IF Bancorp, Inc. - Quarter Report: 2020 December (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 December 31, 2020

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

For the transition period from to

Commission File No. 001-35226

IF Bancorp, Inc.

(Exact name of registrant as specified in its charter)


Maryland		45-1834449
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

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

(815) 432-2476

(Registrant’s telephone number)

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

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, $0.01 par value

IROQ

The Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐

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

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

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

IF Bancorp, Inc.

Form 10-Q

Index


		Page
Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements		1

	Condensed Consolidated Balance Sheets as of December 31, 2020 (unaudited) and June 30, 2020		1

	Condensed Consolidated Statements of Income for the Three Months and Six Months Ended December 31, 2020 and 2019 (unaudited)		2

	Condensed Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended December 31, 2020 and 2019 (unaudited)		3

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2020 and 2019 (unaudited)		4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2020 and 2019 (unaudited)		6

	Notes to Condensed Consolidated Financial Statements (unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		37

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		54

Item 4.	Controls and Procedures		54

Part II. Other Information

Item 1.	Legal Proceedings		55

Item 1A.	Risk Factors		55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		55

Item 3.	Defaults upon Senior Securities		55

Item 4.	Mine Safety Disclosures		55

Item 5.	Other Information		55

Item 6.	Exhibits		55

	Signature Page		56

Part I. – Financial Information

Item 1.

Financial Statements

IF Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amount)


	December 31,			June 30,
	2020			2020
	(Unaudited)
Assets
Cash and due from banks	$	6,789		$	31,529
Interest-bearing demand deposits		876			1,938

Cash and cash equivalents		7,665			33,467

Interest-bearing time deposits in banks		3,000			3,000
Available-for-sale securities		167,551			162,394
Loans, net of allowance for loan losses of $6,449 and $6,234 at December 31, 2020 and June 30, 2020, respectively		506,786			509,817
Premises and equipment, net of accumulated depreciation of $8,354 and $8,016 at December 31, 2020 and June 30, 2020, respectively		10,046			10,193
Federal Home Loan Bank stock, at cost		4,198			3,028
Foreclosed assets held for sale		377			386
Accrued interest receivable		2,188			1,908
Bank-owned life insurance		9,484			9,345
Mortgage servicing rights		756			715
Deferred income taxes		678			630
Other		670			634

Total assets	$	713,399		$	735,517

Liabilities and Equity
Liabilities
Deposits
Demand	$	35,555		$	87,486
Savings, NOW and money market		274,769			232,723
Certificates of deposit		264,702			269,152
Brokered certificates of deposit		12,339			12,339

Total deposits		587,365			601,700

Repurchase agreements		4,571			3,738
Federal Home Loan Bank advances		24,000			34,500
Line of credit and other borrowings		3,000			3,000
Advances from borrowers for taxes and insurance		1,468			519
Accrued post-retirement benefit obligation		3,334			3,306
Accrued interest payable		334			537
Other		4,409			5,653

Total liabilities		628,481			652,953

Commitments and Contingencies
Stockholders’ Equity
Common stock, $.01 par value per share, 100,000,000 shares authorized, 3,240,376 shares issued and outstanding at both December 31, 2020 and June 30, 2020		32			32
Additional paid-in capital		49,427			49,239
Unearned ESOP shares, at cost, 202,073 and 211,695 shares at December 31, 2020 and June 30, 2020, respectively		(2,021	)		(2,117	)
Retained earnings		33,547			31,207
Accumulated other comprehensive income, net of tax		3,933			4,203

Total stockholders’ equity		84,918			82,564

Total liabilities and stockholders’ equity	$	713,399		$	735,517

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in thousands except per share amounts)


	Three Months Ended December 31,						Six Months Ended December 31,
	2020			2019			2020			2019
Interest and Dividend Income
Interest and fees on loans	$	5,366		$	5,794		$	10,719		$	11,691
Securities:
Taxable		803			911			1,643			1,830
Tax-exempt		9			23			20			53
Federal Home Loan Bank dividends		38			13			72			36
Deposits with other financial institutions		22			48			49			187

Total interest and dividend income		6,238			6,789			12,503			13,797

Interest Expense
Deposits		1,073			2,219			2,308			4,502
Borrowings and repurchase agreements		115			229			257			368

Total interest expense		1,188			2,448			2,565			4,870

Net Interest Income		5,050			4,341			9,938			8,927
Provision (Credit) for Loan Losses		(49	)		(30	)		266			(84	)

Net Interest Income After Provision for Loan Losses		5,099			4,371			9,672			9,011

Noninterest Income
Customer service fees		74			95			141			197
Other service charges and fees		103			87			218			152
Insurance commissions		169			192			329			354
Brokerage commissions		231			234			456			469
Gain (loss) on sales of available-for-sale securities		—			(8	)		204			(7	)
Mortgage banking income, net		103			116			193			161
Gain on sale of loans		484			144			1,047			284
Bank-owned life insurance income, net		69			69			139			139
Other		230			294			487			542

Total noninterest income		1,463			1,223			3,214			2,291

Noninterest Expense
Compensation and benefits		2,978			2,706			5,855			5,371
Office occupancy		217			242			446			497
Equipment		422			387			845			773
Federal deposit insurance		46			—			90			28
Stationary, printing and office		20			26			53			56
Advertising		136			97			220			218
Professional services		152			155			252			271
Supervisory examinations		38			41			73			85
Audit and accounting services		18			18			91			87
Organizational dues and subscriptions		20			19			42			38
Insurance bond premiums		38			37			87			78
Telephone and postage		44			48			94			98
Loss (gain) on foreclosed assets, net		(19	)		—			(10	)		2
Other		418			482			871			849

Total noninterest expense		4,528			4,258			9,009			8,451

Income Before Income Tax		2,034			1,336			3,877			2,851
Provision for Income Tax		571			372			1,083			787

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

Earnings Per Share:
Basic	$	0.48		$	0.32		$	0.92		$	0.65
Diluted	$	0.48		$	0.31		$	0.91		$	0.64
Dividends declared per common share	$	—		$	—		$	0.15		$	0.15

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)


	Three Months Ended December 31,
	2020			2019
Net Income	$	1,463		$	964
Other Comprehensive Income
Unrealized depreciation on available-for-sale securities, net of taxes of $(111) and $(197), for 2020 and 2019, respectively		(278	)		(498	)
Less: reclassification adjustment for realized losses included in net income, net of taxes of $0 and $(2), for 2020 and 2019, respectively		—			(6	)

		(278	)		(492	)
Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $2 and $2 for 2020 and 2019, respectively		6			4

Other comprehensive loss, net of tax		(272	)		(488	)

Comprehensive Income	$	1,191		$	476


	Six Months Ended December 31,
	2020			2019
Net Income	$	2,794		$	2,064
Other Comprehensive Income
Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of $(53) and $148, for 2020 and 2019, respectively		(131	)		370
Less: reclassification adjustment for realized gains (losses) included in net income, net of taxes of $58 and $(2), for 2020 and 2019, respectively		146			(5	)

		(277	)		375
Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $3 and $3 for 2020 and 2019, respectively		7			7

Other comprehensive income (loss), net of tax		(270	)		382

Comprehensive Income	$	2,524		$	2,446

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share amounts)


	Common Stock		Additional Paid-In Capital		Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income			Total
For the three months ended December 31, 2020
Balance, October 1, 2020	$	32	$	49,326	$	(2,069	)	$	32,053		$	4,205		$	83,547
Net income		—		—		—			1,463			—			1,463
Other comprehensive loss		—		—		—			—			(272	)		(272	)
Dividends paid on unearned ESOP		—		—		—			31			—			31
Stock equity plan		—		54		—			—			—			54
ESOP shares earned, 4,811 shares		—		47		48			—			—			95

Balance, December 31, 2020	$	32	$	49,427	$	(2,021	)	$	33,547		$	3,933		$	84,918

For the three months ended December 31, 2019
Balance, October 1, 2019	$	32	$	48,925	$	(2,261	)	$	29,156		$	1,435		$	77,287
Net income		—		—		—			964			—			964
Other comprehensive loss		—		—		—			—			(488	)		(488	)
Dividends paid on unearned ESOP		—		—		—			34			—			34
Stock equity plan		—		56		—			—			—			56
Stock repurchase, 10,900 shares, average price $21.40 each		—		—		—			(233	)		—			(233	)
ESOP shares earned, 4,811 shares		—		60		48			—			—			108

Balance, December 31, 2019	$	32	$	49,041	$	(2,213	)	$	29,921		$	947		$	77,728

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share amounts)


	Common Stock			Additional Paid-In Capital		Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income			Total
For the six months ended December 31, 2020
Balance, July 1, 2020	$	32		$	49,239	$	(2,117	)	$	31,207		$	4,203		$	82,564
Net income		—			—		—			2,794			—			2,794
Other comprehensive loss		—			—		—			—			(270	)		(270	)
Dividends on common stock, $0.15 per share		—			—		—			(454	)		—			(454	)
Stock equity plan		—			113		—			—			—			113
ESOP shares earned, 9,622 shares		—			75		96			—			—			171

Balance, December 31, 2020	$	32		$	49,427	$	(2,021	)	$	33,547		$	3,933		$	84,918

For the six months ended December 31, 2019
Balance, July 1, 2019	$	36		$	48,813	$	(2,309	)	$	35,356		$	565		$	82,461
Net income		—			—		—			2,064			—			2,064
Other comprehensive income		—			—		—			—			382			382
Dividends on common stock, $0.15 per share		—			—		—			(487	)		—			(487	)
Stock equity plan		—			111		—			—			—			111
Stock repurchase, 315,081 shares, average price $22.27 each		(4	)		—		—			(7,012	)		—			(7,016	)
ESOP shares earned, 9,622 shares		—			117		96			—			—			213

