IF BANCORP, INC.
10-Ks and 10-Qs
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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, 2022
OR
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File
No. 001-35226
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
(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 | ||
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. ☒ 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). ☒ NO ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one) | Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☒
12b-2
of the Exchange Act). YES ☐ NO The Registrant had 3,257,626 shares of common stock, par value $0.01 per share, issued and outstanding as of May 4, 2022.
IF Bancorp, Inc.
Form
10-Q
Index
Part I. – Financial Information
Item 1. |
Financial Statements |
IF Bancorp, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amount)
March 31, 2022 |
June 30, 2021 |
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Assets |
(Unaudited) |
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| Cash and due from banks |
$ | $ | ||||||
| Interest-bearing demand deposits |
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| Cash and cash equivalents |
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| Interest-bearing time deposits in banks |
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| Available-for-sale |
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| Loans, net of allowance for loan losses of $ |
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| Premises and equipment, net of accumulated depreciation of $ |
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| Federal Home Loan Bank stock, at cost |
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| Foreclosed assets held for sale |
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| Accrued interest receivable |
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| Bank-owned life insurance |
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| Mortgage servicing rights |
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| Deferred income taxes |
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| Other |
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| Total assets |
$ | $ | ||||||
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| Liabilities and Equity |
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| Liabilities |
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| Deposits |
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| Demand |
$ | $ | ||||||
| Savings, NOW and money market |
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| Certificates of deposit |
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| Brokered certificates of deposit |
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| Total deposits |
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| Repurchase agreements |
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| Federal Home Loan Bank advances |
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| Line of credit and other borrowings |
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| Advances from borrowers for taxes and insurance |
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| Accrued post-retirement benefit obligation |
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| Accrued interest payable |
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| Other |
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| Total liabilities |
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| Commitments and Contingencies |
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| Stockholders’ Equity |
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| Common stock, $ par value per share, |
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| Additional paid-in capital |
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| Unearned ESOP shares, at cost, |
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| Retained earnings |
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| Accumulated other comprehensive income (loss), net of tax |
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| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity |
$ | $ | ||||||
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See accompanying notes to the unaudited condensed consolidated financial statements.
1
IF Bancorp, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands except per share amounts)
Three Months Ended March 31, |
Nine Months Ended March 31, |
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2022 |
2021 |
2022 |
2021 |
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| Interest and Dividend Income |
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| Interest and fees on loans |
$ | $ | $ | $ | ||||||||||||
| Securities: |
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| Taxable |
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| Tax-exempt |
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| Federal Home Loan Bank dividends |
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| Deposits with other financial institutions |
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| Total interest and dividend income |
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| Interest Expense |
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| Deposits |
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| Federal Home Loan Bank advances and repurchase agreements |
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| Line of credit and other borrowings |
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| Total interest expense |
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| Net Interest Income |
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| Provision (Credit) for Loan Losses |
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| Net Interest Income After Provision for Loan Losses |
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| Noninterest Income |
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| Customer service fees |
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| Other service charges and fees |
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| Insurance commissions |
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| Brokerage commissions |
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| Net realized gains on sales of available-for-sale |
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| Mortgage banking income, net |
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| Gain on sale of loans |
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| Bank-owned life insurance income, net |
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| Other |
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| Total noninterest income |
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| Noninterest Expense |
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| Compensation and benefits |
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| Office occupancy |
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| Equipment |
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| Federal deposit insurance |
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| Stationary, printing and office |
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| Advertising |
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| Professional services |
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| Supervisory examinations |
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| Audit and accounting services |
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| Organizational dues and subscriptions |
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| Insurance bond premiums |
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| Telephone and postage |
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| Loss on foreclosed assets, net |
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| Other |
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| Total noninterest expense |
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| Income Before Income Tax |
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| Provision for Income Tax |
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| Net Income |
$ | $ | $ | $ | ||||||||||||
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| Earnings Per Share: |
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| Basic |
$ | $ | $ | $ | ||||||||||||
| Diluted |
$ | $ | $ | $ | ||||||||||||
| Dividends declared per common share |
$ | $ | $ | $ | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
2
IF Bancorp, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands)
Three Months Ended March 31, |
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2022 |
2021 |
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| Net Income |
$ | $ | ||||||
| Other Comprehensive Loss |
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| Unrealized depreciation on available-for-sale |
( |
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| Less: reclassification adjustment for realized gains included in net income, net of taxes of $ |
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| Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $( |
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| Other comprehensive loss, net of tax |
( |
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| Comprehensive Loss |
$ | ( |
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Nine Months Ended March 31, |
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2022 |
2021 |
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| Net Income |
$ | $ | ||||||
| Other Comprehensive Loss |
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| Unrealized depreciation on available-for-sale |
( |
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| Less: reclassification adjustment for realized gains included in net income, net of taxes of $ |
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| Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $( |
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| Other comprehensive loss, net of tax |
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| Comprehensive Income (Loss) |
$ | ( |
) | $ | ||||
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See accompanying notes to the unaudited condensed consolidated financial statements.
3
IF Bancorp, Inc.
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)
(Dollars in thousands, except per share amounts)
Common Stock |
Additional Paid-In Capital |
Unearned ESOP Shares |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total |
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| For the three months ended March 31, 2022 |
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| Balance, January 1, 2022 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||
| Net income |
— | — | — | — | ||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | ( |
) | ( |
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| Dividends on common stock, $ |
— | — | — | ( |
) | — | ( |
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| Stock equity plan |
— | — | — | — | ||||||||||||||||||||
| ESOP shares earned, |
— | — | — | |||||||||||||||||||||
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| Balance, March 31, 2022 |
$ | $ | $ | ( |
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| For the three months ended March 31, 2021 |
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| Balance, January 1, 2021 |
$ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||
| Net income |
— | — | — | — | ||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Dividends on common stock, $ |
— | — | — | ( |
) | — | ( |
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| Stock equity plan |
— | — | — | — | ||||||||||||||||||||
| ESOP shares earned, |
— | — | — | |||||||||||||||||||||
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| Balance, March 31, 2021 |
$ | $ | $ | ( |
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See accompanying notes to the unaudited condensed consolidated financial statements.
4
Common Stock |
Additional Paid-In Capital |
Unearned ESOP Shares |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total |
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| For the nine months ended March 31, 2022 |
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| Balance, July 1, 2021 |
$ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||
| Net income |
— | — | — | — | ||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Dividends on common stock, $ |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| Stock options exercised |
— | — | — | — | ||||||||||||||||||||
| Stock equity plan |
— | — | — | — | ||||||||||||||||||||
| ESOP shares earned, |
— | — | — | |||||||||||||||||||||
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| Balance, March 31, 2022 |
$ | $ | $ | ( |
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| For the nine months ended March 31, 2021 |
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| Balance, July 1, 2020 |
$ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||
| Net income |
— | — | — | — | ||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | ( |
) | ( |
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| Dividends on common stock, $ |
— | — | — | ( |
) | — | ( |
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| Stock equity plan |
— | — | — | — | ||||||||||||||||||||
| ESOP shares earned, |
— | — | — | |||||||||||||||||||||
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| Balance, March 31, 2021 |
$ | $ | $ | ( |
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See accompanying notes to the unaudited condensed consolidated financial statements.
5
IF Bancorp, Inc.
Condensed Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Nine Months Ended March 31, |
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2022 |
2021 |
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| Operating Activities |
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| Net income |
$ | $ | ||||||
| Items not requiring (providing) cash |
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| Depreciation |
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| Provision for loan losses |
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| Amortization of premiums and discounts on securities |
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| Deferred income taxes |
( |
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| Net realized gains on loan sales |
( |
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) | ||||
| Net realized gains on sales of available-for-sale |
( |
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| Loss on foreclosed assets held for sale |
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| Bank-owned life insurance income, net |
( |
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| ESOP compensation expense |
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| Stock equity plan expense |
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| Changes in |
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| Originations of loans held for sale |
( |
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| Proceeds from sales of loans held for sale |
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| Accrued interest receivable |
( |
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| Other assets |
( |
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| Accrued interest payable |
( |
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| Post-retirement benefit obligation |
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| Other liabilities |
( |
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| Net cash provided by operating activities |
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| Investing Activities |
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| Net change in interest bearing time deposits |
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| Purchases of available-for-sale |
( |
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| Proceeds from the sales of available-for-sale |
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| Proceeds from maturities and pay-downs of available-for-sale |
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| Net change in loans |
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| Purchase of premises and equipment |
( |
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| Proceeds from sale of foreclosed assets |
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| Purchase of Federal Home Loan Bank stock |
( |
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| Purchase of bank-owned life insurance |
( |
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| Proceeds from settlement of bank-owned life insurance death claim |
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| Net cash used in investing activities |
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| Financing Activities |
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| Net increase in demand deposits, money market, NOW and savings accounts |
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| Net decrease in certificates of deposit, including brokered certificates |
( |
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| Net increase in advances from borrowers for taxes and insurance |
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| Proceeds from Federal Home Loan Bank advances |
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| Repayments of Federal Home Loan Bank advances |
( |
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| Net increase in repurchase agreements |
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| Dividends paid |
( |
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| Proceeds from exercise of stock options |
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| Net cash provided by (used in) financing activities |
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| Net Decrease in Cash and Cash Equivalents |
( |
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| Cash and Cash Equivalents, Beginning of Period |
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| Cash and Cash Equivalents, End of Period |
$ | $ | ||||||
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| Supplemental Cash Flows Information |
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| Interest paid |
$ | $ | ||||||
| Income taxes paid, net of refunds |
$ | $ | ||||||
| Foreclosed assets acquired in settlement of loans |
$ | $ | ||||||
| Dividends payable |
$ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
6
IF Bancorp, Inc.
Form
10-Q
(Unaudited) (Table dollar amounts in thousands)
Notes to Condensed Consolidated Financial Statements
Note 1: |
Basis of Financial Statement Presentation |
IF Bancorp, Inc., (“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, 2022 and June 30, 2021, and the results of its operations for the three month and nine month periods ended March 31, 2022 and 2021. 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, 2021. The results of operations for the three month and nine month periods ended March 31, 2022 are not necessarily indicative of the results that may be expected for the entire year. COVID-19
The Company is subject to risks and uncertainties as a result of the
COVID-19
pandemic. Significant progress has been made to combat the outbreak of COVID-19;
however, the global pandemic has adversely impacted a broad range of industries in which the Company’s customers operate and could still impair their ability to fulfill their financial obligations to the Company. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. With the availability and distribution of COVID-19
vaccines, we anticipate continued improvements in commercial and consumer activity and the U.S. economy. However, if there is a resurgence in the virus, the Company could experience further adverse effects on its business, financial condition, results of operations, liquidity and cash flows, the extent to which is uncertain. Revenue Recognition
Accounting Standards Codification (“ASC”) 606, (“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.
Revenue from Contracts with Customers
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
7
elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC 606, and which are presented in our income statements as components of noninterest income are as follows:
| • | Customer Service Fees—The Company generates revenue from fees charged for deposit account maintenance, overdrafts, wire transfers, and check fees. The revenue related to deposit fees is recognized at the time the performance obligation is satisfied. |
| • | Insurance Commissions—The Company’s insurance agency, Iroquois Insurance Agency, receives commissions on premiums of new and renewed business policies. Iroquois Insurance Agency records commission revenue on direct bill policies as the cash is received. For agency bill policies, Iroquois Insurance Agency retains its commission portion of the customer premium payment and remits the balance to the carrier. In both cases, the carrier holds the performance obligation. |
| • | Brokerage Commissions—The primary brokerage revenue is recorded at the beginning of each quarter through billing to customers based on the account asset size on the last day of the previous quarter. If a withdrawal of funds takes place, a prorated refund may occur; this is reflected within the same quarter as the original billing occurred. All performance obligations are met within the same quarter that the revenue is recorded. |
| • | Other—The Company generates revenue through service charges from the use of its ATM machines and interchange income from the use of Company issued credit and debit cards. The revenue is recognized at the time the service is used, and the performance obligation is satisfied. |
Note 2: |
New Accounting Pronouncements |
In June 2016, the FASB issued ASU . 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 debt securities and purchased financial assets with credit deterioration. For public companies eligible to be smaller reporting companies (SRC), this update will be effective for interim and annual periods beginning after December 15, 2022. As we prepare for the adoption of ASU
2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
available-for-sale
2016-13,
we have engaged a firm specializing in ALLL modeling and have begun transition modeling so we will be ready for the required adoption. We have also engaged an independent firm to validate the CECL model we have been testing as we continue to move forward to CECL adoption at or before the required adoption date. As of March 31, 2022, model installation was not completed to a point a reliable parallel test could determine the final expected impact that the adoption of ASU 2016-13
will have on the consolidated financial statements. Note 3: |
Stock-based Compensation |
In connection with the conversion to stock form, the Association established an ESOP for the exclusive benefit of eligible employees (all salaried employees who have completed at least 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.
