IF Bancorp, Inc. - Quarter Report: 2023 March (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

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

For the quarterly period ended

March 31

, 2023

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

For the transition period from

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 3,354,626 shares of common stock, par value $0.01 per share, issued and outstanding as of May 4, 2023.

IF Bancorp, Inc.

Form 10-Q

Index


		Page
Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements		1

	Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and June 30, 2022		1

	Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended March 31, 2023 and 2022 (unaudited)		2

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Nine Months Ended March 31, 2023 and 2022 (unaudited)		3

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended March 31, 2023 and 2022 (unaudited)		4

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2023 and 2022 (unaudited)		6

	Notes to Condensed Consolidated Financial Statements (unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		57

Item 4.	Controls and Procedures		57

Part II. Other Information

Item 1.	Legal Proceedings		58

Item 1A.	Risk Factors		58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		58

Item 3.	Defaults upon Senior Securities		58

Item 4.	Mine Safety Disclosures		58

Item 5.	Other Information		58

Item 6.	Exhibits		58

	Signature Page		60

Part I. – Financial Information

Item 1.

Condensed Consolidated Financial Statements

IF Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amount)


	March 31, 2023			June 30, 2022
Assets		(Unaudited	)
Cash and due from banks	$	9,222		$	74,494
Interest-bearing demand deposits		243			1,317

Cash and cash equivalents		9,465			75,811

Interest-bearing time deposits in banks		1,250			1,500
Available-for-sale securities		207,693			220,906
Loans, net of allowance for credit losses of $7,535 and $7,052 at March 31, 2023 and June 30, 2022, respectively		578,511			518,931
Premises and equipment, net of accumulated depreciation of $9,191 and $8,704 at March 31, 2023 and June 30, 2022, respectively		11,160			9,505
Federal Home Loan Bank stock, at cost		3,843			3,142
Foreclosed assets held for sale		—			120
Accrued interest receivable		2,641			2,023
Bank-owned life insurance		14,663			14,373
Mortgage servicing rights		1,472			1,463
Deferred income taxes		10,004			9,166
Other		2,266			618

Total assets	$	842,968		$	857,558

Liabilities and Equity
Liabilities
Deposits
Demand	$	46,740		$	104,944
Savings, NOW and money market		357,920			396,600
Certificates of deposit		253,872			246,909
Brokered certificates of deposit		33,036			3,567

Total deposits		691,568			752,020

Repurchase agreements		10,764			9,244
Federal Home Loan Bank advances		56,500			15,000
Advances from borrowers for taxes and insurance		1,352			503
Accrued post-retirement benefit obligation		2,642			2,620
Accrued interest payable		961			176
Allowance for credit losses on off-balance sheet credit exposures		307			—
Other		5,125			6,337

Total liabilities		769,219			785,900

Commitments and Contingencies
Stockholders’ Equity
Common stock, $.01 par value per share, 100,000,000 shares authorized, 3,354,626 and 3,257,626 shares issued and outstanding at March 31, 2023 and June 30, 2022, respectively		33			32
Additional paid-in capital		51,429			50,342
Unearned ESOP shares, at cost, 158,771 and 173,205 shares at March 31, 2023 and June 30, 2022, respectively		(1,588	)		(1,732	)
Retained earnings		42,732			40,362
Accumulated other comprehensive income (loss), net of tax		(18,857	)		(17,346	)

Total stockholders’ equity		73,749			71,658

Total liabilities and stockholders’ equity	$	842,968		$	857,558

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

IF Bancorp, Inc.

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in thousands except per share amounts)


	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023			2022
Interest and Dividend Income
Interest and fees on loans	$	6,690	$	4,907	$	18,889		$	15,292
Securities:
Taxable		1,345		1,033		4,048			3,074
Tax-exempt		26		9		80			27
Federal Home Loan Bank dividends		64		31		134			89
Deposits with other financial institutions		73		23		231			78

Total interest and dividend income		8,198		6,003		23,382			18,560

Interest Expense
Deposits		2,501		498		4,560			1,572
Federal Home Loan Bank advances and repurchase agreements		661		94		1,491			288
Line of credit and other borrowings		—		19		—			57

Total interest expense		3,162		611		6,051			1,917

Net Interest Income		5,036		5,392		17,331			16,643
Provision for Credit Losses		240		242		253			39

Net Interest Income After Provision for Credit Losses		4,796		5,150		17,078			16,604

Noninterest Income
Customer service fees		91		82		294			255
Other service charges and fees		58		63		173			231
Insurance commissions		130		180		506			559
Brokerage commissions		168		289		607			865
Net realized gains (losses) on sales of available-for-sale securities		12		—		(171	)		—
Mortgage banking income, net		43		400		267			635
Gain on sale of loans		48		32		124			414
Bank-owned life insurance income, net		96		88		290			393
Other		296		320		938			1,087

Total noninterest income		942		1,454		3,028			4,439

Noninterest Expense
Compensation and benefits		3,203		3,393		9,414			9,602
Office occupancy		248		261		728			729
Equipment		563		486		1,725			1,484
Federal deposit insurance		57		50		169			146
Stationary, printing and office		23		16		78			60
Advertising		109		98		379			281
Professional services		78		69		368			298
Supervisory examinations		43		38		132			122
Audit and accounting services		43		17		137			110
Organizational dues and subscriptions		8		4		51			48
Insurance bond premiums		50		46		151			141
Telephone and postage		44		40		124			119
Loss (Gain) on foreclosed assets, net		—		19		(28	)		6
Other		377		511		1,187			1,454

Total noninterest expense		4,846		5,048		14,615			14,600

Income Before Income Tax		892		1,556		5,491			6,443
Provision for Income Tax		202		402		1,428			1,694

Net Income	$	690	$	1,154	$	4,063		$	4,749

Earnings Per Share:
Basic	$	0.22	$	0.37	$	1.29		$	1.55
Diluted	$	0.21	$	0.37	$	1.25		$	1.52
Dividends declared per common share	$	0.20	$	0.175	$	0.40		$	0.35

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

IF Bancorp, Inc.

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

(Dollars in thousands)


	Three Months Ended March 31,
	2023			2022
Net Income	$	690		$	1,154
Other Comprehensive Income (Loss)
Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of $874 and $(3,515), for 2023 and 2022, respectively		2,195			(8,816	)
Less: reclassification adjustment for realized gains included in net income, net of taxes of $4 and $0, for 2023 and 2022, respectively		8			—

		2,187			(8,816	)
Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $0 and $(4) for 2023 and 2022, respectively		(2	)		(10	)

Other comprehensive income (loss), net of tax		2,185			(8,826	)

Comprehensive Income (Loss)	$	2,875		$	(7,672	)


	Nine Months Ended March 31,
	2023			2022
Net Income	$	4,063		$	4,749
Other Comprehensive Loss
Unrealized depreciation on available-for-sale securities, net of taxes of $(649) and $(4,500), for 2023 and 2022, respectively		(1,630	)		(11,288	)
Less: reclassification adjustment for realized gains (losses) included in net income, net of taxes of $(48) and $0, for 2023 and 2022, respectively		(123	)		—

		(1,507	)		(11,288	)
Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $(1) and $(10) for 2023 and 2022, respectively		(4	)		(25	)

Other comprehensive loss, net of tax		(1,511	)		(11,313	)

Comprehensive Income (Loss)	$	2,552		$	(6,564	)

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

IF Bancorp, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share amounts)


	Common Stock		Additional Paid-In Capital		Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
For the three months ended March 31, 2023
Balance, January 1, 2023	$	33	$	51,021	$	(1,636	)	$	42,714		$	(21,042	)	$	71,090
Net income		—		—		—			690			—			690
Other comprehensive income		—		—		—			—			2,185			2,185
Dividends on common stock, $0.20 per share		—		—		—			(672	)		—			(672	)
Stock options exercised		—		283		—			—			—			283
Stock equity plan		—		90		—			—			—			90
ESOP shares earned, 4,811 shares		—		35		48			—			—			83

Balance, March 31, 2023	$	33	$	51,429	$	(1,588	)	$	42,732		$	(18,857	)	$	73,749

For the three months ended March 31, 2022
Balance, January 1, 2022	$	32	$	50,136	$	(1,828	)	$	38,708		$	(554	)	$	86,494
Net income		—		—		—			1,154			—			1,154
Other comprehensive loss		—		—		—			—			(8,826	)		(8,826	)
Dividends on common stock, $0.175 per share		—		—		—			(570	)		—			(570	)
Stock equity plan		—		40		—			—			—			40
ESOP shares earned, 4,811 shares		—		69		48			—			—			117

Balance, March 31, 2022	$	32	$	50,245	$	(1,780	)	$	39,292		$	(9,380	)	$	78,409

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents


	Common Stock		Additional Paid-In Capital		Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
For the nine months ended March 31, 2023
Balance, June 30, 2022	$	32	$	50,342	$	(1,732	)	$	40,362		$	(17,346	)	$	71,658
Cumulative impact of ASU 2016-13		—		—		—			(388	)		—			(388	)

Balance, July 1, 2022	$	32	$	50,342	$	(1,732	)	$	39,974		$	(17,346	)	$	71,270
Net income		—		—		—			4,063			—			4,063
Other comprehensive loss		—		—		—			—			(1,511	)		(1,511	)
Dividends on common stock, $0.40 per share		—		—		—			(1,305	)		—			(1,305	)
Stock options exercised		1		731		—			—			—			732
Stock equity plan		—		237		—			—			—			237
ESOP shares earned, 14,434 shares		—		119		144			—			—			263

Balance, March 31, 2023	$	33	$	51,429	$	(1,588	)	$	42,732		$	(18,857	)	$	73,749

For the nine months ended March 31, 2022
Balance, July 1, 2021	$	32	$	49,619	$	(1,925	)	$	35,645		$	1,933		$	85,304
Net income		—		—		—			4,749			—			4,749
Other comprehensive loss		—		—		—			—			(11,313	)		(11,313	)
Dividends on common stock, $0.35 per share		—		—		—			(1,102	)		—			(1,102	)
Stock options exercised		—		315		—			—			—			315
Stock equity plan		—		116		—			—			—			116
ESOP shares earned, 14,434 shares		—		195		145			—			—			340

Balance, March 31, 2022	$	32	$	50,245	$	(1,780	)	$	39,292		$	(9,380	)	$	78,409

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

IF Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)


	Nine Months Ended March 31,
	2023			2022
Operating Activities
Net income	$	4,063		$	4,749
Items not requiring (providing) cash
Depreciation		487			505
Provision for loan losses		253			39
Amortization of premiums and discounts on securities		217			460
Deferred income taxes		(236	)		304
Net realized gains on loan sales		(124	)		(414	)
Net realized losses on sales of available-for-sale securities		171			—
Loss (Gain) on foreclosed assets held for sale		(28	)		6
Bank-owned life insurance income, net		(290	)		(393	)
ESOP compensation expense		263			340
Stock equity plan expense		237			116
Originations of loans held for sale		(5,116	)		(21,680	)
Proceeds from sales of loans held for sale		5,458			21,875
Changes in
Accrued interest receivable		(618	)		(109	)
Other assets		(1,648	)		328
Accrued interest payable		785			(31	)
Post-retirement benefit obligation		17			29
Other liabilities		(2,239	)		(421	)

Net cash provided by operating activities		1,652			5,703

Investing Activities
Net change in interest bearing time deposits		250			—
Purchases of available-for-sale securities		(16,810	)		(68,002	)
Proceeds from the sales of available-for-sale securities		7,695			—
Proceeds from maturities and pay-downs of available-for-sale securities		19,832			23,006
Net change in loans		(59,786	)		13,225
Purchase of premises and equipment		(2,142	)		(282	)
Proceeds from sale of foreclosed assets		148			253
Purchase of Federal Home Loan Bank stock		(1,050	)		—
Redemption of Federal Home Loan Bank Stock		349			—
Purchase of bank-owned life insurance		—			(5,000	)
Proceeds from settlement of bank-owned life insurance death claim		—			454

Net cash used in investing activities		(51,514	)		(36,346	)

Financing Activities
Net increase (decrease) in demand deposits, money market, NOW and savings accounts		(96,884	)		2,002
Net increase (decrease) in certificates of deposit, including brokered certificates		36,432			(2,603	)
Net increase in advances from borrowers for taxes and insurance		849			370
Proceeds from Federal Home Loan Bank advances		263,600			—
Repayments of Federal Home Loan Bank advances		(222,100	)		(5,000	)
Net increase in repurchase agreements		1,520			1,018
Dividends paid		(633	)		(532	)
Proceeds from exercise of stock options		732			315

Net cash used in financing activities		(16,484	)		(4,430	)

Net Decrease in Cash and Cash Equivalents		(66,346	)		(35,073	)
Cash and Cash Equivalents, Beginning of Period		75,811			62,735

Cash and Cash Equivalents, End of Period	$	9,465		$	27,662

Supplemental Cash Flows Information
Interest paid	$	5,266		$	1,948
Income taxes paid, net of refunds	$	1,780		$	1,603
Foreclosed assets acquired in settlement of loans	$	—		$	120
Dividends payable	$	672		$	570

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

IF Bancorp, Inc.