Balance, December 31, 2019	$	32		$	49,041	$	(2,213	)	$	29,921		$	947		$	77,728

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statement of Cash Flows (Unaudited)

(Dollars in thousands)


	Six Months Ended December 31,
	2020			2019
Operating Activities
Net income	$	2,794		$	2,064
Items not requiring (providing) cash
Depreciation		338			327
Provision (credit) for loan losses		266			(84	)
Amortization of premiums and discounts on securities		337			185
Deferred income taxes		60			321
Net realized gains on loan sales		(1,047	)		(284	)
Net realized losses (gains) on sales of available-for-sale securities		(204	)		7
Loss (gain) on foreclosed assets held for sale		(10	)		2
Bank-owned life insurance income, net		(139	)		(139	)
Originations of loans held for sale		(30,676	)		(14,997	)
Proceeds from sales of loans held for sale		32,234			15,562
ESOP compensation expense		171			213
Stock equity plan expense		113			111
Changes in
Accrued interest receivable		(280	)		(175	)
Other assets		(36	)		(159	)
Accrued interest payable		(203	)		905
Post-retirement benefit obligation		38			31
Other liabilities		(1,244	)		(321	)

Net cash provided by operating activities		2,512			3,569

Investing Activities
Net change in interest-bearing time deposits		—			—
Purchases of available-for-sale securities		(29,863	)		(17,598	)
Proceeds from sales of available-for-sale securities		7,830			6,132
Proceeds from maturities and pay-downs of available-for-sale securities		16,355			11,283
Net change in loans		1,960			(3,169	)
Purchase of premises and equipment		(191	)		(91	)
Proceeds from sale of foreclosed assets		272			571
Purchase of Federal Home Loan Bank stock		(1,170	)		(424	)

Net cash used in investing activities		(4,807	)		(3,296	)

Financing Activities
Net decrease in demand deposits, money market, NOW and savings accounts		(9,885	)		(42,125	)
Net decrease in certificates of deposit, including brokered certificates		(4,450	)		(15,572	)
Net increase in advances from borrowers for taxes and insurance		949			346
Proceeds from Federal Home Loan Bank advances		72,000			31,500
Repayments of Federal Home Loan Bank advances		(82,500	)		(22,000	)
Proceeds from other borrowings		—			5,000
Net increase in repurchase agreements		833			1,325
Dividends paid		(454	)		(487	)
Purchases of Common Stock		—			(7,016	)

Net cash used in financing activities		(23,507	)		(49,029	)

Net Decrease in Cash and Cash Equivalents		(25,802	)		(48,756	)
Cash and Cash Equivalents, Beginning of Period		33,467			59,600

Cash and Cash Equivalents, End of Period	$	7,665		$	10,844

Supplemental Cash Flows Information
Interest paid	$	2,768		$	3,965
Income taxes paid	$	1,689		$	513
Foreclosed assets acquired in settlement of loans	$	253		$	230

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Form 10-Q (Unaudited)

(Table dollar amounts in thousands)

Notes to Condensed Consolidated Financial Statements

Note 1: Basis of Financial Statement Presentation

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

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

COVID-19

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

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

Revenue Recognition

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

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

•

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

•

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

•

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

•

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

Note 2: New Accounting Pronouncements

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

Note 3: Stock-based Compensation

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

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

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

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


	December 31, 2020		June 30, 2020
Allocated shares		146,347		127,102
Shares committed for release		9,622		19,245
Unearned shares		202,073		211,695

Total ESOP shares		358,042		358,042

Fair value of unearned ESOP shares (1)	$	4,452	$	3,652

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

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

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

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

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


	Options		Weighted-Average Exercise Price/Share		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding, June 30, 2020		153,143	$	16.63
Granted		—		—
Exercised		—		—
Forfeited		—		—

Outstanding, December 31, 2020		153,143	$	16.63		2.9	$	827	⁽¹⁾

Exercisable, December 31, 2020		153,143	$	16.63		2.9	$	827	⁽¹⁾

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

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

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

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


	Shares		Weighted-Average Grant- Date Fair Value
Balance, June 30, 2020		40,250	$	16.79
Granted		—		—
Forfeited		—		—
Earned and issued		10,062		16.79

Balance, December 31, 2020		30,188	$	16.79

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

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

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


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	December 31, 2020			December 31, 2019			December 31, 2020			December 31, 2019
Net income (loss)	$	1,463		$	964		$	2,794		$	2,064

Basic weighted average shares outstanding		3,240,376			3,266,353			3,240,376			3,399,814
Less: Average unallocated ESOP shares		(204,478	)		(223,723	)		(206,884	)		(226,129	)

Basic average shares outstanding		3,035,898			3,042,630			3,033,492			3,173,685

Diluted effect of restricted stock awards and stock options		36,598			57,282			24,141			54,778

Diluted average shares outstanding		3,072,496			3,099,912			3,057,633			3,228,463

Basic earnings per common share	$	0.48		$	0.32		$	0.92		$	0.65

Diluted earnings per common share	$	0.48		$	0.31		$	0.91		$	0.64

Note 5: Securities

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
December 31, 2020:
U.S. Government and federal agency and Government sponsored enterprises (GSE’s)	$	7,525	$	645	$	—		$	8,170
Mortgage-backed:
GSE residential		148,886		5,908		(273	)		154,521
Small Business Administration		3,471		138		—			3,609
State and political subdivisions		1,251		—		—			1,251

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

June 30, 2020:
U.S. Government and federal agency and Government sponsored enterprises (GSE’s)	$	7,528	$	708	$	—		$	8,236
Mortgage-backed:
GSE residential		143,033		6,044		(222	)		148,855
Small Business Administration		3,578		62		—			3,640
State and political subdivisions		1,449		215		(1	)		1,663

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

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

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

The amortized cost and fair value of available-for-sale securities at December 31, 2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available-for-sale Securities
	Amortized Cost		Fair Value
Within one year	$	—	$	—
One to five years		6,034		6,545
Five to ten years		4,246		4,435
After ten years		1,967		2,050

		12,247		13,030
Mortgage-backed securities		148,886		154,521

Totals	$	161,133	$	167,551

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

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

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

Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at December 31, 2020 and June 30, 2020, was $24,150,000 and $24,574,000, respectively, which is approximately 14% and 15% of the Company’s available-for-sale investment portfolio. These declines in fair value at December 31, 2020 and June 30, 2020, resulted from increases in market interest rates and are considered temporary.

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


	Less Than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2020:
Mortgage-backed:
GSE residential		21,456		(256	)		2,421		(17	)		23,877		(273	)

Total temporarily impaired securities	$	21,456	$	(256	)	$	2,421	$	(17	)	$	23,877	$	(273	)

June 30, 2020:
Mortgage-backed:
GSE residential	$	22,162	$	(116	)	$	2,351	$	(106	)	$	24,513	$	(222	)
State and political subdivisions		61		(1	)		—		—			61		(1	)

Total temporarily impaired securities	$	22,223	$	(117	)	$	2,351	$	(106	)	$	24,574	$	(223	)

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

Note 6: Loans and Allowance for Loan Losses

Classes of loans include:


	December 31, 2020		June 30, 2020
Real estate loans:
One- to four-family, including home equity loans	$	123,493	$	128,876
Multi-family		105,836		96,195
Commercial		152,448		145,113
Home equity lines of credit		7,858		8,551
Construction		13,870		22,042
Commercial		101,528		107,581
Consumer		8,265		7,529

Total loans		513,298		515,887
Less:
Unearned fees and discounts, net		63		(164	)
Allowance for loan losses		6,449		6,234

Loans, net	$	506,786	$	509,817

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

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

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

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

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

One- to four-family Residential Mortgage Loans

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

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

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

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

Commercial Real Estate and Multi-Family Real Estate Loans

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

Home Equity Lines of Credit

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

Commercial Business Loans

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

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

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

Real Estate Construction Loans

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

Consumer Loans

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

Loan Concentration

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

Purchased Loans and Loan Participations

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

Allowance for Loan Losses

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


	Three Months Ended December 31, 2020 Real Estate Loans
	One- to Four-Family			Multi-Family		Commercial			Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of period	$	1,033		$	1,741	$	1,874		$	82
Provision charged to expense		(24	)		3		(92	)		(3	)
Losses charged off		—			—		—			—
Recoveries		2			—		—			—

Balance, end of period	$	1,011		$	1,744	$	1,782		$	79

Ending balance: individually evaluated for impairment	$	—		$	—	$	—		$	—

Ending balance: collectively evaluated for impairment	$	1,011		$	1,744	$	1,782		$	79

Loans:
Ending balance	$	123,493		$	105,836	$	152,448		$	7,858

Ending balance: individually evaluated for impairment	$	1,335		$	—	$	—		$	—

Ending balance: collectively evaluated for impairment	$	122,158		$	105,836	$	152,448		$	7,858


	Three Months Ended December 31, 2020 (Continued)
	Construction		Commercial			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	85	$	1,624		$	67		$	6,506
Provision charged to expense		45		20			2			(49	)
Losses charged off		—		(11	)		(3	)		(14	)
Recoveries		—		3			1			6

Balance, end of period	$	130	$	1,636		$	67		$	6,449

Ending balance: individually evaluated for impairment	$	—	$	—		$	—		$	—

Ending balance: collectively evaluated for impairment	$	130	$	1,636		$	67		$	6,449

Loans:
Ending balance	$	13,870	$	101,528		$	8,265		$	513,298

Ending balance: individually evaluated for impairment	$	—	$	51		$	3		$	1,389

Ending balance: collectively evaluated for impairment	$	13,870	$	101,477		$	8,262		$	511,909