8
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 through . 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, . 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.
Employers Accounting for Employee Stock Ownership Plans
A summary of ESOP shares at March 31, 2022 and June 30, 2021 are as follows (dollars in thousands):
| March 31, 2022 | June 30, 2021 | |||||||
Allocated shares |
||||||||
Shares committed for release |
||||||||
Unearned shares |
||||||||
Total ESOP shares |
||||||||
Fair value of unearned ESOP shares (1) |
$ | $ | ||||||
| (1) | Based on closing price of $ |
During the nine months ended March 31, 2022, 3,862 ESOP shares were paid to ESOP participants due to separation from service. During the nine months ended March 31, 2021, 878 ESOP shares were paid to ESOP participants due to separation from service.
The IF Bancorp, Inc. 2012 Equity Incentive Plan (the “Equity Incentive Plan”) was approved by stockholders in 2012. The purpose of the Equity Incentive Plan is to promote the long-term financial success of the Company and its Subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s stockholders. The Equity Incentive Plan authorizes the issuance or delivery to participants of up to 673,575 shares of the Company common stock pursuant to grants of incentive and 481,125 and the maximum number of shares of Company stock that may be issued as restricted stock awards or restricted stock units is 192,450 .
non-qualified
stock options, restricted stock awards and restricted stock unit awards, provided that the maximum number of shares of Company common stock that may be delivered pursuant to the exercise of stock options (all of which may be granted as incentive stock options) is On December 10, 2013, 85,500 shares of restricted stock and 167,000 in stock options were awarded to senior officers and directors of the Association. The restricted stock vests in equal installments over 10 years and the stock options vested in equal installments over 7 years, and became fully vested in December, 2020. Vesting of both the restricted stock and options started in December 2014. On December 10, 2015, 16,900 shares of restricted stock were awarded to senior officers and directors of the Association. The restricted stock vests in equal installments over 8 years, starting in December 2016. As of March 31, 2022, there were 91,800 shares of restricted stock and 314,125 stock option shares available for future grants under this plan.
9
The following table summarizes stock option activity for the nine months ended March 31, 2022 (dollars in thousands):
Options |
Weighted-Average Exercise Price/Share |
Weighted-Average Remaining Contractual Life (in years) |
Aggregate Intrinsic Value |
|||||||||||||
| Outstanding, June 30, 2021 |
$ | |||||||||||||||
| Granted |
||||||||||||||||
| Exercised |
||||||||||||||||
| Forfeited |
||||||||||||||||
| |
|
|
|
|||||||||||||
| Outstanding, March 31, 2022 |
$ | $ | (1) | |||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Exercisable, March 31, 2022 |
$ | $ | (1) | |||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| (1) | Based on closing price of $ |
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, 2022.
non-vested
stock options was recognized over the The following table summarizes
non-vested
restricted stock activity for the nine months ended March 31, 2022: Shares |
Weighted-Average Grant-Date Fair Value |
|||||||
| Balance, June 30, 2021 |
$ | |||||||
| Granted |
||||||||
| Forfeited |
||||||||
| Earned and issued |
||||||||
| |
|
|
|
|||||
| Balance, March 31, 2022 |
$ | |||||||
| |
|
|
|
|||||
The fair value of the restricted stock awards is amortized to compensation expense over the vesting period (ten years) and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest. At the date of grant the par value of the shares granted was recorded in equity as a credit to common stock and a debit to 119,000 and $34,000 , respectively, for the nine months ended March 31, 2022, and was $127,000 and $36,000 , respectively, for the nine months ended March 31, 2021. Unrecognized compensation expense for 290,000 at March 31, 2022, and is expected to be recognized over 1.7 years with a corresponding credit to
paid-in
capital. Stock-based compensation expense and related tax benefit for restricted stock, which was recognized in non-interest
expense, was $non-vested
restricted stock awards was $paid-in
capital. 10
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, 2022 and 2021. The factors used in the earnings per common share computation are as follows:
Three Months Ended March 31, 2022 |
Three Months Ended March 31, 2021 |
Nine Months Ended March 31, 2022 |
Nine Months Ended March 31, 2021 |
|||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Basic weighted average shares outstanding |
||||||||||||||||
| Less: Average unallocated ESOP shares |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Basic average shares outstanding |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Diluted effect of restricted stock awards and stock options |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Diluted average shares outstanding |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Basic earnings per common share |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Diluted earnings per common share |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
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 |
||||||||||||||||
| March 31, 2022: |
||||||||||||||||
| U.S. Treasury |
$ | $ | $ | ( |
) | $ | ||||||||||
| U.S. Government and federal agency and Government sponsored enterprises (GSE’s) |
( |
) | ||||||||||||||
| Mortgage-backed: |
||||||||||||||||
| GSE residential |
( |
) | ||||||||||||||
| Small Business Administration |
( |
) | ||||||||||||||
| State and political subdivisions |
— | |||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| $ | $ | $ | ( |
) | $ | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| June 30, 2021: |
||||||||||||||||
| U.S. Treasury |
$ | $ | $ | — | $ | |||||||||||
| U.S. Government and federal agency and Government sponsored enterprises (GSE’s) |
— | |||||||||||||||
| Mortgage-backed: |
||||||||||||||||
| GSE residential |
( |
) | ||||||||||||||
| Small Business Administration |
( |
) | ||||||||||||||
| State and political subdivisions |
— | |||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| $ | $ | $ | ( |
) | $ | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
With the exception of U.S. Treasury securities, U.S. Government and federal agency securities, mortgage-backed GSE residential securities and Small Business Administration securities with a book value of approximately $8,804 ,000, $9,489 ,000, $196,180 ,000 and $15,542 ,000, and a market value of approximately $8,688 ,000, $9,395 ,000, $184,751 ,000 and $14,695 ,000 at March 31, 2022, the Company held no securities at March 31, 2022 with a book value that exceeded 10 % of total equity.
11
All mortgage-backed securities at March 31, 2022 and June 30, 2021 were issued by GSEs.
The amortized cost and fair value of securities at March 31, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
available-for-sale
Available-for-sale Securities |
||||||||
Amortized Cost |
Fair Value |
|||||||
| Within one year |
$ | $ | ||||||
| One to five years |
||||||||
| Five to ten years |
||||||||
| After ten years |
||||||||
| |
|
|
|
|||||
| Mortgage-backed securities |
||||||||
| |
|
|
|
|||||
| Totals |
$ | $ | ||||||
| |
|
|
|
|||||
The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $116,110 ,000 and $96,429 ,000 as of March 31, 2022 and June 30, 2021, respectively.
The carrying value of securities sold under agreement to repurchase amounted to $7.3 million at March 31, 2022 and $6.2 million at June 30, 2021. At March 31, 2022, all $7.3 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 $0 and $327 ,000 and gross losses of $0 and $7 ,000, resulting from sales of securities were realized for the nine month period ended March 31, 2022, and 2021, respectively. The tax provision applicable to these net realized gains amounted to approximately $0 and $91 ,000 respectively.
available-for-sale
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, 2022 and June 30, 2021 was $179,350 ,000 and $85,118 ,000, respectively, which is approximately 82 % and 45 % of the Company’s investment portfolio. These declines in fair value at March 31, 2022 and June 30, 2021, resulted from increases in market interest rates and are considered temporary.
available-for-sale
12
The following table shows the gross unrealized losses of the Company’s securities and the fair value of the Company’s securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2022 and June 30, 2021:
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, 2022: |
||||||||||||||||||||||||
| U.S. Treasury |
$ | $ | ( |
) | $ | $ | $ | $ | ( |
) | ||||||||||||||
| U.S. Government and federal agency |
( |
) | ( |
) | ||||||||||||||||||||
| Mortgage-backed: |
||||||||||||||||||||||||
| GSE residential |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Small Business Administration |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total temporarily impaired securities |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| June 30, 2021: |
||||||||||||||||||||||||
| Mortgage-backed: |
||||||||||||||||||||||||
| GSE residential |
$ | ( |
) | ( |
) | ( |
) | |||||||||||||||||
| State and political subdivisions |
( |
) | ( |
) | ||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total temporarily impaired securities |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The unrealized losses on the Company’s investment in U.S. Treasury, U.S. Government and federal agency, Mortgage-backed Government sponsored enterprises and Small Business Administration securities at March 31, 2022 and June 30, 2021, were mostly the result of a decline in market value that was attributable to changes in interest rates and not credit quality, and the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022 and June 30, 2021.
Note 6: |
Loans and Allowance for Loan Losses |
Classes of loans include:
March 31, 2022 |
June 30, 2021 |
|||||||
| Real estate loans: |
||||||||
| One- to four-family, including home equity loans |
$ | $ | ||||||
| Multi-family |
||||||||
| Commercial |
||||||||
| Home equity lines of credit |
||||||||
| Construction |
||||||||
| Commercial |
||||||||
| Consumer |
||||||||
| |
|
|
|
|||||
| Total loans |
||||||||
| Less: |
||||||||
| Unearned fees and discounts, net |
( |
) | ||||||
| Allowance for loan losses |
||||||||
| |
|
|
|
|||||
| Loans, net |
$ | $ | ||||||
| |
|
|
|
|||||
13
The Company had loans held for sale included in one- to four-family real estate loans totaling $475,000 and $632,000 as of March 31, 2022 and June 30, 2021, respectively.
The Company believes that sound loans are a necessary and desirable means of employing funds available for investment. Recognizing the Company’s obligations to its depositors and to the communities it serves, authorized personnel are expected to seek to develop and make sound, profitable loans that resources permit and that opportunity affords. The Company maintains lending policies and procedures designed to focus our lending efforts on the types, locations, and duration of loans most appropriate for our business model and markets. The Company’s lending activity includes the origination of 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.
one-
Management reviews and approves the Company’s lending policies and procedures on a routine basis. Management routinely (at least quarterly) reviews our allowance for loan losses and reports related to loan production, loan quality, concentrations of credit, loan delinquencies and
non-performing
and potential problem loans. Our underwriting standards are designed to encourage relationship banking rather than transactional banking. Relationship banking implies a primary banking relationship with the borrower that includes, at minimum, an active deposit banking relationship in addition to the lending relationship. The integrity and character of the borrower are significant factors in our loan underwriting. As a part of underwriting, tangible positive or negative evidence of the borrower’s integrity and character are sought out. Additional significant underwriting factors beyond location, duration, the sound and profitable cash flow basis underlying the loan and the borrower’s character are the quality of the borrower’s financial history, the liquidity of the underlying collateral and the reliability of the valuation of the underlying collateral. The Company’s policies and loan approval limits are established by the Board of Directors. The loan officers generally have authority to approve 100,000 , other secured loans up to $50,000 , and unsecured loans up to $10,000 . Managing Officers (those with designated loan approval authority), generally have authority to approve 375,000 , other secured loans up to $375,000 , and unsecured loans up to $100,000 . In addition, any two individual officers may combine their loan authority limits to approve a loan. Our Loan Committee may approve 2,000,000 in aggregate loans, and unsecured loans up to $500,000 . All loans above these limits must be approved by the Operating Committee, consisting of the Chairman and up to four other Board members. At no time is a borrower’s total borrowing relationship to exceed our regulatory lending limit. Loans to related parties, including executive officers and the Company’s directors, are reviewed for compliance with regulatory guidelines and the Board of Directors at least annually.
one-
to four-family residential mortgage loans up to $one-
to four-family residential mortgage loans up to $one-
to four-family residential mortgage loans, commercial real estate loans, multi-family real estate loans and land loans up to $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.