Form

10-Q

(Unaudited)

(Table dollar amounts in thousands)

Notes to Condensed Consolidated Financial Statements

Note 1: Basis of Financial Statement Presentation

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and with instructions for Form 10–Q and Regulation S–X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from these estimates. In the opinion of management, the preceding unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of March 31, 2023 and June 30, 2022, and the results of its operations for the three month and nine month periods ended March 31, 2023 and 2022. 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, 2022. The results of operations for the three-month and nine-month periods ended March 31, 2023 are not necessarily indicative of the results that may be expected for the entire year.

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, IF Insurance Agency, receives commissions on premiums of new and renewed business policies. IF 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.

Table of Contents

•

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. In preparation for the adoption of ASU

2016-13,

we engaged a firm specializing in ALLL modeling and have been transition modeling for the past couple years. We also had our CECL model validated by an independent firm.

The Company early adopted ASU

2016-13

using the current expected credit loss (“CECL”) methodology for financial assets measured at amortized cost, effective July 1, 2022. Results for the periods beginning after July 1, 2022 are presented under ASU

2016-13,

while prior period amounts are reported in accordance with the previously applicable accounting standards. The Company recorded a reduction to retained earnings of approximately $388,000 upon adoption of ASU

2016-13.

The transition adjustment included an increase to the allowance for credit losses on loans of $47,000 and an increase to the allowance to credit losses on

off-balance

sheet credit exposure of $496,000. The transition adjustment included a corresponding increase in deferred tax assets.

Table of Contents

The following table illustrates the impact of ASU

2016-13

adoption (in thousands):


	July 1, 2022
	Allowance for credit losses as reported under ASU 2016-13		Allowance pre-ASU 2016- 13 Adoption		Impact on Allowance of ASU 2016-13 Adoption
Assets:
Real Estate Loans
One- to four-family	$	1,410	$	1,028	$	382
Multi-Family		1,235		1,375		(140	)
Commercial		2,370		1,985		385
HELOC		103		70		33
Construction		681		489		192
Commercial Business		1,207		2,025		(818	)
Consumer		93		80		13

Allowance for credit losses for all loans	$	7,099	$	7,052	$	47

Liabilities:
Allowance for credit losses on off-balance sheet exposures	$	496	$	—	$	496

In March 2022, FASB issued ASU

2022-02,

Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and

Vintage Disclosures

The amendments in this update eliminate the accounting guidance and related disclosures for TDRs by creditors in Subtopic

310-40,

Receivables—Troubled Debt Restructurings by Creditors

, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty and requiring an entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic

326-20,

Financial Instruments—Credit Losses—Measured at Amortized Cost

. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and are applied prospectively, except with respect to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method. Early adoption of the amendments in this update is permitted. An entity may elect to early adopt the amendments regarding TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The adoption of this accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Note 3: Stock-based Compensation

In connection with the conversion to stock form, the Association established an ESOP for the exclusive benefit of eligible employees (all salaried employees who have completed at least 1,000 hours of service in a twelve-month period and have attained the age of 21). The ESOP borrowed funds from the Company in an amount sufficient to purchase 384,900 shares (approximately 8% of the common stock issued in the stock offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Association and dividends received by the ESOP, with funds from any contributions on ESOP assets. Contributions will be applied to repay interest on the loan first, and then the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid.

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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 March 31, 2023 and June 30, 2022 are as follows (dollars in thousands):


	March 31, 2023		June 30, 2022
Allocated shares		162,986		160,772
Shares committed for release		14,434		19,245
Unearned shares		158,771		173,205

Total ESOP shares		336,191		353,222

Fair value of unearned ESOP shares (1)	$	2,467	$	3,291

(1)	Based on closing price of $15.54 and $19.00 per share on March 31, 2023, and June 30, 2022, respectively.

During the nine months ended March 31, 2023, 9,348 ESOP shares were paid to ESOP participants due to separation from service and 7,683 shares were transferred out as a result of participant diversification. During the nine months ended March 31, 2022, 3,862 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 for a

ten-year

period which ended in November 2022. The purpose of the Equity Incentive Plan was 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 authorized 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) was 481,125 and the maximum number of shares of Company stock that may be issued as restricted stock awards or restricted stock units was 192,450. This plan was replaced by the 2022 Equity Incentive Plan when the stockholders approved the new plan on November 21, 2022. The new plan authorizes the issuance or delivery to participants of up to 264,850 shares of the Company common stock pursuant to grants of incentive and

non-qualified

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. These shares of restricted stock vest in equal installments over 10 years and the stock options vest in equal installments over 7 years. Vesting of both the restricted stock and options started in December 2014. On December 10, 2015, 16,900 shares of restricted stock were awarded to senior officers and directors of the Association.

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These shares of restricted stock vest in equal installments over 8 years, starting in December 2016. On September 9, 2022, 53,000 shares of restricted stock were awarded to senior officers and directors of the Association. These shares of restricted stock will vest in equal installments over 5 years, starting in September 2023. No shares have been granted from the 2022 Equity Incentive Plan as of March 31, 2023, so there are 211,880 shares of restricted stock and 52,970 stock option shares available for future grants under this plan.

The following table summarizes stock option activity for the nine months ended March 31, 2023 (dollars in thousands):


	Options		Weighted-Average Exercise Price/Share		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding, June 30, 2022		134,143	$	16.63
Granted		—		—
Exercised		44,000		16.63
Forfeited		—		—

Outstanding, March 31, 2023		90,143	$	16.63		0.7	$	—	(1)

Exercisable, March 31, 2023		90,143	$	16.63		0.7	$	—	(1)

(1)	Based on closing price of $15.54 per share on March 31, 2023.

Intrinsic value for stock options is defined as the difference between the current market value and the exercise price. There were no stock options granted during the nine months ended March 31, 2023.

No stock options vested during the nine months ended March 31, 2023 and 2022. Stock-based compensation expense and

related tax benefit were zero for stock options for the nine months ended March 31, 2023 and 2022. Compensation

cost related to

non-vested

stock options was recognized over the seven-year vesting period ending in December, 2020, leaving no unrecognized compensation cost at March 31, 2023.

The following table summarizes

non-vested

restricted stock activity for the nine months ended March 31, 2023:


	Shares		Weighted-Average Grant-Date Fair Value
Balance, June 30, 2022		18,876	$	16.82
Granted		53,000		19.10
Forfeited		—		—
Earned and issued		9,562		16.83

Balance, March 31, 2023		62,314	$	18.76

The fair value of the restricted stock awards is amortized to compensation expense over the vesting period 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 $234,000 and $67,000, respectively, for the nine months ended March 31, 2023, and was $119,000 and $34,000, respectively, for the nine months ended March 31, 2022. Unrecognized compensation expense for

non-vested

restricted stock awards was $1,012,000 at March 31, 2023, and is expected to be recognized over 4.4 years with a corresponding credit to

paid-in

capital.

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

Basic and diluted earnings per common share are presented for the three month and nine-month periods ended March 31, 2023 and 2022. The factors used in the earnings per common share computation are as follows:


	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022			Nine Months Ended March 31, 2023			Nine Months Ended March 31, 2022
Net income	$	690		$	1,154		$	4,063		$	4,749

Basic weighted average shares outstanding		3,343,670			3,257,782			3,318,809			3,251,073
Less: Average unallocated ESOP shares		(161,177	)		(180,422	)		(165,988	)		(185,233	)

Basic average shares outstanding		3,182,493			3,077,360			3,152,821			3,065,840

Diluted effect of restricted stock awards and stock options		82,103			72,919			86,964			68,497

Diluted average shares outstanding		3,246,596			3,150,279			3,239,785			3,134,337

Basic earnings per common share	$	0.22		$	0.37		$	1.29		$	1.55

Diluted earnings per common share	$	0.21		$	0.37		$	1.25		$	1.52

Note 5: Securities

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
March 31, 2023:
U.S. Treasury	$	1,496	$	—	$	(54	)	$	1,442
U.S. Government and federal agency		6,976		—		(437	)		6,539
Mortgage-backed:
GSE residential		204,128		121		(24,030	)		180,219
Small Business Administration		17,910		70		(1,918	)		16,062
State and political subdivisions		3,437		—		(6	)		3,431

	$	233,947	$	191	$	(26,445	)	$	207,693

June 30, 2022:
U.S. Treasury	$	3,483	$	—	$	(83	)	$	3,400
U.S. Government and federal agency		9,488		—		(367	)		9,121
Mortgage-backed:
GSE residential		210,367		47		(22,229	)		188,185
Small Business Administration		17,960		3		(1,521	)		16,442
State and political subdivisions		3,754		4		—			3,758

	$	245,052	$	54	$	(24,200	)	$	220,906

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Available for sale securities (“AFS”), which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and losses, net of tax, are reported in accumulated other comprehensive income (loss), a component of stockholders’ equity. All securities have been classified as available for sale.

Premiums and discounts on debt securities are amortized or accreted as adjustments to income over the estimated life of the security using the level yield method or to the earlier of call or maturity date. Realized gains or losses on the sale of securities is based on the specific identification method. The fair value of securities is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

For AFS securities with fair value less than amortized cost that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income (loss). The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections, and is recorded to the allowance for credit losses (ACL) on investments, by a charge to provision for credit losses. Accrued interest receivable is excluded from the estimate of credit losses. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired AFS security, or, if it is more likely than not the Company will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there would be no ACL in this situation.

At adoption of ASU

2016-13,

no impairment on AFS securities was attributable to credit. The Company will evaluate impaired AFS securities at the individual level on a quarterly basis, and will consider such factors including, but not limited to: the extent to which the fair value of the security is less than the amortized cost basis; adverse conditions specifically related to the security, an industry, or geographic area; the payment structure of the security and likelihood of the issuer to be able to make payments that may increase in the future; failure of the issuer to make scheduled interest or principal payments; any changes to the rating of the security by a rating agency; and the ability and intent to hold the security until maturity. A qualitative determination as to whether any portion of the impairment is attributable to credit risk is acceptable. There were no credit related factors underlying unrealized losses on AFS securities at March 31, 2023, and June 30, 2022.

Changes in the ACL are recorded as expense. Losses are charged against the ACL when management believes the uncollectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

The Company did not hold securities of any one issuer at March 31, 2023 with a book value that exceeded 10% of the Company’s total equity except for: Mortgage-backed GSE residential securities and Small Business Administration securities with a book value of approximately $204,128,000 and $17,910,000, respectively, and a market value of approximately $180,219,000 and $16,062,000, respectively, at March 31, 2023.

All mortgage-backed securities at March 31, 2023 and June 30, 2022 were issued by GSEs.

The amortized cost and fair value of

available-for-sale

securities at March 31, 2023, 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.

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	Available-for-sale Securities
	Amortized Cost		Fair Value
Within one year	$	1,000	$	995
One to five years		5,957		5,735
Five to ten years		10,989		10,343
After ten years		11,873		10,401

		29,819		27,474
Mortgage-backed securities		204,128		180,219

Totals	$	233,947	$	207,693

The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $100,681,000 and $125,209,000 as of March 31, 2023 and June 30, 2022, respectively.

The carrying value of securities sold under agreement to repurchase amounted to $10.8 million at March 31, 2023 and $9.2 million at June 30, 2022. At March 31, 2023, all $10.8 million of our repurchase agreements had an overnight maturity and 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 $12,000 and $0 and gross losses of $183,000 and $0, resulting from sales of

available-for-sale

securities were realized for the nine-month period ended March 31, 2023, and 2022, respectively. The tax credit applicable to these net realized losses amounted to approximately $48,000 and $0 respectively. Gross gains of $12,000 and $0 and gross losses of $0 and $0, resulting from sales of

available-for-sale

securities were realized for the three-month period ended March 31,

2023 and 2022, respectively. The tax provision applicable to these net realized gains amounted to approximately $4,000 and $0, respectively.

Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at March 31, 2023 and June 30, 2022 was $193,637,000 and $209,133,000, respectively, which is approximately 93% and 95% of the Company’s

available-for-sale

investment portfolio. These declines in fair value at March 31, 2023 and June 30, 2022, resulted from increases in market interest rates and are considered temporary.

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The following table shows the gross unrealized investment losses and the fair value of the Company’s investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2023 and June 30, 2022:


	Less Than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2023:

U.S. Treasury	$	—	$	—		$	1,442	$	(54	)	$	1,442	$	(54	)
U.S. Government and federal agency		1,949		(46	)		4,590		(391	)		6,539		(437	)
Mortgage-backed:
GSE residential		29,284		(852	)		140,627		(23,178	)		169,911		(24,030	)
Small Business Administration		2,454		(76	)		12,221		(1,842	)		14,675		(1,918	)
State and political subdivisions		1,070		(6	)		—		—			1,070		(6	)

Total	$	34,757	$	(980	)	$	158,880	$	(25,465	)	$	193,637	$	(26,445	)

June 30, 2022:

U.S. Treasury	$	3,400	$	(83	)	$	—	$	—		$	3,400	$	(83	)
U.S. Government and federal agency		9,121		(367	)		—		—			9,121		(367	)
Mortgage-backed:
GSE residential		144,042		(15,267	)		37,587		(6,962	)		181,629		(22,229	)
Small Business Administration		12,955		(1,160	)		2,028		(361	)		14,983		(1,521	)

Total	$	169,518	$	(16,877	)	$	39,615	$	(7,323	)	$	209,133	$	(24,200	)

The unrealized losses on the Company’s investment in U.S. Treasury, U.S. Government and federal agency, Mortgage-backed Government sponsored enterprises, Small Business Administration and state and political subdivision securities at March 31, 2023 and June 30, 2022, 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 impaired at March 31, 2023 and June 30, 2022.

Note 6: Loans and Allowance for Credit Losses

Classes of loans include:


	March 31, 2023		June 30, 2022
Real estate loans:
One- to four-family	$	158,388	$	132,474
Multi-family		98,891		88,247
Commercial		198,976		167,375
Home equity lines of credit		7,058		6,987
Construction		42,881		41,254
Commercial		71,129		80,418

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Consumer		8,491			8,981

Total loans		585,814			525,736

Less:
Unearned fees and discounts, net		(232	)		(247	)
Allowance for credit losses		7,535			7,052

Loans, net	$	578,511		$	518,931

The Company had loans held for sale included in

one-

to four-family real estate loans totaling $0 and $227,000 as of March 31, 2023 and June 30, 2022, respectively.

The Company believes that sound loans are a necessary and desirable means of deploying funds available for investment. Recognizing the Company’s obligations to its depositors and to the communities it serves, authorized personnel are expected to seek to develop and make sound, profitable loans that resources permit and that opportunity affords. The Company maintains lending policies and procedures designed to focus our lending efforts on the types, locations, and duration of loans most appropriate for our business model and markets. The Company’s lending activity includes the origination of

one-

to four-family residential mortgage loans, multi-family loans, commercial real estate loans, home equity lines of credits, commercial business loans, consumer loans (consisting primarily of automobile loans), construction loans and land loans. The primary lending market includes the Illinois counties of Vermilion, Iroquois, Champaign and Kankakee, as well as the adjacent counties in Illinois and Indiana. The Company also has a loan production and wealth management office in Osage Beach, Missouri, which serves the Missouri counties of Camden, Miller, and Morgan. Generally, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals. The loans are expected to be repaid from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

Management reviews and approves the Company’s lending policies and procedures on a routine basis. Management routinely (at least quarterly) reviews our allowance for credit 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.

Interest on loans is accrued based upon the principal amount outstanding. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL. 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 Company’s policies and loan approval limits are established by the Board of Directors. The structure of the Company’s loan approval process is based on progressively larger lending authorities granted to loan officers, loan

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committees, and ultimately the Board of Directors through its Operating Committee, consisting of the Chairman and up to four other Board members. At no time is a borrower’s total borrowing relationship to exceed our regulatory lending limit. Loans to related parties, including executive officers and the Company’s directors, are reviewed for compliance with regulatory guidelines and the Board of Directors at least annually.

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

The Company’s lending can be summarized into six primary areas;

one-

to four-family residential mortgage loans, commercial real estate and multi-family real estate loans, home equity lines of credit, real estate construction, commercial business loans, and consumer loans.

One-

to four-family Residential Mortgage Loans

The Company offers

one-

to four-family residential mortgage loans that conform to Fannie Mae and Freddie Mac underwriting standards (conforming loans) as well as

non-conforming

loans. In recent years there has been an increased demand for long-term fixed-rate loans, as market rates have dropped and remained near historic lows. As a result, the Company has sold a substantial portion of the fixed-rate

one-

to four-family residential mortgage loans with terms of 15 years or greater. Generally, the Company retains fixed-rate

one-

to four-family residential mortgage loans with terms of less than 15 years, although this has represented a small percentage of the fixed-rate loans originated in recent years due to the favorable long-term rates for borrower.

The Company offers USDA (USDA Rural Development) and FHA 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.

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.

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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 March 31, 2023 and June 30, 2022, the Company had no PPP loans, compared to 18 PPP loans totaling $1.2 million at March 31, 2022.

Real Estate Construction Loans

The Company originates construction loans for

one-

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

Consumer Loans

Consumer loans consist of installment loans to individuals, primarily automotive loans. These loans are underwritten utilizing the borrower’s financial history, including the Fair Isaac Corporation (“FICO”)

credit scoring and information as to the underlying collateral. Repayment is expected from the cash flow of the borrower. Consumer loans may be underwritten with terms up to seven years, fully amortized. Unsecured loans are limited to twelve months.

Loan-to-value

ratios vary based on the type of collateral. The Company has established minimum standards and underwriting guidelines for all consumer loan collateral types.

Loan Concentration

The loan portfolio includes a concentration of loans secured by commercial and multi-family real estate properties amounting to $334,513,000 and $290,972,000 as of March 31, 2023 and June 30, 2022, 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.

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Purchased Loans and Loan Participations

The Company’s loans receivable included purchased loans of $675,000 and $1,570,000 at March 31, 2023 and June 30, 2022, respectively. All of these purchased loans are secured by single family homes located out of our primary market area primarily in the Midwest. The Company’s loans receivable also include commercial loan participations of $41,857,000 and $29,972,000 at March 31, 2023 and June 30, 2022, respectively, of which $23,646,000 and $13,234,000, at March 31, 2023 and June 30, 2022 were outside our primary market area.

Allowance for Credit Losses

The following tables present the activity in the allowance for credit losses and the recorded investment in loans based on loan classes as of March 31, 2023 and June 30, 2022, and activity in the allowance for credit losses and allowance for loan losses for the three-month and nine-month periods ended March 31, 2023 and 2022 and the year ended June 30, 2022:


	Three Months Ended March 31, 2023
	Real Estate Loans
	One- to Four-Family		Multi-Family			Commercial			Home Equity Lines of Credit
Allowance for credit losses:
Balance, beginning of period	$	1,722	$	1,402		$	2,392		$	101
Provision for credit losses		268		(117	)		118			(3	)
Losses charged off		—		—			—			—
Recoveries		—		—			—			—

Balance, end of period	$	1,990	$	1,285		$	2,510		$	98

Loans:

Ending balance	$	158,388	$	98,891		$	198,976		$	7,058


	Three Months Ended March 31, 2023 (Continued)
	Construction		Commercial			Consumer			Total
Allowance for credit losses:
Balance, beginning of period	$	585	$	871		$	93		$	7,166
Provision for credit losses		101		12			(12	)		367
Losses charged off		—		—			(9	)		(9	)
Recoveries		—		6			5			11

Balance, end of period	$	686	$	889		$	77		$	7,535

Loans:

Ending balance	$	42,881	$	71,129		$	8,491		$	585,814

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	Nine Months Ended March 31, 2023
	Real Estate Loans
	One- to Four-Family			Multi-Family			Commercial			Home Equity Lines of Credit
Allowance for credit losses:
Balance, beginning of period (prior to adoption of ASU 2016-13)	$	1,028		$	1,375		$	1,985		$	70
Impact of adopting ASU 2016-13		382			(140	)		385			33
Provision for credit losses		579			50			140			(5	)
Losses charged off		—			—			—			—
Recoveries		1			—			—			—

Balance, end of period	$	1,990		$	1,285		$	2,510		$	98

Loans:

Ending balance	$	158,388		$	98,891		$	198,976		$	7,058


	Nine Months Ended March 31, 2023 (Continued)
	Construction			Commercial			Consumer			Total
Allowance for credit losses:
Balance, beginning of period (prior to adoption of ASU 2016-13)	$	489		$	2,025		$	80		$	7,052
Impact of adopting ASU 2016-13		192			(818	)		13			47
Provision for credit losses		5			(332	)		5			442
Losses charged off		—			(4	)		(30	)		(34	)
Recoveries		—			18			9			28

Balance, end of period	$	686		$	889		$	77		$	7,535

Loans:

Ending balance	$	42,881		$	71,129		$	8,491		$	585,814


	Year Ended June 30, 2022 Real Estate Loans
	One- to Four-Family			Multi-Family			Commercial			Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of year	$	967		$	1,674		$	1,831		$	67
Provision charged to expense		100			(299	)		154			3
Losses charged off		(40	)		—			—			—
Recoveries		1			—			—			—

Balance, end of year	$	1,028		$	1,375		$	1,985		$	70

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

Ending balance: collectively evaluated for impairment	$	1,028		$	1,375		$	1,985		$	70

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Loans:
Ending balance	$	132,474		$	88,247	$	167,375		$	6,987

Ending balance: individually evaluated for impairment	$	1,350		$	—	$	—		$	—

Ending balance: collectively evaluated for impairment	$	131,124		$	88,247	$	167,375		$	6,987


	Year Ended June 30, 2022 (Continued)
	Construction			Commercial		Consumer			Total
Allowance for loan losses:
Balance, beginning of year	$	258		$	1,740	$	62		$	6,599
Provision charged to expense		231			265		38			492
Losses charged off		—			—		(27	)		(67	)
Recoveries		—			20		7			28

Balance, end of year	$	489		$	2,025	$	80		$	7,052

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

Ending balance: collectively evaluated for impairment	$	489		$	2,025	$	80		$	7,052

Loans:

Ending balance	$	41,254		$	80,418	$	8,981		$	525,736

Ending balance: individually evaluated for impairment	$	—		$	35	$	—		$	1,385

Ending balance: collectively evaluated for impairment	$	41,254		$	80,383	$	8,981		$	524,351


	Three Months Ended March 31, 2022
	Real Estate Loans
	One- to Four-Family			Multi- Family		Commercial			Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of period	$	1,082		$	1,400	$	1,962		$	62
Provision charged to expense		(13	)		27		4			4
Losses charged off		(26	)		—		—			—
Recoveries		—			—		—			—

Balance, end of period	$	1,043		$	1,427	$	1,966		$	66

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

Ending balance: collectively evaluated for impairment	$	1,043		$	1,427	$	1,966		$	66

Loans:

Ending balance	$	124,590		$	88,566	$	165,132		$	6,600

Ending balance: individually evaluated for impairment	$	1,076		$	—	$	—		$	—

Ending balance: collectively evaluated for impairment	$	123,514		$	88,566	$	165,132		$	6,600


	Three Months Ended March 31, 2022 (Continued)
	Construction			Commercial		Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	299		$	1,521	$	69		$	6,395
Provision charged to expense		60			154		6			242
Losses charged off		—			—		(6	)		(32	)

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Recoveries		—			4			2			6

Balance, end of period	$	359		$	1,679		$	71		$	6,611

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

Ending balance: collectively evaluated for impairment	$	359		$	1,679		$	71		$	6,611

Loans:

Ending balance	$	31,127		$	81,399		$	8,298		$	505,712

Ending balance: individually evaluated for impairment	$	—		$	38		$	—		$	1,114

Ending balance: collectively evaluated for impairment	$	31,127		$	81,361		$	8,298		$	504,598


	Nine Months Ended March 31, 2022
	Real Estate Loans
	One- to Four-Family			Multi- Family			Commercial			Home Equity Lines of Credit
Allowance for loan losses:
Balance, beginning of period	$	967		$	1,674		$	1,831		$	67
Provision charged to expense		101			(247	)		135			(1	)
Losses charged off		(26	)		—			—			—
Recoveries		1			—			—			—

Balance, end of period	$	1,043		$	1,427		$	1,966		$	66

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

Ending balance: collectively evaluated for impairment	$	1,043		$	1,427		$	1,966		$	66

Loans:

Ending balance	$	124,590		$	88,566		$	165,132		$	6,600

Ending balance: individually evaluated for impairment	$	1,076		$	—		$	—		$	—

Ending balance: collectively evaluated for impairment	$	123,514		$	88,566		$	165,132		$	6,600


	Nine Months Ended March 31, 2022 (Continued)
	Construction			Commercial			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	258		$	1,740		$	62		$	6,599
Provision charged to expense		101			(77	)		27			39
Losses charged off		—			—			(24	)		(50	)
Recoveries		—			16			6			23

Balance, end of period	$	359		$	1,679		$	71		$	6,611

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

Ending balance: collectively evaluated for impairment	$	359		$	1,679		$	71		$	6,611

Loans:

Ending balance	$	31,127		$	81,399		$	8,298		$	505,712

Ending balance: individually evaluated for impairment	$	—		$	38		$	—		$	1,114

Ending balance: collectively evaluated for impairment	$	31,127		$	81,361		$	8,298		$	504,598

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 credit losses (ACL) represents the Company’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining contractual life of the assets. The provision for credit losses is the charge against current earnings that is determined by the Company as the amount needed to maintain an adequate

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allowance for credit losses. In determining the adequacy of the allowance for credit losses, and therefore the provision to be charged to current earnings, the Company relies on a sound credit review and approval process. The review process is directed by the overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty.