	Six Months Ended December 31, 2020 Real Estate Loans
	One- to Four-Family			Multi-Family		Commercial		Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of period	$	1,044		$	1,514	$	1,706	$	87
Provision charged to expense		(20	)		230		76		(8	)
Losses charged off		(15	)		—		—		—
Recoveries		2			—		—		—

Balance, end of period	$	1,011		$	1,744	$	1,782	$	79

Ending balance: individually evaluated for impairment	$	—		$	—	$	—	$	—

Ending balance: collectively evaluated for impairment	$	1,011		$	1,744	$	1,782	$	79

Loans:
Ending balance	$	123,493		$	105,836	$	152,448	$	7,858

Ending balance: individually evaluated for impairment	$	1,335		$	—	$	—	$	—

Ending balance: collectively evaluated for impairment	$	122,158		$	105,836	$	152,448	$	7,858


	Six Months Ended December 31, 2020 (Continued)
	Construction			Commercial			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	240		$	1,583		$	60		$	6,234
Provision charged to expense		(110	)		81			17			266
Losses charged off		—			(40	)		(16	)		(71	)
Recoveries		—			12			6			20

Balance, end of period	$	130		$	1,636		$	67		$	6,449

Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—

Ending balance: collectively evaluated for impairment	$	130		$	1,636		$	67		$	6,449

Loans:
Ending balance	$	13,870		$	101,528		$	8,265		$	513,298

Ending balance: individually evaluated for impairment	$	—		$	51		$	3		$	1,389

Ending balance: collectively evaluated for impairment	$	13,870		$	101,477		$	8,262		$	511,909


	Year Ended June 30, 2020 Real Estate Loans
	One- to Four-Family			Multi-Family			Commercial		Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of year	$	1,031		$	1,642		$	1,623	$	89
Provision charged to expense		50			(128	)		83		(2	)
Losses charged off		(40	)		—			—		—
Recoveries		3			—			—		—

Balance, end of year	$	1,044		$	1,514		$	1,706	$	87

Ending balance: individually evaluated for impairment	$	—		$	—		$	—	$	—

Ending balance: collectively evaluated for impairment	$	1,044		$	1,514		$	1,706	$	87

Loans:
Ending balance	$	128,876		$	96,195		$	145,113	$	8,551

Ending balance: individually evaluated for impairment	$	1,336		$	—		$	—	$	15

Ending balance: collectively evaluated for impairment	$	127,540		$	96,195		$	145,113	$	8,536


	Year Ended June 30, 2020 (Continued)
	Construction		Commercial			Consumer			Total
Allowance for loan losses:
Balance, beginning of year	$	213	$	1,659		$	71		$	6,328
Provision charged to expense		27		84			14			128
Losses charged off		—		(191	)		(37	)		(268	)
Recoveries		—		31			12			46

Balance, end of year	$	240	$	1,583		$	60		$	6,234

Ending balance: individually evaluated for impairment	$	—	$	—		$	—		$	—

Ending balance: collectively evaluated for impairment	$	240	$	1,583		$	60		$	6,234

Loans:
Ending balance	$	22,042	$	107,581		$	7,529		$	515,887

Ending balance: individually evaluated for impairment	$	—	$	304		$	5		$	1,660

Ending balance: collectively evaluated for impairment	$	22,042	$	107,277		$	7,524		$	514,227


	Three Months Ended December 31, 2019 Real Estate Loans
	One- to Four-Family			Multi-Family			Commercial		Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of period	$	990		$	1,602		$	1,657	$	90
Provision charged to expense		14			(40	)		28		—
Losses charged off		(13	)		—			—		—
Recoveries		—			—			—		—

Balance, end of period	$	991		$	1,562		$	1,685	$	90

Ending balance: individually evaluated for impairment	$	—		$	—		$	—	$	—

Ending balance: collectively evaluated for impairment	$	991		$	1,562		$	1,685	$	90

Loans:
Ending balance	$	127,679		$	102,756		$	148,299	$	8,867

Ending balance: individually evaluated for impairment	$	1,470		$	—		$	6	$	18

Ending balance: collectively evaluated for impairment	$	126,209		$	102,756		$	148,293	$	8,849


	Three Months Ended December 31, 2019 (Continued)
	Construction		Commercial			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	204	$	1,664		$	70		$	6,277
Provision charged to expense		13		(54	)		9			(30	)
Losses charged off		—		—			(13	)		(26	)
Recoveries		—		—			1			1

Balance, end of period	$	217	$	1,610		$	67		$	6,222

Ending balance: individually evaluated for impairment	$	—	$	—		$	—		$	—

Ending balance: collectively evaluated for impairment	$	217	$	1,610		$	67		$	6,222

Loans:
Ending balance	$	18,749	$	82,692		$	7,355		$	496,397

Ending balance: individually evaluated for impairment	$	—	$	48		$	8		$	1,550

Ending balance: collectively evaluated for impairment	$	18,749	$	82,644		$	7,347		$	494,847


	Six Months Ended December 31, 2019 Real Estate Loans
	One- to Four-Family			Multi-Family			Commercial		Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of period	$	1,031		$	1,642		$	1,623	$	89
Provision charged to expense		(30	)		(80	)		62		1
Losses charged off		(13	)		—			—		—
Recoveries		3			—			—		—

Balance, end of period	$	991		$	1,562		$	1,685	$	90

Ending balance: individually evaluated for impairment	$	—		$	—		$	—	$	—

Ending balance: collectively evaluated for impairment	$	991		$	1,562		$	1,685	$	90

Loans:
Ending balance	$	127,679		$	102,756		$	148,299	$	8,867

Ending balance: individually evaluated for impairment	$	1,470		$	—		$	6	$	18

Ending balance: collectively evaluated for impairment	$	126,209		$	102,756		$	148,293	$	8,849


	Six Months Ended December 31, 2019 (Continued)
	Construction		Commercial			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	213	$	1,659		$	71		$	6,328
Provision charged to expense		4		(63	)		22			(84	)
Losses charged off		—		—			(28	)		(41	)
Recoveries		—		14			2			19

Balance, end of period	$	217	$	1,610		$	67		$	6,222

Ending balance: individually evaluated for impairment	$	—	$	—		$	—		$	—

Ending balance: collectively evaluated for impairment	$	217	$	1,610		$	67		$	6,222

Loans:
Ending balance	$	18,749	$	82,692		$	7,355		$	496,397

Ending balance: individually evaluated for impairment	$	—	$	48		$	8		$	1,550

Ending balance: collectively evaluated for impairment	$	18,749	$	82,644		$	7,347		$	494,847

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Commercial: The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

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

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


	Real Estate Loans
	One- to Four- Family		Multi-Family		Commercial		Home Equity Lines of Credit		Construction		Commercial		Consumer		Total
December 31, 2020:
Pass	$	122,964	$	105,569	$	151,232	$	7,858	$	13,870	$	99,991	$	8,262	$	509,746
Watch		—		—		979		—		—		1,469		—		2,448
Substandard		529		267		237		—		—		68		3		1,104
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—

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


	Real Estate Loans
	One- to Four- Family		Multi-Family		Commercial		Home Equity Lines of Credit		Construction		Commercial		Consumer		Total
June 30, 2020:
Pass	$	127,279	$	95,925	$	143,727	$	8,402	$	22,042	$	105,605	$	7,524	$	510,504
Watch		775		—		1,073		134		—		1,651		—		3,633
Substandard		822		270		313		15		—		81		5		1,506
Doubtful		—		—		—		—		—		244		—		244
Loss		—		—		—		—		—		—		—		—

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

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

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

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


	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due & Accruing
December 31, 2020:
Real estate loans:
One- to four-family	$	599	$	147	$	226	$	972	$	122,521	$	123,493	$	123
Multi-family		—		—		—		—		105,836		105,836		—
Commercial		42		—		—		42		152,406		152,448		—
Home equity lines of credit		23		—		—		23		7,835		7,858		—
Construction		—		—		—		—		13,870		13,870		—
Commercial		303		—		17		320		101,208		101,528		17
Consumer		26		40		—		66		8,199		8,265		—

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


	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due & Accruing
June 30, 2020:
Real estate loans:
One- to four-family	$	1,034	$	225	$	385	$	1,644	$	127,232	$	128,876	$	304
Multi-family		—		—		—		—		96,195		96,195		—
Commercial		172		95		—		267		144,846		145,113		—
Home equity lines of credit		—		—		—		—		8,551		8,551		—
Construction		—		—		—		—		22,042		22,042		—
Commercial		—		4		244		248		107,333		107,581		—
Consumer		24		43		—		67		7,462		7,529		—

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

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

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

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

The following tables present impaired loans:


							Three Months Ended December 31, 2020						Six Months Ended December 31, 2020
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis
December 31, 2020:
Loans without a specific valuation allowance
Real estate loans:
One- to-four family	$	1,335	$	1,335	$	—	$	1,340	$	15	$	35	$	1,347	$	15	$	32
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		51		51		—		53		—		—		55		—		—
Consumer		3		3		—		3		—		—		4		—		—
Loans with a specific valuation allowance
Real estate loans:
One- to-four family		—		—		—		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—
Total:
Real estate loans:
One- to-four family		1,335		1,335		—		1,340		15		35		1,347		15		32
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		51		51		—		53		—		—		55		—		—
Consumer		3		3		—		3		—		—		4		—		—

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


							Year Ended June 30, 2020
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis
June 30, 2020:
Loans without a specific valuation allowance
Real estate loans:
One- to four-family	$	1,336	$	1,336	$	—	$	1,388	$	61	$	62
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		3		—		—
Home equity line of credit		15		15		—		18		—		—
Construction		—		—		—		—		—		—
Commercial		304		304		—		382		23		25
Consumer		5		5		—		9		—		—
Loans with a specific allowance
Real estate loans:
One- to four-family		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total:
Real estate loans:
One- to four-family		1,336		1,336		—		1,388		61		62
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		3		—		—
Home equity line of credit		15		15		—		18		—		—
Construction		—		—		—		—		—		—
Commercial		304		304		—		382		23		25
Consumer		5		5		—		9		—		—