14
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 15 years or greater. Generally, the Company retains fixed-rate 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.
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 one-
to four-family residential mortgage loans with terms of less than The Company offers USDA Rural Development loans which are originated and sold servicing released. The Company also offers FHA and VA loans that are originated through a nationwide wholesale lender.
In addition, the Company also offers home equity loans that are secured by a second mortgage on the borrower’s primary or secondary residence. Home equity loans are generally underwritten using the same criteria used to underwrite
one-
to four-family residential mortgage loans. As
one-
to four-family residential mortgage and home equity loan underwriting are subject to specific regulations, the Company typically underwrites its one-
to four-family residential mortgage and home equity loans to conform to widely accepted standards. Several factors are considered in underwriting including the value of the underlying real estate and the debt to income ratio and credit history of the borrower. Commercial Real Estate and Multi-Family Real Estate Loans
Commercial real estate mortgage loans are primarily secured by office buildings, owner-occupied businesses, strip mall centers, churches and farm loans secured by real estate. In underwriting commercial real estate and multi-family real estate loans, the Company considers a number of factors, which include the projected net cash flow to the loan’s debt service requirement, the age and condition of the collateral, the financial resources and income level of the borrower and the borrower’s experience in owning or managing similar properties. Personal guarantees are typically obtained from commercial real estate and multi-family real estate borrowers. In addition, the borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates. The repayment of these loans is primarily dependent on the cash flows of the underlying property. However, the commercial real estate loan generally must be supported by an adequate underlying collateral value. The performance and the value of the underlying property may be adversely affected by economic factors or geographical and/or industry specific factors. These loans are subject to other industry guidelines that are closely monitored by the Company.
Home Equity Lines of Credit
In addition to traditional
one-
to four-family residential mortgage loans and home equity loans, the Company offers home equity lines of credit that are secured by the borrower’s primary or secondary residence. Home equity lines of credit are generally underwritten using the same criteria used to underwrite one-
to four-family residential mortgage loans. As home equity lines of credit underwriting is subject to specific regulations, the Company typically underwrites its home equity lines of credit to conform to widely accepted standards. Several factors are considered in underwriting including the value of the underlying real estate and the debt to income ratio and credit history of the borrower. 15
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, 2022, the Company had 18 PPP loans totaling $1.2 million.
Real Estate Construction Loans
The Company originates construction loans for
one-
to four-family residential properties and commercial real estate properties, including multi-family properties. The Company generally requires that a commitment for permanent financing be in place prior to closing the construction loan. The repayment of these loans is typically through permanent financing following completion of the construction. Real estate construction loans are inherently more risky than loans on completed properties as the unimproved nature and the financial risks of construction significantly enhance the risks of commercial real estate loans. These loans are closely monitored and subject to other industry guidelines. Consumer Loans
Consumer loans consist of installment loans to individuals, primarily automotive loans. These loans are underwritten utilizing the borrower’s financial history, including the Fair Isaac Corporation (“FICO”) credit scoring and information as to the underlying collateral. Repayment is expected from the cash flow of the borrower. Consumer loans may be underwritten with terms up to seven years, fully amortized. Unsecured loans are limited to twelve months. ratios vary based on the type of collateral. The Company has established minimum standards and underwriting guidelines for all consumer loan collateral types.
Loan-to-value
Loan Concentration
The loan portfolio includes a concentration of loans secured by commercial and multi-family real estate properties amounting to $278,958,000 and $274,892,000 as of March 31, 2022 and June 30, 2021, respectively. Generally, these loans are collateralized by multi-family and nonresidential properties. The loans are expected to be repaid from cash flows or from proceeds from the sale of the properties of the borrower.
Purchased Loans and Loan Participations
The Company’s loans receivable included purchased loans of $1,585,000 and $3,578,000 at March 31, 2022 and June 30, 2021, 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 $26,851,000 and $26,870,000 at March 31, 2022 and June 30, 2021, respectively, of which $10,014,000 and $9,718,000 , at March 31, 2022 and June 30, 2021 were outside our primary market area.
16
Allowance for Loan Losses
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of the three month and nine month periods ended March 31, 2022 and 2021 and the year ended June 30, 2021:
Three Months Ended March 31, 2022 Real Estate Loans |
||||||||||||||||
One- toFour-Family |
Multi- Family |
Commercial |
Home Equity Lines of Credit |
|||||||||||||
| Allowance for loan losses: |
||||||||||||||||
| Balance, beginning of period |
$ | $ | $ | $ | ||||||||||||
| Provision charged to expense |
( |
) | ||||||||||||||
| Losses charged off |
( |
) | ||||||||||||||
| Recoveries |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Balance, end of period |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loans: |
||||||||||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Three Months Ended March 31, 2022 (Continued) |
||||||||||||||||
Construction |
Commercial |
Consumer |
Total |
|||||||||||||
| Allowance for loan losses: |
||||||||||||||||
| Balance, beginning of period |
$ | $ | $ | $ | ||||||||||||
| Provision charged to expense |
||||||||||||||||
| Losses charged off |
( |
) | ( |
) | ||||||||||||
| Recoveries |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Balance, end of period |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loans: |
||||||||||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Nine Months Ended March 31, 2022 Real Estate Loans |
||||||||||||||||
One- toFour-Family |
Multi- Family |
Commercial |
Home Equity Lines of Credit |
|||||||||||||
| Allowance for loan losses: |
||||||||||||||||
| Balance, beginning of period |
$ | $ | $ | $ | ||||||||||||
| Provision charged to expense |
( |
) | ( |
) | ||||||||||||
| Losses charged off |
( |
) | ||||||||||||||
| Recoveries |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Balance, end of period |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loans: |
||||||||||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
17
Nine Months Ended March 31, 2022 (Continued) |
||||||||||||||||
Construction |
Commercial |
Consumer |
Total |
|||||||||||||
| Allowance for loan losses: |
||||||||||||||||
| Balance, beginning of period |
$ | $ | $ | $ | ||||||||||||
| Provision charged to expense |
( |
) | ||||||||||||||
| Losses charged off |
( |
) | ( |
) | ||||||||||||
| Recoveries |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Balance, end of period |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loans: |
||||||||||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Year Ended June 30, 2021 Real Estate Loans |
||||||||||||||||
One- to Four- Family |
Multi- Family |
Commercial |
Home Equity Lines of Credit |
|||||||||||||
| Allowance for loan losses: |
||||||||||||||||
| Balance, beginning of year |
$ | $ | $ | $ | ||||||||||||
| Provision charged to expense |
( |
) | ( |
) | ||||||||||||
| Losses charged off |
( |
) | ||||||||||||||
| Recoveries |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Balance, end of year |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loans: |
||||||||||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Year Ended June 30, 2021 (Continued) |
||||||||||||||||
Construction |
Commercial |
Consumer |
Total |
|||||||||||||
| Allowance for loan losses: |
||||||||||||||||
| Balance, beginning of year |
$ | $ | $ | $ | ||||||||||||
| Provision charged to expense |
||||||||||||||||
| Losses charged off |
( |
) | ( |
) | ( |
) | ||||||||||
| Recoveries |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Balance, end of year |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loans: |
||||||||||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
18
Three Months Ended March 31, 2021 Real Estate Loans |
||||||||||||||||
One- toFour-Family |
Multi- Family |
Commercial |
Home Equity Lines of Credit |
|||||||||||||
| Allowance for loan losses: |
||||||||||||||||
| Balance, beginning of period |
$ | $ | $ | $ | ||||||||||||
| Provision charged to expense |
( |
) | ( |
) | ( |
) | ||||||||||
| Losses charged off |
||||||||||||||||
| Recoveries |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Balance, end of period |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loans: |
||||||||||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Three Months Ended March 31, 2021 (Continued) |
||||||||||||||||
Construction |
Commercial |
Consumer |
Total |
|||||||||||||
| Allowance for loan losses: |
||||||||||||||||
| Balance, beginning of period |
$ | $ | $ | $ | ||||||||||||
| Provision charged to expense |
( |
) | ( |
) | ( |
) | ||||||||||
| Losses charged off |
( |
) | ( |
) | ||||||||||||
| Recoveries |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Balance, end of period |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loans: |
||||||||||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Nine Months Ended March 31, 2021 Real Estate Loans |
||||||||||||||||
One- toFour-Family |
Multi- Family |
Commercial |
Home Equity Lines of Credit |
|||||||||||||
| Allowance for loan losses: |
||||||||||||||||
| Balance, beginning of period |
$ | $ | $ | $ | ||||||||||||
| Provision charged to expense |
( |
) | ( |
) | ||||||||||||
| Losses charged off |
( |
) | ||||||||||||||
| Recoveries |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Balance, end of period |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loans: |
||||||||||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
19
Nine Months Ended March 31, 2021 (Continued) |
||||||||||||||||
Construction |
Commercial |
Consumer |
Total |
|||||||||||||
| Allowance for loan losses: |
||||||||||||||||
| Balance, beginning of period |
$ | $ | $ | $ | ||||||||||||
| Provision charged to expense |
( |
) | ||||||||||||||
| Losses charged off |
( |
) | ( |
) | ( |
) | ||||||||||
| Recoveries |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Balance, end of period |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loans: |
||||||||||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: individually evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.
The allowance for loan losses represents an estimate of the amount of losses believed inherent in our loan portfolio at the balance sheet date. The allowance calculation involves a high degree of estimation that management attempts to mitigate through the use of objective historical data where available. Loan losses are charged against the allowance for loan losses when management believes the uncollectibility of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Overall, we believe the reserve to be consistent with prior periods and adequate to cover the estimated losses in our loan portfolio.
The Company’s methodology for assessing the appropriateness of the allowance for loan losses consists of two key elements: (1) specific allowances for estimated credit losses on individual loans that are determined to be impaired through the Company’s review for identified problem loans; and (2) a general allowance based on estimated credit losses inherent in the remainder of the loan portfolio.
The specific allowance is measured by determining the present value of expected cash flows, the loan’s observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expense. Factors used in identifying a specific problem loan include: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of the collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency. In addition for loans secured by real estate, the Company also considers the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage.
The Company establishes a general allowance for loans that are not deemed impaired to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. The general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on the Company’s historical loss experience, delinquency trends and management’s evaluation of the collectability of the loan portfolio. In certain instances, the historical loss experience could be adjusted if similar risks are not inherent in the remaining portfolio. The allowance is then adjusted for qualitative factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These qualitative factors may include: (1)
20
Management’s assumptions regarding the minimal level of risk for a given loan category; (2) changes in lending policies and procedures, including changes in underwriting standards, and
charge-off
and recovery practices not considered elsewhere in estimating credit losses; (3) changes in international, national, regional and local economics and business conditions and developments that affect the collectability of the portfolio, including the conditions of various market segments; (4) changes in the nature and volume of the portfolio and in the terms of loans; (5) changes in the experience, ability, and depth of the lending officers and other relevant staff; (6) changes in the volume and severity of past due loans, the volume of non-accrual
loans, the volume of troubled debt restructured (“TDR”) and other loan modifications, and the volume and severity of adversely classified loans; (7) changes in the quality of the loan review system; (8) changes in the value of the underlying collateral for collateral-dependent loans; (9) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and (10) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. The applied loss factors are re-evaluated
quarterly to ensure their relevance in the current environment. Although the Company’s policy allows for a general valuation allowance on certain smaller-balance, homogenous pools of loans classified as substandard, the Company has historically evaluated every loan classified as substandard, regardless of size, for impairment as part of the review for establishing specific allowances. The Company’s policy also allows for general valuation allowance on certain smaller-balance, homogenous pools of loans which are loans criticized as special mention or watch. A separate general allowance calculation is made on these loans based on historical measured weakness, and which is no less than twice the amount of the general allowance calculated on the
non-classified
loans. There have been no changes to the Company’s accounting policies or methodology from the prior periods.