The Company adopted ASU

2016-13,

effective July 1, 2022, and utilizes the CECL cohort methodology analysis which relies on segmenting the loan portfolio into pools with similar risks, tracking the performance of the pools over time, and using the data to determine pool loss experience.

The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans and is established through provision for credit losses charged to current earnings. The ACL is increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. Loans are charged off in the period deemed uncollectible, based on management’s analysis of expected cash flows (for

non-collateral

dependent loans) or collateral value (for collateral-dependent loans). Subsequent recoveries of loans previously charged off, if any, are credited to the allowance when received.

Management estimates the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Adjustments may be made to historical loss information for differences identified in current loan-specific risk characteristics, such as differences in underwriting standards or terms; lending review systems; experience, ability, or depth of lending management and staff; portfolio growth and mix; delinquency levels and trends; as well as for changes in environmental conditions, such as changes in economic activity or employment, industry economic conditions, property values, or other relevant factors.

The allowance for credit losses on most loans is measured on a collective (pool) basis for loans with similar risk characteristics. The Company estimates the appropriate level of allowance for credit losses for collateral-dependent loans by evaluating them separately.

The specific allowance for collateral-dependent loans that are evaluated separately is measured by determining 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 collateral-dependent 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 segmenting the loan portfolio into pools with similar risks and collecting data to determine pool loss experience. Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and troubled debt restructurings, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. In addition, a forecast, using reasonable and supportable future conditions, is prepared that is used to estimate expected changes to existing and historical conditions in the current period.

Prior to the July 1, 2022, adoption of ASU

2016-13,

the allowance for loan and lease losses (ALLL) represented management’s best estimate of probable losses in the existing loan portfolio at the end of the reporting period. Integral to the methodology for determining the adequacy of the ALLL was portfolio segmentation and impairment measurement. Under the Company’s methodology, loans were first segmented into 1) those comprising large groups of homogeneous loans which are collectively evaluated for impairment and 2) all other loans which are individually evaluated. Those loans in the second category were further segmented utilizing a defined grading system which involves categorizing loans by severity of risk based on conditions that may affect the ability of the borrowers to repay their debt, such as current

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financial information, collateral valuations, historical payment experience, credit documentation, public information, and current trends. Loans were considered impaired if, based on current information and events, it was considered probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement, and was generally based on the fair value, less estimated costs to sell, of the loan’s collateral. If the loan was not collateral-dependent, the measurement of impairment was based on the present value of expected future cash flows discounted at the historical effective interest rate, or the observable market price of the loan. Impairment identified through this evaluation process was a component of the ALLL. If a loan was not considered impaired, it was grouped together with loans having similar characteristics (i.e., the same risk grade), and an ALLL was based upon a quantitative factor (historical average charge-offs) and qualitative factors such as certain management assumptions, changes in lending policies; national, regional, and local economic conditions; changes in mix and volume of portfolio; experience, ability, and depth of lending management and staff; entry to new markets; levels and trends of delinquent, nonaccrual, special mention, and classified loans; concentrations of credit; changes in collateral values; agricultural economic conditions; and regulatory risk.

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

Pass –

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

Watch –

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

Substandard –

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

Doubtful –

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

Loss –

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

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

Residential

One-

to Four-Family and Equity Lines of Credit Real Estate:

The residential

one-

to four-family real estate loans are generally secured by owner-occupied

one-

to four-family residences. Repayment of these loans is primarily dependent on the personal income of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Company’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Commercial and Multi-family Real Estate:

Commercial and multi-family real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the

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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 risk rating category and year of origination as of March 31, 2023 and the risk rating category and class of loan as of June 30, 2022 (in thousands):


Risk Rating	2023		2022		2021		2020		2019		Prior Years		Total
One- to Four-Family
Pass	$	10,309	$	57,680	$	29,815	$	18,748	$	6,175	$	33,790	$	156,517
Special Mention		—		—		—		—		—		1,456		1,456
Substandard		—		7		99		61		224		24		415

Total	$	10,309	$	57,687	$	29,914	$	18,809	$	6,399	$	35,270	$	158,388

Multi-Family
Pass	$	301	$	37,966	$	10,849	$	14,523	$	8,676	$	26,330	$	98,645
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		246		—		246

Total	$	301	$	37,966	$	10,849	$	14,523	$	8,922	$	26,330	$	98,891

Commercial Real Estate
Pass	$	9,305	$	67,351	$	30,332	$	32,441	$	5,919	$	50,675	$	196,023
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		871		82		2000		2,953

Total	$	9,305	$	67,351	$	30,332	$	33,312	$	6,001	$	52,675	$	198,976

Home Equity Line of Credit
Pass	$	229	$	2,346	$	1,293	$	895	$	796	$	1,499	$	7,058
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—

Total	$	229	$	2,346	$	1,293	$	895	$	796	$	1,499	$	7,058

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Construction
Pass	$	1,016	$	23,070	$	11,125	$	7,670	$	—	$	—	$	42,881
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—

Total	$	1,016	$	23,070	$	11,125	$	7,670	$	—	$	—	$	42,881

Commercial Business
Pass	$	5,819	$	20,527	$	15,478	$	9,588	$	6,592	$	8,537	$	66,541
Special Mention		—		—		—		28		—		—		28
Substandard		2,816		64		100		1,376		153		51		4,560

Total	$	8,635	$	20,591	$	15,578	$	10,992	$	6,745	$	8,588	$	71,129

Consumer
Pass	$	1,248	$	3,718	$	2,025	$	1,068	$	271	$	155	$	8,485
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		6		6,

Total	$	1,248	$	3,718	$	2,025	$	1,068	$	271	$	161	$	8,491

Total Loans
Pass	$	28,227	$	212,658	$	100,917	$	84,933	$	28,429	$	120,986	$	576,150
Special Mention		—		—		—		28		—		1,456		1,484
Substandard		2,816		71		199		2,308		705		2,081		8,180

Total	$	31,043	$	212,729	$	101,116	$	87,269	$	29,134	$	124,523	$	585,814


	Real Estate Loans
	One- to Four- Family		Multi-Family		Commercial		Home Equity Lines of Credit		Construction		Commercial		Consumer		Total
June 30, 2022:
Pass	$	130,950	$	87,993	$	164,424	$	6,987	$	41,254	$	73,226	$	8,970	$	513,804
Watch		—		—		—		—		—		—		—		—
Substandard		1,524		254		2,951		—		—		7,192		11		11,932
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—

Total	$	132,474	$	88,247	$	167,375	$	6,987	$	41,254	$	80,418	$	8,981	$	525,736

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

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.

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


	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due & Accruing
March 31, 2023:
Real estate loans:
One- to four-family	$	739	$	—	$	24	$	763	$	157,625	$	158,388	$	—
Multi-family		—		—		—		—		98,891		98,891		—
Commercial		406		—		46		452		198,524		198,976		—
Home equity lines of credit		—		20		—		20		7,038		7,058		—
Construction		—		—		—		—		42,881		42,881		—
Commercial		36		—		207		243		70,886		71,129		—
Consumer		19		21		—		40		8,451		8,491		—

Total	$	1,200	$	41	$	277	$	1,518	$	584,296	$	585,814	$	—


	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, 2022:
Real estate loans:
One- to four-family	$	374	$	144	$	1,174	$	1,692	$	130,782	$	132,474	$	47
Multi-family		—		—		—		—		88,247		88,247		—
Commercial		—		—		—		—		167,375		167,375		—
Home equity lines of credit		—		—		—		—		6,987		6,987		—
Construction		—		—		—		—		41,254		41,254		—
Commercial		—		—		—		—		80,418		80,418		—
Consumer		78		21		—		99		8,882		8,981		—

Total	$	452	$	165	$	1,174	$	1,791	$	523,945	$	525,736	$	47

Since the Company adopted ASU

2016-13,

effective July 1, 2022, the allowance for credit losses on most loans is measured on a collective (pool) basis for loans with similar risk characteristics, while some collateral-dependent loans are selected to be evaluated individually. At March 31, 2023, two collateral-dependent commercial business loans were individually evaluated and a specific reserve of $143,000 was established. These two loans were originally secured by business assets, but remaining collateral as March 31, 2023, was determined to have no value.

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The following table presents the amortized cost basis of collateral-dependent loans by class of loans that were individually evaluated to determine expected credit losses, and the related allowance for credit losses, as of March 31, 2023:


	Collateral
	Real Estate		Business Assets		Other		Total		Allowance for Credit Losses
Real estate loans:
One- to four-family	$	—	$	—	$	—	$	—	$	—
Multi-family		—		—		—		—		—
Commercial		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—
Construction		—		—		—		—		—
Commercial		—		—		—		—		143
Consumer		—		—		—		—		—

Total	$	—	$	—	$	—	$	—	$	143

In accordance with the impairment accounting guidance (ASC

310-10-35-16),

which was in effect for the Company prior to the adoption of ASU

2016-13

on July 1, 2022, a loan is considered impaired when based on current information and events, it is probable the Association will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a

case-by-case

basis, taking into consideration all of the circumstances surrounding the loans and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a

loan-by-loan

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

The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlements with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring.

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The following tables present impaired loans as of June 30, 2022 and March 31, 2022:


							Year Ended June 30, 2022
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis
June 30, 2022:
Loans without a specific valuation allowance
Real estate loans:
One- to four-family	$	1,350	$	1,350	$	—	$	1,361	$	15	$	13
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		35		35		—		40		4		4
Consumer		—		—		—		—		—		—

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
Multi-family	$	1,350	$	1,350	$	—	$	1,361	$	15	$	13
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Consumer		35		35		—		40		4		4
		—		—		—		—		—		—

	$	1,385	$	1,385	$	—	$	1,401	$	19	$	17

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							Three Months Ended March 31, 2022						Nine Months Ended March 31, 2022
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis
March 31, 2022:
Loans without a specific valuation allowance
Real estate loans:
One- to four-family	$	1,076	$	1,076	$	—	$	1,079	$	6	$	6	$	1,083	$	15	$	14
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		38		38		—		40		1		1		42		3		3
Consumer		—		—		—		—		—		—		—		—		—

Loans with a specific valuation allowance
Real estate loans:
One- to four-family	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—
Total:
Real estate loans:
One- to four-family		1,076		1,076		—		1,079		6		6		1,083		15		14
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		38		38		—		40		1		1		42		3		3
Consumer		—		—		—		—		—		—		—		—		—

	$	1,114	$	1,114	$	—	$	1,119	$	7	$	7	$	1,125	$	18	$	17

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.