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


							Three Months Ended December 31, 2019						Six Months Ended December 31, 2019
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis
December 31, 2019:
Loans without a specific valuation allowance
Real estate loans:
One- to-four family	$	1,470	$	1,470	$	—	$	1,486	$	15	$	15	$	1,496	$	29	$	30
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		6		6		—		11		—		—		12		—		—
Home equity line of credit		18		18		—		18		—		—		20		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		48		48		—		52		—		—		54		—		—
Consumer		8		8		—		10		—		—		10		—		—
Loans with a specific valuation allowance
Real estate loans:
One- to-four family		—		—		—		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—
Total:
Real estate loans:
One- to-four family		1,470		1,470		—		1,486		15		15		1,496		29		30
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		6		6		—		11		—		—		12		—		—
Home equity line of credit		18		18		—		18		—		—		20		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		48		48		—		52		—		—		54		—		—
Consumer		8		8		—		10		—		—		10		—		—

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

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

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


	December 31, 2020		June 30, 2020
Mortgages on real estate:
One- to four-family	$	103	$	81
Multi-family		—		—
Commercial		—		—
Home equity lines of credit		—		15
Construction		—		—
Commercial		51		304
Consumer		3		5

Total	$	157	$	405

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

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


	December 31, 2020		June 30, 2020
Real estate loans
One- to four-family	$	1,233	$	1,256
Multi-family		—		—
Commercial		—		—
Home equity lines of credit		—		15

Total real estate loans		1,233		1,271

Construction		—		—
Commercial		51		59
Consumer		—		—

Total	$	1,284	$	1,330

Modifications

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

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

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

COVID-19 Modifications

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

TDR’s with Defaults

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

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

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

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

Note 7: Federal Home Loan Bank Stock

Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system. The required investment in the common stock is based on a predetermined formula. The Company owned $4,197,500 and $3,028,000 of Federal Home Loan Bank stock as of December 31, 2020 and June 30, 2020. The FHLB provides liquidity and funding through advances.

Note 8: Accumulated Other Comprehensive Income

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


	December 31, 2020			June 30, 2020
Net unrealized gains on securities available-for-sale	$	6,417		$	6,805
Net unrealized postretirement health benefit plan obligations		(916	)		(926	)

		5,501			5,879
Tax effect		(1,568	)		(1,676	)

Total	$	3,933		$	4,203

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

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


	Amounts Reclassified from AOCI
	Three Months Ended December 31,					Six Months Ended December 31,
	2020		2019			2020		2019			Affected Line Item in the Condensed Consolidated Statements of Income
Realized gains (losses) on available-for-sale securities	$	—	$	(8	)	$	204	$	(7	)	Net realized gains (losses) on sale of available-for- sale securities
Amortization of defined benefit pension items:											Components are included in computation of net periodic pension cost
Actuarial losses		8		5			10		10

Total reclassified amount before tax		8		(3	)		214		3
Tax expense (credit)		2		(1	)		61		1		Provision for Income Tax

Total reclassification out of AOCI	$	6	$	(2	)	$	153	$	2		Net Income

Note 10: Income Taxes

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


	Three Months Ended December 31,						Six Months Ended December 31,
	2020			2019			2020			2019
Computed at the statutory rate	$	427		$	281		$	814		$	599
Decrease resulting from
Tax exempt interest		(2	)		(5	)		(4	)		(11	)
Cash surrender value of life insurance		(14	)		(14	)		(29	)		(29	)
State income taxes		153			103			288			213
Other		7			7			14			15

Actual expense	$	571		$	372		$	1,083		$	787

Note 11: Regulatory Capital

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

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

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

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

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

Note 12: Disclosures About Fair Value of Assets

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


Level 1		Quoted prices in active markets for identical assets



Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2020 and June 30, 2020:


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2020:
Available-for-sale securities:
U.S. Government and federal agency and Government sponsored enterprises (GSE’s)	$	8,170	$	—	$	8,170	$	—
Mortgage-backed: GSE residential		154,521		—		154,521		—
Small Business Administration		3,609		—		3,609		—
State and political subdivisions		1,251		—		1,251		—
Mortgage servicing rights		756		—		—		756


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2020:
Available-for-sale securities:
U.S. Government and federal agency and Government sponsored enterprises (GSE’s)	$	8,236	$	—	$	8,236	$	—
Mortgage-backed: GSE residential		148,855		—		148,855		—
Small Business Administration		3,640		—		3,640		—
State and political subdivisions		1,663		—		1,663		—
Mortgage servicing rights		715		—		—		715

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended December 31, 2020. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Available-for-Sale Securities

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

Mortgage Servicing Rights

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

Level 3 Reconciliation

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


	Mortgage Servicing Rights
Balance, July 1, 2020	$	715
Total realized and unrealized gains and losses included in net income		(34	)
Servicing rights that result from asset transfers		191
Payments received and loans refinanced		(116	)

Balance, December 31, 2020	$	756

Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date	$	(34	)

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

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2020 and June 30, 2020:


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2020:
Foreclosed assets	$	170	$	—	$	—	$	170
June 30, 2020:
Foreclosed assets	$	200	$	—	$	—	$	200

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


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020			2019
Impaired loans (collateral-dependent)	$	—	$	13	$	—		$	13
Foreclosed assets	$	—	$	—	$	(30	)	$	—

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

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

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

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

Unobservable (Level 3) Inputs

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


	Fair Value at December 31, 2020		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	756	Discounted cash flow	Discount rate	9.5% - 11.5% (9.5%)
				Constant prepayment rate	15.2% - 18.1% (15.5%)
				Probability of default	0.04% - 0.12% (0.11%)
Foreclosed assets		170	Market comparable properties	Comparability adjustments (%)	15.0% (15.0%)


	Fair Value at June 30, 2020		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	715	Discounted cash flow	Discount rate	9.5% - 11.5% (9.5%)
				Constant prepayment rate	13.5% - 17.7% (13.8%)
				Probability of default	0.04% - 0.12% (0.11%)
Foreclosed assets		200	Market comparable properties	Comparability adjustments (%)	11.1% (11.1%)

Fair Value of Financial Instruments

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


	Carrying Amount		Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2020:
Financial assets
Cash and cash equivalents	$	7,665	$	7,665	$	—	$	—
Interest-bearing time deposits in banks		3,000		3,000		—		—
Loans, net of allowance for loan losses		506,786		—		—		509,773
Federal Home Loan Bank stock		4,198		—		4,198		—
Accrued interest receivable		2,188		—		2,188		—
Financial liabilities
Deposits		587,365		—		310,324		278,166
Repurchase agreements		4,571		—		4,571		—
Federal Home Loan Bank advances		24,000		—		24,886		—
Lines of credit		3,000		—		3,000		—
Advances from borrowers for taxes and insurance		1,468		—		1,468		—
Accrued interest payable		334		—		334		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—


	Carrying Amount		Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2020:
Financial assets
Cash and cash equivalents	$	33,467	$	33,467	$	—	$	—
Interest-bearing time deposits in banks		3,000		3,000		—		—
Loans, net of allowance for loan losses		509,817		—		—		513,221
Federal Home Loan Bank stock		3,028		—		3,028		—
Accrued interest receivable		1,908		—		1,908		—
Financial liabilities
Deposits		601,700		—		320,209		283,304
Repurchase agreements		3,738		—		3,738		—
Federal Home Loan Bank advances		34,500		—		35,472		—
Lines of credit		3,000		—		3,000		—
Advances from borrowers for taxes and insurance		519		—		519		—
Accrued interest payable		537		—		537		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—

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 December 31, 2020, represent an approximation of exit price; however, an actual exit price may differ.

Note 13: Commitments

Commitments to Originate Loans

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

Lines of Credit

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

Item 2.

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

Cautionary Note Regarding Forward-Looking Statements

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

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on our actual results include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets and changes in the quality or composition of the Association’s loan or investment portfolios. 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, 2020, 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 to the Iroquois Federal Foundation. As of December 31, 2020, the Company repurchased 1,674,479 shares of common stock under stock repurchase plans.

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

The Association is primarily engaged in providing a full range of banking and mortgage services to individual and corporate customers within a 100-mile radius of its locations in Watseka, Danville, Clifton, Hoopeston, Savoy, Champaign, and Bourbonnais, Illinois, and Osage Beach, Missouri. In September, 2020, we launched a new stand-alone digital brand that will allow us to target demographics or niches and expand to new markets. The principal activity of the Association’s wholly-owned subsidiary, L.C.I. Service Corporation, 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, 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, net gain on foreclosed assets and income on bank-owned life insurance. Noninterest expense consists primarily of compensation and benefits, occupancy and equipment, data processing, professional fees, marketing, office supplies, and federal deposit insurance premiums. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Our net interest rate spread (the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities) was 2.73% and 2.48% for the six months ended December 31, 2020 and 2019, respectively. Net interest income increased to $9.9 million, or $19.9 million on an annualized basis, for the six months ended December 31, 2020 from $8.9 million, or $17.9 million on an annualized basis, for the six months ended December 31, 2019.

Our emphasis on conservative loan underwriting has historically resulted in relatively low levels of non-performing assets. Our non-performing loans totaled $297,000, or 0.1%, of total loans at December 31, 2020, and $709,000, or 0.1%, of total loans at June 30, 2020. Our non-performing assets totaled $674,000, or 0.1% of total assets at December 31, 2020, and $1.1 million, or 0.2%, of total assets at June 30, 2020.