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. All loans are graded at inception of the loan. Subsequently, analyses are performed on an annual basis and grade changes are made as necessary. Interim grade reviews may take place if circumstances of the borrower warrant a more timely review. The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Watch,” “Substandard,” “Doubtful,” and “Loss.” The Company uses the following definitions for risk ratings:
Pass –
Watch –
Substandard –
Doubtful –
Loss –
21
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: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:
Construction Real Estate:
Commercial:
Consumer:
The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity:
Real Estate Loans |
||||||||||||||||||||||||||||||||
One- to Four- Family |
Multi-Family |
Commercial |
Home Equity Lines of Credit |
Construction |
Commercial |
Consumer |
Total |
|||||||||||||||||||||||||
| March 31, 2022: |
||||||||||||||||||||||||||||||||
| Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch |
— | — | — | — | ||||||||||||||||||||||||||||
| Substandard |
— | — | ||||||||||||||||||||||||||||||
| Doubtful |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Loss |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
22
Real Estate Loans |
||||||||||||||||||||||||||||||||
One- to Four- Family |
Multi-Family |
Commercial |
Home Equity Lines of Credit |
Construction |
Commercial |
Consumer |
Total |
|||||||||||||||||||||||||
| June 30, 2021: |
||||||||||||||||||||||||||||||||
| Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch |
— | — | — | — | ||||||||||||||||||||||||||||
| Substandard |
— | — | — | |||||||||||||||||||||||||||||
| Doubtful |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Loss |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in process of collection. Past due status is based on contractual terms of the loan. In all instances, loans are placed on
non-accrual
or are charged off at an earlier date if collection of principal and interest is considered doubtful. All interest accrued but not collected for loans that are placed on
non-accrual
or charged off are reversed against interest income. The interest on these loans is accounted for on a cash basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. The following tables present the Company’s loan portfolio aging analysis:
30-59 Days Past Due |
60-89 Days Past Due |
90 Days or Greater |
Total Past Due |
Current |
Total Loans Receivable |
Total Loans 90 Days Past Due Accruing |
||||||||||||||||||||||
| March 31, 2022: |
||||||||||||||||||||||||||||
| Real estate loans: |
||||||||||||||||||||||||||||
| One- to four-family |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Multi-family |
— | — | — | — | — | |||||||||||||||||||||||
| Commercial |
— | — | ||||||||||||||||||||||||||
| Home equity lines of credit |
— | — | — | |||||||||||||||||||||||||
| Construction |
— | — | — | — | — | |||||||||||||||||||||||
| Commercial |
— | — | ||||||||||||||||||||||||||
| Consumer |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
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, 2021: |
||||||||||||||||||||||||||||
| Real estate loans: |
||||||||||||||||||||||||||||
| One- to four-family |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Multi-family |
— | — | — | — | — | |||||||||||||||||||||||
| Commercial |
— | — | — | |||||||||||||||||||||||||
| Home equity lines of credit |
— | — | — | |||||||||||||||||||||||||
| Construction |
— | — | — | — | — | |||||||||||||||||||||||
| Commercial |
— | — | — | |||||||||||||||||||||||||
| Consumer |
— | — | — | |||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
23
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 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 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.
310-10-35-16),
case-by-case
Impairment is measured on a 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.
loan-by-loan
The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlements with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring. Included in certain loan categories in the impaired loans are $1.1 million in TDRs that were classified as impaired.
The following tables present impaired loans:
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 |
$ |
$ |
$ |
— |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||
| Multi-family |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
| Commercial |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
| Home equity line of credit |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
| Construction |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
| Commercial |
— |
|||||||||||||||||||||||||||||||||||
| 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: |
||||||||||||||||||||||||||||||||||||
24
| Real estate loans: |
||||||||||||||||||||||||||||||||||||
| One- to four-family |
— |
|||||||||||||||||||||||||||||||||||
| Multi-family |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
| Commercial |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
| Home equity line of credit |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
| Construction |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||
| Commercial |
— |
|||||||||||||||||||||||||||||||||||
| Consumer |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Balance |
Unpaid Principal Balance |
Specific Allowance |
Average Investment in Impaired Loans |
Interest Income Recognized |
Interest on Cash Basis |
|||||||||||||||||||
| June 30, 2021: |
||||||||||||||||||||||||
| Loans without a specific valuation allowance |
||||||||||||||||||||||||
| Real estate loans: |
||||||||||||||||||||||||
| One- to four-family |
$ | $ | $ | — | $ | $ | $ | |||||||||||||||||
| Multi-family |
— | — | — | — | — | — | ||||||||||||||||||
| Commercial |
— | — | — | |||||||||||||||||||||
| Home equity line of credit |
— | |||||||||||||||||||||||
| Construction |
— | — | — | — | — | — | ||||||||||||||||||
| Commercial |
— | |||||||||||||||||||||||
| 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 |
— | |||||||||||||||||||||||
| Commercial |
||||||||||||||||||||||||
| Home equity line of credit |
— | |||||||||||||||||||||||
| Construction |
— | — | — | — | — | — | ||||||||||||||||||
| Commercial |
— | |||||||||||||||||||||||
| Consumer |
||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
25
Three Months Ended March 31, 2021 |
Nine Months Ended March 31, 2021 |
|||||||||||||||||||||||||||||||||||
Recorded Balance |
Unpaid Principal Balance |
Specific Allowance |
Average Investment in Impaired Loans |
Interest Income Recognized |
Interest on Cash Basis |
Average Investment in Impaired Loans |
Interest Income Recognized |
Interest on Cash Basis |
||||||||||||||||||||||||||||
| March 31, 2021: |
||||||||||||||||||||||||||||||||||||
| Loans without a specific valuation allowance |
||||||||||||||||||||||||||||||||||||
| Real estate loans: |
||||||||||||||||||||||||||||||||||||
| One- to four-family |
$ | $ | $ | — | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Multi-family |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Commercial |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Home equity line of credit |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Construction |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Commercial |
— | |||||||||||||||||||||||||||||||||||
| 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 |
— | |||||||||||||||||||||||||||||||||||
| Multi-family |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Commercial |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Home equity line of credit |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Construction |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Commercial |
— | |||||||||||||||||||||||||||||||||||
| Consumer |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Interest income recognized on impaired loans includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on
non-accruing
impaired loans for which the ultimate collectability of principal is not uncertain. The following table presents the Company’s nonaccrual loans at March 31, 2022 and June 30, 2021:
March 31, 2022 |
June 30, 2021 |
|||||||
| Mortgages on real estate: |
||||||||
| One- to four-family |
$ | $ | ||||||
| Multi-family |
— | — | ||||||
| Commercial |
— | |||||||
| Home equity lines of credit |
||||||||
| Construction loans |
— | — | ||||||
| Commercial business loans |
||||||||
| Consumer loans |
||||||||
| |
|
|
|
|||||
| Total |
$ | $ | ||||||
| |
|
|
|
|||||
26
At March 31, 2022 and June 30, 2021, the Company had a number of loans that were modified in TDRs and that were impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.
The following table presents the recorded balance, at original cost, of troubled debt restructurings, as of March 31, 2022 and June 30, 2021. All were performing according to the terms of the restructuring as of March 31, 2022, and with the exception of a single 118,000 , all were performing according to the terms of restructuring as of June 30, 2021. All loans listed as of both March 31, 2022 and June 30, 2021 were accruing.
one-
to four-family residential loan for $March 31, 2022 |
June 30, 2021 |
|||||||
| Real estate loans |
||||||||
| One- to four-family |
$ | $ | ||||||
| Multi-family |
— | — | ||||||
| Commercial |
— | |||||||
| Home equity lines of credit |
||||||||
| |
|
|
|
|||||
| Total real estate loans |
||||||||
| |
|
|
|
|||||
| Construction |
— | — | ||||||
| Commercial |
||||||||
| Consumer loans |
— | |||||||
| |
|
|
|
|||||
| Total |
$ | $ | ||||||
| |
|
|
|
|||||
Modifications
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.
During the year ended June 30, 2021, the Company did no t modify any loans.
During the nine month period ended March 31, 2021, no loans were modified as TDRs.
See
“COVID-19
Modifications” below for a discussion of certain modifications that are not designated as TDRs. COVID-19
Modifications Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was signed into law on March 27, 2020, certain 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the National Emergency or (b) December 31, 2020. This relief was extended by the Economic Aid Act, which was included in the Consolidated Appropriations Act, until the earlier of 60 days after the national emergency termination date or January 1, 2022. At March 31, 2022, we had outstanding a total of 106 loans with current balances of $53.3 million that received 103 of these loans totaling $50.2 million have returned to principal and interest payments. The remaining 3 loans totaling $3.1 million still under temporary modifications include two loans rated special mention and one loan rated substandard.
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 COVID-19
modifications at some point. These modifications allowed borrowers to pay interest only for up to six months. As of March 31, 2022, 27
TDR’s with Defaults
The Company had no TDRs in default and no restructured loans in foreclosure as of March 31, 2022. The Company had one TDR, a 118,000 that was in default as of June 30, 2021, and was restructured in prior years. No restructured loans were in foreclosure at June 30, 2021. The Company defines a default as any loan that becomes 90 days or more past due.
one-
to four-family residential loan for $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 120,000 . In addition, as of March 31, 2022, we had residential mortgage loans and home equity loans with a carrying value of $34,000 collateralized by residential real estate property for which formal foreclosure proceedings were in process.
in-substance
repossession. As of March 31, 2022, the carrying value of foreclosed residential real estate properties as a result of obtaining physical possession was $Note 7: |
Federal Home Loan Bank Stock |
Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system. The required investment in the common stock is based on a predetermined formula. The Company owned $4,198
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, 2022 and 2021:
Unrealized Gains and Losses on Available-for -Sale Securities |
Defined Benefit Pension Items |
Total |
||||||||||
| March 31, 2022: |
||||||||||||
| Beginning balance |
$ |
$ |
( |
) |
$ |
|||||||
| Other comprehensive loss before reclassification |
( |
) |
— |
( |
) | |||||||
| Amounts reclassified from accumulated other comprehensive income |
— |
— |
— |
|||||||||
| Net current period other comprehensive loss |
— |
( |
) |
( |
) | |||||||
| |
|
|
|
|
|
|||||||
| Ending balance |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
| |
|
|
|
|
|
|||||||
28
| March 31, 2021: |
||||||||||||
| Beginning balance |
$ |
$ |
( |
) |
$ |
|||||||
| Other comprehensive income before reclassification |
( |
) |
— |
( |
) | |||||||
| Amounts reclassified from accumulated other comprehensive income |
( |
) |
— |
( |
) | |||||||
| Net current period other comprehensive income |
— |
|||||||||||
| |
|
|
|
|
|
|||||||
| Ending balance |
$ |
$ |
( |
) |
$ |
|||||||
| |
|
|
|
|
|
|||||||
Note 9: |
Changes in Accumulated Other Comprehensive Income (AOCI) by Component |
Amounts reclassified from AOCI and the affected line items in the statements of income during the three and nine month periods ended March 31, 2022 and 2021, were as follows:
Amounts Reclassified from AOCI |
||||||||||||||||||
Three Months Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||||
2022 |
2021 |
2022 |
2021 |
Affected Line Item in the Condensed Consolidated Statements of Income | ||||||||||||||
| Realized gains on available-for-sale |
$ | $ | $ | $ | Net realized gains on sale of available-for- salesecurities | |||||||||||||
| Amortization of defined benefit pension items: |
Components are included in computation of net periodic pension cost | |||||||||||||||||
| Actuarial losses |
( |
) | ( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||
| Total reclassified amount before tax |
( |
) | ( |
) | ||||||||||||||
| Tax expense |
( |
) | ( |
) | Provision for Income Tax | |||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||
| Total reclassification out of AOCI |
$ | ( |
) | $ | $ | ( |
) | $ | Net Income | |||||||||
| |
|
|
|
|
|
|
|
|||||||||||
29
Note 10: |
Income Taxes |
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:
Three Months Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Computed at the statutory rate |
$ | $ | $ | $ | ||||||||||||
| Decrease resulting from Tax exempt interest |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Cash surrender value of life insurance |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| State income taxes |
||||||||||||||||
| Other |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Actual expense |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Note 11: |
Regulatory Capital |
The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that if undertaken, could have a direct material effect on the Association’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines involving quantitative measures of the Association’s assets, liabilities and certain
off-balance-sheet
items as calculated under regulatory accounting practices. The Association’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. The Basel III regulatory capital framework (the “Basel III Capital Rules”) adopted by U.S. federal regulatory authorities, among other things, (i) establish the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting stated requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) set forth the acceptable scope of deductions/adjustments to the specified capital measures.