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The following table presents the amortized cost basis of loans on nonaccrual status and of nonaccrual loans individually evaluated for which no allowance was recorded at March 31, 2023 and June 30, 2022:


	March 31, 2023				June 30, 2022
	Nonaccrual with no Allowance for Credit Losses		Nonaccrual		Nonaccrual
Mortgages on real estate:
One- to four-family	$	—	$	24	$	1,127
Multi-family		—		—		—
Commercial		—		46		—
Home equity lines of credit		—		—		—
Construction loans		—		—		—
Commercial business loans		—		265		—
Consumer loans		—		—		—

Total	$	—	$	335	$	1,127

At March 31, 2023 and June 30, 2022, the Company had a number of loans that were modified in troubled debt restructurings (TDRs). The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.

The following table presents the recorded balance, at original cost, of troubled debt restructurings, as of March 31, 2023 and June 30, 2022. All TDRs were performing according to the terms of the restructuring and were accruing as of March 31, 2023 and as of June 2022.


	March 31, 2023		June 30, 2022
Real estate loans
One- to four-family	$	198	$	962
Multi-family		—		—
Commercial		—		—
Home equity lines of credit		—		—

Total real estate loans		198		962

Construction		—		—
Commercial		27		36
Consumer		—		—

Total	$	225	$	998

Modifications

During the nine-month period ended March 31, 2023, no loans were modified as a TDR.

During the year ended June 30, 2022, no loans were modified as a TDR.

During the nine-month period ended March 31, 2022, one previously modified TDR was modified a second time to amortize for full payment by original maturity.

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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. In 2020 and 2021, the Company made

COVID-19

modifications to allow our borrowers to pay interest only for up to six months. As of March 31, 2023, all of these loans have returned to principal and interest payments or paid off.

TDR’s with Defaults

The Company had no TDRs in default and no restructured loans in foreclosure as of March 31, 2023 or as of June 30, 2022. The Company defines a default as any loan that becomes 90 days or more past due.

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

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

We may obtain physical possession of real estate collateralizing a residential mortgage loan or home equity loan via foreclosure or

in-substance

repossession. As of March 31, 2023, we did not have any foreclosed residential real estate properties as a result of obtaining physical possession. As of March 31, 2023, we did not have any residential mortgage loans and home equity loans with a 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 approximately $3,843,000 and $3,142,000 of Federal Home Loan Bank stock as of March 31, 2023 and June 30, 2022, respectively. The FHLB provides liquidity and funding through advances.

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Note 8: Accumulated Other Comprehensive Income (Loss)

The following tables present changes in accumulated other comprehensive income (loss), by component, net of tax, for the nine months ended March 31, 2023 and 2022:


	Unrealized Gains and Losses on Available-for- Sale Securities			Defined Benefit Pension Items			Total
March 31, 2023:
Beginning balance	$	(17,263	)	$	(83	)	$	(17,346	)
Other comprehensive loss before reclassification		(1,630	)		—			(1,630	)
Amounts reclassified from accumulated other comprehensive income		123			—			123
Net current period other comprehensive loss		—			(4	)		(4	)

Ending balance	$	(18,770	)	$	(87	)	$	(18,857	)

March 31, 2022:
Beginning balance	$	2,361		$	(428	)	$	1,933
Other comprehensive loss before reclassification		(11,288	)		—			(11,288	)
Amounts reclassified from accumulated other comprehensive income		—			—			—
Net current period other comprehensive loss		—			(25	)		(25	)

Ending balance	$	(8,927	)	$	(453	)	$	(9,380	)

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

Amounts reclassified from AOCI and the affected line items in the statements of income during the three and nine month periods ended March 31, 2023 and 2022, were as follows:


	Amounts Reclassified from AOCI
	Three Months Ended March 31,						Nine Months Ended March 31,
	2023			2022			2023			2022			Affected Line Item in the Condensed Consolidated Statements of Income
Realized gains (losses) on available-for-sale securities	$	12		$	—		$	(171	)	$	—		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		(2	)		(14	)		(5	)		(35	)

Total reclassified amount before tax		10			(14	)		(176	)		(35	)
Tax expense		4			(4	)		(49	)		(10	)	Provision for Income Tax

Total reclassification out of AOCI	$	6		$	(10	)	$	(127	)	$	(25	)	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 March 31,						Nine Months Ended March 31,
	2023			2022			2023			2022
Computed at the statutory rate	$	187		$	327		$	1,153		$	1,353
Decrease resulting from
Tax exempt interest		(6	)		(2	)		(17	)		(6	)
Cash surrender value of life insurance		(20	)		(18	)		(61	)		(83	)
State income taxes		88			117			423			471
Other		(47	)		(22	)		(70	)		(41	)

Actual expense	$	202		$	402		$	1,428		$	1,694

Note 11: Regulatory Capital

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.

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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.

In addition, to avoid restrictions on capital distributions, including dividend payments and stock repurchases, or discretionary bonus payments to executives, a covered banking organization must maintain a “capital conservation buffer” of 2.5 percent on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity and the buffer applies to all three measurements: Common Equity Tier 1, Tier 1 capital and total capital.

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 issued a final rule setting the Community Bank Leverage Ratio at 9%, effective with the quarter ended March 31, 2020. The Association “opted in” to elect the Community Bank Leverage Ratio, effective with the quarter ended March 31, 2020.

As of March 31, 2023, the Association met all capital adequacy requirements to which it is subject and was categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events that management believes have changed the Association’s prompt corrective action category.

Note 12: Disclosures About Fair Value of Assets and Liabilities

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


Level 1		Quoted prices in active markets for identical assets or liabilities

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

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

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Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2023 and June 30, 2022:


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2023:
Available-for-sale securities:
US Treasury	$	1,442	$	—	$	1,442	$	—
US Government and federal agency		6,539		—		6,539		—
Mortgage-backed securities – GSE residential		180,219		—		180,219		—
Small Business Administration		16,062		—		16,062		—
State and political subdivisions		3,431		—		1,070		2,361

Mortgage servicing rights		1,472		—		—		1,472


			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, 2022:
Available-for-sale securities:
US Treasury	$	3,400	$	—	$	3,400	$	—
US Government and federal agency		9,121		—		9,121		—
Mortgage-backed securities – GSE residential		188,185		—		188,185		—
Small Business Administration		16,442		—		16,442		—
State and political subdivisions		3,758		—		1,096		2,662

Mortgage servicing rights		1,463		—		—		1,463

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended March 31, 2023. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Available-for-Sale

Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. There were no Level 1 securities as of March 31, 2023 or June 30, 2022. If quoted market prices are not

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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.

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:


	State and Political Subdivisions

Balance, July 1, 2022	$	2,662

Transfers into Level 3		—
Transfers out of Level 3		—
Total realized and unrealized gains and losses included in net income		—
Purchases		—
Sales		—
Settlements		(301	)

Balance, March 31, 2023	$	2,361

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	$	—


	Mortgage Servicing Rights
Balance, July 1, 2022	$	1,463

Total realized and unrealized gains and losses included in net income		82
Servicing rights that result from asset transfers		60
Payments received and loans refinanced		(133	)

Balance, March 31, 2023	$	1,472

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	$	82

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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.

Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at March 31, 2023 and June 30, 2022.

Fair Value at
March 31, 2023

Valuation Technique

Unobservable Inputs

Range (Weighted
Average)

Mortgage servicing rights

1,472

Discounted cash flow

Discount rate

Constant prepayment rate

Probability of default

9.5% (9.5%)

6.0% - 6.8% (6.6%)

0.10% - 0.14% (0.12%)

State and political subdivisions

2,361

Discounted cash flow

Maturity/Call Date

1 month – 9 years

Weighted average coupon

2.97% - 3.08% (3.03%)

Marketability yield
adjustment

1.0% - 2.0% (1.6%)

Fair Value at
June 30, 2022

Valuation Technique

Unobservable Inputs

Range (Weighted
Average)

Mortgage servicing rights

1,463

Discounted cash flow

Discount rate

Constant prepayment rate

Probability of default

9.5% (9.5%)

6.0% - 6.7% (6.7%)

0.10% - 0.14% (0.12%)

State and political subdivisions

2,662

Discounted cash flow

Maturity/Call Date

1 month – 10 years

Weighted average coupon

2.97% - 3.08% (3.03%)

Marketability yield
adjustment

1.0% - 2.0% (1.6%)

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Fair Value of Financial Instruments

The following tables present estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2023 and June 30, 2022.


	Carrying Amount		Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2023:
Financial assets
Cash and cash equivalents	$	9,465	$	9,465	$	—	$	—
Interest-bearing time deposits in banks		1,250		1,250		—		—
Loans, net of allowance for loan losses		578,511		—		—		555,882
Federal Home Loan Bank stock		3,843		—		3,843		—
Accrued interest receivable		2,641		—		2,641		—

Financial liabilities
Deposits		691,568		—		404,660		284,542
Repurchase agreements		10,764		—		10,764		—
Federal Home Loan Bank advances		56,500		—		56,360		—
Advances from borrowers for taxes and insurance		1,352		—		1,352		—
Accrued interest payable		961		—		961		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—

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	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, 2022:
Financial assets
Cash and cash equivalents	$	75,811	$	75,811	$	—	$	—
Interest-bearing time deposits in banks		1,500		1,500		—		—
Loans, net of allowance for loan losses		518,931		—		—		512,643
Federal Home Loan Bank stock		3,142		—		3,142		—
Accrued interest receivable		2,023		—		2,023		—

Financial liabilities
Deposits		752,020		—		501,544		250,650
Repurchase agreements		9,244		—		9,244		—
Federal Home Loan Bank advances		15,000		—		14,903		—

Advances from borrowers for taxes and insurance		503		—		503		—
Accrued interest payable		176		—		176		—
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 March 31, 2023, represent an approximation of exit price; however, an actual exit price may differ.

Note 13: Commitments

Commitments to Originate Loans

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a

case-by-case

basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

Lines of Credit

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a

case-by-case

basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for

on-balance-sheet

instruments.

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Off-Balance

Sheet Credit Exposures

Off-balance

sheet credit instruments include commitments to make loans, and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of

non-performance

by the other party to the financial instrument for

off-balance

sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The ACL on

off-balance

sheet credit exposures is estimated by loan pool on a quarterly basis under the current CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur and is included in other liabilities on the Company’s consolidated balance sheets. The Company records an ACL on

off-balance

sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable. With the adoption of

ASU-2016-13,

effective July 1, 2022, an allowance for credit losses on

off-balance

sheet credit exposures was established for $496,000. During the three and nine months ended March 31, 2023,

the Company

recorded a credit for allowance for credit losses (ACL) on

off-balance

sheet credit exposures of $127,000 and $189,000, respectively, which reduced our ACL on

off-balance

sheet credit exposures to $307,000 at March 31, 2023. This reduction was primarily due to a decrease in loans with unfunded balances without the

Bank’s ability to cancel on demand.

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, 2022, and the Company’s other filings with the SEC, including Part II. of this Form 10-Q. These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. See “COVID-19” below for a discussion of how the COVID-19 pandemic may affect our future performance. 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. We also established a charitable foundation, Iroquois Federal Foundation, to which we contributed 314,755 shares of our common stock. As of March 31, 2023, the Company repurchased 1,674,479 shares of common stock under stock repurchase plans.

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

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

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

Our net interest rate spread (the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities) was 2.83% and 2.90% for the nine months ended March 31, 2023 and 2022, respectively. Net interest income increased to $17.3 million for the nine months ended March 31, 2023, from $16.6 million for the nine months ended March 31, 2022.

Our emphasis on conservative loan underwriting has historically resulted in relatively low levels of non-performing assets. Our non-performing loans totaled $335,000, or 0.1%, of total loans at March 31, 2023 and $1.2 million, or 0.2%, of total loans at June 30, 2022. Our non-performing assets totaled $335,000 or 0.1% of total assets at March 31, 2023, and $1.3 million, or 0.2% of total assets at June 30, 2022.

At March 31, 2023, the Association was categorized as “well capitalized” under regulatory capital requirements.

Our net income for the nine months ended March 31, 2023, was $4.1 million, compared to a net income of $4.7 million for the nine months ended March 31, 2022.

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended March 31, 2023 and 2022 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.

COVID-19

When it began in 2020, the COVID-19 pandemic caused economic and social disruption on an unprecedented scale. Congress, the President, and the Federal Reserve took several actions designed to cushion the economic fallout. The Company implemented our Business Continuity and Pandemic Response Plan to keep our staff and customers safe, while continuing to provide customer service. Recently, the President announced that COVID-19 will no longer be a public health emergency, effective May 11, 2023.