At December 31, 2020, the Association was categorized as “well capitalized” under regulatory capital requirements.

Our net income for the six months ended December 31, 2020 was $2.8 million, compared to a net income of $2.1 million for the six months ended December 31, 2019.

Management’s discussion and analysis of the financial condition and results of operations at and for the three and six months ended December 31, 2020 and 2019 is intended to assist in understanding the financial condition and results of operations of the Association. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report on Form 10-Q.

Recent Developments: COVID-19 and the CARES Act

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

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

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

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

Financial position and results of operations

Our December 31, 2020 financial condition and results of operations were not significantly impacted as a result of the COVID-19 pandemic. While the general element of our allowance for loan losses increased in our prior fiscal year due to COVID-related changes in the economic forecast, the majority of our provision for loan losses in the six months ended December 31, 2020, were due to loan growth and a change in loan portfolio mix, and to a lesser extent, additional reserves for all loans that remain under temporary COVID-19 modifications. Refer to our discussions in MD&A below for additional information on COVID-19 modifications. Should economic conditions worsen, we could experience further increases in our required allowance for loan losses and record additional credit loss expense. The execution of the payment deferrals discussed in the following commentary assisted our ratio of past due loans to total loans. It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

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

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

Capital and liquidity

As of December 31, 2020, all of our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit losses.

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

Asset valuation

Currently, we do not expect COVID-19 to affect our ability to account timely for the assets on our balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP. As of December 31, 2020 we did not have any impairment with respect to our intangible assets, premises and equipment or other long-lived assets.

Our Business Continuity and Pandemic Response Plan

The Company maintains a Disaster Recovery/Business Continuity Plan to ensure the maintenance or recovery of operations, including services to customers, when confronted with adverse events such as natural disasters, technological failures, human error, cybercrime, terrorism or pandemic outbreak. When the COVID-19 pandemic declaration was announced, the Disaster Planning/Recovery team activated the Disaster Recovery Plan, including the Pandemic Response

Plan, with a focus on maintaining virtually all customer services in the event of a total or partial closure of banking offices and/or staffing shortages. The team implemented protocols for employee safety, reviewed critical business processes, identified staff who could work remotely, and began mobilizing and preparing the equipment that would be required. An Employee Telecommuting Agreement was developed to establish controls and expectations for those working remotely, including adherence to security and privacy policies. Timely communication was provided to employees and customers. ATM and vault cash was increased at all locations in anticipation of greater demand. The Company’s quick and decisive plan implementation resulted in minimal impacts to operations as a result of the COVID-19 pandemic. Prior technology planning enabled the successful deployment of certain operations and other personnel to remote environments thereby reducing the number of employees working from physical banking offices. In addition, bank lobbies were closed and customer traffic limited to drive-up facilities, with the exception of the Hoopeston lobby which remained open with protective screening. This reduced the number of employees required to be on-site at any given time and allowed teams to rotate in and out at periodic intervals, helping to facilitate the effective implementation of social distancing standards. Currently the Danville and Watseka offices are open as drive-up facilities and offering lobby access by appointment only. The Hoopeston lobby remains open but is not accepting in-office appointments. The Bourbonnais, Champaign, Clifton and Savoy offices are open as drive-up facilities only.

We do not anticipate any material cost related to the deployment of safety protocols, including PPE or the remote working strategy. No material operational or internal control challenges or risks have been identified to date. Our COVID-19 Response Team continues to anticipate and respond to COVID-19 developments. We don’t anticipate any significant challenges to our ability to maintain our systems and controls and we do not currently face any material resource constraint through the implementation of our business continuity plans.

Lending operations and accommodations to borrowers

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

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

With the passage of the Paycheck Protection Program (“PPP”), administered by the SBA, the Company has actively participated in assisting our customers with applications for resources through the program. Most PPP loans have a five-year term and earn interest at 1%. We believe that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. While we closed 305 SBA PPP loans representing $26.3 million in funding, after SBA forgiveness, we have 191 loans totaling $17.4 million remaining in our portfolio at December 31, 2020. It is our understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, we could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings.

In response to the COVID-19 pandemic, Management identified food and accommodations as industries that were most likely to be adversely impacted in the near-term by economic disruption caused by the pandemic. As of December 31, 2020, our food and accommodation loans were $8.3 million, or 1.6% of total loans. These loans are mostly real estate loans on restaurants and bars, and include $1.4 million in COVID-19 modifications. As of December 31, 2020, none of these loans were 90 or more days past due, and just two borrowers with loans totaling $24,000 were more than 30 days past due.

Retail operations

The Danville and Watseka offices are operating as drive-up facilities and offering lobby access by appointment only. The Hoopeston lobby remains open but is not accepting in-office appointments. The Bourbonnais, Champaign, Clifton and Savoy offices are open as drive-up facilities only. Most banking transactions can be accomplished through the drive-ups, including opening deposit accounts, signing loan and other documents, and in-person Notary services. Online Banking and the Mobile Banking App are available for customers who wish to open an account, check their balance, transfer funds, and pay bills. Checks can be deposited using Mobile Banking and customers can start the loan application process for mortgages and personal loans through our Online Banking. Our network of over 50,000 ATMs are available for cash withdrawals with no service charge. Although some of our lobbies remain closed, we continue to operate and serve our customers with uninterrupted access to their account information and the ability to complete banking transactions.

Critical Accounting Policies

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

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

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

•

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

•

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

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

Income Tax Accounting. The provision for income taxes is based upon income in our consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities

and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date. Under U.S. GAAP, a valuation allowance is required to be recognized if it is more likely than not that a deferred tax asset will not be realized. The determination as to whether we will be able to realize the deferred tax assets is highly subjective and dependent upon judgment concerning our evaluation of both positive and negative evidence, our forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. Positive evidence includes the existence of taxes paid in available carryback years as well as the probability that taxable income will be generated in future periods, while negative evidence includes any cumulative losses in the current year and prior two years and general business and economic trends. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. Any required valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings. Positions taken in our tax returns may be subject to challenge by the taxing authorities upon examination. The benefit of an uncertain tax position is initially recognized in the financial statements only when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Differences between our position and the position of tax authorities could result in a reduction of a tax benefit or an increase to a tax liability, which could adversely affect our future income tax expense.

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

Comparison of Financial Condition at December 31, 2020 and June 30, 2020

Total assets decreased $22.1 million, or 3.0%, to $713.4 million at December 31, 2020 from $735.5 million at June 30, 2020. The decrease was primarily due to a $25.8 million decrease in cash and cash equivalents and a $3.0 million decrease in net loans receivable, partially offset by a $5.2 million increase in investment securities. The decrease in assets was due to the expected withdrawal of deposits by one public entity, as discussed below.

Net loans receivable, including loans held for sale, decreased by $3.0 million, or 0.6%, to $506.8 million at December 31, 2020 from $509.8 million at June 30, 2020. The decrease in net loans receivable during this period was due primarily to a $8.2 million, or 37.1%, decrease in construction loans, a $6.1 million, or 5.6%, decrease in commercial business loans, a $5.4 million, or 4.2%, decrease in one- to four-family loans, and a $693,000, or 8.1%, decrease in home equity lines of credit, partially offset by a $9.6 million, or 10.0%, increase in multi-family loans, a $7.3 million, or 5.1%, increase in commercial real estate loans and a $736,000, or 9.8%, increase in consumer loans. The $6.1 million decrease in commercial business loans included an $8.9 million decrease in PPP loans, partially offset by a $2.8 million increase in non-PPP commercial business loans.

Investment securities, consisting entirely of securities available for sale, increased $5.2 million, or 3.2%, to $167.6 million at December 31, 2020 from $162.4 million at June 30, 2020. We had no securities classified as held to maturity at December 31, 2020 or June 30, 2020.

Between June 30, 2020 and December 31, 2020, Federal Home Loan Bank (FHLB) stock increased $1.2 million, accrued interest receivable increased $280,000, and deferred income taxes increased $48,000 to $678,000, while premises and equipment decreased $147,000 to $10.1 million, and foreclosed assets held for sale decreased $9,000 to $377,000. The increase in Federal Home Loan Bank stock was the result of a higher stock requirement due to an increase in Federal Home Loan Bank advances during the period, the increase in accrued interest receivable was due to an increase in the average balance of loans and securities, and the increase in deferred income taxes was mostly due to an increase in bad debt allowance. The decrease in premises and equipment was primarily due to an increase in accumulated depreciation, and the decrease in foreclosed assets held for sale was due to the sale of property.

At December 31, 2020, our investment in bank-owned life insurance was $9.5 million, an increase of $139,000 from $9.3 million at June 30, 2020. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Federal regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses, which resulted in a limit of $21.5 million at December 31, 2020.

Deposits decreased $14.3 million, or 2.4%, to $587.4 million at December 31, 2020 from $601.7 million at June 30, 2020. Certificates of deposit, excluding brokered certificates of deposit, decreased $4.5 million, or 1.7%, to $264.7 million, while brokered certificates of deposit were $12.3 million at both December 31, 2020 and June 30, 2020. Savings, NOW, and money market accounts increased $42.0 million, or 18.1%, to $274.8 million, and noninterest bearing demand accounts decreased $51.9 million, or 59.3%, to $35.6 million. The large decrease in noninterest bearing demand accounts was due primarily to approximately $45.3 million in deposits from a public entity that collects real estate taxes that was on deposit at June 30, 2020 and withdrawn when tax monies were distributed. The large increase in savings, NOW and money market accounts was due to other public entity customers who received deposits when these tax monies were distributed, an increase in brokered money market funds, and a general increase in new money from customers. Repurchase agreements increased $833,000, or 22.3%, to $4.6 million at December 31, 2020, from $3.7 million at June 30, 2020. Borrowings consisted of advances from the Federal Home Loan Bank of Chicago and a line of credit from CIBC Bank USA. The FHLB advances decreased $10.5 million, or 30.4%, to $24.0 million at December 31, 2020 from $34.5 million at June 30, 2020, while the line of credit balance was $3.0 million at both December 31, 2020 and June 30, 2020.