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 rule also established a 8 % through the end of 2020, and to 8.5 % throughout 2021, before returning to 9 % on January 1, 2022. The Association “opted in” to elect the Community Bank Leverage Ratio, effective with the quarter ended March 31, 2020.
two-quarter
grace period for a qualifying institution that ceases to meet any qualifying criteria provided that the bank maintains a leverage ratio 8% or greater. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable capital requirements. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted, which temporarily reduced the required Community Bank Leverage Ratio to As of March 31, 2022, 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.
30
Note 12: |
Disclosures About Fair Value of Assets and Liabilities |
Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:
| Level 1 |
Quoted prices in active markets for identical assets or liabilities | |
| Level 2 |
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities | |
| Level 3 |
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities | |
Recurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2022 and June 30, 2021:
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, 2022: |
||||||||||||||||
| Available-for-sale |
||||||||||||||||
| US Treasury |
$ | $ | — | $ | $ | — | ||||||||||
| US Government and federal agency |
— | — | ||||||||||||||
| Mortgage-backed securities – GSE residential |
— | — | ||||||||||||||
| Small Business Administration |
— | — | ||||||||||||||
| State and political subdivisions |
— | — | ||||||||||||||
| Mortgage servicing rights |
— | |||||||||||||||
31
Fair Value Measurements Using |
||||||||||||||||
Fair Value |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
| June 30, 2021: |
||||||||||||||||
| Available-for-sale |
||||||||||||||||
| US Treasury |
$ | $ | — | $ | $ | — | ||||||||||
| US Government and federal agency |
— | — | ||||||||||||||
| Mortgage-backed securities – GSE residential |
— | — | ||||||||||||||
| Small Business Administration |
— | — | ||||||||||||||
| State and political subdivisions |
— | — | ||||||||||||||
| Mortgage servicing rights |
— | |||||||||||||||
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, 2022. 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
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. There were no Level 1 securities as of March 31, 2021 or June 30, 2020. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. For these investments, the inputs used by the pricing service to determine fair value may include one, or a combination of, observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads,
two-sided
markets, benchmark securities, bid, offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government and federal agency, mortgage-backed securities (GSE - residential) and state and political subdivisions. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. There were no Level 3 securities as of March 31, 2022 or June 30, 2021. Mortgage Servicing Rights
Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.
Level 3 Reconciliation
The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:
Mortgage Servicing Rights |
||||
| Balance, July 1, 2021 |
$ | |||
| Total realized and unrealized gains and losses included in net income |
||||
| Servicing rights that result from asset transfers |
||||
| Payments received and loans refinanced |
( |
) | ||
| |
|
|||
| Balance, March 31, 2022 |
$ | |||
| |
|
|||
| 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 |
$ | |||
| |
|
|||
32
Realized and unrealized gains and losses for items reflected in the table above are included in net income in the consolidated statements of income as noninterest income.
Nonrecurring Measurements
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2022 and June 30, 2021:
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, 2022: |
||||||||||||||||
| Foreclosed assets |
$ | $ | $ | $ | ||||||||||||
| June 30, 2021: |
||||||||||||||||
| Foreclosed assets |
$ | $ | — | $ | — | $ | ||||||||||
The following table presents recoveries (losses) recognized on assets measured on a
non-recurring
basis for the three months and nine months ended March 31, 2022 and 2021: Three Months Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Foreclosed and repossessed assets held for sale |
$ |
$ |
$ |
$ |
( |
) | ||||||||||
Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Foreclosed assets
Foreclosed assets are carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of foreclosed assets are based on appraisals or evaluations and are classified within Level 3 of the fair value hierarchy.
Appraisals of foreclosed assets are obtained when the real estate is acquired and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency and are selected from the list of approved appraisers maintained by management.
33
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, 2022 and June 30, 2021.
Fair Value at March 31, 2022 |
Valuation Technique |
Unobservable Inputs |
Range (Weighted Average) | |||||||
| Mortgage servicing rights |
$ | Discounted cash flow | Discount rate | |||||||
| Constant prepayment rate | ||||||||||
| Probability of default | ||||||||||
Fair Value at June 30, 2021 |
Valuation Technique |
Unobservable Inputs |
Range (Weighted Average) | |||||||
| Mortgage servicing rights |
$ | Discounted cash flow | Discount rate | |||||||
| Constant prepayment rate | ||||||||||
| Probability of default | ||||||||||
| Foreclosed assets |
Market comparable properties | Comparability adjustments (%) | ||||||||
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, 2022 and June 30, 2021.
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, 2022: |
||||||||||||||||
| Financial assets |
||||||||||||||||
| Cash and cash equivalents |
$ |
$ |
$ |
— |
$ |
— |
||||||||||
| Interest-bearing time deposits in banks |
— |
— |
||||||||||||||
| Loans, net of allowance for loan losses |
— |
— |
||||||||||||||
| Federal Home Loan Bank stock |
— |
— |
||||||||||||||
| Accrued interest receivable |
— |
— |
||||||||||||||
34
| Financial liabilities |
||||||||||||||||
| Deposits |
— |
|||||||||||||||
| Repurchase agreements |
— |
— |
||||||||||||||
| Federal Home Loan Bank advances |
— |
— |
||||||||||||||
| Lines of credit |
— |
— |
||||||||||||||
| Advances from borrowers for taxes and insurance |
— |
— |
||||||||||||||
| Accrued interest payable |
— |
— |
||||||||||||||
| Unrecognized financial instruments (net of contract amount) |
— |
— |
— |
— |
||||||||||||
| Commitments to originate loans |
||||||||||||||||
Carrying Amount |
Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
| June 30, 2021: |
||||||||||||||||
| Financial assets |
||||||||||||||||
| Cash and cash equivalents |
$ | $ | $ | — | $ | — | ||||||||||
| Interest-bearing time deposits in banks |
— | — | ||||||||||||||
| Loans, net of allowance for loan losses |
— | — | ||||||||||||||
| Federal Home Loan Bank stock |
— | — | ||||||||||||||
| Accrued interest receivable |
— | — | ||||||||||||||
| Financial liabilities |
||||||||||||||||
| Deposits |
— | |||||||||||||||
| Repurchase agreements |
— | — | ||||||||||||||
| Federal Home Loan Bank advances |
— | — | ||||||||||||||
| Lines of credit |
— | — | ||||||||||||||
| Advances from borrowers for taxes and insurance |
— | — | ||||||||||||||
| Accrued interest payable |
— | — | ||||||||||||||
| 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, 2022, represent an approximation of exit price; however, an actual exit price may differ. 35
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 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.
case-by-case
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 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
case-by-case
on-balance-sheet
instruments. 36
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, inflation, 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, any continuing or worsening effects of the
COVID-19
pandemic, new variants thereof, or other pandemics, the effects of the Russia-Ukraine war, 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, 2021 and in this Form 10-Q
under the heading “Risk Factors”, and the Company’s other filings with the SEC. These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. IF Bancorp, Inc. assumes no obligation to update any forward-looking statement, except as may be required by law. Overview
On July 7, 2011 we completed our initial public offering of common stock in connection with the Association’s 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, 2022, the Company repurchased 1,674,479 shares of common stock under stock repurchase plans.
mutual-to-stock
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 2.90% and 2.74% for the nine months ended March 31, 2022 and 2021, respectively. Net interest income increased to $16.6 million for the nine months ended March 31, 2022, from $15.0 million for the nine months ended March 31, 2021.
37
Our emphasis on conservative loan underwriting has historically resulted in relatively low levels of
non-performing
assets. Our non-performing
loans totaled $34,000, or 0.01%, of total loans at March 31, 2022 and $152,000, or 0.03%, of total loans at June 30, 2021. Our non-performing
assets totaled $154,000 or 0.02% of total assets at March 31, 2022, and $411,000, or 0.05% of total assets at June 30, 2021. At March 31, 2022, the Association was categorized as “well capitalized” under regulatory capital requirements.
Our net income for the nine months ended March 31, 2022 was $4.7 million, compared to a net income of $4.4 million for the nine months ended March 31, 2021.
Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended March 31, 2022 and 2021 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
and the CARES Act The
COVID-19
pandemic has caused economic and social disruption on an unprecedented scale. While some industries have been impacted more severely than others, all businesses have been impacted to some degree. The initial disruption resulted in the shuttering of businesses and schools across the country, significant job loss, restrictions on travel and social distancing protocols, highly volatile financial markets and aggressive measures by the federal government. While most businesses and schools are now open, temporary and intermittent closures and remote work are still common due to lack of workers and COVID-19
outbreaks. Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and healthcare providers. The Consolidated Appropriations Act of 2021 was signed into law on December 27, 2020, and is intended to provide critical support to the American people and to further strengthen our economic recovery. The Economic Aid to
Hard-Hit
Small Businesses, Nonprofits and Venues (Economic Aid Act), which was part of the Consolidated Appropriations Act of 2021, extends the Paycheck Protection Program (PPP) to include a second round of funding to certain businesses that received funding under the original PPP. In addition to the general impact of COVID-19,
certain provisions of the CARES Act and the Economic Aid Act, as well as other recent legislative and regulatory relief efforts are expected to have a material impact on our operations. Due to the uncertainty surrounding the ongoing and future effects of the
COVID-19
pandemic, it is not possible to determine the overall impact of the pandemic on the Company’s business. To the extent that customers are not able to fulfill their contractual obligations to the Company, the Company’s business operations, asset valuations, financial condition, cash flows and results of operations could be materially impacted. Material adverse impacts may include all or a combination of valuation impairments on our intangible assets, investments, loans, deferred tax assets, or other real estate owned. The ultimate impact of the
COVID-19
pandemic on the Company’s operations and financial performance will depend on future developments related to the duration, extent and severity of the pandemic and the length of time that mandated business and school closures, restrictions on travel and social distancing remain in place. The Company’s operations rely on third-party vendors to process, record and monitor transactions. If any of these vendors are unable to provide these services, our ability to serve customers could be disrupted. The pandemic could negatively impact customers’ ability to 38
conduct banking and other financial transactions. The Company’s operations could be adversely impacted if key personnel or a significant number of employees were unable to work due to illness or restrictions. With the availability and distribution of
COVID-19
vaccines, we anticipate continued improvements in commercial and consumer activity and in the U.S. economy. However, if the current Omicron variant worsens, or if there is another resurgence in the virus, the Company could experience further adverse effects on its business, financial condition, results of operations, liquidity and cash flows, the extent to which is uncertain. Financial position and results of operations
Our March 31, 2022 financial condition and results of operations were not significantly impacted as a result of the
COVID-19
pandemic. While the general element of our allowance for loan losses increased early in the pandemic due to COVID-related changes in the economic forecast, our allowance for loan losses as of March 31, 2022 is only minimally impacted by additional reserves for loans that remain under temporary COVID-19
modifications. Refer to our discussions in MDA below for additional information on COVID-19
modifications. Should economic conditions worsen, we could experience further increases in our required allowance for loan losses and record additional credit loss expense. The execution of the payment deferrals discussed in the following commentary assisted our ratio of past due loans to total loans. It is possible that our asset quality could worsen at future measurement periods if the effects of COVID-19
are prolonged. Our fee income could be reduced due to
COVID-19. We
are working with COVID-19
affected customers by temporarily waiving fees when appropriate including insufficient funds and overdraft fees, and ATM fees. At this time, we do not anticipate a material impact on our fee income. Our interest income could be reduced due to
COVID-19.