Lending operations and accommodations to borrowers

We have worked directly with customers affected by the COVID-19 pandemic. With the passage of the Paycheck Protection Program (“PPP”), administered by the SBA, the Company actively participated in assisting our customers with applications for resources through the program. Most PPP loans had a five-year term, earned interest at 1%, and were fully guaranteed by the U.S. government. As of March 31, 2023, all PPP loans have been paid off or forgiven.

Capital and liquidity

As of March 31, 2023, our capital ratios were in excess of all regulatory requirements. In review of our net charge-off history from the past 20 years which encompasses more than a complete economic cycle, management believes our current allowance for credit losses is more than adequate to absorb the probable losses expected over the remaining contractual life of the assets based on forecasted economic challenges. Current capital levels also support the Company’s recent loan stress testing of the most vulnerable industry sectors impacted by COVID-19.

The Company maintains access to multiple sources of liquidity. Currently, the Company’s total liquidity sources could provide $429.5 million of total additional capacity as of March, 31, 2023.

Financial position and results of operations

Our March 31, 2023, 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 credit losses increased early in the pandemic due to COVID-related changes in the economic forecast, our allowance for credit losses as of March 31, 2023, is only minimally impacted by COVID-19.

The Company’s current financial position is strong and the fundamental earning capabilities of its currently existing operations is solid. While the Company does not currently anticipate any material changes or deficiencies to its capital or liquidity sources, uncertainties about duration and overall effects on the economy could result in more adverse effects than expected.

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 Credit Losses. The Company believes the allowance for credit losses for loans is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of the consolidated financial statements. The allowance for credit losses for loans represents the best estimate of losses inherent in the existing loan portfolio. An estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by factors considered by the Company during the evaluation of the overall adequacy of the allowance which include historical net loan losses, the level and composition of nonaccrual, past due and troubled debt restructurings, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. In addition, a forecast, using reasonable and supportable future conditions, is prepared that is used to estimate expected changes to existing and historical conditions in the current period.

The Company adopted ASU 2016-13, effective July 1, 2022, and utilizes a current expected credit loss (“CECL”) methodology which relies on segmenting the loan portfolio into pools with similar risks, tracking the performance of the pools over time, and using the data to determine pool loss experience. Based on our estimate of the level of allowance for credit losses required, we record a provision for credit losses as a charge to earnings to maintain the allowance for credit losses at an appropriate level. The allowance for credit losses on most loans is measured on a collective (pool) basis for loans with similar risk characteristics. The Company estimates the appropriate level of allowance for credit losses for collateral-dependent loans by evaluating them separately. The Company also uses the CECL model to calculate the allowance for credit losses on off-balance sheet credit exposures, such as undrawn amounts on lines of credit. While the allowance for credit losses on loans is reported as a contra-asset asset for loans, the allowance for credit losses on off-balance sheet credit exposures is reported as a liability.

The allowance for credit losses is evaluated on a regular basis by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio. 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 credit 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, 2022.

Comparison of Financial Condition at March 31, 2023 and June 30, 2022

Total assets decreased $14.6 million, or 1.7%, to $843.0 million at March 31, 2023 from $857.6 million at June 30, 2022. The decrease was primarily due to a $66.3 million decrease in cash and cash equivalents and a $13.2 million decrease in investment securities, partially offset by a $59.6 million increase in net loans receivable. The decrease in assets was due to the expected recurring withdrawal of deposits by one public entity, as discussed below.

Net loans receivable, including loans held for sale, increased by $59.6 million, or 11.5%, to $578.5 million at March 31, 2023 from $518.9 million at June 30, 2022. The increase in net loans receivable during this period was due primarily to a $31.6 million, or 18.9%, increase in commercial real estate loans, a $25.9 million, or 19.6%, increase in one- to four-family loans, a $10.6 million, or 12.1%, increase in multi-family loans, a $1.6 million, or 3.9%, increase in construction loans, and a $71,000, or 1.0%, increase in home equity lines of credit, partially offset by a $9.3 million, or 11.5%, decrease in commercial business loans and a $490,000, or 5.5%, decrease in consumer loans.

Investment securities, consisting entirely of securities available for sale, decreased $13.2 million, or 6.0%, to $207.7 million at March 31, 2023 from $220.9 million at June 30, 2022. We had no securities classified as held to maturity at March 31, 2023 or June 30, 2022.

Between June 30, 2022 and March 31, 2023, premises and equipment increased $1.7 million to $11.2 million, accrued interest receivable increased $618,000 to $2.6 million, Federal Home Loan Bank (FHLB) stock increased $701,000 to $3.8 million, other assets increased $1.6 million to $2.3 million, and deferred income taxes increased $838,000 to $10.0 million, while foreclosed assets held for sale decreased $120,000 to $0. The increase in premises and equipment was primarily due to the construction of a new office building for our Hoopeston branch; the increase in accrued interest receivable was primarily the result of an increase in the average balance and average yields of interest earning assets; the increase in FHLB stock was the result of an increase stock requirement due to an increase in FHLB advances; the increase in other assets was due to a receivable for a matured security on the last day of the quarter for which we had not yet received proceeds and a fluctuation in items in process; and the increase in deferred income taxes was mostly due to an increase in unrealized losses on the sale of available-for-sale securities. The decrease in foreclosed assets held for sale was due to the sale of property.

At March 31, 2023, our investment in bank-owned life insurance was $14.7 million, an increase of $290,000 from $14.4 million at June 30, 2022. 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 $23.2 million at March 31, 2023.

Deposits decreased $60.5 million, or 8.0%, to $691.6 million at March 31, 2023 from $752.0 million at June 30, 2022. Certificates of deposit, excluding brokered certificates of deposit, increased $7.0 million, or 2.8%, to $253.9 million, while brokered certificates of deposit increased $29.5 million, or 826.2%, to $33.0 million. Noninterest bearing demand accounts decreased $58.2 million, or 55.5%, to $46.7 million, while savings, NOW, and money market accounts decreased $38.7 million, or 9.8%, to $357.9 million. The large decrease in noninterest bearing demand accounts was due primarily to approximately $57.6 million in deposits from a public entity that collects real estate taxes that was on deposit

at June 30, 2022 and withdrawn in the nine months ended March 31, 2023, when tax monies were distributed. Repurchase agreements increased $1.5 million, or 16.4%, to $10.8 million at March 31, 2023, from $9.2 million at June 30, 2022. Borrowings consisted of advances from the Federal Home Loan Bank of Chicago which increased $41.5 million to $56.5 million at March 31, 2023, from $15.0 million at June 30, 2022.

Advances from borrowers for taxes and insurance increased $849,000, or 168.8%, to $1.4 million at March 31, 2023, from $503,000 at June 30, 2022. Accrued interest payable increased $785,000, or 446.0%, to $961,000 at March 31, 2023, from $176,000 at June 30, 2022. 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 increase in accrued interest payable resulted from an increase in average cost of interest-bearing liabilities.

Total equity increased $2.1 million, or 2.9%, to $73.7 million at March 31, 2023 from $71.7 million at June 30, 2022. Equity increased primarily due to net income of $4.1 million, and ESOP and stock equity plan activity of $1.2 million, partially offset by a decrease of $1.5 million in accumulated other comprehensive income (loss), net of tax, and the accrual of approximately $1.3 million in dividends to our shareholders, of which about half were still payable as of March 31, 2023, and were paid on April 14, 2023. The decrease in accumulated other comprehensive income (loss) was primarily due to unrealized depreciation on available-for-sale securities, net of taxes.

Comparison of Operating Results for the Nine Months Ended March 31, 2023 and 2022

General. Net income decreased $686,000 to $4.1 million for the nine months ended March 31, 2023, from $4.7 million for the nine months ended March 31, 2022. The decrease in net income was due to a decrease in noninterest income and an increase in provision for credit losses, partially offset by an increase in net interest income.

Net Interest Income. Net interest income increased by $688,000, or 4.1.%, to $17.3 million for the nine months ended March 31, 2023, from $16.6 million for the nine months ended March 31, 2022. The increase was due to an increase of $4.8 million in interest and dividend income, partially offset by an increase of $4.1 million in interest expense. A $32.8 million, or 4.4%, increase in the average balance of interest earning assets was offset by a $57.9 million, or 9.2%, increase in the average balance of interest-bearing liabilities. Our interest rate spread decreased by 7 basis points to 2.83% for the nine months ended March 31, 2023, compared to 2.90% for the nine months ended March 31, 2022, while our net interest margin decreased by 1 basis point to 2.96% for the nine months ended March 31, 2023 compared to 2.97% for the nine months ended March 31, 2022.

Interest and Dividend Income. Interest and dividend income increased $4.8 million, or 26.0%, to $23.4 million for the nine months ended March 31, 2023, from $18.6 million for the nine months ended March 31, 2022. The increase in interest and dividend income was due to a $3.6 million increase in interest on loans, a $1.0 million increase in interest income on securities, and a $198,000 increase in other interest income. The increase in interest income on loans was due to a $51.7 million, or 10.1%, increase in the average balance of loans to $559.5 million for the nine months ended March 31, 2023 from $507.8 million for the nine months ended March 31, 2022, and a 48 basis point increase in the average yield on loans to 4.50% for the nine months ended March 31, 2023 from 4.02% for the nine months ended March 31, 2022. The increase in interest income on securities was due to a $3.7 million, or 1.8%, increase in the average balance of securities to $209.6 million for the nine months ended March 31, 2023, from $205.8 million for the nine months ended March 31, 2022, and a 62 basis point increase in the average yield on securities to 2.63% from 2.01%. The increase in other interest income was a result of a 385 basis point increase in the average yield of other investments, partially offset by a $22.6 million decrease in the average balance of other investments, including Federal Home Loan Bank stock dividends and deposits with other financial institutions, to $10.8 million from $33.4 million.

Interest Expense. Interest expense increased $4.1 million, or 215.6%, to $6.1 million for the nine months ended March 31, 2023, from $1.9 million for the nine months ended March 31, 2022. The increase was primarily due to a $3.0 million increase in interest on deposits and a $1.1 million increase in interest on borrowings and repurchase agreements.

Interest expense on interest-bearing deposits increased $3.0 million, or 190.1%, to $4.6 million for the nine months ended March 31, 2023, from $1.6 million for the nine months ended March 31, 2022. This increase was due to a 63 basis point

increase in the average cost of interest-bearing deposits to 0.98% for the nine months ended March 31, 2023 from 0.35% for the nine months ended March 31, 2022, and an increase of $26.0 million in the average balance of interest-bearing deposits to $622.8 million for the nine months ended March 31, 2023, from $596.9 million for the nine months ended March 31, 2022.

Interest expense on borrowings, including FHLB advances and a line of credit from CIBC Bank USA, and repurchase agreements, increased $1.1 million, or 332.2%, to $1.5 million for the nine months ended March 31, 2023, from $345,000 for the nine months ended March 31, 2022. This increase was mostly due to a $31.9 million increase in the average balance of borrowings to $65.6 million for the nine months ended March 31, 2023, from $33.7 million for the nine months ended March 31, 2022, and a 167 basis point increase in the average cost of such borrowings to 3.03% for the nine months ended March 31, 2023 from 1.36% for the nine months ended March 31, 2022.

Provision for Credit Losses. We establish provisions for credit losses, which are charged to operations in order to maintain the allowance for credit losses at a level we consider necessary to absorb probable credit losses inherent in our loan portfolio. We recorded a provision for credit losses of $253,000 for the nine months ended March 31, 2023, compared to a provision for loan losses of $39,000 for the nine months ended March 31, 2022. The allowance for credit losses was $7.5 million, or 1.29% of total loans at March 31, 2023, compared to $6.6 million, or 1.31% of total loans at March 31, 2022, and $7.1 million, or 1.34% of total loans at June 30, 2022. During the nine months ended March 31, 2023, net charge-offs of $6,000 were recorded, while during the nine months ended March 31, 2022, net charge-offs of $27,000 were recorded.