Advances from borrowers for taxes and insurance increased $949,000, or 182.9%, to $1.5 million at December 31, 2020, from $519,000 at June 30, 2020. Accrued interest payable decreased $203,000, or 37.8%, to $334,000 at December 31, 2020, from $537,000 at June 30, 2020. The increase in advances from borrowers for taxes and insurance was attributable to the timing of the payment of real estate taxes and insurance, while the decrease in accrued interest payable resulted from a decrease in the average cost of interest-bearing liabilities.

Total equity increased $2.4 million, or 2.9%, to $84.9 million at December 31, 2020 from $82.6 million at June 30, 2020. Equity increased due to net income of $2.8 million, and ESOP and stock equity plan activity of $284,000, partially offset by a decrease of $270,000 in accumulated other comprehensive income, net of tax, and the payment of approximately $454,000 in dividends to our shareholders.

Comparison of Operating Results for the Six Months Ended December 31, 2020 and 2019

General. Net income increased $730,000 to $2.8 million for the six months ended December 31, 2020 from $2.1 million for the six months ended December 31, 2019. The increase in net income was due to an increase in net interest income and an increase in noninterest income, partially offset by an increase in provision for loan losses and an increase in noninterest expense.

Net Interest Income. Net interest income increased $1.0 million, or 11.3%, to $9.9 million for the six months ended December 31, 2020 from $8.9 million for the six months ended December 31, 2019. This was a result of a decrease of $2.3 million in interest expense, partially offset by a decrease of $1.3 million in interest and dividend income. Our interest rate spread increased by 25 basis points to 2.73% for the six months ended December 31, 2020 compared to 2.48% for the six months ended December 31, 2019, and our net interest margin increased by 13 basis points to 2.86% for the six months ended December 31, 2020 compared to 2.73% for the six months ended December 31, 2019. A $41.0 million, or 6.3%, increase in the average balance of interest earning assets was partially offset by a $32.4 million, or 5.8%, increase in average balance of interest bearing liabilities.

Interest and Dividend Income. Interest and dividend income decreased $1.3 million, or 9.4%, to $12.5 million for the six months ended December 31, 2020 from $13.8 million for the six months ended December 31, 2019. The decrease in interest and dividend income was due to a $972,000 decrease in interest income on loans, a $220,000 decrease in interest on securities, and a $102,000 decrease in other interest income. The decrease in interest income on loans resulted from a 58 basis point, or 12.3%, decrease in the average yield on loans to 4.14% for the six months ended December 31, 2020

from 4.72% for the six months ended December 31, 2019, partially offset by a $21.7 million, or 4.4%, increase in the average balance of loans to $517.6 million for the six months ended December 31, 2020, from $495.8 million for the six months ended December 31, 2019. The decrease in interest income on securities was due to a 45 basis point decrease in the average yield on securities to 2.15% for the six months ended December 31, 2020 from 2.60% for the six months ended December 31, 2019, partially offset by a $9.4 million, or 6.5%, increase in the average balance of securities to $154.5 million for the six months ended December 31, 2020, from $145.1 million for the six months ended December 31, 2019. The decrease in other interest income was a result of a 240 basis point decrease in the average yield in other interest earning assets, including Federal Home Loan Bank dividends and deposits with other financial institutions, to 1.06% from 3.46%, partially offset by a $9.9 million increase in the average balance of other interest earning assets.

Interest Expense. Interest expense decreased $2.3 million, or 47.3%, to $2.6 million for the six months ended December 31, 2020, from $4.9 million for the six months ended December 31, 2019. The decrease was primarily due to a decrease of $2.2 million in interest on deposits and an $111,000 decrease in interest on borrowings and repurchase agreements.

Interest expense on interest-bearing deposits decreased by $2.2 million, or 48.7%, to $2.3 million for the six months ended December 31, 2020 from $4.5 million for the six months ended December 31, 2019. This decrease was due to an 87 basis point decrease in the average cost of interest bearing deposits to 0.84% for the six months ended December 31, 2020 from 1.71% for the six months ended December 31, 2019, partially offset by an increase of $27.1 million in the average balance of interest-bearing deposits to $552.3 million for the six months ended December 31, 2020 from $525.3 million for the six months ended December 31, 2019.

Interest expense on borrowings, including FHLB advances and a line of credit from CIBC Bank USA, and repurchase agreements, decreased $111,000, or 30.2%, to $257,000 for the six months ended December 31, 2020 from $368,000 for the six months ended December 31, 2019. This decrease was due to an 88 basis point decrease in the average cost of borrowings to 1.34% for the six months ended December 31, 2020 from 2.22% for the six months ended December 31, 2019, partially offset by an increase in the average balance of borrowings to $38.4 million for the six months ended December 31, 2020 from $33.1 million for the six months ended December 31, 2019.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable credit losses inherent in our loan portfolio. We recorded a provision for loan losses of $266,000 for the six months ended December 31, 2020, compared to a credit for loan losses of $(84,000) for the six months ended December 31, 2019. The allowance for loan losses was $6.4 million, or 1.26% of total loans, or 1.30% of total loans excluding PPP loans, at December 31, 2020, compared to $6.2 million, or 1.25% of total loans, at December 31, 2019 and $6.2 million, or 1.21% of total loans, or 1.27% of total loans excluding PPP loans, at June 30, 2020. During the six months ended December 31, 2020, net charge-offs of $51,000 were recorded while during the six months ended December 31, 2019, net charge-offs of $22,000 were recorded.

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


	At or for the Six Months Ended December 31, 2020			At or for the Year Ended June 30, 2020
Allowance to non-performing loans at the end of the period		2,173.59	%		879.27	%
Allowance to total loans outstanding at the end of the period		1.26	%		1.21	%
Allowance to total loans outstanding, excluding PPP loans, at end of period		1.30	%		1.27	%
Net charge-offs to average total loans outstanding during the period, annualized		0.02	%		0.04	%
Total non-performing loans to total loans at the end of the period		0.06	%		0.14	%
Total non-performing assets to total assets at the end of the period		0.09	%		0.15	%

Noninterest Income. Noninterest income increased $923,000, or 40.3%, to $3.2 million for the six months ended December 31, 2020 from $2.3 million for the six months ended December 31, 2019. The increase was primarily due to an increase in gain on sale of loans, an increase in mortgage banking income, net, an increase in net realized gain on sale of available-for-sale securities, and an increase in other service charges and fees, partially offset by a decrease in customer service fees. For the six months ended December 31, 2020, gain on sale of loans increased $763,000 to $1.0 million, mortgage banking income, net, increased $32,000 to $193,000, net realized gain on sale of available-for-sale securities increased $211,000 to $204,000, and other service charges and fees increased $66,000 to $218,000, while customer service fees decreased $56,000 to $141,000 from the six months ended December 31, 2019. The increase in gain on sale of loans and the increase in mortgage banking income were a result of an increase in loans originated and sold through the FHLBC Mortgage Partnership Finance program in the six months ended December 31, 2020 due to historically low interest rates. The increase in gain on sale of available-for-sale securities was the result of more securities sold for a gain in the six months ended December 31, 2020. The increase in other service charges and fees was due to an increase in the number of fees charged in the six months ended December 31, 2020, while the decrease in customer service fees was due to fewer customer services performed and more customer fees waived, partially as a result of COVID-19, in the six months ended December 31, 2020.

Noninterest Expense. Noninterest expense increased $558,000, or 6.6%, to $9.1 million for the six months ended December 31, 2020 from $8.5 million for the six months ended December 31, 2019. The largest components of this increase were compensation and benefits, which increased $484,000, or 9.0%, deposit insurance premium, which increased $62,000, or 221.4%, and equipment expense, which increased $72,000, or 9.3%. These increases were partially offset by decreases in office occupancy, which decreased $51,000, or 10.3%, and professional services, which decreased $19,000, or 7.0%. Compensation and benefits increased due to staffing changes, normal salary increases and increased medical costs. The deposit insurance premium increased as a result of receiving an FDIC small bank assessment credit in the six months ended December 31, 2019. Equipment expense increased as a result of more technology upgrades in the six months ended December 31, 2020. Office occupancy decreased due to extra repairs required in the six months ended December 31, 2019, while professional services decreased as a result of extra legal services received in the six months ended December 31, 2019.

Income Tax Expense. We recorded a provision for income tax of $1.1 million for the six months ended December 31, 2020, compared to a provision for income tax of $787,000 for the six months ended December 31, 2019, reflecting effective tax rates of 27.9% and 27.6%, respectively.

Comparison of Operating Results for the Three Months Ended December 31, 2020 and 2019

General. Net income increased $499,000 to $1.5 million net income for the three months ended December 31, 2020 from $964,000 net income for the three months ended December 31, 2019. The increase in net income was primarily due to an increase in net interest income, an increase in noninterest income, and an increase in credit for loan losses, partially offset by an increase in noninterest expense.

Net Interest Income. Net interest income increased $709,000 to $5.1 million for the three months ended December 31, 2020 from $4.3 million for the three months ended December 31, 2019. The increase was a result of a $1.3 million decrease in interest expense, partially offset by a $551,000 decrease in interest and dividend income. Our interest rate spread increased 38 basis points to 2.81% for the three months ended December 31, 2020 compared to 2.43% for the three months ended December 31, 2019, and our net interest margin increased by 25 basis points to 2.92% for the three months ended December 31, 2020 compared to 2.67% for the three months ended December 31, 2019. A $40.3 million, or 6.2%, increase in the average balance of interest earning assets was partially offset by a $30.5 million, or 5.4% increase in average balance of interest bearing liabilities.