In keeping with guidance from regulators, we are actively working with COVID-19
affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods. Capital and liquidity
As of March 31, 2022, our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by
COVID-19,
our reported and regulatory capital ratios could be adversely impacted by further credit losses. We maintain access to multiple sources of liquidity. Wholesale funding markets have remained open to us and rates have become more stable in the past couple months. If funding costs are elevated for an extended period of time, it could have an adverse effect on our net interest margin. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.
Asset valuation
Currently, we do not expect
COVID-19
to affect our ability to account timely for the assets on our balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP. As of March 31, 2022 we did not have any impairment with respect to our intangible assets, premises and equipment or other long-lived assets. 39
Our Business Continuity and Pandemic Response Plan
The Company maintains a Disaster Recovery/Business Continuity Plan to ensure the maintenance or recovery of operations, including services to customers, when confronted with adverse events such as natural disasters, technological failures, human error, cybercrime, terrorism or pandemic outbreak. When the
COVID-19
pandemic declaration was announced, the Disaster Planning/Recovery team activated the Disaster Recovery Plan, including the Pandemic Response Plan, with a focus on maintaining virtually all customer services in the event of a total or partial closure of banking offices and/or staffing shortages. The team implemented protocols for employee safety, reviewed critical business processes, identified staff who could work remotely, and began mobilizing and preparing the equipment that would be required. An Employee Telecommuting Agreement was developed to establish controls and expectations for those working remotely, including adherence to security and privacy policies. Timely communication was provided to employees and customers. ATM and vault cash was increased at all locations in anticipation of greater demand. The Company’s quick and decisive plan implementation resulted in minimal impacts to operations as a result of the COVID-19
pandemic. Prior technology planning enabled the successful deployment of certain operations and other personnel to remote environments thereby reducing the number of employees working from physical banking offices. In addition, bank lobbies were closed and customer traffic limited to drive-up
facilities, with the exception of the Hoopeston lobby which remained open with protective screening. This reduced the number of employees required to be on-site
at any given time and allowed teams to rotate in and out at periodic intervals, helping to facilitate the effective implementation of social distancing standards. All offices are now fully open with safety protocols in place. We do not anticipate any material cost related to the deployment of safety protocols, including PPE or the remote working strategy. No material operational or internal control challenges or risks have been identified to date. Our
COVID-19
Response Team continues to anticipate and respond to COVID-19
developments. We don’t anticipate any significant challenges to our ability to maintain our systems and controls and we do not currently face any material resource constraint through the implementation of our business continuity plans. Lending operations and accommodations to borrowers
We are working with customers directly affected by the
COVID-19
pandemic. We continue to offer and provide short-term assistance in accordance with regulatory guidelines. As a result of the current economic environment caused by COVID-19,
we are engaging in more frequent communication with borrowers to better understand their situation and the challenges faced by them, allowing us to respond proactively as needs and issues arise. In keeping with regulatory guidance to work with borrowers during this unprecedented situation, the Company has executed payment deferrals for our lending clients that have been adversely affected by the pandemic. Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was signed into law on March 27, 2020, certain
COVID-19
loan modifications are not designated as TDRs. The CARES Act allows the Company to presume a loan modification is not a TDR if it is (1) related to COVID-19;
(2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the National Emergency or (b) December 31, 2020. This relief was extended by the Economic Aid Act, which was included in the Consolidated Appropriations Act, until the earlier of 60 days after the national emergency termination date or January 1, 2022. At March 31, 2022, we have outstanding a total of 106 loans with current balances of $53.3 million that received COVID-19
modifications at some point. These modifications allowed borrowers to pay interest only for up to six months. As of March 31, 2022, 103 of these loans totaling $50.2 million have returned to principal and interest payments. The remaining 3 loans totaling $3.1 million still under temporary modifications include two loans rated special mention and one loan rated substandard. 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 have a five-year term and earn interest at 1%. We believe that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. While we closed 666 SBA PPP loans representing $44.8 million in funding, after SBA forgiveness, we have 18 loans totaling $1.2 million remaining in our portfolio at March 31, 2022. It is our understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, we could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings.
40
In response to the
COVID-19
pandemic, Management identified food and accommodations and assisted living and long term care facilities as industries that were most likely to be adversely impacted in the near-term by economic disruption caused by the pandemic. As of March 31, 2022, our food and accommodation loans, which are mostly real estate loans on restaurants and bars, were $4.4 million, or 0.9% of total loans while our assisted living and long term care facilities loans were $22.7 million, or 4.5% of total loans. As of March 31, 2022, none of these loans were 30 or more days past due and one $2.0 million long term care facility loan had received a COVID-19
modification. Retail operations
With the health and safety of our customers and staff in mind, and consistent with recommendations from the CDC and state and local governments concerning
COVID-19,
all our banking offices are now open with safety protocols in place. Although our bank lobbies were closed for a portion of the pandemic, most banking transactions continued through the drive-ups,
including opening new deposit accounts. Online and Mobile Banking is available for customers to open an account, apply for a mortgage or personal loan, check their balance, transfer funds, and pay bills. Checks can be deposited using Mobile Banking. Our network of over 50,000 ATMs are available for cash withdrawals with no service charge. Throughout the pandemic, we have been operating and serving our customers with uninterrupted access to their account information and the ability to complete banking transactions. Critical Accounting Policies
We define critical accounting policies as those policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income. We consider the following to be our critical accounting policies.
Allowance for Loan Losses.
one-
to four-family residential mortgage and consumer loans because these loans generally have larger principal balances and are non-homogenous.
The allowance for loan losses is maintained at a level to provide for probable credit losses inherent in the loan portfolio at the balance sheet date. Based on our estimate of the level of allowance for loan losses required, we record a provision for loan losses as a charge to earnings to maintain the allowance for loan losses at an appropriate level. The estimate of our credit losses is applied to two general categories of loans:
| • | loans that we evaluate individually for impairment under ASC 310-10, “Receivables;” and |
| • | groups of loans with similar risk characteristics that we evaluate collectively for impairment under ASC 450-20, “Loss Contingencies.” |
The allowance for loan losses is evaluated on a regular basis by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio. The factors used to evaluate the collectability of the loan portfolio include, but are not limited to, current economic conditions, our historical loss experience, the nature and volume of the loan portfolio, the financial strength of the borrower, and the estimated value of any underlying collateral. This evaluation is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available. Actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results. See “Allowance for Loan Loss Activity” below.
41
Income Tax Accounting.
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, 2021. Comparison of Financial Condition at March 31, 2022 and June 30, 2021
Total assets decreased $10.9 million, or 1.4%, to $786.4 million at March 31, 2022 from $797.3 million at June 30, 2021. The decrease was primarily due to a $35.1 million decrease in cash and cash equivalents and a $13.5 million decrease in net loans receivable, partially offset by a $28.7 million increase in investment securities. The decrease in assets was due to the expected withdrawal of deposits by one public entity, as discussed below.
Net loans receivable, including loans held for sale, decreased by $13.5 million, or 2.6%, to $499.8 million at March 31, 2022 from $513.4 million at June 30, 2021. The decrease in net loans receivable during this period was due primarily to a $21.7 million, or 21.0%, decrease in commercial business loans, a $15.9 million, or 15.2%, decrease in multi-family loans, and an $88,000, or 1.3%, decrease in home equity lines of credit, partially offset by a $7.2 million, or 6.1%, increase in
one-
to four-family loans, a $9.2 million, or 5.9%, increase in commercial real estate loans, a $5.8 million, or 22.8%, increase in construction loans and a $645,000, or 8.4%, increase in consumer loans. The $21.7 million decrease in commercial business loans included a $19.4 million decrease in PPP loans. Investment securities, consisting entirely of securities available for sale, increased $28.7 million, or 15.1%, to $218.6 million at March 31, 2022 from $189.9 million at June 30, 2021. We had no securities classified as held to maturity at March 31, 2022 or June 30, 2021.
Between June 30, 2021 and March 31, 2022, accrued interest receivable increased $109,000 to $2.0 million, and deferred income taxes increased $4.2 million to $5.9 million, while premises and equipment decreased $223,000 to $9.6 million, other assets decreased $328,000 to $570,000, and foreclosed assets held for sale decreased $139,000 to $120,000. Federal Home Loan Bank (FHLB) stock was $4.2 million at both March 31, 2022 and June 30, 2021. The increase in accrued interest receivable was primarily the result of an increase in the average balance of securities, and the increase in deferred income taxes was mostly due to an increase in unrealized losses on the sale of securities. The decrease in premises and equipment was the result of ordinary depreciation, the decrease in other assets was due to a fluctuation in items in process, and the decrease in foreclosed assets held for sale was due to the sale of property.
available-for-sale
42
At March 31, 2022, our investment in bank-owned life insurance was $14.3 million, an increase of $4.9 million from $9.3 million at June 30, 2021. This increase was primarily a result of our purchase of $5.0 million in bank-owned life insurance to help offset our employee benefit costs. 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 $22.6 million at March 31, 2022. Deposits decreased $601,000, or 0.1%, to $667.0 million at March 31, 2022 from $667.6 million at June 30, 2021. Certificates of deposit, excluding brokered certificates of deposit, increased $2.4 million, or 1.0%, to $253.6 million, while brokered certificates of deposit decreased $5.0 million, or 46.4%, to $5.8 million. Noninterest bearing demand accounts decreased $47.7 million, or 49.2%, to $49.2 million, while savings, NOW, and money market accounts increased $49.7 million, or 16.1%, to $358.4 million. The large decrease in noninterest bearing demand accounts was due primarily to approximately $55.6 million in deposits from a public entity that collects real estate taxes that was on deposit at June 30, 2021 and withdrawn in the nine months ended March 31, 2022, when tax monies were distributed. Repurchase agreements increased $1.0 million, or 16.3%, to $7.3 million at March 31, 2022, from $6.2 million at June 30, 2021. Borrowings consisted of advances from the Federal Home Loan Bank of Chicago and a line of credit from CIBC Bank USA. The FHLB advances decreased $5.0 million, or 20.0%, to $20.0 million at March 31, 2022, from $25.0 million at June 30, 2021, while the line of credit balance was $3.0 million at both March 31, 2022 and June 30, 2021.
Advances from borrowers for taxes and insurance increased $370,000, or 39.9%, to $1.3 million at March 31, 2022, from $928,000 at June 30, 2021. Accrued interest payable decreased $31,000, or 15.6%, to $168,000 at March 31, 2022, from $199,000 at June 30, 2021. The increase in advances from borrowers for taxes and insurance was attributable to the timing of the payment of real estate taxes and insurance, while the decrease in accrued interest payable resulted from a decrease in average cost of interest-bearing liabilities.
Total equity decreased $6.9 million, or 8.1%, to $78.4 million at March 31, 2022 from $85.3 million at June 30, 2021. Equity decreased primarily due to a decrease of $11.3 million in accumulated other comprehensive income (loss), net of tax, and the accrual of approximately $1.1 million in dividends to our shareholders, of which about half were still payable as of March 31, 2022, and were paid on April 15, 2022. The decrease in accumulated other comprehensive income (loss) was primarily due to unrealized depreciation on securities, net of taxes. These decreases were partially offset by net income of $4.7 million, and ESOP and stock equity plan activity of $771,000.
available-for-sale
Comparison of Operating Results for the Nine Months Ended March 31, 2022 and 2021
General.
Net Interest Income.
Interest and Dividend Income.