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


	At or for the Nine Months Ended March 31, 2023			At or for the Year Ended June 30, 2022
Allowance to non-performing loans at end of the period		2249.55	%		600.68	%
Allowance to total loans outstanding at the end of the period		1.29	%		1.34	%

Net charge-offs to average total loans outstanding during the period, annualized		0.01	%		0.01	%
Total non-performing loans to total loans		0.06	%		0.22	%
Total non-performing assets to total assets		0.04	%		0.15	%

Noninterest Income. Noninterest income decreased $1.4 million, or 31.8%, to $3.0 million for the nine months ended March 31, 2023 from $4.4 million for the nine months ended March 31, 2022. The decrease was primarily due to a decrease in mortgage banking income, net, a decrease in gain on sale of loans, a decrease in net realized gain on sale of available-for-sale securities, a decrease in brokerage commissions, a decrease in bank-owned life insurance and a decrease in other service charges and fees, partially offset by an increase in customer service fees. For the nine months ended March 31, 2023, mortgage banking income, net, decreased $368,000 to $267,000, gain on sale of loans decreased $290,000 to $124,000, net realized gain (loss) on sale of available-for-sale securities decreased $171,000 to $(171,000), brokerage commissions decreased $258,000 to $607,000, bank-owned life insurance decreased $103,000 to $290,000 and other service charges and fees decreased $58,000 to $173,000, while customer service fees increased $39,000 to $294,000 from the nine months ended March 31, 2022. The decrease in mortgage banking income, net and the decrease in gain on sale of loans were a result of a decrease in loans originated and sold through the FHLBC Mortgage Partnership Finance program in the nine months ended March 31, 2023, and the decrease in gain on sale of available-for-sale securities was the result of securities sold at a loss in the nine months ended March 31, 2023. The decrease in brokerage commissions was the result of a decrease in the amount of renewal commissions and management fees, and the decrease in bank-owned life insurance income was due to the receipt of death benefit proceeds in the nine months ended March 31, 2022. The

decrease in other service charges and fees was due to a decrease in the number of fees charged in the nine months ended March 31, 2023, while the increase in customer service fees was primarily due to a higher number of nonsufficient funds and overdraft fees in the nine months ended March 31, 2023.

Noninterest Expense. Noninterest expense was $14.6 million for both the nine months ended March 31, 2023, and for the nine months ended March 31, 2022. Compensation and benefits decreased $188,000, or 2.0%, and other expenses decreased $267,000, or 18.4%, while equipment expense increased $241,000, or 16.2%, advertising expense increased $98,000, or 34.9%, and professional services increased $70,000, or 23.5% for the nine months ended March 31, 2023 from the nine months ended March 31, 2022. Compensation and benefits decreased due to a decrease in annual incentive plan expenses, and other expenses decreased as a result of a decrease in appraisal and other loan expenses, while equipment expense increased as a result of an increase in the cost of core processing. Advertising increased due to a new ad campaign in the nine months ended March 31, 2023, and professional services increased as a result of additional services received during the nine months ended March 31, 2023.

Income Tax Expense. We recorded a provision for income tax of $1.4 million for the nine months ended March 31, 2023, compared to a provision for income tax of $1.7 million for the nine months ended March 31, 2022, reflecting effective tax rates of 26.0% and 26.3%, respectively.

Comparison of Operating Results for the Three Months Ended March 31, 2023 and 2022

General. Net income decreased $464,000 to $690,000 net income for the three months ended March 31, 2023, from $1.2 million net income for the three months ended March 31, 2022. The decrease was primarily due to a decrease in net interest income and a decrease in noninterest income, partially offset by a decrease in noninterest expense and a decrease in provision for credit losses.

Net Interest Income. Net interest income decreased $356,000 to $5.0 million for the three months ended March 31, 2023, from $5.4 million for the three months ended March 31, 2022. The decrease was the result of an increase in interest expense of $2.6 million, partially offset by an increase of $2.2 million in interest and dividend income. We had a $67.5 million, or 10.5%, increase in the average balance of interest-bearing liabilities, partially offset by a $44.0 million, or 5.8%, increase in average balance of interest earning assets. Our interest rate spread decreased by 47 basis points to 2.32% for the three months ended March 31, 2023, from 2.79% for the three months ended March 31, 2022, and our net interest margin decreased by 33 basis points to 2.52% for the three months ended March 31, 2023, from 2.85% for the three months ended March 31, 2022.

Interest and Dividend Income. Interest and dividend income increased $2.2 million, or 36.6%, to $8.2 million for the three months ended March 31, 2023, from $6.0 million for the three months ended March 31, 2022. The increase in interest and dividend income was primarily due to a $1.8 million increase in interest income on loans and a $329,000 increase in interest income on securities. The increase in interest on loans resulted from a 70 basis point, or 18.1%, increase in the average yield on loans to 4.60% from 3.90%, and a $78.0 million, or 15.5%, increase in the average balance of loans to $581.6 million from $503.6 million. The increase in interest income on securities resulted from a 77 basis point, or 41.6%, increase in the average yield on securities to 2.63% from 1.86%, partially offset by a $15.9 million, or 7.1%, decrease in the average balance of securities to $208.6 million from $224.6 million.

Interest Expense. Interest expense increased $2.6 million, or 417.5%, to $3.2 million for the three months ended March 31, 2023 from $611,000 for the three months ended March 31, 2022. The increase was primarily due to a 140 basis point increase in the average cost of interest-bearing liabilities and a $67.5 million increase in the average balance of interest-bearing liabilities.

Interest expense on interest-bearing deposits increased by $2.0 million, or 402.2%, to $2.5 million for the three months ended March 31, 2023 from $498,000 for the three months ended March 31, 2022. This increase was due to a 124 basis point, or 381.4%, increase in the average cost of interest-bearing deposits to 1.57% for the three months ended March 31, 2023 from 0.33% for the three months ended March 31, 2022, and a $26.5 million, or 4.3%, increase in the average balance of interest-bearing deposits to $637.5 million for the three months ended March 31, 2023 from $611.1 million for the three months ended March 31, 2022.

Interest expense on borrowings increased by $548,000, or 485.0%, to $661,000 for the three months ended March 31, 2023, from $113,000 for the three months ended March 31, 2022. The increase was due to a 221 basis point, or 155.2%, increase in the average cost of borrowings to 3.63% for the three months ended March 31, 2023 from 1.42% for the three months ended March 31, 2022, and an increase in the average balance of borrowings of $41.0 million, or 129.2%, to $72.8 million for the three months ended March 31, 2023, from $31.8 million for the three months ended March 31, 2022.

Provision for Credit Losses. We establish provisions for credit losses, which are charged to operations to order to maintain the allowance for credit losses at a level we consider necessary to absorb credit losses inherent in our loan portfolio. We recorded a provision for credit losses of $240,000 for the three months ended March 31, 2023, compared to a provision for loan losses of $242,000 for the three months ended March 31, 2022. During the three months ended March 31, 2023, a net recovery of $2,000 was recorded, while a net charge-off of $26,000 was recorded for the three months ended March 31, 2022.

Noninterest Income. Noninterest income decreased $512,000, or 35.2%, to $942,000 for the three months ended March 31, 2023 from $1.5 million for the three months ended March 31, 2022. The decrease was primarily due to a decrease in mortgage banking income, net, and a decrease in brokerage commissions. For the three months ended March 31, 2023, mortgage banking income, net, decreased $357,000 to $43,000 and brokerage commissions decreased $121,000 to $168,000. The decrease in mortgage banking income was the result of a decrease in loans originated and sold through the FHLBC Mortgage Partnership Finance program in the nine months ended March 31, 2023, and the decrease in brokerage commissions was the result of a decrease in the amount of renewal commissions and management fees.

Noninterest Expense. Noninterest expense decreased $202,000, or 4.0%, to $4.8 million for the three months ended March 31, 2023 from $5.0 million for the three months ended March 31, 2022. The largest components of this decrease were compensation and benefits, which decreased $190,000, or 5.6%, and other expenses, which decreased $134,000, or 26.2%. These decreases were partially offset by a $77,000, or 15.8%, increase in equipment expense and a $26,000, or 152.9%, increase in audit and accounting. Compensation and benefits decreased due to a decrease in annual incentive plan expenses, and other expenses decreased as a result of a decrease in appraisal and other loan expenses. Equipment expense increased as a result of an increase in the cost of core processing and cybersecurity, while audit and accounting increased due to additional services received in the three months ended March 31, 2023.

Income Tax Expense. We recorded a provision for income tax of $202,000 for the three months ended March 31, 2023, compared to a provision for income tax of $402,000 for the three months ended March 31, 2022, reflecting effective tax rates of 22.6% and 25.8%, respectively.

Asset Quality

At March 31, 2023, our non-accrual loans were $335,000, of which $24,000 were single one- to four-family loans, $46,000 were commercial real estate loans and $265,000 were commercial business loans. At March 31, 2023, we had no loans that were delinquent 90 days or greater and still accruing interest.

At March 31, 2023, $8.2 million in loans were classified as substandard, and no loans were classified as doubtful or loss. Loans classified as substandard consisted of $415,000 in one- to four-family loans, $246,000 in multi-family loans, $3.0 million in commercial real estate loans, $4.6 million in commercial business loans and $6,000 in consumer loans.

At March 31, 2023, watch assets consisted of $1.5 million in one-to four-family loans and $28,000 in commercial business loans.

Troubled Debt Restructurings (“TDRs”). TDRs include loans for which economic concessions have been granted to borrowers with financial difficulties. We periodically modify loans to extend the term or make other concessions to help borrowers stay current on their loans and to avoid foreclosure. At March 31, 2023, we had $225,000 in TDRs and at June 30, 2022, we had $998,000 in TDRs. At March 31, 2023 our TDRs consisted of $198,000 in one- to four-family loans and $27,000 in commercial business loans.

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

Foreclosed Assets. At March 31, 2023, we had no foreclosed assets compared to $120,000 as of June 30, 2022. Foreclosed assets at June 30, 2022 consisted of $120,000 in residential real estate properties.

Allowance for Credit Loss Activity

The Company regularly reviews its allowance for credit 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 credit 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 credit 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 credit losses over the nine-month periods ended March 31, 2023 and 2022:


	Nine months ended March 31,
	2023			2022
Balance, beginning of period	$	7,052		$	6,599
Impact of adopting ASU 2016-13		47			—
Loans charged off
Real estate loans:
One- to four-family		—			(26	)
Multi-family		—			—
Commercial		—			—
HELOC		—			—
Construction		—			—
Commercial business		(4	)		—
Consumer		(30	)		(24	)

Gross charged off loans		(34	)		(50	)

Recoveries of loans previously charged off
Real estate loans:
One- to four-family		1			1
Multi-family		—			—
Commercial		—			—
HELOC		—			—
Construction		—			—
Commercial business		18			16
Consumer		9			6

Gross recoveries of charged off loans		28			23

Net charge offs		(6	)		(27	)

Provision charged to expense		442			39

Balance, end of period	$	7,535		$	6,611

The allowance for credit 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 credit losses through the provisions for loan losses that we charge to income. We charge losses on loans against the allowance for credit losses when we believe the collection of loan principal is unlikely. The allowance for credit losses increased $483,000 to $7.5 million at March 31, 2023, from $7.1 million at June 30, 2022. With the adoption of ASU 2016-13, effective July 1, 2022, a

transition adjustment increased the allowance for credit losses on loans by $47,000. This increase in allowance was primarily the result of an increase in our loan portfolio and was necessary in order to bring the allowance for credit losses to a level that reflects management’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining contractual life of the loans.

Within each pool, risk elements are evaluated that have specific impacts to the borrowers within the pool. These, along with the general risks and events, and the specific lending policies and procedures by loan type, are analyzed to estimate the qualitative factors used to adjust the historical loss rates. Factors considered by the Company during the evaluation of the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and troubled debt restructurings, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. Management reviews economic factors including the potential for reduced cash flow for commercial operating loans from reduction in sales or increased operating costs, decreased occupancy rates for commercial buildings, reduced levels of home sales for commercial land developments, increased operating costs for businesses, and increased levels of unemployment and bankruptcy impacting consumer’s ability to pay. Each of these economic uncertainties was taken into consideration in developing the level of the reserve, and management has included a qualitative factor within the ACL. In addition, a forecast, using reasonable and supportable future conditions, is prepared that is used to estimate expected changes to existing and historical conditions in the current period.

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

During the three months ended March 31, 2023, the banking industry experienced significant volatility with the failure of three regional banks, which led to industry-wide concerns related to liquidity risk, deposit outflows, high levels of uninsured deposits, exposure of banks to unrecognized investment losses due to investments classified as “held to maturity” on the balance sheet, interest rate risk, and crypto risk.

Despite banking industry concerns, increased deposit rates and a competitive market, our total deposits increased 3.6% in the three months ended March 31, 2023. Our percentage of uninsured deposits is below 15% and we have no crypto exposure. All of our investments are classified as available for sale and marked to market on a monthly basis. The Association’s interest rate risk has increased over the past year due to the increasing rate environment, but remains moderate.