Interest and Dividend Income. Interest and dividend income decreased $551,000, or 8.1%, to $6.2 million for the three months ended December 31, 2020 from $6.8 million for the three months ended December 31, 2019. The decrease in interest and dividend income was primarily due to a $428,000 decrease in interest income on loans and a $122,000 decrease in interest income on securities. The decrease in interest income on securities resulted from a 48 basis point, or 18.5%, decrease in the average yield on securities to 2.09% from 2.57%, partially offset by a $9.8 million, or 6.7%, increase in the average balance of securities to $155.2 million from $145.5 million. The decrease in interest on loans resulted from a 52 basis point, or 11.1%, decrease in the average yield on loans to 4.16% from 4.68%, partially offset by a $19.7 million, or 4.0%, increase in the average balance of loans to $515.4 million from $495.7 million.

Interest Expense. Interest expense decreased $1.3 million, or 51.5%, to $1.2 million for the three months ended December 31, 2020 from $2.4 million for the three months ended December 31, 2019. This decrease was due to a 94 basis point, or 54.0%, decrease in the average cost of interest-bearing liabilities to 0.80% from 1.74%, partially offset by a $30.5 million, or 5.4%, increase in the average balance of interest-bearing liabilities to $591.7 million from $561.2 million.

Interest expense on interest-bearing deposits decreased by $1.1 million, or 51.6%, to $1.1 million for the three months ended December 31, 2020 from $2.2 million for the three months ended December 31, 2019. This decrease was due to a decrease in the average cost of interest-bearing deposits to 0.77% for the three months ended December 31, 2020 from 1.70% for the three months ended December 31, 2019, partially offset by a $38.1 million, or 7.3%, increase in the average balance of interest-bearing deposits to $560.1 million for the three months ended December 31, 2020 from $522.0 million for the three months ended December 31, 2019.

Interest expense on borrowings decreased $114,000, or 49.8%, to $115,000 for the three months ended December 31, 2020, from $229,000 for the three months ended December 31, 2019. This decrease was due to a decrease in the average balance of borrowings to $31.6 million for the three months ended December 31, 2020, from $39.2 million for the three months ended December 31, 2019, and an 87 basis point decrease in the average cost of such borrowings to 1.46% for the three months ended December 31, 2020 from 2.33% for the three months ended December 31, 2019.

Noninterest Income. Noninterest income increased $240,000, or 19.6%, to $1.5 million for the three months ended December 31, 2020 from $1.2 million for the three months ended December 31, 2019. The increase was primarily due to an increase in net gain on sale of loans and an increase in other service charges and fees, partially offset by a decrease in insurance commissions and a decrease in customer service fees. For the three months ended December 31, 2020, the net gain on the sale of loans increased $340,000 to $484,000, and other service charges and fees increased $16,000 to $103,000, while insurance commissions decreased $23,000 to $169,000 and customer service fees decrease $21,000 to $74,000 from the three months ended December 31, 2019. The increase in net gain on sale of loans was primarily due to earning higher agent fees on loans sold to the Federal Home Loan Bank of Chicago in the three months ending December 31, 2020, than in the three months ended December 31, 2019, while the increase in other service charges and fees was due to an increase in the number of fees charged in the three months ended December 31, 2020. The decrease in insurance commissions was due to higher commissions earned in the three months ended December 31, 2019, and the decrease in customer service fees was due to fewer customer services performed and more customer fees waived, partially as a result of COVID-19, in the three months ended December 31, 2020.

Noninterest Expense. Noninterest expense increased $270,000, or 6.3%, to $4.5 million for the three months ended December 31, 2020 from $4.3 million for the three months ended December 31, 2019. The largest components of this increase were compensation and benefits, which increased $272,000, or 10.0%, deposit insurance premium, which increased $46,000, or 100.0%, equipment expense, which increased $35,000, or 9.0%, and advertising, which increased $39,000, or 40.2%. These increases were partially offset by decreases in office occupancy, which decreased $25,000, or 10.3%, and other expenses, which decreased $64,000, or 13.3%. Compensation and benefits increased due to staffing

changes, normal salary increases and increased medical costs. The deposit insurance premium increased as a result of receiving an FDIC small bank assessment credit in the three months ended December 31, 2019. Equipment expense increased as a result of more technology upgrades in the three months ended December 31, 2020, while advertising increased due to costs associated with the kickoff our new digital bank during the three months ended December 31, 2020. Office occupancy decreased due to extra repairs required in the three months ended December 31, 2019, while other expenses decreased as a result of costs related to employee events during the three months ended December 31, 2019 that were not held in 2020, and also due to the timing of payment of miscellaneous expenses.

Income Tax Expense. We recorded a provision for income tax of $571,000 for the three months ended December 31, 2020, compared to a provision for income tax of $372,000 for the three months ended December 31, 2019, reflecting effective tax rates of 28.1% and 27.8%, respectively.

Asset Quality

At December 31, 2020, our non-accrual loans totaled $157,000, including $103,000 in one- to four-family loans, $51,000 in commercial business loans, and $3,000 in consumer loans. At December 31, 2019, we had a single one- to four-family loan for $123,000 and one commercial business loan for $17,000, which were delinquent 90 days or greater and still accruing interest.

At December 31, 2020, loans classified as substandard equaled $1.1 million. Loans classified as substandard consisted of $529,000 in one- to four-family loans, $267,000 in multi-family loans, $237,000 in commercial real estate loans, $68,000 in commercial business loans and $3,000 in consumer loans. At December 31, 2020, no loans were classified as doubtful or loss.

At December 31, 2020, watch rated assets consisted of $979,000 in commercial real estate loans and $1.5 million in commercial business loans.

Troubled Debt Restructuring. Troubled debt restructurings include loans for which economic concessions have been granted to borrowers with financial difficulties. We periodically modify loans to extend the term or make other concessions to help borrowers stay current on their loans and to avoid foreclosure. At December 31, 2020 and June 30, 2020, we had $1.3 million of troubled debt restructurings. At December 31, 2020 our troubled debt restructurings consisted of $1.2 million in one- to four-family loans and $51,000 in commercial business loans.

Foreclosed Assets. At December 31 2020, we had $377,000 in foreclosed assets compared to $386,000 as of June 30, 2020. Foreclosed assets at December 31, 2020 consisted of $177,000 in residential real estate properties and $200,000 in commercial non-occupied property, while foreclosed assets at June 30, 2020 consisted of $186,000 in residential real estate properties and $200,000 in commercial non-occupied property.

Allowance for Loan Loss Activity

The Company regularly reviews its allowance for loan losses and makes adjustments to its balance based on management’s analysis of the loan portfolio, the amount of non-performing and classified loans, as well as general economic conditions. Although the Company maintains its allowance for loan losses at a level that it considers sufficient to provide for losses, there can be no assurance that future losses will not exceed internal estimates. In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies, which can order the establishment of additional loss provisions. The following table summarizes changes in the allowance for loan losses over the six-month periods ended December 31, 2020 and 2019:


	Six months ended December 31,
	2020			2019
Balance, beginning of period	$	6,234		$	6,328
Loans charged off
Real estate loans
One- to four-family		(15	)		(13	)
Multi-family		—			—
Commercial		—			—
HELOC		—			—
Construction		—			—
Commercial business		(40	)		—
Consumer		(16	)		(28	)

Gross charged off loans		(71	)		(41	)

Recoveries of loans previously charged off
Real estate loans
One- to four-family		2			3
Multi-family		—			—
Commercial		—			—
HELOC		—			—
Construction		—			—
Commercial business		12			14
Consumer		6			2

Gross recoveries of charged off loans		20			19

Net charge offs		(51	)		(22	)

Provision charged to expense		266			(84	)

Balance, end of period	$	6,449		$	6,222

The allowance for loan losses has been calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Company’s loans. Management considers such factors as the repayment status of a loan, the estimated net fair value of the underlying collateral, the borrower’s intent and ability to repay the loan, local economic conditions, and the Company’s historical loss ratios. We maintain the allowance for loan losses through the provisions for loan losses that we charge to income. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. The allowance for loan losses increased $215,000 to $6.4 million at December 31, 2020, from $6.2 million at June 30, 2020. This increase was primarily the result of an increase in risk associated with outstanding loans due to a change in portfolio mix and, to a lesser extent, additional reserves for all loans that remain under temporary COVID-19 modifications. This increase was necessary in order to bring the allowance for loan losses to a level that reflects management’s estimate of the potential loss in the Company’s loan portfolio at December 31, 2020.

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


Portfolio segment	December 31, 2020 Net charge-offs – 12 quarter weighted historical			June 30, 2020 Net charge-offs – 12 quarter weighted historical
Real Estate:
One- to four-family		0.25	%		0.25	%
Multi-family		0.00	%		0.00	%
Commercial		0.00	%		0.00	%
HELOC		0.05	%		0.11	%
Construction		0.00	%		0.00	%
Commercial business		0.10	%		0.08	%
Consumer		0.03	%		0.06	%

Entire portfolio total		0.09	%		0.09	%

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

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


Portfolio segment	Qualitative factor applied at December 31, 2020			Qualitative factor applied at June 30, 2020
Real Estate:
One- to four-family		0.58	%		0.57	%
Multi-family		1.65	%		1.57	%
Commercial		1.19	%		1.20	%
HELOC		0.96	%		0.90	%
Construction		0.94	%		1.09	%
Commercial business*		1.85	%		1.85	%
Consumer		0.75	%		0.70	%

Entire portfolio total*		1.21	%		1.18	%

*	At December 31, 2020 and June 30, 2020, $17.4 million and $26.2 million, respectively, in PPP loan with no associated allowance, were excluded from the calculation of qualitative factors since they are guaranteed by the SBA.

