properties as a result of obtaining physical possession was $1,372,000. In addition, as of March 31, 2019, we had residential mortgage loans and home equity loans with a carrying value of $200,000 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 $2,430,000 of Federal Home Loan Bank stock as of March 31, 2019 and $3,285,000 as of June 30, 2018. The FHLB provides liquidity and funding through advances.

Note 8:    Accumulated Other Comprehensive Income (Loss)

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

 

     March 31,
2019
     June 30,
2018
 

Net unrealized losses on securities available-for-sale

   $ (393    $ (4,240

Net unrealized postretirement health benefit plan obligations

     (489      (504
  

 

 

    

 

 

 
     (882      (4,744

Tax effect

     251        1,636  
  

 

 

    

 

 

 

Total

   $ (631    $ (3,108
  

 

 

    

 

 

 

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, 2019 and 2018, were as follows:

 

     Amounts Reclassified from
AOCI
     
     Three Months
Ended
March 31,
    Nine Months
Ended
March 31,
     
     2019      2018     2019      2018    

Affected Line Item in the Condensed

Consolidated Statements of Income

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

   $ —        $ —       $ —        $ 13    

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

   $ 7      $ 18     $ 15      $ 41    

Prior service costs

   $ —        $ (8   $ —        $ (25  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total reclassified amount before tax

     7        10       15        29    

Tax expense

     2        3       5        8     Provision for Income Tax
  

 

 

    

 

 

   

 

 

    

 

 

   

Total reclassification out of AOCI

   $ 5      $ 7     $ 10      $ 21     Net Income
  

 

 

    

 

 

   

 

 

    

 

 

   

 

29


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,
 
     2019      2018      2019      2018  

Computed at the statutory rate*

   $ 229      $ 352      $ 721      $ 1,032  

Decrease resulting from

           

Tax exempt interest

     (6      (9      (19      (28

Cash surrender value of life insurance

     (14      (18      (42      (86

State income taxes

     73        82        231        230  

Adjustment of deferred tax asset and tax rate change for enacted changes in tax laws

     —          (137      —          1,318  

Other

     4        10        20        31  
  

 

 

    

 

 

    

 

 

    

 

 

 

Actual expense

   $ 286      $ 280      $ 910      $ 2,497  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  *

Statutory tax rate was 21% for the three and nine months ended March 31, 2019 and 27.6% (blended rate) for three and nine months ended March 31, 2018.

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.

Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios of total risk-based capital and Tier 1 capital to risk-weighted assets, and Tier 1 capital to adjusted total assets. Management believes, as of March 31, 2019, the Association meets all capital adequacy requirements to which it is subject.

 

30


As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies are 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 may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%. A financial institution can elect to be subject to this new definition.

As of March 31, 2019, the Association was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Association has to maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. 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, 2019 and June 30, 2018:

 

            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, 2019:

           

Available-for-sale securities:

           

US Government and federal agency

   $ 24,892      $ —        $ 24,892      $ —    

Mortgage-backed securities – GSE residential

     98,006        —          98,006        —    

Small Business Administration

     5,163        —          5,163        —    

State and political subdivisions

     2,866        —          2,866        —    

Mortgage servicing rights

     861        —          —          861  

 

31


            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, 2018:

           

Available-for-sale securities:

           

US Government and federal agency

   $ 23,922      $ —        $ 23,922      $ —    

Mortgage-backed securities – GSE residential

     97,059        —          97,059        —    

Small Business Administration

     1,891        —          1,891        —    

State and political subdivisions

     3,124        —          3,124        —    

Mortgage servicing rights

     866        —          —          866  

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, 2019. 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, 2018 or June 30, 2017. 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, 2019 or June 30, 2018.

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.