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan sales and repayments, advances from the Federal Home Loan Bank of Chicago, and maturities of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. For the three months ended March 31, 2023, the nine months ended March 31, 2023, and the year ended June 30, 2022, our liquidity ratio averaged 29.7%, 28.6% and 31.2% of our total assets, respectively. We believe that we had enough sources of liquidity to satisfy our short- and long-term liquidity needs as of March 31, 2023.

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are affected by our operating, financing, lending and investing activities during any given period. At March 31, 2023, cash and cash equivalents totaled $9.5 million. Interest-bearing time deposits which can offer additional sources of liquidity, totaled $1.3 million at March 31, 2023.

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 $1.7 million and $5.7 million for the nine months ended March 31, 2023, and 2022, respectively. Net cash used in investing activities consisted primarily of disbursements for loan originations and the purchase of securities and Federal Home Loan Bank stock, offset by net cash provided by principal collections on loans, proceeds from maturing securities, the sale of securities, the redemption of Federal Home Loan Bank stock, and pay downs on mortgage-backed securities. Net cash used in investing activities was $(51.5) million and $(36.3) million for the nine months ended March 31, 2023, and 2022, respectively. Net cash used in financing activities consisted primarily of the activity in deposit accounts, FHLB Advances, dividends paid, and stock repurchases. The net cash used in financing activities was $(16.5) million and $(4.4) million for the nine months ended March 31, 2023, and 2022, respectively.

The Company must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments. The Company anticipates that it will have sufficient funds available to meet its current commitments principally through the use of current liquid assets and through its borrowing capacity discussed above. The following table summarizes these commitments at March 31, 2023 and June 30, 2022.


	March 31, 2023		June 30, 2022

	(Dollars in thousands)
Commitments to fund loans	$	16,704	$	28,024
Lines of credit		97,272		127,752

At March 31, 2023, certificates of deposit due within one year of March 31, 2023 totaled $225.7 million, or 32.6% of total deposits. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2024. 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 $56.5 million at March 31, 2023. At March 31, 2023 we had the ability to borrow up to an additional $92.4 million from the Federal Home Loan Bank of Chicago, we had $5.0 million available on our CIBC Bank line of credit, and also had the ability to borrow $58.4 million from the Federal Reserve based on current collateral pledged.

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

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 Community Bank Leverage Ratio is currently set at 9%. The Association opted in to the Community Bank Leverage Ratio in 2020.

As of March 31, 2023, the Association was categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events that management believes have changed the Association’s prompt corrective action category. The Association’s Community Bank Leverage Ratio is presented in the table below.


	March 31, 2023			June 30, 2022			Minimum to Be Well
	Actual			Actual			Capitalized
Community Bank Leverage Ratio		9.8	%		9.8	%		9.0	%

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 March 31,
	2023							2022
	Average Balance		Interest Income/ Expense		Yield/ Cost			Average Balance		Interest Income/ Expense		Yield/ Cost

	(Dollars in thousands)
Assets
Total Loans	$	581,600	$	6,690		4.60	%	$	503,643	$	4,907		3.90	%
Securities:
U.S. Treasury		1,599		6		1.50	%		5,224		17		1.30	%
U.S. Government and federal agency		6,490		40		2.47	%		9,490		54		2.28	%
Mortgage-backed:
GSE-residential		180,953		1,200		2.65	%		195,550		912		1.87	%
Small Business Administration		16,137		99		2.45	%		13,176		50		1.52	%
State and political subdivisions		3,433		26		3.03	%		1,110		9		3.24	%

Total securities		208,612		1,371		2.63	%		224,550		1,042		1.86	%
Other		10,187		137		5.38	%		28,252		54		0.76	%

Total interest-earning assets		800,399		8,198		4.10	%		756,445		6,003		3.17	%
Non-interest earning assets		40,952							22,228

Total assets	$	841,351						$	778,673

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing checking or NOW	$	112,506		44		0.16	%	$	105,955		29		0.11	%
Savings accounts		68,783		62		0.36	%		72,285		26		0.14	%
Money market accounts		178,544		783		1.75	%		176,649		143		0.32	%
Certificates of deposit		277,691		1,612		2.32	%		256,161		300		0.47	%

Total interest-bearing deposits		637,524		2,501		1.57	%		611,050		498		0.33	%
Borrowings and repurchase agreements		72,801		661		3.63	%		31,762		113		1.42	%

Total interest-bearing liabilities		710,325		3,162		1.78	%		642,812		611		0.38	%
Noninterest-bearing liabilities		48,554							46,517
Other Noninterest-bearing liabilities		9,712							7,796

Total liabilities		768,591							697,125
Stockholders’ Equity		72,760							81,548


	For the Three Months Ended March 31,
	2023								2022
	Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost

	(Dollars in thousands)
Total liabilities and stockholders’ equity	$	841,351							$	778,673

Net interest income				$	5,036							$	5,392

Interest rate spread (1)							2.32	%							2.79	%

Net interest margin (2)							2.52	%							2.85	%
Net interest-earning assets (3)	$	90,074							$	113,633

Average interest-earning assets to interest-bearing liabilities		113	%							118	%

(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.


	For the Nine Months Ended March 31,
	2023							2022
	Average Balance		Interest Income/ Expense		Yield/ Cost			Average Balance		Interest Income/ Expense		Yield/ Cost

	(Dollars in thousands)
Assets
Loans	$	559,516	$	18,889		4.50	%	$	507,797	$	15,292		4.02	%
Securities:
U.S. Treasury		2,467		29		1.57	%		2,402		23		1.28	%
U.S. Government and federal agency		7,314		137		2.50	%		8,614		153		2.37	%
Mortgage-backed:
GSE-residential		180,118		3,590		2.66	%		182,104		2,769		2.03	%
SBA		16,076		292		2.42	%		11,513		129		1.49	%
State and political subdivisions		3,591		80		2.97	%		1,188		27		3.03	%

Total securities		209,566		4,128		2.63	%		205,821		3,101		2.01	%
Other		10,764		365		4.52	%		33,398		167		0.67	%


	For the Nine Months Ended March 31,
	2023								2022
	Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)
Total interest-earning assets		779,846			23,382		4.00	%		747,016			18,560		3.31	%
Non-interest earning assets		41,544								26,713

Total assets	$	821,390							$	773,729

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing checking or NOW	$	120,701			154		0.17	%	$	107,097			103		0.13	%
Savings accounts		71,950			170		0.32	%		69,077			79		0.15	%
Money market accounts		171,171			1,416		1.10	%		161,687			397		0.33	%
Certificates of deposit		258,989			2,820		1.45	%		258,989			993		0.51	%

Total interest-bearing deposits		622,811			4,560		0.98	%		596,850			1,572		0.35	%
Borrowings and repurchase agreements		65,596			1,491		3.03	%		33,706			345		1.36	%

Total interest-bearing liabilities		688,407			6,051		1.17	%		630,556			1,917		0.41	%
Noninterest-bearing liabilities		52,035								49,358
Other Noninterest-bearing liabilities		10,122								8,981

Total liabilities		750,564								688,895
Stockholders’ equity		70,826								84,834

Total liabilities and stockholders’ equity	$	821,390							$	773,729

Net interest income				$	17,331							$	16,643

Interest rate spread (1)							2.83	%							2.90	%

Net interest margin (2)							2.96	%							2.97	%
Net interest-earning assets (3)	$	91,439							$	116,460

Average interest-earning assets to interest-bearing liabilities		113	%							118	%

(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.

Rate/Volume Analysis

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


	Three Months Ended March 31, 2023 vs. 2022									Nine Months Ended March 31, 2023 vs. 2022
	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	$	826		$	957		$	1,783		$	1,656		$	1,941		$	3,597
Securities		(457	)		786			329			57			970			1,027
Other		(240	)		323			83			(251	)		449			198

Total interest-earning assets	$	129		$	2,066		$	2,195		$	1,462		$	3,360		$	4,822

Interest-bearing liabilities:
Interest-bearing checking or NOW	$	2		$	13		$	15		$	15		$	36		$	51
Savings accounts		(9	)		45			36			3			88			91
Certificates of deposit		27			1,285			1,312			—			1,827			1,827
Money market accounts		2			638			640			25			994			1,019

Total interest-bearing deposits		22			1,981			2,003			43			2,945			2,988
Federal Home Loan Bank advances and repurchase agreements		249			299			548			499			647			1,146

Total interest-bearing liabilities	$	271		$	2,280		$	2,551		$	542		$	3,592		$	4,134

Change in net interest income	$	(142	)	$	(214	)	$	(356	)	$	920		$	(232	)	$	688

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

An internal interest rate risk analysis is performed at least quarterly to assess the Company’s Earnings at Risk, Capital at Risk, and Value at Risk. As of March 31, 2023 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, 2022, as filed with the Securities and Exchange Commission.

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2023. Based upon such evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended March 31, 2023, 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 below and in “Item1A.- Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, 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.

Our stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions. Further, if we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations.

On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation. On March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services, and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the California Department of Financial Protection and Innovation. These banks also had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management. If we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on our financial condition and results of operations.

Our funding sources may prove insufficient to replace deposits at maturity and support our future growth. A lack of liquidity could adversely affect our financial condition and results of operations and result in regulatory limits being placed on us.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also receive funds from loan repayments, investment maturities and income on other interest-earning assets. While we emphasize the generation of low-cost core deposits as a source of funding, there is strong competition for such deposits in our market area. Additionally, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return tradeoff. Accordingly, as a part of our liquidity management, we must use a number of funding sources in addition to deposits and repayments and maturities of loans and investments. As we continue to grow, we are likely to become more dependent on these sources, which may include Federal Home Loan Bank advances, federal funds purchased and brokered certificates of deposit. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources.

Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Further, if we are required to rely more heavily on more expensive funding sources to support liquidity and future growth, our revenues may not increase proportionately to cover our increased costs. In this case, our operating margins and profitability would be adversely affected. Alternatively, we may need to sell a portion of our investment and/or loan portfolio to raise funds, which, depending upon market conditions, could result in us realizing a loss on the sale of such assets. As of March 31, 2023, we had a net unrealized loss of $26.3 million on our available-for-sale investment securities portfolio as a result of the rising interest rate environment. Our investment securities totaled 207.7 million, or 24.6% of total assets, at March 31, 2023.

Any decline in available funding could adversely impact our ability to originate loans, invest in securities, pay our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.

A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed on us by regulators. Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, certain additional regulatory restrictions and prohibitions may apply, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits.

The failure to address the federal debt ceiling in a timely manner, downgrades of the U.S. credit rating and uncertain credit and financial market conditions may affect the stability of securities issued or guaranteed by the federal government, which may affect the valuation or liquidity of our investment securities portfolio and increase future borrowing costs.

As a result of uncertain political, credit and financial market conditions, including the potential consequences of the federal government defaulting on its obligations for a period of time due to federal debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose credit default and liquidity risks. Given that future deterioration in the U.S. credit and financial markets is a possibility, losses or significant deterioration in the fair value of our U.S. government issued or guaranteed investments may occur. At March 31, 2023, we had approximately $1.4 million, $6.5 million and $180.2 million invested in U.S. Treasury securities, U.S. government agency securities, and residential mortgage-backed securities issued or guaranteed by government-sponsored enterprises, respectively. Downgrades to the U.S. credit rating could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment securities, and could result in our counterparties requiring additional collateral for our borrowings. Further, unless and until U.S. political, credit and financial market conditions have been sufficiently resolved or stabilized, it may increase our future borrowing costs.

Inflation can have an adverse impact on our business and on our customers.

Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. Recently, there have been market indicators of a pronounced rise in inflation and the Federal Reserve Board has indicated its intention to raise certain benchmark interest rates in an effort to combat inflation. As inflation increases, the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments. In addition, inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our noninterest expenses. Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact their ability to repay their loans with us.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

None.

Item 5.

Other Information

None.

Item 6.

Exhibits


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

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

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

101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of March 31, 2023 and June 30, 2022, (ii) the Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2023 and 2022, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended March 31, 2023 and 2022, (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended March 31, 2023 and 2022, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2023 and 2022, 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: May 10, 2023						/s/ Walter H. Hasselbring III
						Walter H. Hasselbring III
						President and Chief Executive Officer

Date: May 10, 2023						/s/ Pamela J. Verkler
						Pamela J. Verkler
						Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)