At December 31, 2020, the amount of our allowance for loan losses attributable to these qualitative factors was approximately $6.0 million, as compared to $5.8 million at June 30, 2020. The general increase in qualitative factors was attributable primarily to an adjustment for COVID-19 concerns, partially offset by a change in the loan portfolio mix.

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

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan sales and repayments, advances from the Federal Home Loan Bank of Chicago, and maturities of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers, as well as unanticipated contingencies. For the three months ended December 31, 2020 and the year ended June 30, 2020, our liquidity ratio averaged 23.6% and 22.9% of our total assets, respectively. We believe that we had enough sources of liquidity to satisfy our short- and long-term liquidity needs as of December 31, 2020.

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are affected by our operating, financing, lending and investing activities during any given period. At December 31, 2020, cash and cash equivalents totaled $7.7 million. Interest-earning time deposits which can offer additional sources of liquidity, totaled $3.0 million at December 31, 2020.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Condensed Consolidated Statement of Cash Flows included in our financial statements. Net cash provided by operating activities were $2.5 million and $3.6 million for the six months ended December 31, 2020 and 2019 respectively. Net cash used in investing activities consisted primarily of disbursements for loan originations and the purchase of securities, offset by net cash provided by principal collections on loans, and proceeds from maturing securities, the sale of securities and pay-downs on mortgage-backed securities. Net cash used in investing activities was $4.8 million and $3.3 million for the six months ended December 31, 2020 and 2019, respectively. Net cash used in financing activities consisted primarily of the activity in deposit accounts and FHLB Advances. The net cash used in financing activities was $(23.5) million and $(49.0) million for the six months ended December 31, 2020 and 2019, respectively.

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


	December 31, 2020		June 30, 2020
	(Dollars in thousands)
Commitments to fund loans	$	20,014	$	16,873
Lines of credit		88,602		86,182

At December 31, 2020, certificates of deposit due within one year of December 31, 2020 totaled $232.3 million, or 39.6% of total deposits. Depending on market conditions, we may be required to pay higher rates on such deposits, our line of credit or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2021. Moreover, it is our intention as we continue to grow our commercial real estate portfolio, to emphasize lower cost deposit relationships with these commercial loan customers and thereby replace the higher cost certificates with lower cost deposits. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements, which provide an additional source of funds, exist with the Federal Home Loan Bank of Chicago, Federal Reserve Discount Window, and CIBC Bank USA. Federal Home Loan Bank advances were $24.0 million, while the amount drawn on our CIBC line of credit was $3.0 million at December 31, 2020. At December 31, 2020 we had the ability to borrow up to an additional $107.3 million from the Federal Home Loan Bank of Chicago, we had $4.5 million available on our CIBC Bank line of credit, and also had the ability to borrow $27.5 million from the Federal Reserve based on current collateral pledged.


	December 31, 2020			June 30, 2020			Minimum to Be Well
	Actual			Actual			Capitalized
Community Bank Leverage Ratio		11.1	%		10.7	%		8.0	%

Average Balances and Yields

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


	For the Three Months Ended December 31,
	2020								2019
	Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)
Assets
Loans	$	515,408		$	5,366		4.16	%	$	495,715		$	5,794		4.68	%
Securities:
U.S. government, federal agency and government-sponsored enterprises		11,006			68		2.47	%		14,693			96		2.61	%
U.S. government-sponsored enterprise MBS		142,847			735		2.06	%		128,468			826		2.57	%
State and political subdivisions		1,383			9		2.60	%		2,300			12		2.09	%

Total securities		155,236			812		2.09	%		145,461			934		2.57	%
Other interest-earning assets		20,627			60		1.16	%		9,831			61		2.48	%

Total interest-earning assets		691,271			6,238		3.61	%		651,007			6,789		4.17	%
Non-interest earning assets		34,233								26,332

Total assets	$	725,504							$	677,339

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing checking or NOW	$	90,470			39		0.17	%	$	62,217			53		0.34	%
Savings accounts		54,275			28		0.21	%		44,676			47		0.42	%
Money market accounts		130,852			125		0.38	%		99,937			310		1.24	%
Certificates of deposit		284,516			881		1.24	%		315,176			1,809		2.30	%

Total interest-bearing deposits		560,113			1,073		0.77	%		522,006			2,219		1.70	%
Borrowings and repurchase agreements		31,612			115		1.46	%		39,232			229		2.33	%

Total interest-bearing liabilities		591,725			1,188		0.80	%		561,238			2,448		1.74	%
Noninterest-bearing liabilities		49,521								38,724

Total liabilities		641,246								599,962
Stockholders’ equity		84,258								77,377

Total liabilities and stockholders’ equity	$	725,504							$	677,339

Net interest income				$	5,050							$	4,341

Interest rate spread (1)							2.81	%							2.43	%
Net interest margin (2)							2.92	%							2.67	%
Net interest-earning assets (3)	$	99,546							$	89,769

Average interest-earning assets to interest-bearing liabilities		117	%							116	%

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

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

(3)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(4)	Tax exempt income is not recorded on a tax equivalent basis.


	For the Six Months Ended December 31,
	2020								2019
	Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)
Assets
Loans	$	517,550		$	10,719		4.14	%	$	495,808		$	11,691		4.72	%
Securities:
U.S. government, federal agency and government-sponsored enterprises		11,042			137		2.48	%		15,033			200		2.66	%
U.S. government-sponsored enterprise MBS		141,999			1,506		2.12	%		127,517			1,659		2.60	%
State and political subdivisions		1,416			20		2.82	%		2,513			24		1.91	%

Total securities		154,457			1,663		2.15	%		145,063			1,883		2.60	%
Other interest-earning assets		22,766			121		1.06	%		12,877			223		3.46	%

Total interest-earning assets		694,773			12,503		3.60	%		653,748			13,797		4.22	%
Non-interest earning assets		33,992								26,392

Total assets	$	728,765							$	680,140

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing checking or NOW	$	84,187			75		0.18	%	$	59,460			102		0.34	%
Savings accounts		53,079			55		0.21	%		44,358			92		0.41	%
Money market accounts		128,306			252		0.39	%		101,382			652		1.29	%
Certificates of deposit		286,761			1,926		1.34	%		320,053			3,656		2.28	%

Total interest-bearing deposits		552,333			2,308		0.84	%		525,253			4,502		1.71	%
Borrowings and repurchase agreements		38,422			257		1.34	%		33,106			368		2.22	%

Total interest-bearing liabilities		590,755			2,565		0.87	%		558,359			4,870		1.74	%
Noninterest-bearing liabilities		54,045								42,444

Total liabilities		644,800								600,803
Stockholders’ equity		83,965								79,337

Total liabilities and stockholders’ equity	$	728,765							$	680,140

Net interest income				$	9,938							$	8,927

Interest rate spread (1)							2.73	%							2.48	%
Net interest margin (2)							2.86	%							2.73	%
Net interest-earning assets (3)	$	104,018							$	95,389

Average interest-earning assets to interest-bearing liabilities		118	%							117	%

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

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

(3)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(4)	Tax exempt income is not recorded on a tax equivalent basis.

Rate/Volume Analysis

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


	Three Months Ended December 31, 2020 vs. 2019									Six Months Ended December 31, 2020 vs. 2019
	Increase (Decrease) Due to						Total Increase (Decrease)			Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate			Total Increase (Decrease)			Volume			Rate			Total Increase (Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	1,245		$	(1,673	)	$	(428	)	$	1,257		$	(2,229	)	$	(972	)
Securities		337			(459	)		(122	)		295			(515	)		(220	)
Other		174			(175	)		(1	)		271			(373	)		(102	)

Total interest-earning assets	$	1,756		$	(2,307	)	$	(551	)	$	1,823		$	(3,117	)	$	(1,294	)

Interest-bearing liabilities:
Interest-bearing checking or NOW	$	94		$	(108	)	$	(14	)	$	76		$	(103	)	$	(27	)
Savings accounts		50			(69	)		(19	)		41			(78	)		(37	)
Certificates of deposit		(162	)		(766	)		(928	)		(349	)		(1,381	)		(1,730	)
Money market accounts		473			(658	)		(185	)		392			(792	)		(400	)

Total interest-bearing deposits		455			(1,601	)		(1,146	)		160			(2,354	)		(2,194	)
Federal Home Loan Bank advances and repurchase agreements		(39	)		(75	)		(114	)		136			(247	)		(111	)

Total interest-bearing liabilities	$	416		$	(1,676	)	$	(1,260	)	$	296		$	(2,601	)	$	(2,305	)

Change in net interest income	$	1,340		$	(631	)	$	709		$	1,527		$	(516	)	$	1,011

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2020. Based upon such evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended December 31, 2020, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

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

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

None.

Item 5.

Other Information

None.

Item 6.

Exhibits


31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of December 31, 2020 and June 30, 2020 (ii) the Condensed Consolidated Statements of Income for the three and six months ended December 31, 2020 and 2019, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2020 and 2019, (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended December 31, 2020 and 2019, (v) the Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2020 and 2019, and (vi) the notes to the Condensed Consolidated Financial Statements.

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

SIGNATURES

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


						IF BANCORP, INC.

Date: February 11, 2020						/s/ Walter H. Hasselbring III
						Walter H. Hasselbring III
						President and Chief Executive Officer

Date: February 11, 2020						/s/ Pamela J. Verkler
						Pamela J. Verkler
						Senior Executive Vice President and Chief Financial Officer