 

32


Level 3 Reconciliation

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

 

     Mortgage
Servicing Rights
 

Balance, July 1, 2018

   $ 866  

Total realized and unrealized gains and losses included in net income

     (37

Servicing rights that result from asset transfers

     102  

Payments received and loans refinanced

     (70
  

 

 

 

Balance, March 31, 2019

   $ 861  
  

 

 

 

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

   $ (37
  

 

 

 

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, 2019 and June 30, 2018:

 

            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, 2019:

           

Impaired loans (collateral-dependent)

   $ 72      $ —        $ —        $ 72  

Foreclosed assets

   $ 1,372      $ —        $ —        $ 1,372  

June 30, 2018:

           

Impaired loans (collateral-dependent)

   $ —        $ —        $ —        $ —    

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, 2019 and 2018:

 

     Three Months
Ended

March 31,
     Nine Months
Ended

March 31,
 
     2019      2018      2019      2018  

Impaired loans (collateral-dependent)

   $ —        $ (68    $ —        $ (68

Foreclosed and repossessed assets held for sale

   $ (160    $ —        $ (160    $ —    

 

33


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.

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, 2019 and June 30, 2018.

 

     Fair Value at
March 31, 2019
    

Valuation Technique

  

Unobservable Inputs

  

Range (Weighted Average)

Mortgage servicing rights

   $ 861      Discounted cash flow    Discount rate    9.5% - 11.5% (9.5%)
         Constant prepayment rate    6.6% - 11.5% (7.6%)
         Probability of default    0.00% - 0.17% (0.16%)

Impaired loans (collateral-dependent)

     72      Market comparable properties    Marketability discount    10.0% (0.0%)

Foreclosed assets

     1,372      Market comparable properties    Comparability adjustments (%)    7.8% (7.8%)
     Fair Value at
June 30, 2018
    

Valuation Technique

  

Unobservable Inputs

  

Range (Weighted Average)

Mortgage servicing rights

   $ 866      Discounted cash flow    Discount rate    9.5% - 11.5% (9.5%)
         Constant prepayment rate    6.3% - 10.3% (6.6%)
         Probability of default    0.00% - 0.17% (.16%)

Impaired loans (collateral-dependent)

     —        Market comparable properties    Marketability discount    0.0% (0.0%)

 

34


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, 2019 and June 30, 2018.

 

     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, 2019:

           

Financial assets

           

Cash and cash equivalents

   $ 6,558      $ 6,558      $ —        $ —    

Interest-bearing time deposits in banks

     2,500        2,500        —          —    

Loans, net of allowance for loan losses

     492,504        —          —          482,880  

Federal Home Loan Bank stock

     2,430        —          2,430        —    

Accrued interest receivable

     2,254        —          2,254        —    

Financial liabilities

           

Deposits

     517,679        —          217,871        299,253  

Repurchase agreements

     2,242        —          2,242        —    

Federal Home Loan Bank advances

     54,000        —          54,197        —    

Advances from borrowers for taxes and insurance

     1,227        —          1,227        —    

Accrued interest payable

     594        —          594        —    

Unrecognized financial instruments (net of contract amount)

     —          —          —          —    

Commitments to originate loans

     —          —          —          —    

Lines of credit

     —          —          —          —    

 

35


     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, 2018:

           

Financial assets

           

Cash and cash equivalents

   $ 4,754      $ 4,754      $ —        $ —    

Interest-bearing time deposits in banks

     1,750        1,750        —          —    

Loans, net of allowance for loan losses

     476,480        —          —          468,932  

Federal Home Loan Bank stock

     3,285        —          3,285        —    

Accrued interest receivable

     1,821        —          1,821        —    

Financial liabilities

           

Deposits

     480,421        —          216,841        261,898  

Repurchase agreements

     2,281        —          2,281        —    

Federal Home Loan Bank advances

     67,500        —          67,355        —    

Advances from borrowers for taxes and insurance

     309        —          309        —    

Accrued interest payable

     188        —          188        —    

Unrecognized financial instruments (net of contract amount)

     —          —          —          —    

Commitments to originate loans

     —          —          —          —    

Lines of credit

     —          —          —          —    

The methods utilized to estimate the fair value of financial instruments at June 30, 2018 did not necessarily represent an exit price. 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, 2019 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.

 

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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. Additional factors that may affect our results are discussed under “Item 1A. - Risk Factors”, in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018, and the Company’s other filings with the SEC. 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.

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. In addition, we issued 314,755 shares of our common stock and $450,000 in cash to the Iroquois Federal Foundation.

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.

 

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