43
March 31, 2022 from $159.5 million for the nine months ended March 31, 2021 and a 3 basis point increase in the average yield on securities to 2.01% from 1.98%. The decrease in interest income on loans resulted from a 9 basis point decrease in the average yield on loans to 4.02% for the nine months ended March 31, 2022 from 4.11% for the nine months ended March 31, 2021, and a $7.1 million, or 1.4%, decrease in the average balance of loans to $507.8 million for the nine months ended March 31, 2022, from $514.9 million for the nine months ended March 31, 2021. The decrease in other interest income was a result of a 31 basis point decrease in the average yield of other investments, partially offset by a $10.0 million increase in the average balance of other investments, including Federal Home Loan Bank stock dividends and deposits with other financial institutions, to $33.4 million from $23.4 million.
Interest Expense.
Interest expense on interest-bearing deposits decreased $1.5 million, or 49.2%, to $1.6 million for the nine months ended March 31, 2022 from $3.1 million for the nine months ended March 31, 2021. This decrease was due to a 39 basis point decrease in the average cost of interest-bearing deposits to 0.35% for the nine months ended March 31, 2022 from 0.74% for the nine months ended March 31, 2021, partially offset by an increase of $40.5 million in the average balance of interest-bearing deposits to $596.9 million for the nine months ended March 31, 2022, from $556.4 million for the nine months ended March 31, 2021.
Interest expense on borrowings, including FHLB advances and a line of credit from CIBC Bank USA, and repurchase agreements, decreased $25,000, or 6.8%, to $345,000 for the nine months ended March 31, 2022 from $370,000 for the nine months ended March 31, 2021. This decrease was mostly due to a $3.0 million decrease in the average balance of borrowings to $33.7 million for the nine months ended March 31, 2022, from $36.7 million for the nine months ended March 31, 2021, partially offset by a 1 basis point increase in the average cost of such borrowings to 1.36% for the nine months ended March 31, 2022 from 1.35% for the nine months ended March 31, 2021.
Provision for Loan Losses.
The following table sets forth information regarding the allowance for loan losses and nonperforming assets at the dates indicated:
At or for the Nine Months Ended March 31, 2022 |
At or for the Year Ended June 30, 2021 |
|||||||
| Allowance to non-performing loans |
19444.12 | % | 4341.45 | % | ||||
| Allowance to total loans outstanding at the end of the period |
1.31 | % | 1.27 | % | ||||
| Allowance to total loans outstanding, excluding PPP loans, at end of period |
1.31 | % | 1.32 | % | ||||
| Net charge-offs to average total loans outstanding during the period, annualized |
0.01 | % | 0.09 | % | ||||
| Total non-performing loans to total loans |
0.01 | % | 0.03 | % | ||||
| Total non-performing assets to total assets |
0.02 | % | 0.05 | % | ||||
44
Noninterest Income.
available-for-sale
available-for-sale
available-for-sale
Noninterest Expense.
Income Tax Expense
.
Comparison of Operating Results for the Three Months Ended March 31, 2022 and 2021
General.
Net Interest Income.
Interest and Dividend Income.
45
average balance of securities to $224.6 million from $169.5 million. The decrease in interest on loans resulted from a 16 basis point, or 3.9%, decrease in the average yield on loans to 3.90% from 4.06%, and a $6.0 million, or 1.1%, decrease in the average balance of loans to $503.6 million from $509.6 million.
Interest Expense.
Interest expense on interest-bearing deposits decreased by $291,000, or 36.9%, to $498,000 for the three months ended March 31, 2022 from $789,000 for the three months ended March 31, 2021. This decrease was due to a 23 basis point, or 41.7%, decrease in the average cost of interest-bearing deposits to 0.33% for the three months ended March 31, 2022 from 0.56% for the three months ended March 31, 2021, partially offset by a $46.5 million, or 8.2%, increase in the average balance of interest-bearing deposits to $611.1 million for the three months ended March 31, 2022 from $564.5 million for the three months ended March 31, 2021.
Interest expense on borrowings was $113,000 for both the three months ended March 31, 2022 and the three months ended March 31, 2021. A 6 basis point, or 4.5%, increase in the average cost of borrowings to 1.42% for the three months ended March 31, 2022 from 1.36% for the three months ended March 31, 2021, was offset by a decrease in the average balance of borrowings of $1.4 million, or 4.3%, to $31.8 million for the three months ended March 31, 2022, from $33.2 million for the three months ended March 31, 2021.
Provision for Loan Losses.
charge-off
of $26,000 was recorded, while a net recovery of $3,000 was recorded for the three months ended March 31, 2021. See “Allowance for Loan Loss Activity” below for a discussion of the amount of the allowance and provision for loan losses. Noninterest Income.
available-for-sale
available-for-sale
available-for-sale
Noninterest Expense.
46
Income Tax Expense
.
Asset Quality
At March 31, 2022, our
non-accrual
loans were $34,000, which was a single one-
to four-family loan. At March 31, 2022, we had no loans that were delinquent 90 days or greater and still accruing interest. At March 31, 2022, $7.3 million in loans were classified as substandard, and no loans were classified as doubtful or loss. Loans classified as substandard consisted of $418,000 in
one-
to four-family loans, $256,000 in multi-family loans, $2.0 million in commercial real estate loans, $4.5 million in commercial business loans and $14,000 in consumer loans. At March 31, 2022, watch assets consisted of $1.1 million in
one-to
four-family loans, $919,000 in commercial real estate loans, and $871,000 in commercial business loans. Troubled Debt Restructurings (“TDRs”).
one-
to four-family loans and $38,000 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.
non-occupied
property. Allowance for Loan Loss Activity
The Company regularly reviews its allowance for loan losses and makes adjustments to its balance based on management’s analysis of the loan portfolio, the amount of
non-performing
and classified loans, as well as general economic conditions. Although the Company maintains its allowance for loan losses at a level that it considers sufficient to provide for losses, there can be no assurance that future losses will not exceed internal estimates. In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies, which can order the establishment of additional loss provisions. The following table summarizes changes in the allowance for loan losses over the nine-month periods ended March 31, 2022 and 2021: | Nine months ended March 31, |
||||||||
2022 |
2021 |
|||||||
| Balance, beginning of period |
$ | 6,599 | $ | 6,234 | ||||
| Loans charged off |
||||||||
| Real estate loans: |
||||||||
| One- to four-family |
(26 | ) | (15 | ) | ||||
| Multi-family |
— | — | ||||||
| Commercial |
— | — | ||||||
| HELOC |
— | — | ||||||
| Construction |
— | — | ||||||
| Commercial business |
— | (40 | ) | |||||
| Consumer |
(24 | ) | (23 | ) | ||||
| |
|
|
|
|||||
| Gross charged off loans |
(50 | ) | (78 | ) | ||||
| |
|
|
|
|||||
47
| Recoveries of loans previously charged off |
||||||||
| Real estate loans: |
||||||||
| One- to four-family |
1 | 2 | ||||||
| Multi-family |
— | — | ||||||
| Commercial |
— | — | ||||||
| HELOC |
— | — | ||||||
| Construction |
— | — | ||||||
| Commercial business |
16 | 16 | ||||||
| Consumer |
6 | 12 | ||||||
| |
|
|
|
|||||
| Gross recoveries of charged off loans |
23 | 30 | ||||||
| |
|
|
|
|||||
| Net charge offs |
(27 | ) | (48 | ) | ||||
| |
|
|
|
|||||
| Provision charged to expense |
39 | 165 | ||||||
| |
|
|
|
|||||
| Balance, end of period |
$ | 6,611 | $ | 6,351 | ||||
| |
|
|
|
The allowance for loan losses has been calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Company’s loans. Management considers such factors as the repayment status of a loan, the estimated net fair value of the underlying collateral, the borrower’s intent and ability to repay the loan, local economic conditions, and the Company’s historical loss ratios. We maintain the allowance for loan losses through the provisions for loan losses that we charge to income. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. The allowance for loan losses was $6.6 million at both March 31, 2022 and June 30, 2021. An increase in risk associated with outstanding loans due to a change in portfolio mix was offset by a decrease in the size of the loan portfolio. Therefore, no change was necessary in order to bring the allowance for loan losses to a level that reflects management’s estimate of the potential loss in the Company’s loan portfolio at March 31, 2022.
In its quarterly evaluation of the adequacy of its allowance for loan losses, the Company employs historical data including past due percentages, charge-offs, and recoveries. The Company’s allowance methodology weights the most recent twelve-quarter period’s net charge-offs and uses this information as one of the primary factors for evaluation of allowance adequacy. The most recent four-quarter net charge-offs are given a higher weight of 50%, while quarters
5-8
are given a 30% weight and quarters 9-12
are given only a 20% weight. The average net charge-offs in each period are calculated as net charge-offs by portfolio type for the period as a percentage of the quarter end balance of respective portfolio type over the same period. The Company believes that it is prudent to emphasize more recent historical factors in the allowance evaluation. The following table sets forth the Company’s weighted average historical net charge-offs as of March 31, 2022 and June 30, 2021: | Portfolio segment |
March 31, 2022 Net charge-offs 12 quarter weighted historical |
June 30, 2021 Net charge-offs 12 quarter weighted historical |
||||||
| Real Estate: |
| |||||||
| One- to four-family |
0.02 | % | 0.01 | % | ||||
| Multi-family |
0.00 | % | 0.00 | % | ||||
| Commercial |
0.00 | % | 0.00 | % | ||||
| HELOC |
0.00 | % | 0.03 | % | ||||
| Construction |
0.00 | % | 0.00 | % | ||||
| Commercial business |
0.25 | % | 0.26 | % | ||||
| Consumer |
0.03 | % | 0.04 | % | ||||
| |
|
|
|
|||||
| Total portfolio |
0.06 | % | 0.06 | % | ||||
48
Additionally, in its quarterly evaluation of the adequacy of the allowance for loan losses, the Company evaluates changes in financial conditions of individual borrowers; changes in local, regional, and national economic conditions; the Company’s historical loss experience; and changes in market conditions for property pledged to the Company as collateral. The Company has identified specific qualitative factors that address these issues and assigns a percentage to each factor based on Management’s judgement.
The qualitative factors are applied to the allowance for loan losses based upon the following percentages by loan type:
| Portfolio segment |
Qualitative factor applied at March 31, 2022 |
Qualitative factor applied at June 30, 2021 |
||||||
| Real Estate: |
| |||||||
| One- to four-family |
0.82 | % | 0.82 | % | ||||
| Multi-family |
1.61 | % | 1.60 | % | ||||
| Commercial |
1.21 | % | 1.20 | % | ||||
| HELOC |
1.00 | % | 0.98 | % | ||||
| Construction |
1.15 | % | 1.02 | % | ||||
| Commercial business* |
1.84 | % | 1.80 | % | ||||
| Consumer |
0.72 | % | 0.71 | % | ||||
| |
|
|
|
|||||
| Total portfolio* |
1.26 | % | 1.26 | % | ||||
* |
At March 31, 2022 and June 30, 2021, $1.2 million and $20.6 million, respectively, in PPP loans with no associated allowance, were excluded from the calculation of qualitative factors since they are guaranteed by the SBA. |
At March 31, 2022, the amount of our allowance for loan losses attributable to these qualitative factors was approximately $6.4 million, as compared to $6.3 million at June 30, 2021.
While management believes that our asset quality remains strong, it recognizes that, due to the continued growth in the loan portfolio, and the potential changes in market conditions, our level of nonperforming assets and resulting charge-offs may fluctuate. Higher levels of net charge-offs requiring additional provisions for loan losses could result. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan sales and repayments, advances from the Federal Home Loan Bank of Chicago, and maturities of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. For the three months ended March 31, 2022, the nine months ended March 31, 2022 and the year ended June 30, 2021, our liquidity ratio averaged 31.8%, 30.2% and 25.0% 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, 2022.
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.
49
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, 2022, cash and cash equivalents totaled $27.7 million. Interest-bearing time deposits which can offer additional sources of liquidity, totaled $2.3 million at March 31, 2022.
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 $5.7 million and $4.7 million for the nine months ended March 31, 2022 and 2021, 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 $(36.3) million and $(13.4) million for the nine months ended March 31, 2022 and 2021, respectively. Net cash provided by (used in) financing activities consisted primarily of the activity in deposit accounts, FHLB Advances, dividends paid, and stock repurchases. The net cash provided by (used in) financing activities was $(4.4) million and $8.5 million for the nine months ended March 31, 2022 and 2021, 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, 2022 and June 30, 2021.
March 31, 2022 |
June 30, 2021 |
|||||||
(Dollars in thousands) |
||||||||
| Commitments to fund loans |
$ | 31,460 | $ | 19,137 | ||||
| Lines of credit |
105,630 | 103,972 | ||||||
At March 31, 2022, certificates of deposit due within one year of March 31, 2022 totaled $225.4 million, or 33.8% 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, 2023. 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 $20.0 million, while the amount drawn on our CIBC line of credit was $3.0 million at March 31, 2022. At March 31, 20221 we had the ability to borrow up to an additional $102.3 million from the Federal Home Loan Bank of Chicago, we had $4.5 million available on our CIBC Bank line of credit, and also had the ability to borrow $33.9 million from the Federal Reserve based on current collateral pledged.
The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that if undertaken, could have a direct material effect on the Association’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines involving quantitative measures of the Association’s assets, liabilities and certain
off-balance-sheet
items as calculated under regulatory accounting practices. The Association’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. The Basel III regulatory capital framework (the “Basel III Capital Rules”) adopted by U.S. federal regulatory authorities, among other things, (i) establish the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1
50
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 rule also established a
two-quarter
grace period for a qualifying institution that ceases to meet any qualifying criteria provided that the bank maintains a leverage ratio 8% or greater. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable capital requirements. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted, which temporarily reduced the required Community Bank Leverage Ratio to 8% through the end of 2020, and to 8.5% throughout 2021, before returning to 9% on January 1, 2022. The Association “opted in” to elect the Community Bank Leverage Ratio, effective with the quarter ended March 31, 2020. As of March 31, 2022, 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, 2022 Actual |
June 30, 2021 Actual |
Minimum to Be Well Capitalized |
||||||||||
| Community Bank Leverage Ratio |
10.6 | % | 10.5 | % | 9.0 | % | ||||||
51
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, |
||||||||||||||||||||||||
2022 |
2021 |
|||||||||||||||||||||||
Average Balance |
Interest Income/ Expense |
Yield/ Cost |
Average Balance |
Interest Income/ Expense |
Yield/ Cost |
|||||||||||||||||||
(Dollars in thousands) |
||||||||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Loans |
$ | 503,643 | $ | 4,907 | 3.90 | % | $ | 509,608 | $ | 5,169 | 4.06 | % | ||||||||||||
| Securities: |
||||||||||||||||||||||||
| U.S. government, federal agency and government-sponsored enterprises |
27,890 | 121 | 1.74 | % | 14,756 | 75 | 2.03 | % | ||||||||||||||||
| Mortgage-backed: |
||||||||||||||||||||||||
| GSE-residential |
195,550 | 912 | 1.87 | % | 153,448 | 622 | 1.62 | % | ||||||||||||||||
| State and political subdivisions |
1,110 | 9 | 3.24 | % | 1,251 | 9 | 2.88 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total securities |
224,550 | 1,042 | 1.86 | % | 169,455 | 706 | 1.67 | % | ||||||||||||||||
| Other |
28,252 | 54 | 0.76 | % | 24,678 | 51 | 0.83 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-earning assets |
756,445 | 6,003 | 3.17 | % | 703,741 | 5,926 | 3.37 | % | ||||||||||||||||
| Non-interest earning assets |
22,228 | 31,002 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total assets |
$ | 778,673 | $ | 734,743 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Liabilities and Stockholders’ Equity |
||||||||||||||||||||||||
| Interest-bearing liabilities: |
||||||||||||||||||||||||
| Interest-bearing checking or NOW |
$ | 105,955 | 29 | 0.11 | % | $ | 93,716 | 33 | 0.14 | % | ||||||||||||||
| Savings accounts |
72,285 | 26 | 0.14 | % | 60,605 | 28 | 0.18 | % | ||||||||||||||||
| Money market accounts |
176,649 | 143 | 0.32 | % | 137,231 | 118 | 0.34 | % | ||||||||||||||||
| Certificates of deposit |
256,161 | 300 | 0.47 | % | 272,984 | 610 | 0.89 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-bearing deposits |
611,050 | 498 | 0.33 | % | 564,536 | 789 | 0.56 | % | ||||||||||||||||
| Borrowings and repurchase agreements |
31,762 | 113 | 1.42 | % | 33,182 | 113 | 1.36 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-bearing liabilities |
642,812 | 611 | 0.38 | % | 597,718 | 902 | 0.60 | % | ||||||||||||||||
| Noninterest-bearing liabilities |
54,313 | 52,761 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total liabilities |
697,125 | 650,479 | ||||||||||||||||||||||
| Stockholders’ equity |
81,548 | 84,264 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total liabilities and stockholders’ equity |
$ | 778,673 | $ | 734,743 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Net interest income |
$ | 5,392 | $ | 5,024 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Interest rate spread (1) |
2.79 | % | 2.76 | % | ||||||||||||||||||||
| Net interest margin (2) |
2.85 | % | 2.86 | % | ||||||||||||||||||||
| Net interest-earning assets (3) |
$ | 113,633 | $ | 106,023 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Average interest-earning assets to interest-bearing liabilities |
118 | % | 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. |
52
For the Nine Months Ended March 31, |
||||||||||||||||||||||||
2022 |
2021 |
|||||||||||||||||||||||
Average Balance |
Interest Income/ Expense |
Yield/ Cost |
Average Balance |
Interest Income/ Expense |
Yield/ Cost |
|||||||||||||||||||
(Dollars in thousands) |
||||||||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Loans |
$ | 507,797 | $ | 15,292 | 4.02 | % | $ | 514,903 | $ | 15,888 | 4.11 | % | ||||||||||||
| Securities: |
||||||||||||||||||||||||
| U.S. government, federal agency and government-sponsored enterprises |
22,529 | 305 | 1.81 | % | 12,280 | 212 | 2.30 | % | ||||||||||||||||
| Mortgage-backed: |
||||||||||||||||||||||||
| GSE-residential |
182,104 | 2,769 | 2.03 | % | 145,815 | 2,128 | 1.95 | % | ||||||||||||||||
| State and political subdivisions |
1,188 | 27 | 3.03 | % | 1,361 | 29 | 2.84 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total securities |
205,821 | 3,101 | 2.01 | % | 159,456 | 2,369 | 1.98 | % | ||||||||||||||||
| Other |
33,398 | 167 | 0.67 | % | 23,403 | 172 | 0.98 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-earning assets |
747,016 | 18,560 | 3.31 | % | 697,762 | 18,429 | 3.52 | % | ||||||||||||||||
| Non-interest earning assets |
26,713 | 33,000 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total assets |
$ | 773,729 | $ | 730,762 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Liabilities and Stockholders’ Equity |
||||||||||||||||||||||||
| Interest-bearing liabilities: |
||||||||||||||||||||||||
| Interest-bearing checking or NOW |
$ | 107,097 | 103 | 0.13 | % | $ | 87,363 | 108 | 0.16 | % | ||||||||||||||
| Savings accounts |
69,077 | 79 | 0.15 | % | 55,587 | 84 | 0.20 | % | ||||||||||||||||
| Money market accounts |
161,687 | 397 | 0.33 | % | 131,281 | 369 | 0.37 | % | ||||||||||||||||
| Certificates of deposit |
258,989 | 993 | 0.51 | % | 282,168 | 2,536 | 1.20 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-bearing deposits |
596,850 | 1,572 | 0.35 | % | 556,399 | 3,097 | 0.74 | % | ||||||||||||||||
| Borrowings and repurchase agreements |
33,706 | 345 | 1.36 | % | 36,675 | 370 | 1.35 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-bearing liabilities |
630,556 | 1,917 | 0.41 | % | 593,074 | 3,467 | 0.78 | % | ||||||||||||||||
| Noninterest-bearing liabilities |
58,339 | 53,623 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total liabilities |
688,895 | 646,697 | ||||||||||||||||||||||
| Stockholders’ equity |
84,834 | 84,065 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total liabilities and stockholders’ equity |
$ | 773,729 | $ | 730,762 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Net interest income |
$ | 16,643 | $ | 14,962 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Interest rate spread (1) |
2.90 | % | 2.74 | % | ||||||||||||||||||||
| Net interest margin (2) |
2.97 | % | 2.86 | % | ||||||||||||||||||||
| Net interest-earning assets (3) |
$ | 116,460 | $ | 104,688 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Average interest-earning assets to interest-bearing liabilities |
118 | % | 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. |
53
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, 2022 vs. 2021 |
Nine Months Ended March 31, 2022 vs. 2021 |
|||||||||||||||||||||||
Increase (Decrease) Due to |
Total Increase (Decrease) |
Increase (Decrease) Due to |
Total Increase (Decrease) |
|||||||||||||||||||||
Volume |
Rate |
Volume |
Rate |
|||||||||||||||||||||
(In thousands) |
||||||||||||||||||||||||
| Interest-earning assets: |
||||||||||||||||||||||||
| Loans |
$ | (60 | ) | $ | (202 | ) | $ | (262 | ) | $ | (231 | ) | $ | (365 | ) | $ | (596 | ) | ||||||
| Securities |
249 | 87 | 336 | 696 | 36 | 732 | ||||||||||||||||||
| Other |
24 | (21 | ) | 3 | 81 | (86 | ) | (5 | ) | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total interest-earning assets |
$ | 213 | $ | (136 | ) | $ | 77 | $ | 546 | $ | (415 | ) | $ | 131 | ||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Interest-bearing liabilities: |
||||||||||||||||||||||||
| Interest-bearing checking or NOW |
$ | 20 | $ | (24 | ) | $ | (4 | ) | $ | 26 | $ | (31 | ) | $ | (5 | ) | ||||||||
| Savings accounts |
21 | (23 | ) | (2 | ) | 25 | (30 | ) | (5 | ) | ||||||||||||||
| Certificates of deposit |
(36 | ) | (274 | ) | (310 | ) | (193 | ) | (1,350 | ) | (1,543 | ) | ||||||||||||
| Money market accounts |
66 | (41 | ) | 25 | 91 | (63 | ) | 28 | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total interest-bearing deposits |
71 | (362 | ) | (291 | ) | (51 | ) | (1,474 | ) | (1,525 | ) | |||||||||||||
| Federal Home Loan Bank advances and repurchase agreements |
(19 | ) | 19 | — | (30 | ) | 5 | (25 | ) | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total interest-bearing liabilities |
$ | 52 | $ | (343 | ) | $ | (291 | ) | $ | (81 | ) | $ | (1,469 | ) | $ | (1,550 | ) | |||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in net interest income |
$ | 161 | $ | 207 | $ | 368 | $ | 627 | $ | 1,054 | $ | 1,681 | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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, 2022 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, 2021, 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, 2022. 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, 2022, 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.
54
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, 2021, 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. 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 |
55
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 2021, (ii) the Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2022 and 2021, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2022 and 2021, (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended March 31, 2022 and 2021, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2022 and 2021, 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. |
56
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IF BANCORP, INC. |
||||
| Date: May 12, 2022 | /s/ Walter H. Hasselbring III |
|||
| Walter H. Hasselbring III | ||||
| President and Chief Executive Officer | ||||
| Date: May 12, 2022 | /s/ Pamela J. Verkler |
|||
| Pamela J. Verkler | ||||
| Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
||||
57
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsNote 1: Basis Of Financial Statement PresentationNote 2: New Accounting PronouncementsNote 3: Stock-based CompensationNote 4: Earnings Per Common Share ( Eps )Note 5: SecuritiesNote 6: Loans and Allowance For Loan LossesNote 7: Federal Home Loan Bank StockNote 8: Accumulated Other Comprehensive Income (loss)Note 9: Changes in Accumulated Other Comprehensive Income (aoci) By ComponentNote 10: Income TaxesNote 11: Regulatory CapitalNote 12: Disclosures About Fair Value Of Assets and LiabilitiesNote 13: CommitmentsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits