SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2023

OR

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

For the transition period from _______________ to _______________

Commission File No. 001-35226

IF Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	45-1834449
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
201 East Cherry Street, Watseka, Illinois	60970
(Address of Principal Executive Offices)	Zip Code

(815) 432-2476

(Registrant’s telephone number)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	IROQ	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

 YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 YES ☒ NO ☐

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 YES  ☐ NO ☒

The Registrant had 3,354,626 shares of common stock, par value $0.01 per share, issued and outstanding as of February 2, 2024.

IF Bancorp, Inc.

Form 10-Q

Index

		Page
Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements		1
	Condensed Consolidated Balance Sheets as of December 31, 2023 (unaudited) and June 30, 2023		1
	Condensed Consolidated Statements of Income for the Three Months and Six Months Ended December 31, 2023 and 2022 (unaudited)		2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Six Months Ended December 31, 2023 and 2022 (unaudited)		3
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2023 and 2022 (unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2023 and 2022 (unaudited)		6
	Notes to Condensed Consolidated Financial Statements (unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		52
Item 4.	Controls and Procedures		52
Part II. Other Information
Item 1.	Legal Proceedings		53
Item 1A.	Risk Factors		53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		53
Item 3.	Defaults upon Senior Securities		53
Item 4.	Mine Safety Disclosures		53
Item 5.	Other Information		53
Item 6.	Exhibits		54
	Signature Page		55

Part I. – Financial Information

Item 1. Condensed Consolidated Financial Statements

IF Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amount)

	December 31,			June 30,
	2023			2023
	(Unaudited)
Assets
Cash and due from banks	$	7,871		$	10,717
Interest-bearing demand deposits		298			271
Cash and cash equivalents		8,169			10,988
Interest-bearing time deposits in banks		750			1,250
Available-for-sale securities		199,930			201,299
Loans, net of allowance for credit losses of $7,935 and $7,139 at December 31, 2023 and June 30, 2023, respectively		653,549			587,457
Premises and equipment, net of accumulated depreciation of $9,493 and $9,212 at December 31, 2023 and June 30, 2023, respectively		10,854			11,092
Federal Home Loan Bank stock, at cost		5,419			3,127
Foreclosed assets held for sale		7			31
Accrued interest receivable		3,758			2,781
Bank-owned life insurance		14,967			14,761
Mortgage servicing rights		1,410			1,482
Deferred income taxes		10,309			11,037
Other		1,661			3,671
Total assets	$	910,783		$	848,976
Liabilities and Equity
Liabilities
Deposits
Demand	$	45,433		$	107,567
Savings, NOW and money market		314,547			344,151
Certificates of deposit		286,103			264,058
Brokered certificates of deposit		31,962			19,538
Total deposits		678,045			735,314
Repurchase agreements		16,040			10,787
Federal Home Loan Bank advances		98,050			19,500
Other borrowings		34,375			—
Advances from borrowers for taxes and insurance		1,235			1,233
Accrued post-retirement benefit obligation		2,442			2,431
Accrued interest payable		2,849			1,666
Allowance for credit losses on off-balance sheet credit exposures		56			216
Other		3,950			6,076
Total liabilities		837,042			777,223
Commitments and Contingencies
Stockholders’ Equity
Common stock, $.01 par value per share, 100,000,000 shares authorized, 3,354,626 shares issued and outstanding at both December 31, 2023 and June 30, 2023		33			33
Additional paid-in capital		51,753			51,543
Unearned ESOP shares, at cost, 144,338 and 153,960 shares at December 31, 2023 and June 30, 2023, respectively		(1,443	)		(1,540	)
Retained earnings		43,377			43,365
Accumulated other comprehensive loss, net of tax		(19,979	)		(21,648	)
Total stockholders’ equity		73,741			71,753
Total liabilities and stockholders’ equity	$	910,783		$	848,976

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 December 31,						Six Months Ended December 31,
	2023			2022			2023		2022
Interest and Dividend Income
Interest and fees on loans	$	8,702		$	6,599		$	16,435	$	12,199
Securities:
Taxable		1,365			1,368			2,760		2,703
Tax-exempt		25			27			51		54
Federal Home Loan Bank dividends		78			39			146		70
Deposits with other financial institutions		59			73			128		158
Total interest and dividend income		10,229			8,106			19,520		15,184
Interest Expense
Deposits		4,336			1,443			8,171		2,059
Federal Home Loan Bank advances and repurchase agreements		1,355			618			2,228		830
Line of credit and other borrowings		150			—			150		—
Total interest expense		5,841			2,061			10,549		2,889
Net Interest Income		4,388			6,045			8,971		12,295
Provision for Credit Losses		364			101			586		13
Net Interest Income After Provision for Credit Losses		4,024			5,944			8,385		12,282
Noninterest Income
Customer service fees		108			98			209		203
Other service charges and fees		63			57			133		115
Insurance commissions		203			203			374		376
Brokerage commissions		157			201			319		439
Net realized gains (losses) on sales of available-for-sale securities		—			(183	)		—		(183	)
Mortgage banking income (loss), net		(48	)		47			92		224
Gain on sale of loans		38			34			110		76
Bank-owned life insurance income, net		105			97			206		194
Other		289			314			600		642
Total noninterest income		915			868			2,043		2,086
Noninterest Expense
Compensation and benefits		2,832			3,083			5,848		6,211
Office occupancy		288			238			577		480
Equipment		593			596			1,139		1,162
Federal deposit insurance		162			59			300		112
Stationary, printing and office		20			34			30		55
Advertising		105			169			182		270
Professional services		137			118			229		290
Supervisory examinations		27			44			54		89
Audit and accounting services		23			43			106		94
Organizational dues and subscriptions		6			21			29		43
Insurance bond premiums		54			48			113		101
Telephone and postage		32			39			73		80
Loss (gain) on foreclosed assets, net		2			—			2		(28	)
Other		426			430			873		810
Total noninterest expense		4,707			4,922			9,555		9,769
Income Before Income Tax		232			1,890			873		4,599
Provision for Income Tax		47			486			222		1,226
Net Income	$	185		$	1,404		$	651	$	3,373
Earnings Per Share:
Basic	$	0.06		$	0.44		$	0.20	$	1.07
Diluted	$	0.06		$	0.43		$	0.20	$	1.05
Dividends declared per common share	$	0.00		$	0.00		$	0.20	$	0.20

See accompanying notes to the unaudited condensed consolidated financial statements.

2

IF Bancorp, Inc.

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

(Dollars in thousands)

	Three Months Ended December 31,
	2023		2022
Net Income	$	185	$	1,404
Other Comprehensive Income
Unrealized appreciation on available-for-sale securities, net of taxes of $2,706 and $744, for 2023 and 2022, respectively		6,787		1,863
Less: reclassification adjustment for realized losses included in net income, net taxes of $0 and $(52) for 2023 and 2022, respectfully		—		(131	)
		6,787		1,994
Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $0 and $0 for 2023 and 2022, respectively		1		(1	)
Other comprehensive income, net of tax		6,788		1,993
Comprehensive Income	$	6,973	$	3,397

	Six Months Ended December 31,
	2023		2022
Net Income	$	651	$	3,373
Other Comprehensive Income (Loss)
Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of $664 and $(1,524), for 2023 and 2022, respectively		1,667		(3,825	)
Less: reclassification adjustment for realized losses included in net income, net of taxes of $0 and $(52), for 2023 and 2022, respectively		—		(131	)
		1,667		(3,694	)
Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $1 and $(1) for 2023 and 2022, respectively		2		(2	)
Other comprehensive income (loss), net of tax		1,669		(3,696	)
Comprehensive Income (Loss)	$	2,320	$	(323	)

See accompanying notes to the unaudited condensed consolidated financial statements.

3

IF Bancorp, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share amounts)

	Common Stock		Additional Paid-In Capital		Unearned ESOP Shares			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
For the three months ended December 31, 2023
Balance, October 1, 2023	$	33	$	51,657	$	(1,491	)	$	43,159	$	(26,767	)	$	66,591
Net income		—		—		—			185		—			185
Other comprehensive income		—		—		—			—		6,788			6,788
Dividends paid on unearned ESOP		—		—		—			33		—			33
Stock equity plan		—		73		—			—		—			73
ESOP shares earned, 4,811 shares		—		23		48			—		—			71
Balance, December 31, 2023	$	33	$	51,753	$	(1,443	)	$	43,377	$	(19,979	)	$	73,741
For the three months ended December 31, 2022
Balance, October 1, 2022	$	33	$	50,889	$	(1,684	)	$	41,276	$	(23.035	)	$	67,479
Net income		—		—		—			1,404		—			1,404
Other comprehensive income		—		—		—			—		1,993			1,993
Dividends paid on unearned ESOP		—		—		—			34		—			34
Stock equity plan		—		91		—			—		—			91
ESOP shares earned, 4,811 shares		—		41		48			—		—			89
Balance, December 31, 2022	$	33	$	51,021	$	(1,636	)	$	42,714	$	(21,042	)	$	71,090

See accompanying notes to the unaudited condensed consolidated financial statements.

4

IF Bancorp, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share amounts)

	Common Stock		Additional Paid-In Capital		Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
For the six months ended December 31, 2023
Balance, June 30, 2023	$	33	$	51,543	$	(1,540	)	$	43,365		$	(21,648	)	$	71,753
Net income		—		—		—			651			—			651
Other comprehensive income		—		—		—			—			1,669			1,669
Dividends on common stock, $0.20 per share		—		—		—			(639	)		—			(639	)
Stock equity plan		—		163		—			—			—			163
ESOP shares earned, 9,622 shares		—		47		97			—			—			144
Balance, December 31, 2023	$	33	$	51,753	$	(1,443	)	$	43,377		$	(19,979	)	$	73,741
For the six months ended December 31, 2022
Balance, June 30, 2022	$	32	$	50,342	$	(1,732	)	$	40,362		$	(17,346	)	$	71,658
Cumulative impact of ASU 2016-13		—		—		—			(388	)		—			(388	)
Balance, July 1, 2022	$	32	$	50,342	$	(1,732	)	$	39,974		$	(17,346	)	$	71,270
Net income		—		—		—			3,373			—			3,373
Other comprehensive loss		—		—		—			—			(3,696	)		(3,696	)
Dividends on common stock, $0.20 per share		—		—		—			(633	)		—			(633	)
Stock options exercised		1		448		—			—			—			449
Stock equity plan		—		147		—			—			—			147
ESOP shares earned, 9,622 shares		—		84		96			—			—			180
Balance, December 31, 2022	$	33	$	51,021	$	(1,636	)	$	42,714		$	(21,042	)	$	71,090

See accompanying notes to the unaudited condensed consolidated financial statements.

5

IF Bancorp, Inc.

Condensed Consolidated Statement of Cash Flows (Unaudited)

(Dollars in thousands)

	Six Months Ended December 31,
	2023			2022
Operating Activities
Net income	$	651		$	3,373
Items not requiring (providing) cash
Depreciation		345			323
Provision for credit losses		586			13
Amortization (accretion) of premiums and discounts on securities		(116	)		201
Deferred income taxes		63			(147	)
Net realized gains on loan sales		(110	)		(76	)
Net realized losses on sales of available-for-sale securities		—			183
Loss (gain)on foreclosed assets held for sale		2			(28	)
Bank-owned life insurance income, net		(206	)		(194	)
Originations of loans held for sale		(5,764	)		(3,276	)
Proceeds from sales of loans held for sale		5,257			3,527
ESOP compensation expense		144			180
Stock equity plan expense		163			147
Changes in
Accrued interest receivable		(977	)		(558	)
Other assets		2,010			(1,455	)
Accrued interest payable		1,183			499
Post-retirement benefit obligation		14			12
Other liabilities		(2,126	)		(2,173	)
Net cash provided by operating activities		1,119			551
Investing Activities
Net change in interest-bearing time deposits		500			250
Purchases of available-for-sale securities		(1,977	)		(11,398	)
Proceeds from sales of available-for-sale securities		—			3,846
Proceeds from maturities and pay-downs of available-for-sale securities		5,793			14,810
Net change in loans		(66,152	)		(42,183	)
Purchase of premises and equipment		(107	)		(114	)
Proceeds from sale of foreclosed assets		25			148
Purchase of Federal Home Loan Bank stock		(2,292	)		(1,050	)
Redemption of Federal Home Loan Bank stock		—			349
Net cash used in investing activities		(64,210	)		(35,342	)
Financing Activities
Net decrease in demand deposits, money market, NOW and savings accounts		(91,738	)		(98,470	)
Net increase in certificates of deposit, including brokered certificates		34,469			13,787
Net increase in advances from borrowers for taxes and insurance		2			596
Proceeds from other borrowings		229,625			—
Repayments of other borrowings		(195,250	)		—
Proceeds from Federal Home Loan Bank advances		414,050			176,000
Repayments of Federal Home Loan Bank advances		(335,500	)		(125,000	)
Net increase in repurchase agreements		5,253			694
Dividends paid		(639	)		(633	)
Proceeds from exercise of stock options		—			449
Net cash provided by (used in) financing activities		60,272			(32,577	)
Net Decrease in Cash and Cash Equivalents		(2,819	)		(67,368	)
Cash and Cash Equivalents, Beginning of Period		10,988			75,811
Cash and Cash Equivalents, End of Period	$	8,169		$	8,443
Supplemental Cash Flows Information
Interest paid	$	9,366		$	2,390
Income taxes paid	$	108		$	1,272
Foreclosed assets in the settlement of loans	$	3		$	—

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 December 31, 2023 and June 30, 2023, and the results of its operations for the three month and six month periods ended December 31, 2023 and 2022. These condensed 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, 2023. The results of operations for the three month and six month periods ended December 31, 2023 are not necessarily indicative of the results that may be expected for the entire year.

Revenue Recognition

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

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

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

• Insurance Commissions - The Company’s insurance agency, IF Insurance Agency, receives commissions on premiums of new and renewed business policies. IF Insurance Agency records commission revenue on direct bill policies as the cash is received. For agency bill policies, IF 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.

7

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

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

Note 2: New Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For public companies eligible to be smaller reporting companies (SRC), this update was effective for interim and annual periods beginning after December 15, 2022. In preparation for the adoption of ASU 2016-13, we engaged a firm specializing in ALLL modeling and had been transition modeling prior to adoption. We also had our CECL model validated by an independent firm.

The Company early adopted ASU 2016-13 using the current expected credit loss (“CECL”) methodology for financial assets measured at amortized cost, effective July 1, 2022. Results for the periods beginning after July 1, 2022 are presented under ASU 2016-13, while prior period amounts are reported in accordance with the previously applicable accounting standards. The Company recorded a reduction to retained earnings of approximately $388,000 upon adoption of ASU 2016-13. The transition adjustment included an increase to the allowance for credit losses on loans of $47,000 and an increase to the allowance to credit losses on off-balance sheet credit exposure of $496,000. The transition adjustment included a corresponding increase in deferred tax assets.

8

The following table illustrates the impact of ASU 2016-13 adoption (in thousands):

	July 1, 2022
	Allowance for credit losses as reported under ASU 2016-13		Allowance pre-ASU 2016-13 Adoption		Impact on Allowance of ASU 2016-13 Adoption
Assets:
Real Estate Loans
One- to four-family	$	1,410	$	1,028	$	382
Multi-Family		1,235		1,375		(140	)
Commercial		2,370		1,985		385
HELOC		103		70		33
Construction		681		489		192
Commercial Business		1,207		2,025		(818	)
Consumer		93		80		13
Allowance for credit losses for all loans	$	7,099	$	7,052	$	47
Liabilities:
Allowance for credit losses on off-balance sheet exposures	$	496	$	—	$	496

In March 2022, FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this update eliminate the accounting guidance and related disclosures for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty and requiring an entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The amendments in this update were effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and are applied prospectively, except with respect to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method. The Company adopted ASU 2022-02, effective July 1, 2023, with changes applied prospectively, except with respect to the recognition and measurement of TDRs where a modified retrospective transition method was applied. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements.

Note 3: Stock-based Compensation

In connection with the conversion to stock form, the Association established an ESOP for the exclusive benefit of eligible employees (all salaried employees who have completed at least 1,000 hours of service in a twelve-month period and have attained the age of 21). The ESOP borrowed funds from the Company in an amount sufficient to purchase 384,900 shares (approximately 8% of the common stock issued in the stock offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Association and dividends received by the ESOP. Contributions will be applied to repay interest on the loan first, and then the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest 100% in their accrued benefits under the employee stock

9

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

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

A summary of ESOP shares at December 31, 2023 and June 30, 2023 are as follows (dollars in thousands):

	December 31, 2023		June 30, 2023
Allocated shares		173,740		162,986
Shares committed for release		9,622		19,245
Unearned shares		144,338		153,960
Total ESOP shares		327,700		336,191
Fair value of unearned ESOP shares (1)	$	2,314	$	2,223

(1) Based on closing price of $16.03 and $14.44 per share on December 31, 2023, and June 30, 2023, respectively.

During the six months ended December 31, 2023, 6,086 ESOP shares were paid to ESOP participants due to separation from service and 2,405 shares were transferred out as a result of participant diversification. During the six months ended December 31, 2022, 7,440 ESOP shares were paid to ESOP participants due to separation from service and 7,683 shares were transferred out as a result of participant diversification.

The IF Bancorp, Inc. 2012 Equity Incentive Plan (the “Equity Incentive Plan”) was approved by stockholders in 2012 for a ten-year period which ended in November 2022. The purpose of the Equity Incentive Plan was to promote the long-term financial success of the Company and its Subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s stockholders. The Equity Incentive Plan authorized the issuance or delivery to participants of up to 673,575 shares of the Company common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock unit awards, provided that the maximum number of shares of Company common stock that may be delivered pursuant to the exercise of stock options (all of which may be granted as incentive stock options) was 481,125 and the maximum number of shares of Company stock that may be issued as restricted stock awards or restricted stock units was 192,450. This plan was replaced by the 2022 Equity Incentive Plan when the stockholders approved the new plan on November 21, 2022. The new plan authorizes the issuance or delivery to participants of up to 264,850 shares of the Company common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock unit awards, provided that the maximum number of shares of Company common stock that may be delivered pursuant to the exercise of stock options (all of which may be granted as incentive stock options) was 52,970 and the maximum number of shares of Company stock that may be issued as restricted stock awards or restricted stock units was 211,888.

On December 10, 2013, 85,500 shares of restricted stock and 167,000 in stock options were awarded to senior officers and directors of the Association. These shares of restricted stock vested in equal installments over 10 years and the stock options vested in equal installments over 7 years. Vesting of both the restricted stock and options started in December 2014, and were fully vested in December 2023. On December 10, 2015, 16,900 shares of restricted stock were awarded to senior officers and directors of the Association. These shares of restricted stock vested in equal installments over 8 years,

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starting in December 2016, and were fully vested in December 2023. On September 9, 2022, 53,000 shares of restricted stock were awarded to senior officers and directors of the Association. These shares of restricted stock will vest in equal installments over 5 years, starting in September 2023. No shares have been granted from the 2022 Equity Incentive Plan as of December 31, 2023, so there are 211,888 shares of restricted stock and 52,970 stock option shares available for future grants under this plan.

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

	Options		Weighted-Average Exercise Price/Share		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding, June 30, 2023		90,143	$	16.63
Granted		—		—
Exercised		—		—
Forfeited		90,143		16.63
Outstanding, December 31, 2023		—	$	—		0.0	$	0
Exercisable, December 31, 2023		—	$	—		0.0	$	0

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

No stock options vested during the six months ended December 31, 2023 and 2022. Stock-based compensation expense and related tax benefit were zero for stock options for the six months ended December 31, 2023 and 2022. Compensation costs related to non-vested stock options were recognized over a seven-year vesting period that ended in December, 2020, leaving no unrecognized compensation cost at December 31, 2023.

The following table summarizes non-vested restricted stock activity for the six months ended December 31, 2023:

	Shares		Weighted-Average Grant- Date Fair Value
Balance, June 30, 2023		62,314	$	18.76
Granted		—		—
Forfeited		1,600		19.10
Earned and issued		19,914		18.76
Balance, December 31, 2023		40,800	$	19.10

The fair value of the restricted stock awards is amortized to compensation expense over the vesting period and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest. At the date of grant the par value of the shares granted was recorded in equity as a credit to common stock and a debit to paid-in capital. Stock-based compensation expense and related tax benefit for restricted stock, which was recognized in non-interest expense, was $163,000 and $46,000, respectively, for the six months ended December 31, 2023, and was $147,000 and $42,000, respectively, for the six months ended December 31, 2022. Unrecognized compensation expense for non-vested restricted stock awards was $714,000 at December 31, 2023, and is expected to be recognized over 3.7 years with a corresponding credit to paid-in capital.

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

Basic and diluted earnings per common share are presented for the three month and six month periods ended December 31, 2023 and 2022. The factors used in the earnings per common share computation follow:

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	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	December 31, 2023			December 31, 2022			December 31, 2023			December 31, 2022
Net income (loss)	$	185		$	1,404		$	651		$	3,373
Basic weighted average shares outstanding		3,354,626			3,337,626			3,354,626			3,306,582
Less: Average unallocated ESOP shares		(146,743	)		(165,988	)		(149,149	)		(168,394	)
Basic average shares outstanding		3,207,883			3,171,638			3,205,477			3,138,188
Diluted effect of restricted stock awards and stock options		—			73,324			—			74,776
Diluted average shares outstanding		3,207,883			3,244,962			3,205,477			3,212,964
Basic earnings per common share	$	0.06		$	0.44		$	0.20		$	1.07
Diluted earnings per common share	$	0.06		$	0.43		$	0.20		$	1.05

Note 5: Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
December 31, 2023:
U.S. Treasury	$	496	$	—	$	(49	)	$	447
U.S. Government and federal agency		6,978		—		(394	)		6,584
Mortgage-backed:
GSE residential		198,149		76		(25,332	)		172,893
Small Business Administration		16,919		—		(2,265	)		14,654
State and political subdivisions		5,430		1		(79	)		5,352
	$	227,972	$	77	$	(28,119	)	$	199,930
June 30, 2023:
U.S. Treasury	$	497	$	—	$	(59	)	$	438
U.S. Government and federal agency		6,976		—		(499	)		6,477
Mortgage-backed:
GSE residential		203,139		21		(27,434	)		175,726
Small Business Administration		17,629		1		(2,397	)		15,233
State and political subdivisions		3,431		—		(6	)		3,425
	$	231,672	$	22	$	(30,395	)	$	201,299

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

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

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

At adoption of ASU 2016-13, no impairment on AFS securities was attributable to credit. The Company will evaluate impaired AFS securities at the individual level on a quarterly basis, and will consider such factors including, but not limited to: the extent to which the fair value of the security is less than the amortized cost basis; adverse conditions specifically related to the security, an industry, or geographic area; the payment structure of the security and likelihood of the issuer to be able to make payments that may increase in the future; failure of the issuer to make scheduled interest or principal payments; any changes to the rating of the security by a rating agency; and the ability and intent to hold the security until maturity. A qualitative determination as to whether any portion of the impairment is attributable to credit risk is acceptable. There were no credit related factors underlying unrealized losses on AFS securities at December 31, 2023, and June 30, 2023.

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

The Company did not hold securities of any one issuer at December 31, 2023 with a book value that exceeded 10% of the Company’s total equity except for: Mortgage-backed GSE residential securities and Small Business Administration securities with a book value of approximately $198,149,000 and $16,919,000, respectively, and a market value of approximately $172,893,000 and $14,654,000, respectively, at December 31, 2023.

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

The amortized cost and fair value of available-for-sale securities at December 31, 2023, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

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	Available-for-sale Securities
	Amortized Cost		Fair Value
Within one year	$	16,406	$	15,331
One to five years		4,601		4,406
Five to ten years		1,134		1,082
After ten years		7,682		6,218
		29,823		27,037
Mortgage-backed securities		198,149		172,893
Totals	$	227,972	$	199,930

The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $81,295,000 and $138,022,000 as of December 31, 2023 and June 30, 2023, respectively.

The carrying value of securities sold under agreement to repurchase amounted to $16.0 million at December 31, 2023 and $10.8 million at June 30, 2023. At December 31, 2023, all $16.0 million of our repurchase agreements had an overnight maturity, and all 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 $0 and gross losses of $0 and $183,000 resulting from sales of available-for-sale securities were realized for the six months ended December 31, 2023, and 2022, respectively. Tax credit applicable to these net realized losses was $0 and $52,000, respectively.

Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at December 31, 2023 and June 30, 2023, was $193,012,000 and $194,818,000, respectively, which is approximately 97% and 97% of the Company’s available-for-sale investment portfolio. These declines in fair value at December 31, 2023 and June 30, 2023, resulted from increases in market interest rates and are considered temporary.

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

	Less Than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2023:
U.S. Treasury	$	—	$	—		$	447	$	(49	)	$	447	$	(49	)
U.S. Government and federal agency		—		—			6,584		(394	)		6,584		(394	)
Mortgage-backed:
GSE residential		6,268		(179	)		162,826		(25,153	)		169,092		(25,332	)

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Small Business Administration		1,238		(19	)		13,414		(2,246	)		14,654		(2,265	)
State and political subdivisions		—		—			2,235		(79	)		2,235		(79	)
Total temporarily impaired securities	$	7,506	$	(198	)	$	185,506	$	(27,921	)	$	193,012	$	(28,119	)
June 30, 2023:
U.S. Treasury	$	—	$	—		$	438	$	(59	)	$	438	$	(59	)
U.S. Government and federal agency		—		—			6,477		(499	)		6,477		(499	)
Mortgage-backed:
GSE residential		14,517		(440	)		158,413		(26,994	)		172,930		(27,434	)
Small Business Administration		1,148		(60	)		12,762		(2,337	)		13,910		(2,397	)
State and political subdivisions		1,063		(6	)		—		—			1,063		(6	)
Total temporarily impaired securities	$	16,728	$	(506	)	$	178,090	$	(29,889	)	$	194,818	$	(30,395	)

The unrealized losses on the Company’s investment in U.S. Treasury, U.S. Government and federal agency, Mortgage-backed Government sponsored enterprises, Small Business Administration, and state and political subdivisions securities at December 31, 2023 and June 30, 2023, were mostly the result of a decline in market value that was attributable to changes in interest rates and not credit quality, and the Company does not consider those investments to be impaired at December 31, 2023 and June 30, 2023.

Note 6: Loans and Allowance for Credit Losses

Classes of loans include:

	December 31, 2023			June 30, 2023
Real estate loans:
One- to four-family, including home equity loans	$	175,817		$	163,854
Multi-family		128,625			89,649
Commercial		215,565			193,707
Home equity lines of credit		9,494			8,066
Construction		39,906			50,973
Commercial		83,698			79,693
Consumer		8,042			8,382
Total loans		661,147			594,324
Less:
Unearned fees and discounts, net		(337	)		(272	)
Allowance for credit losses		7,935			7,139
Loans, net	$	653,549		$	587,457

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The Company had loans held for sale included in the one- to four-family real estate loans totaling $689,000 and $0 as of December 31, 2023 and June 30, 2023.

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

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

The Company’s policies and loan approval limits are established by the Board of Directors. The structure of the Company’s loan approval process is based on progressively larger lending authorities granted to loan officers, loan committees, and ultimately the Board of Directors through its Operating Committee, consisting of the Chairman and up to four other Board members. At no time is a borrower’s total borrowing relationship to exceed our regulatory lending limit. Loans to related parties, including executive officers and the Company’s directors, are reviewed for compliance with regulatory guidelines and the Board of Directors at least annually.

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

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

One- to four-family Residential Mortgage Loans

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

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The Company previously offered USDA (USDA Rural Development), FHA and VA loans that were originated through a nationwide wholesale lender, until that lender recently discontinued originations through its wholesale mortgage channel. The Company is searching for a replacement wholesale lender so USDA, FHA and VA products can again be offered.

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

Home Equity Lines of Credit

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

Commercial Business Loans

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

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

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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 riskier than loans on completed properties as the unimproved nature and the financial risks of construction significantly enhance the risks of commercial real estate loans. These loans are closely monitored and subject to other industry guidelines.

Consumer Loans

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

Loan Concentration

The loan portfolio includes a concentration of loans secured by commercial real estate properties amounting to $369,596,000 and $328,721,000 as of December 31, 2023 and June 30, 2023, 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 $605,000 and $652,000 at December 31, 2023 and June 30, 2023, respectively. All of these purchased loans are secured by single family homes located out of our primary market area, but still primarily in the Midwest. The Company’s loans receivable also include commercial loan participations of $47,075,000 and $46,073,000 at December 31, 2023 and June 30, 2023, respectively, of which $30,338,000 and $28,951,000, at December 31, 2023 and June 30, 2023 were outside our primary market area.

Allowance for Credit Losses

The following tables present the activity in the allowance for credit losses for the three-month and six-month periods ended December 31, 2023 and 2022 and the year ended June 30, 2023:

	Three Months Ended December 31, 2023 Real Estate Loans
	One- to Four-Family			Multi-Family		Commercial		Home Equity Lines of Credit
Allowance for credit losses:
Balance, beginning of period	$	1,906		$	1,115	$	2,265	$	134
Provision charged to expense		(97	)		750		328		13
Losses charged off		—			—		—		—
Recoveries		—			—		—		—
Balance, end of period	$	1,809		$	1,865	$	2,593	$	147
Loans:
Ending balance	$	175,817		$	128,625	$	215,565	$	9,494

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	Three Months Ended December 31, 2023 (Continued)
	Construction			Commercial		Consumer			Total
Allowance for credit losses:
Balance, beginning of period	$	1,165		$	788	$	77		$	7,450
Provision charged to expense		(626	)		66		3			437
Losses charged off		—			—		(18	)		(18	)
Recoveries		—			61		5			66
Balance, end of period	$	539		$	915	$	67		$	7,935
Loans:
Ending balance	$	39,906		$	83,698	$	8,042		$	661,147

	Six Months Ended December 31, 2023 Real Estate Loans
	One- to Four-Family			Multi-Family		Commercial		Home Equity Lines of Credit
Allowance for credit losses:
Balance, beginning of period	$	1,898		$	1,121	$	2,369	$	121
Provision charged to expense		(89	)		744		224		26
Losses charged off		—			—		—		—
Recoveries		—			—		—		—
Balance, end of period	$	1,809		$	1,865	$	2,593	$	147
Loans:
Ending balance	$	175,817		$	128,625	$	215,565	$	9,494

	Six Months Ended December 31, 2023 (Continued)
	Construction			Commercial		Consumer			Total
Allowance for credit losses:
Balance, beginning of period	$	765		$	794	$	71		$	7,139
Provision charged to expense		(226	)		54		14			747
Losses charged off		—			—		(25	)		(25	)
Recoveries		—			67		7			74
Balance, end of period	$	539		$	915	$	67		$	7,935
Loans:
Ending balance	$	39,906		$	83,698	$	8,042		$	661,147

19

	Year Ended June 30, 2023 Real Estate Loans
	One- to Four-Family		Multi-Family			Commercial			Home Equity Lines of Credit
Allowance for credit losses:
Balance, beginning of year (prior to adoption of ASU 2016-13)	$	1,028	$	1,375		$	1,985		$	70
Impact of adopting ASU 2016-13		382		(140	)		385			33
Provision charged to expense		487		(114	)		(1	)		18
Losses charged off		—		—			—			—
Recoveries		1		—			—			—
Balance, end of year	$	1,898	$	1,121		$	2,369		$	121
Loans:
Ending balance	$	163,854	$	89,649		$	193,707		$	8,066

	Year Ended June 30, 2023 (Continued)
	Construction		Commercial			Consumer			Total
Allowance for credit losses:
Balance, beginning of year (prior to adoption of ASU 2016-13)	$	489	$	2,025		$	80		$	7,052
Impact of adopting ASU 2016-13		192		(818	)		13			47
Provision charged to expense		84		(422	)		—			52
Losses charged off		—		(14	)		(37	)		(51	)
Recoveries		—		23			15			39
Balance, end of year	$	765	$	794		$	71		$	7,139
Loans:
Ending balance	$	50,973	$	79,693		$	8,382		$	594,324

	Three Months Ended December 31, 2022 Real Estate Loans
	One- to Four-Family		Multi-Family		Commercial		Home Equity Lines of Credit
Allowance for credit losses:
Balance, beginning of period	$	1,537	$	1,284	$	2,386	$	94
Provision charged to expense		185		118		6		7
Losses charged off		—		—		—		—
Recoveries		—		—		—		—
Balance, end of period	$	1,722	$	1,402	$	2,392	$	101
Loans:
Ending balance	$	150,711	$	100,147	$	192,015	$	6,926

20

	Three Months Ended December 31, 2022 (Continued)
	Construction		Commercial			Consumer			Total
Allowance for credit losses:
Balance, beginning of period	$	549	$	1,090		$	83		$	7,023
Provision charged to expense		36		(227	)		17			142
Losses charged off		—		—			(9	)		(9	)
Recoveries		—		8			2			10
Balance, end of period	$	585	$	871		$	93		$	7,166
Loans:
Ending balance	$	36,595	$	72,360		$	9,486		$	568,240

	Six Months Ended December 31, 2022 Real Estate Loans
	One- to Four-Family		Multi-Family			Commercial		Home Equity Lines of Credit
Allowance for credit losses:
Balance, beginning of period (prior to adoption of ASU 2016-13)	$	1,028	$	1,375		$	1,985	$	70
Impact of adopting ASU 2016-13		382		(140	)		385		33
Provision charged to expense		311		167			22		(2	)
Losses charged off		—		—			—		—
Recoveries		1		—			—		—
Balance, end of period	$	1,722	$	1,402		$	2,392	$	101
Loans:
Ending balance	$	150,711	$	100,147		$	192,015	$	6,926

	Six Months Ended December 31, 2022 (Continued)
	Construction			Commercial			Consumer			Total
Allowance for credit losses:
Balance, beginning of period (prior to adoption of ASU 2016-13)	$	489		$	2,025		$	80		$	7,052
Impact of adopting ASU 2016-13		192			(818	)		13			47
Provision charged to expense		(96	)		(344	)		17			75
Losses charged off		—			(4	)		(21	)		(25	)
Recoveries		—			12			4			17
Balance, end of period	$	585		$	871		$	93		$	7,166
Loans:
Ending balance	$	36,595		$	72,360		$	9,486		$	568,240

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

The allowance for credit losses represents the Company’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining contractual life of the assets. The provision for credit losses is the charge against current earnings that is determined by the Company as the amount needed to maintain an adequate allowance for credit losses. In determining the adequacy of the allowance for credit losses, and therefore the provision to be charged to current earnings, the Company relies on a sound credit review and approval process. The review process is directed by the overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty.

21

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

The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans and is established through provision for credit losses charged to current earnings. The ACL is increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. Loans are charged off in the period deemed uncollectible, based on management’s analysis of expected cash flows (for non-collateral dependent loans) or collateral value (for collateral-dependent loans). Subsequent recoveries of loans previously charged off, if any, are credited to the allowance when received.

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

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

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

The Company establishes a general allowance for loans that are not individually evaluated to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. The general valuation allowance is determined by segmenting the loan portfolio into pools with similar risks and collecting data to determine pool loss experience. Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and loan modifications for borrowers with financial difficulties, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. In addition, a forecast, using reasonable and supportable future conditions, is prepared that is used to estimate expected changes to existing and historical conditions in the current period.

22

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 timelier review. The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Watch,” “Substandard,” “Doubtful,” and “Loss.” The Company uses the following definitions for risk ratings:

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

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

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

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

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

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

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

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

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

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

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

23

The following tables present the credit risk profile of the Company’s loan portfolio based on risk rating category and calendar year of origination as of December 31, 2023 and June 30, 2023 (in thousands):

December 31, 2023
Risk Rating	2023		2022		2021		2020		2019		Prior Years		Total
One- to Four-Family
Pass	$	44,051	$	53,679	$	26,209	$	16,009	$	5,381	$	30,209	$	175,538
Watch		—		—		80		—		—		—		80
Substandard		14		6		5		—		174		—		199
Total	$	44,065	$	53,685	$	26,294	$	16,009	$	5,555	$	30,209	$	175,817
Multi-Family
Pass	$	11,720	$	48,742	$	20,279	$	23,065	$	8,308	$	16,272	$	128,386
Watch		—		—		—		—		—		—		—
Substandard		—		—		—		—		239		—		239
Total	$	11,720	$	48,742	$	20,279	$	23,065	$	8,547	$	16,272	$	128,625
Commercial Real Estate
Pass	$	30,022	$	72,434	$	28,336	$	31,285	$	5,498	$	47,070	$	214,645
Watch		—		—		—		—		—		—		—
Substandard		—		—		—		840		80		—		920
Total	$	30,022	$	72,434	$	28,336	$	32,125	$	5,578	$	47,070	$	215,565
Home Equity Line of Credit
Pass	$	3,041	$	1,960	$	1,455	$	1,002	$	749	$	1,287	$	9,494
Watch		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	3,041	$	1,960	$	1,455	$	1,002	$	749	$	1,287	$	9,494
Construction
Pass	$	32,990	$	6,916	$	—	$	—	$	—	$	—	$	39,906
Watch		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	32,990	$	6,916	$	—	$	—	$	—	$	—	$	39,906
Commercial Business
Pass	$	29,889	$	18,008	$	11,578	$	8,070	$	6,356	$	8,007	$	81,908
Watch		—		—		—		—		—		—		—
Substandard		—		38		219		1,476		56		1		1,790
Total	$	29,889	$	18,046	$	11,797	$	9,546	$	6,412	$	8,008	$	83,698
Consumer
Pass	$	3,703	$	2,433	$	1,166	$	574	$	110	$	56	$	8,042
Watch		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	3,703	$	2,433	$	1,166	$	574	$	110	$	56	$	8,042
Total Loans
Pass	$	155,416	$	204,172	$	89,023	$	80,005	$	26,402	$	102,901	$	657,919
Watch		—		—		80		—		—		—		80
Substandard		14		44		224		2,316		549		1		3,148
Total	$	155,430	$	204,216	$	89,327	$	82,321	$	26,951	$	102,902	$	661,147

24

June 30, 2023
Risk Rating	2023		2022		2021		2020		2019		Prior Years		Total
One- to Four-Family
Pass	$	22,032	$	56,054	$	27,843	$	18,468	$	5,996	$	32,729	$	163,122
Watch		—		—		—		—		—		335		335
Substandard		14		6		94		61		222		—		397
Total	$	22,046	$	56,060	$	27,937	$	18,529	$	6,218	$	33,064	$	163,854
Multi-Family
Pass	$	674	$	37,826	$	10,647	$	14,399	$	8,587	$	17,272	$	89,405
Watch		—		—		—		—		—		—		—
Substandard		—		—		—		—		244		—		244
Total	$	674	$	37,826	$	10,647	$	14,399	$	8,831	$	17,272	$	89,649
Commercial Real Estate
Pass	$	12,214	$	63,645	$	29,320	$	32,502	$	5,844	$	49,239	$	192,764
Watch		—		—		—		—		—		—		—
Substandard		—		—		—		862		81		—		943
Total	$	12,214	$	63,645	$	29,320	$	33,364	$	5,925	$	49,239	$	193,707
Home Equity Line of Credit
Pass	$	982	$	2,554	$	1,301	$	1,035	$	789	$	1,405	$	8,066
Watch		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	982	$	2,554	$	1,301	$	1,035	$	789	$	1,405	$	8,066
Construction
Pass	$	2,882	$	29,188	$	10,432	$	8,471	$	—	$	—	$	50,973
Watch		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	2,882	$	29,188	$	10,432	$	8,471	$	—	$	—	$	50,973
Commercial Business
Pass	$	12,449	$	20,004	$	17,673	$	8,797	$	7,669	$	8,841	$	75,433
Watch		—		—		—		—		—		—		—
Substandard		2,779		59		174		1,189		57		2		4,260
Total	$	15,228	$	20,063	$	17,847	$	9,986	$	7,726	$	8,843	$	79,693
Consumer
Pass	$	2,391	$	3,181	$	1,653	$	834	$	211	$	107	$	8,377
Watch		—		—		—		—		—		—		—
Substandard		—		—		1		—		—		4		5
Total	$	2,391	$	3,181	$	1,654	$	834	$	211	$	111	$	8,382
Total Loans
Pass	$	53,624	$	212,452	$	98,869	$	84,506	$	29,096	$	109,593	$	588,140
Watch		—		—		—		—		—		335		335
Substandard		2,793		65		269		2,112		604		6		5,849
Total	$	56,417	$	212,517	$	99,138	$	86,618	$	29,700	$	109,934	$	594,324

25

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

	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due & Accruing
December 31, 2023:
Real estate loans:
One- to four-family	$	1,263	$	62	$	1	$	1,326	$	174,491	$	175,817	$	1
Multi-family		122		—		—		122		128,503		128,625		—
Commercial		393		152		—		545		215,020		215,565		—
Home equity lines of credit		—		19		—		19		9,475		9,494		—
Construction		—		—		—		—		39,906		39,906		—
Commercial		19		25		29		73		83,625		83,698		—
Consumer		2		24		—		26		8,016		8,042		—
Total	$	1,799	$	282	$	30	$	2,111	$	659,036	$	661,147	$	1

	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, 2023:
Real estate loans:
One- to four-family	$	523	$	116	$	—	$	639	$	163,215	$	163,854	$	—
Multi-family		—		—		—		—		89,649		89,649		—
Commercial		153		—		—		153		193,554		193,707		—
Home equity lines of credit		—		20		—		20		8,046		8,066		—
Construction		—		—		—		—		50,973		50,973		—
Commercial		56		—		58		114		79,579		79,693		—
Consumer		47		6		2		55		8,327		8,382		—
Total	$	779	$	142	$	60	$	981	$	593,343	$	594,324	$	—

The allowance for credit losses on most loans is measured on a collective (pool) basis for loans with similar risk characteristics, while some loans are selected to be evaluated individually. At December 31, 2023 and June 30, 2023, no non-performing loans were individually evaluated and no specific reserve was established.

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

26

	December 31, 2023				June 30, 2023
	Nonaccrual with no Allowance for Credit Losses		Nonaccrual		Nonaccrual with no Allowance for Credit Losses		Nonaccrual
Mortgages on real estate:
One- to four-family	$	—	$	—	$	—	$	—
Multi-family		—		—		—		—
Commercial		—		—		—		—
Home equity lines of credit		—		—		—		—
Construction loans		—		—		—		—
Commercial business loans		—		29		—		115
Consumer loans		—		—		—		2
Total	$	—	$	29	$	—	$	117

Loan Modifications and Troubled Debt Restructurings (TDRs)

After adopting ASU 2022-02, effective July 1, 2023, we have had no loan modifications for borrowers with financial difficulties in the six months ended December 31, 2023. Prior to the adoption of ASU 2022-02, we had no loans that were modified in troubled debt restructurings in the year ended June 30, 2023.

As of December 31, 2023, the Company no longer held any TDRs, while as of June 30, 2023, the Company had a number of loans that were modified in troubled debt restructurings. The modification 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 June 30, 2023. All TDRs were performing according to the terms of the restructuring and were accruing as of June 30, 2023.

	June 30, 2023
Real estate loans
One- to four-family	$	189
Multi-family		—
Commercial		—
Home equity lines of credit		—
Total real estate loans		189
Construction loans		—
Commercial business loans		26
Consumer loans		—
Total	$	215

27

TDRs with Defaults

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

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

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

We may obtain physical possession of real estate collateralizing a residential mortgage loan or home equity loan via foreclosure or in-substance repossession. As of December 31, 2023, the carrying value of foreclosed residential real estate properties as a result of obtaining physical possession was $0. In addition, as of December 31, 2023, we had no residential mortgage loans or home equity loans collateralized by residential real estate property for which formal foreclosure proceedings were in process.

Note 7: Federal Home Loan Bank Stock

Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system. The required investment in the common stock is based on a predetermined formula. The Company owned approximately $5,419,000 and $3,127,000 of Federal Home Loan Bank stock as of December 31, 2023 and June 30, 2023. The increase in FHLB stock was due to an increased stock requirement as a result of an increase in FHLB advances. The FHLB provides liquidity and funding through advances.

Note 8: Other Borrowings

Other borrowings include borrowings from the Federal Reserve Bank Discount Window and the Federal Reserve Bank Term Funding Program (BTFP). The Federal Reserve created the BTFP in March 2023 to offer loans of up to one year in length to qualifying financial institutions which pledge collateral, such as U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities. The collateral is valued at par and advances under this program do not include any fees or prepayment penalties. At December 31, 2023, we had total borrowings from the Federal Reserve of $34.4 million, consisting of $4.0 million from the discount window at a rate of 5.5% with a maturity of January 2, 2024, $5.0 million from the discount window at a rate of 5.5% with a maturity of January 4, 2024, and $25.4 million from the BTFP at a rate of 4.83% with a maturity of December 28, 2024. The collateral value of loans pledged to the Federal Reserve Discount Window was $23.7 million and the collateral par value of securities pledged to the Federal Reserve BTFP was $25.4 million as of December 31, 2023. At June 30, 2023, we had no borrowings from the Federal Reserve.

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Note 9: Accumulated Other Comprehensive Loss

The following tables present changes in accumulated other comprehensive loss, by component, net of tax, for the six months ended December 31, 2023 and 2022:

	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Total
December 31, 2023:
Beginning balance	$	(21,715	)	$	67		$	(21,648	)
Other comprehensive income before reclassification		1,667			—			1,667
Amounts reclassified from accumulated other comprehensive loss		—			—			—
Net current period other comprehensive loss		—			2			2
Ending balance	$	(20,048	)	$	69		$	(19,979	)
December 31, 2022:
Beginning balance	$	(17,263	)	$	(83	)	$	(17,346	)
Other comprehensive loss before reclassification		(3,825	)		—			(3,825	)
Amounts reclassified from accumulated other comprehensive loss		131			—			131
Net current period other comprehensive loss		—			(2	)		(2	)
Ending balance	$	(20,957	)	$	(85	)	$	(21,042	)

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Note 10: Changes in Accumulated Other Comprehensive Loss (AOCI) by Component

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

	Amounts Reclassified from AOCI
	Three Months Ended December 31,					Six Months Ended December 31,
	2023		2022			2023		2022			Affected Line Item in the Condensed Consolidated Statements of Income
Realized gains (losses) on available-for-sale securities	$	—	$	(183	)	$	—	$	(183	)	Net realized gains (losses) on sale of available-for- sale securities
Amortization of defined benefit pension items:											Components are included in computation of net periodic pension cost
Actuarial losses		1		(1	)		3		(3	)
Total reclassified amount before tax		1		(184	)		3		(186	)
Tax expense (credit)		—		(52	)		1		(53	)	Provision for Income Tax
Total reclassification out of AOCI	$	1	$	(132	)	$	2	$	(133	)	Net Income

Note 11: Income Taxes

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2023			2022			2023			2022
Computed at the statutory rate	$	49		$	397		$	183		$	966
Decrease resulting from
Tax exempt interest		(9	)		(6	)		(17	)		(11	)
Cash surrender value of life insurance		(22	)		(20	)		(43	)		(41	)
State income taxes		15			134			61			335
Other		14			(19	)		38			(23	)
Actual expense	$	47		$	486		$	222		$	1,226

Note 12: 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.

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

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

As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies were required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The Community Bank Leverage Ratio is currently set at 9%. The Association opted into the Community Bank Leverage Ratio in 2020.

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

Note 13: Disclosures About Fair Value of Assets

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

Level 1 Quoted prices in active markets for identical assets

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

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

Recurring Measurements

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

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	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2023:
Available-for-sale securities:
U.S. Treasury	$	447	$	447	$	—	$	—
U.S. Government and federal agency and Government sponsored enterprises (GSE’s)		6,584		—		6,584		—
Mortgage-backed: GSE residential		172,893		—		172,893		—
Small Business Administration		14,654		—		14,654		—
State and political subdivisions		5,352		—		3,294		2,058
Mortgage servicing rights		1,410		—		—		1,410

	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, 2023:
Available-for-sale securities:
U.S. Treasury	$	438	$	—	$	438	$	—
U.S. Government and federal agency and Government sponsored enterprises (GSE’s)		6,477		—		6,477		—
Mortgage-backed: GSE residential		175,726		—		175,726		—
Small Business Administration		15,233		—		15,233		—
State and political subdivisions		3,425		—		1,064		2,361
Mortgage servicing rights		1,482		—		—		1,482

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 December 31, 2023. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

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Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. 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. Treasury, U.S. Government and federal agency, mortgage-backed securities (GSE—residential), Small Business Administration and state and political subdivisions. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Mortgage Servicing Rights

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

Level 3 Reconciliation

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

Six months ended December 31, 2023
	Obligations of State and Political Subdivisions			Mortgage Servicing Rights			Total
Beginning balance	$	2,361		$	1,482		$	3,843
Transfers into Level 3		—			64			64
Transfers out of Level 3		—			(75	)		(75	)
Total realized and unrealized gains and losses included in net income		—			(61	)		(61	)
Purchases		—			—			—
Sales		—			—			—
Settlements		(303	)		—			(303	)
Ending balance	$	2,058		$	1,410		$	3,468
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	$	—		$	(61	)	$	(61	)

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Year ended June 30, 2023
	Obligations of State and Political Subdivisions			Mortgage Servicing Rights			Total
Beginning balance	$	2,662		$	1,463		$	4,125
Transfers into Level 3		—			89			89
Transfers out of Level 3		—			(171	)		(171	)
Total realized and unrealized gains and losses included in net income		—			101			101
Purchases		—			—			—
Sales		—			—			—
Settlements		(301	)		—			(301	)
Ending balance	$	2,361		$	1,482		$	3,843
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	$	—		$	101		$	101

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

Unobservable (Level 3) Inputs

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

	Fair Value at December 31, 2023		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	1,410	Discounted cash flow	Discount rate	9.5% (9.5%)
				Constant prepayment rate	6.1% - 7.5% (7.2%)
				Probability of default	0.10% - 0.14% (0.12%)
State and political subdivision		2,058	Discounted cash flow	Maturity/Call Date	1 month – 8 years
				Weighted average coupon	2.97% - 3.08% (3.03%)
				Marketability yield adjustment	1.0% - 2.0% (1.6%)

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	Fair Value at June 30, 2023		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	1,482	Discounted cash flow	Discount rate	9.5% (9.5%)
				Constant prepayment rate	6.0% - 7.0% (6.9%)
				Probability of default	0.09% - 0.12% (0.12%)
State and political subdivision		2,361	Discounted cash flow	Maturity/Call Date	1 month – 9 years
				Weighted average coupon	2.97% - 3.08% (3.03%)
				Marketability yield adjustment	1.0% - 2.0% (1.6%)

Fair Value of Financial Instruments

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

	Carrying Amount		Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2023:
Financial assets
Cash and cash equivalents	$	8,169	$	8,169	$	—	$	—
Interest-bearing time deposits in banks		750		750		—		—
Loans, net of allowance for loan losses		653,549		—		—		629,305
Federal Home Loan Bank stock		5,419		—		5,419		—
Accrued interest receivable		3,758		—		3,758		—
Financial liabilities
Deposits		678,045		—		359,980		317,804
Repurchase agreements		16,040		—		16,040		—
Federal Home Loan Bank advances		98,050		—		98,145		—
Other borrowings		34,375		—		34,450
Advances from borrowers for taxes and insurance		1,235		—		1,235		—
Accrued interest payable		2,849		—		2,849		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—

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	Carrying Amount		Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2023:
Financial assets
Cash and cash equivalents	$	10,988	$	10,988	$	—	$	—
Interest-bearing time deposits in banks		1,250		1,250		—		—
Loans, net of allowance for loan losses		587,457		—		—		564,432
Federal Home Loan Bank stock		3,127		—		3,127		—
Accrued interest receivable		2,781		—		2,781		—
Financial liabilities
Deposits		735,314		—		451,718		282,351
Repurchase agreements		10,787		—		10,787		—
Federal Home Loan Bank advances		19,500		—		19,382		—
Advances from borrowers for taxes and insurance		1,233		—		1,233		—
Accrued interest payable		1,666		—		1,666		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—

The methods utilized to measure the fair value of financial instruments at December 31, 2023, represent an approximation of exit price; however, an actual exit price may differ.

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Note 14: Commitments

Commitments to Originate Loans

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

Lines of Credit

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

Off-Balance Sheet Credit Exposures

Off-balance sheet credit instruments include commitments to make loans, and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The ACL on off-balance sheet credit exposures is estimated by loan pool on a quarterly basis under the current CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur and is included in other liabilities on the Company’s consolidated balance sheets. The Company records an ACL on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable. During the six months ended December 31, 2023, the Company recorded a credit for credit losses on off-balance sheet credit exposures of $(161,000), compared to credit for credit losses of $(62,000) for the six months ended December 31, 2022. During the three months ended December 31, 2023, the Company recorded a credit for credit losses on off-balance sheet credit exposures of $(73,000), compared to credit for credit losses of $(41,000) for the three months ended December 31, 2022. Our ACL on off-balance sheet credit exposures was $56,000 and $216,000, at December 31, 2023 and June 30, 2023, respectively. This reduction was primarily due to a decrease in loans with unfunded balances without the Bank’s ability to cancel on demand.

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

Cautionary Note Regarding Forward-Looking Statements

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

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on our actual results include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets and changes in the quality or composition of the Association’s loan or investment portfolios.

Additional factors that may affect our results are discussed under “Item 1A.—Risk Factors”, in the Company’s Annual Report on Form 10-K for the year ended June 30, 2023, and the Company’s other filings with the SEC. These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. IF Bancorp, Inc. assumes no obligation to update any forward-looking statement, except as may be required by law.

Overview

On July 7, 2011 we completed our initial public offering of common stock in connection with the Association’s mutual-to-stock conversion, selling 4,496,500 shares of common stock at $10.00 per share, including 384,900 shares sold to the Association’s employee stock ownership plan, and raising approximately $45.0 million of gross proceeds. In addition, we issued 314,755 shares of our common stock to the Iroquois Federal Foundation. As of December 31, 2023, the Company has repurchased a total of 1,674,479 shares of common stock under stock repurchase plans.

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

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

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

Our net interest rate spread (the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities) was 1.88% and 3.10% for the six months ended December 31, 2023 and 2022, respectively. Net interest income decreased to $9.0 million, or $18.0 million on an annualized basis, for the six months ended December 31, 2023 from $12.3 million, or $24.6 million on an annualized basis, for the six months ended December 31, 2022.

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Our emphasis on conservative loan underwriting has historically resulted in relatively low levels of non-performing assets. Our non-performing loans totaled $29,000, or 0.1%, of total loans at December 31, 2023, and $117,000, or 0.1%, of total loans at June 30, 2023. Our non-performing assets totaled $36,000, or 0.1% of total assets at December 31, 2023, and $148,000, or 0.1%, of total assets at June 30, 2023.

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

Our net income for the six months ended December 31, 2023 was $651,000, compared to a net income of $3.4 million for the six months ended December 31, 2022.

Management’s discussion and analysis of the financial condition and results of operations at and for the three and six months ended December 31, 2023 and 2022 is intended to assist in understanding the financial condition and results of operations of the Association. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report on Form 10-Q.

Critical Accounting Policies

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

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

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

The allowance for credit losses is evaluated on a regular basis by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio. This evaluation is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available. Actual loan losses may be significantly more than the allowance for credit losses we have established which could have a material negative effect on our financial results.

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

There are no material changes to the critical accounting policies disclosed in IF Bancorp, Inc.’s Form 10-K for the fiscal year ended June 30, 2023.

Comparison of Financial Condition at December 31, 2023 and June 30, 2023

Total assets increased $61.8 million, or 7.3%, to $910.8 million at December 31, 2023 from $849.0 million at June 30, 2023. The increase was primarily due to a $66.1 million increase in net loans receivable, partially offset by a $2.8 million decrease in cash and cash equivalents and a $1.4 million decrease in investment securities. 

Net loans receivable, including loans held for sale, increased by $66.1 million, or 11.3%, to $653.6 million at December 31, 2023 from $587.5 million at June 30, 2023. The increase in net loans receivable during this period was due primarily to a $39.0 million, or 43.5%, increase in multi-family loans, a $21.9 million, or 11.3%, increase in commercial real estate loans, a $12.0 million, or 7.3%, increase in one- to four-family loans, a $1.4 million, or 17.7%, increase in home equity lines of credit, and a $4.0 million, or 5.0%, increase in commercial business loans, partially offset by an $11.1 million, or 21.7%, decrease in construction loans and a $340,000, or 4.1%, decrease in consumer loans.

Investment securities, consisting entirely of securities available for sale, decreased $1.4 million, or 0.7%, to $199.9 million at December 31, 2023 from $201.3 million at June 30, 2023. We had no securities classified as held to maturity at December 31, 2023 or June 30, 2023.

Between June 30, 2023 and December 31, 2023, accrued interest receivable increased $977,000 to $3.8 million, Federal Home Loan Bank (FHLB) stock increased $2.3 million to $5.4 million, while premises and equipment decreased $238,000 to $10.9 million, foreclosed assets held for sale decreased $24,000 to $7,000, mortgage servicing rights decreased $72,000 to $1.4 million, deferred income taxes decreased $728,000 to $10.3 million, and other assets decreased $2.0 million to $1.7 million. The increase in accrued interest receivable was primarily the result of increases in both the average balances and yields of loans and the average yields of securities, while the increase in FHLB stock was due to an increased stock requirement due to an increase in FHLB advances. The decrease in premises and equipment was the result of ordinary depreciation and the decrease in foreclosed assets held for sale was due to the sale of property.

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The decrease in mortgage servicing rights was the result of a decreased valuation, while the decrease in deferred income taxes was mostly due to a decrease in unrealized losses on the sale of available-for-sale securities and the decrease in other assets was due to the receipt of a large accounts receivable item in the six months ended December 31, 2023.

At December 31, 2023, our investment in bank-owned life insurance was $15.0 million, an increase of $206,000 from $14.8 million at June 30, 2023. 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 credit losses, which resulted in a limit of $23.3 million at December 31, 2023.

Deposits decreased $57.3 million, or 7.8%, to $678.0 million at December 31, 2023 from $735.3 million at June 30, 2023. Certificates of deposit, excluding brokered certificates of deposit, increased $22.0 million, or 8.3%, to $286.1 million, while brokered certificates of deposit increased $12.4 million, or 63.6%, to $32.0 million. Noninterest bearing demand accounts decreased $62.1 million, or 57.8%, to $45.4 million, while savings, NOW, and money market accounts decreased $29.6 million, or 8.6%, to $314.5 million. The large decrease in noninterest bearing demand accounts was due primarily to approximately $62.1 million in deposits from a public entity that collects real estate taxes that was on deposit at June 30, 2023 and withdrawn in the six months ended December 31, 2023, when tax monies were distributed. Repurchase agreements increased $5.3 million, or 48.7%, to $16.0 million at December 31, 2023, from $10.8 million at June 30, 2023. Borrowings consisted of advances from the Federal Home Loan Bank of Chicago which increased $78.6 million to $98.1 million at December 31, 2023 from $19.5 million at June 30, 2023. Other borrowings increased $34.4 million and consisted of $9.0 million from the Federal Reserve Bank (FRB) discount window and $25.4 million from the FRB Bank Term Funding Program (BTFP).

Accrued interest payable increased $1.2 million, or 71.0%, to $2.8 million at December 31, 2023, from $1.7 million at June 30, 2023, while the allowance for credit losses on off-balance sheet credit exposures decreased $160,000 to $56,000 at December 31, 2023 from $216,000 at June 30, 2023, and other liabilities decreased $2.1 million, or 35.0%, to $4.0 million at December 31, 2023 from $6.1 million at June 30, 2023. The increase in accrued interest payable was mostly due to increases in both the average balance and the average cost of interest-bearing liabilities. The decrease in the allowance for credit losses on off-balance sheet credit exposures was due to decreases in loans with unfunded balances without the Bank’s ability to cancel on demand, and the decrease in other liabilities was a result of accrued compensation and benefits that were paid out in the six months ended December 31, 2023. 

Total equity increased $2.0 million, or 2.8%, to $73.7 million at December 31, 2023 from $71.8 million at June 30, 2023. Equity increased primarily due to a decrease of $1.7 million in accumulated other comprehensive loss, net of tax, net income of $651,000, and ESOP and stock equity plan activity of $307,000. The decrease in accumulated other comprehensive loss was primarily due to a decrease in unrealized depreciation on available-for-sale securities, net of tax. These increases were partially offset by approximately $639,000 in dividends to our shareholders.

Comparison of Operating Results for the Six Months Ended December 31, 2023 and 2022

General. Net income decreased $2.7 million to $651,000 for the six months ended December 31, 2023, from $3.4 million for the six months ended December 31, 2022. The decrease in net income was due to a decrease in net interest income, an increase in provisions for credit losses, and a decrease in noninterest income, partially offset by a decrease in noninterest expense.

Net Interest Income. Net interest income decreased $3.3 million, or 27.0%, to $9.0 million for the six months ended December 31, 2023, from $12.3 million for the six months ended December 31, 2022. This was a result of an increase of $7.7 million in interest expense, partially offset by an increase of $4.3 million in interest and dividend income. Our interest rate spread decreased by 122 basis points to 1.88% for the six months ended December 31, 2023, compared to 3.10% for the six months ended December 31, 2022, and our net interest margin decreased by 104 basis points to 2.16% for the six months ended December 31, 2023 compared to 3.20% for the six months ended December 31, 2022. A $67.8 million, or 10.0%, increase in the average balance of interest-bearing liabilities was partially offset by a $59.5 million, or 7.7%, increase in average balance of interest earnings assets.

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Interest and Dividend Income. Interest and dividend income increased $4.3 million, or 28.6%, to $19.5 million for the six months ended December 31, 2023, from $15.2 million for the six months ended December 31, 2022. The increase in interest and dividend income was due to a $4.2 million increase in interest income on loans, a $54,000 increase in interest income on securities, and a $46,000 increase in other interest income. The increase in interest income on loans resulted from a 81 basis point, or 18.3%, increase in the average yield on loans to 5.26% for the six months ended December 31, 2023 from 4.45% for the six months ended December 31, 2022, and by a $76.2 million, or 13.9%, increase in the average balance of loans to $624.7 million for the six months ended December 31, 2023, from $548.5 million for the six months ended December 31, 2022. The increase in interest income on securities was due to a 26 basis point increase in the average yield on securities to 2.89% for the six months ended December 31, 2023 from 2.63% for the six months ended December 31, 2022, partially offset by a $15.2 million, or 7.3%, decrease in the average balance of securities to $194.8 million for the six months ended December 31, 2023, from $210.0 million for the six months ended December 31, 2022. The increase in other interest income was a result of a 161 basis point increase in the average yield in other interest earning assets, including Federal Home Loan Bank dividends and deposits with other financial institutions, to 5.74% from 4.13%, partially offset by a $1.5 million decrease in the average balance of other interest earning assets.

Interest Expense. Interest expense increased $7.7 million, or 265.1%, to $10.5 million for the six months ended December 31, 2023, from $2.9 million for the six months ended December 31, 2022. The increase was primarily due to an increase of $6.1 million in interest on deposits and a $1.5 million increase in interest on borrowings and repurchase agreements.

Interest expense on interest-bearing deposits increased by $6.1 million, or 296.8%, to $8.2 million for the six months ended December 31, 2023, from $2.1 million for the six months ended December 31, 2022. This increase was due to a 190 basis point increase in the average cost of interest bearing deposits to 2.57% for the six months ended December 31, 2023 from 0.67% for the six months ended December 31, 2022, and by an increase of $21.2 million in the average balance of interest-bearing deposits to $636.6 million for the six months ended December 31, 2023 from $615.5 million for the six months ended December 31, 2022. 

Interest expense on borrowings, including FHLB advances, borrowings from the Federal Reserve Bank discount window and Bank Term Funding Program, and repurchase agreements, increased $1.5 million, or 186.5%, to $2.4 million for the six months ended December 31, 2023, from $830,000 for the six months ended December 31, 2022. This increase was due to an increase in the average balance of borrowings and repurchase agreements to $108.6 million for the six months ended December 31, 2023, from $62.0 million for the six months ended December 31, 2022, and by a 170 bp increase in the average cost of such borrowings to 4.38% for the six months ended December 31, 2023, from 2.68% for the six months ended December 31, 2022.

Provision (Credit) for Credit Losses. We establish provisions for credit losses, which are charged to operations in order to maintain the allowance for credit losses at a level we consider necessary to absorb probable credit losses inherent in our loan portfolio. We recorded a provision for credit losses on loans for $747,000 and a credit for credit losses on off-balance sheet credit exposures of $(161,000) for a total provision for credit losses of $586,000 for the six months ended December 31, 2023, compared to a provision for credit losses on loans of $75,000 and a credit for credit losses on off-balance sheet credit exposures of $(62,000) for a total provision for credit losses of $13,000 for the six months ended December 31, 2022. The allowance for credit losses was $7.9 million, or 1.20% of total loans, at December 31, 2023, compared to $7.2 million, or 1.26% of total loans, at December 31, 2022, and $7.1 million, or 1.20% of total loans, at June 30, 2023. During the six months ended December 31, 2023, net recoveries of $49,000 were recorded, while during the six months ended December 31, 2022, net charge-offs of $8,000 were recorded.

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

	At or for the Six Months Ended December 31, 2023			At or for the Year Ended June 30, 2023
Allowance to non-performing loans at the end of the period		27362.07	%		6101.71	%
Allowance to total loans outstanding at the end of the period		1.20	%		1.20	%
Net charge-offs to average total loans outstanding during the period, annualized		0.01	%		0.01	%
Total non-performing loans to total loans at the end of the period		0.01	%		0.02	%
Total non-performing assets to total assets at the end of the period		0.01	%		0.02	%

Noninterest Income. Noninterest income decreased $43,000, or 2.1%, to $2.0 million for the six months ended December 31, 2023, from $2.1 million for the six months ended December 31, 2022. The decrease was primarily due to a decrease in mortgage banking income, net, and a decrease in brokerage commissions, partially offset by an increase in net realized gain (loss) on sale of available-for-sale securities and an increase in gain on sale of loans. For the six months ended December 31, 2023, mortgage banking income, net, decreased $132,000 to $92,000 and brokerage commissions decreased $120,000 to $319,000, while net realized gain (loss) on sale of available-for-sale securities increased $183,000 to $0 and the gain on sale of loans increased $34,000 to $110,000, from the six months ended December 31, 2022. The decrease in mortgage banking income, net, was a result of a decrease in the valuation of mortgage servicing rights and a decrease in loan servicing fees in the six months ended December 31, 2023, and the decrease in brokerage commissions was the result of a decrease in the amount of renewal commissions and management fees. The increase in net realized gain (loss) on sale of available-for-sale securities was the result of securities sold at a loss in the six months ended December 31, 2022, and the increase in gain on sale of loans was a result of an increase in loans originated and sold through the FHLBC Mortgage Partnership Finance program in the six months ended December 31, 2023.

Noninterest Expense. Noninterest expense decreased $214,000, or 2.2%, to $9.6 million for the six months ended December 31, 2023, from $9.8 million for the six months ended December 31, 2022. The largest components of this decrease were compensation and benefits, which decreased $363,000, or 5.8%, advertising, which decreased $88,000, or 32.6% and professional services, which decreased $61,000, or 21.0%. These decreases were partially offset by an increase in federal deposit insurance premium, which increased $188,000, or 167.9%, and an increase in office occupancy expense, which increased $97,000, or 20.2%. Compensation and benefits decreased due to annual incentive plan decreases, advertising decreased due to less television advertising in the six months ended December 31, 2023, and professional services decreased due to additional services received during the six months ended December 31, 2022. The federal deposit insurance premium increased as a result of FDIC increasing the initial base deposit insurance assessment rate and office occupancy increased due to the addition of a new banking facility in Hoopeston.

Income Tax Expense. We recorded a provision for income tax of $222,000 for the six months ended December 31, 2023, compared to a provision for income tax of $1.2 million for the six months ended December 31, 2022, reflecting effective tax rates of 25.4% and 26.7%, respectively.

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

General. Net income decreased $1.2 million to $185,000 net income for the three months ended December 31, 2023, from $1.4 million net income for the three months ended December 31, 2022. The decrease in net income was primarily due to a decrease in net interest income and an increase in provision for credit losses, partially offset by an increase in noninterest income and a decrease in noninterest expense.

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Net Interest Income. Net interest income decreased $1.7 million to $4.4 million for the three months ended December 31, 2023, from $6.0 million for the three months ended December 31, 2022. The decrease was a result of a $3.8 million increase in interest expense, partially offset by a $2.1 million increase in interest and dividend income. Our interest rate spread decreased 122 basis points to 1.78% for the three months ended December 31, 2023, compared to 3.00% for the three months ended December 31, 2022, and our net interest margin decreased by 106 basis points to 2.07% for the three months ended December 31, 2023, compared to 3.13% for the three months ended December 31, 2022. A $74.5 million, or 9.6%, increase in the average balance of interest earning assets was offset by a $75.6 million, or 11.0% increase in average balance of interest-bearing liabilities.

Interest and Dividend Income. Interest and dividend income increased $2.1 million, or 26.2%, to $10.2 million for the three months ended December 31, 2023, from $8.1 million for the three months ended December 31, 2022. The increase in interest and dividend income was primarily due to a $2.1 million increase in interest income on loans. The increase in interest on loans resulted from a 68 basis point, or 14.4%, increase in the average yield on loans to 5.41% from 4.73%, and a $85.4 million, or 15.3%, increase in the average balance of loans to $644.0 million from $558.5 million. The increase in interest income on securities resulted from a 13 basis point, or 4.8%, increase in the average yield on securities to 2.87% from 2.74%, partially offset by a $10.0 million, or 4.9%, decrease in the average balance of securities to $194.0 million from $204.0 million.

Interest Expense. Interest expense increased $3.8 million, or 183.4%, to $5.8 million for the three months ended December 31, 2023, from $2.1 million for the three months ended December 31, 2022. This increase was due to an 185 basis point, or 154.7%, increase in the average cost of interest-bearing liabilities to 3.05% from 1.20%, and a $75.6 million, or 11.0%, increase in the average balance of interest-bearing liabilities to $765.0 million from $689.4 million.

Interest expense on interest-bearing deposits increased by $2.9 million, or 200.5%, to $4.3 million for the three months ended December 31, 2023, from $1.4 million for the three months ended December 31, 2022. This increase was due to an increase in the average cost of interest-bearing deposits to 2.73% for the three months ended December 31, 2023, from 0.94% for the three months ended December 31, 2022, and a $19.0 million, or 3.1%, increase in the average balance of interest-bearing deposits to $634.8 million for the three months ended December 31, 2023, from $615.8 million for the three months ended December 31, 2022.

Interest expense on borrowings increased $887,000, or 143.5%, to $1.5 million for the three months ended December 31, 2023, from $618,000 for the three months ended December 31, 2022. This increase was due to an increase in the average balance of borrowings to $130.2 million for the three months ended December 31, 2023, from $73.6 million for the three months ended December 31, 2022, and a 126 basis point increase in the average cost of such borrowings to 4.62% for the three months ended December 31, 2023 from 3.36% for the three months ended December 31, 2022.

Provision (Credit) for Credit Losses. We establish provisions for credit losses, which are charged to operations in order to maintain the allowance for credit losses at a level we consider necessary to absorb probable credit losses inherent in our loan portfolio. We recorded a provision for credit losses on loans for $437,000 and a credit for credit losses on off-balance sheet credit exposures for $(73,000) for a total provision for credit losses of $364,000 for the three months ended December 31, 2023, compared to a provision for credit losses on loans of $142,000 and a credit for credit losses on off-balance sheet credit exposures of $(41,000) for a total provision for credit losses of $101,000 for the three months ended December 31, 2022. During the three months ended December 31, 2023, net recoveries of $48,000 were recorded, while during the three months ended December 31, 2022, net recoveries of $1,000 were recorded.

Noninterest Income. Noninterest income increased $47,000, or 5.4%, to $915,000 for the three months ended December 31, 2023 from $868,000 for the three months ended December 31, 2022. The increase was primarily due to an increase in net realized gain (loss) on sale of available-for-sale securities, partially offset by a decrease in mortgage banking income, net, and a decrease in brokerage commissions. For the three months ended December 31, 2023, net realized gain (loss) on sale of available-for-sale securities increased $183,000 to $0, mortgage banking income, net, decreased $95,000 to $(48,000), and brokerage commissions decreased $44,000 to $157,000, from the three months ended December 31, 2022. The increase in gain (loss) on sale of available-for-sale securities was the result of securities sold at a loss in the three months ended December 31, 2022. The decrease in mortgage banking income, net, was a result of a decrease in the valuation of mortgage servicing rights and a decrease in loan servicing fees in the three months ended December 31, 2023, and the decrease in brokerage commissions was the result of a decrease in the amount of renewal commissions and management fees.

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Noninterest Expense. Noninterest expense decreased $215,000, or 4.4%, to $4.7 million for the three months ended December 31, 2023, from $4.9 million for the three months ended December 31, 2022. The largest components of this decrease were compensation and benefits, which decreased $251,000, or 8.1%, and advertising expense, which decreased $64,000, or 37.9%. These decreases were partially offset by an increase in federal deposit insurance, which increased $103,000, or 174.6%, and an increase in office occupancy expense, which increased $50,000, or 21.0%. Compensation and benefits decreased due to a decrease in annual incentive plan expenses and advertising decreased due to a new ad campaign in the three months ended December 31, 2022. The federal deposit insurance premium increased as a result of FDIC increasing the initial base deposit insurance assessment rate and office occupancy increased due to the addition of a new banking facility in Hoopeston.

Income Tax Expense. We recorded a provision for income tax of $47,000 for the three months ended December 31, 2023, compared to a provision for income tax of $486,000 for the three months ended December 31, 2022, reflecting effective tax rates of 20.3% and 25.7%, respectively.

Asset Quality

At December 31, 2023, our non-accrual loans totaled $29,000 in commercial loans. At December 31, 2023, we had a single one- to four-family loan for $1,000 which was delinquent 90 days or greater and still accruing interest.

At December 31, 2023, loans classified as substandard equaled $3.1 million. Loans classified as substandard consisted of $199,000 in one- to four-family loans, $239,000 in multi-family loans, $920,000 in commercial real estate loans, and $1.8 million in commercial business loans. At December 31, 2023, no loans were classified as doubtful or loss.

At December 31, 2023, watch rated assets consisted of $80,000 in one-to four-family loans.

Loan Modifications and Troubled Debt Restructurings (“TDRs”). After adopting ASU 2022-02, effective July 1, 2023, we no longer held any TDRs and made no loan modifications for borrowers with financial difficulties in the six months ended December 31, 2023. Prior to the adoption of ASU 2022-02, we had TDRs which included loans for which economic concessions had been granted to borrowers with financial difficulties. We periodically modified loans to extend the term or make other concessions to help borrowers stay current on their loans and to avoid foreclosure. At December 31, 2023, we had no TDRs and at June 30, 2023, we had $215,000 in TDRs.

Foreclosed Assets. At December 31 2023, we had $7,000 in foreclosed assets, compared to $31,000 as of June 30, 2023. Foreclosed assets at December 30, 2023 consisted of one vehicle, while foreclosed assets at June 30, 2023 consisted of $24,000 in residential real estate property and a $7,000 vehicle.

Allowance for Credit Loss Activity

The Company regularly reviews its allowance for credit losses and adjusts its balance based on management’s analysis of the loan portfolio, the amount of non-performing and classified loans, as well as general economic conditions. Although the Company maintains its allowance for credit losses at a level that it considers sufficient to provide for losses, there can be no assurance that future losses will not exceed internal estimates. In addition, the amount of the allowance for credit losses is subject to review by regulatory agencies, which can order the establishment of additional loss provisions. The following table summarizes changes in the allowance for credit losses over the six-month periods ended December 31, 2023 and 2022:

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	Six months ended December 31,
	2023			2022
Balance, beginning of period	$	7,139		$	7,052
Impact of adopting ASU 2016-13		—			47
Loans charged off
Real estate loans
One- to four-family		—			—
Multi-family		—			—
Commercial		—			—
HELOC		—			—
Construction		—			—
Commercial business		—			(4	)
Consumer		(25	)		(21	)
Gross charged off loans		(25	)		(25	)
Recoveries of loans previously charged off
Real estate loans
One- to four-family		—			1
Multi-family		—			—
Commercial		—			—
HELOC		—			—
Construction		—			—
Commercial business		67			12
Consumer		7			4
Gross recoveries of charged off loans		74			17
Net charge offs		49			(8	)
Provision charged to expense		747			75
Balance, end of period	$	7,935		$	7,166

The allowance for credit losses has been calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Company’s loans. Management considers such factors as the repayment status of a loan, the estimated net fair value of the underlying collateral, the borrower’s intent and ability to repay the loan, local economic conditions, and the Company’s historical loss ratios. We maintain the allowance for credit losses through the provisions for credit losses that we charge to income. We charge losses on loans against the allowance for credit losses when we believe the collection of loan principal is unlikely. The allowance for credit losses increased $796,000 to $7.9 million at December 31, 2023, from $7.1 million at June 30, 2023. This increase in allowance was primarily the result of an increase in our loan portfolio and was necessary in order to bring the allowance for credit losses to a level that reflects management’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining contractual life of the loans.

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

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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 charges-offs may fluctuate. Higher levels of net charge-offs requiring additional provisions for credit losses could result. Although management uses the best information available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term change.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan sales and repayments, advances from the Federal Home Loan Bank of Chicago, and maturities of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers, as well as unanticipated contingencies. For the three months ended December 31, 2023, the six months ended December 31, 2023, and the year ended June 30, 2023, our liquidity ratio averaged 25.7%, 26.5% and 29.3% of our total assets, respectively. We believe that we had enough sources of liquidity to satisfy our short- and long-term liquidity needs as of December 31, 2023.

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are affected by our operating, financing, lending and investing activities during any given period. At December 31, 2023, cash and cash equivalents totaled $8.2 million. Interest-earning time deposits which can offer additional sources of liquidity, totaled $750,000 at December 31, 2023.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Condensed Consolidated Statement of Cash Flows included in our financial statements. Net cash provided by operating activities were $1.1 million and $551,000 for the six months ended December 31, 2023 and 2022 respectively. Net cash used in investing activities consisted primarily of disbursements for loan originations and the purchase of securities, offset by net cash provided by principal collections on loans, and proceeds from maturing securities, the sale of securities and pay-downs on mortgage-backed securities. Net cash used in investing activities was $(64.2) million and $(35.3) million for the six months ended December 31, 2023 and 2022, respectively. Net cash provided by (used in) financing activities consisted primarily of the activity in deposit accounts and FHLB Advances. The net cash provided by (used in) financing activities was $60.3 million and $(32.6) million for the six months ended December 31, 2023 and 2022, respectively.

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

	December 31, 2023		June 30, 2023
	(Dollars in thousands)
Commitments to fund loans	$	11,051	$	5,081
Lines of credit		99,219		94,159

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At December 31, 2023, certificates of deposit due within one year of December 31, 2023 totaled $287.8 million, or 42.4% of total deposits. Depending on market conditions, we may be required to pay higher rates on such deposits, our line of credit or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2024. Moreover, it is our intention as we continue to grow our commercial real estate portfolio, to emphasize lower cost deposit relationships with these commercial loan customers and thereby replace the higher cost certificates with lower cost deposits. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements, which provide an additional source of funds, exist with the Federal Home Loan Bank of Chicago, Federal Reserve Discount Window, Federal Reserve Bank Term Funding Program, and CIBC Bank USA. Federal Home Loan Bank advances were $98.1 million, while we had borrowings of $10.0 million from the Federal Reserve Bank (FRB) Discount Window and $24.4 million from the FRB Bank Term Funding Program at December 31, 2023. At December 31, 2023 we had the ability to borrow up to an additional $8.5 million from the Federal Home Loan Bank of Chicago, we had $14.0 million available from CIBC Bank, and also had the ability to borrow $13.7 million from the Federal Reserve based on current collateral pledged.

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

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

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

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

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	December 31, 2023			June 30, 2023			Minimum to Be Well
	Actual			Actual			Capitalized
Community Bank Leverage Ratio		9.2	%		9.5	%		9.0	%

Average Balances and Yields

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

	For the Three Months Ended December 31,
	2023							2022
	Average Balance		Interest Income/ Expense		Yield/ Cost			Average Balance		Interest Income/ Expense		Yield/Cost
	(Dollars in thousands)
Assets
Loans	$	643,966	$	8,702		5.41	%	$	558,529	$	6,599		4.73	%
Securities:
U.S. Treasury		438		2		1.83	%		2,410		9		1.49	%
U.S. Government and federal agency		6,506		40		2.46	%		6,408		43		2.68	%
Mortgage-backed: GSE residential		169,496		1,232		2.91	%		175,549		1,217		2.77	%
Small Business Administration		14,323		92		2.57	%		16,043		99		2.47	%
State and political subdivisions		3,259		25		3.07	%		3,587		27		3.01	%
Total securities		194,022		1,391		2.87	%		203,997		1,395		2.74	%
Other interest-earning assets		8,455		136		6.43	%		9,463		112		4.73	%
Total interest-earning assets		846,443		10,229		4.83	%		771,989		8,106		4.20	%
Non-interest earning assets		38,524							44,515
Total assets	$	884,967						$	816,504
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing checking or NOW	$	105,346		43		0.16	%	$	122,707		60		0.20	%
Savings accounts		60,554		104		0.69	%		72,716		63		0.35	%
Money market accounts		159,224		1,291		3.24	%		164,461		452		1.10	%
Certificates of deposit		309,671		2,898		3.74	%		255,936		868		1.36	%

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	For the Three Months Ended December 31,
	2023								2022
	Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/Cost
	(Dollars in thousands)
Total interest-bearing deposits		634,795			4,336		2.73	%		615,820			1,443		0.94	%
Borrowings and repurchase agreements		130,171			1,505		4.62	%		73,580			618		3.36	%
Total interest-bearing liabilities		764,966			5,841		3.05	%		689,400			2,061		1.20	%
Noninterest-bearing liabilities		45,025								49,713
Other Noninterest-bearing liabilities		5,699								9,642
Total liabilities		815,690								748,755
Stockholders’ equity		69,277								67,749
Total liabilities and stockholders’ equity	$	884,967							$	816,504
Net interest income				$	4,388							$	6,045
Interest rate spread (1)							1.78	%							3.00	%
Net interest margin (2)							2.07	%							3.13	%
Net interest-earning assets (3)	$	81,477							$	82,589
Average interest-earning assets to interest-bearing liabilities		111	%							112	%

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

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

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

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

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	For the Six Months Ended December 31,
	2023								2022
	Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)
Assets
Loans	$	624,687		$	16,435		5.26	%	$	548,474		$	12,199		4.45	%
Securities:
U.S. Treasury		436			3		1.38	%		2,900			23		1.59	%
U.S. Government and federal agency		6,473			80		2.47	%		7,726			98		2.54	%
Mortgage-backed: GSE residential		170,019			2,473		2.91	%		179,701			2,390		2.66	%
Small Business Administration		14,531			204		2.81	%		16,046			192		2.39	%
State and political subdivisions		3,338			51		3.06	%		3,671			54		2.94	%
Total securities		194,797			2,811		2.89	%		210,044			2,757		2.63	%
Other interest-earning assets		9,550			274		5.74	%		11,052			228		4.13	%
Total interest-earning assets		829,034			19,520		4.71	%		769,570			15,184		3.95	%
Non-interest earning assets		39,708								41,745
Total assets	$	868,742							$	811,315
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing checking or NOW	$	104,611			88		0.17	%	$	124,798			111		0.18	%
Savings accounts		61,774			209		0.68	%		73,533			107		0.29	%
Money market accounts		171,213			2,556		2.99	%		167,485			633		0.76	%
Certificates of deposit		299,032			5,318		3.56	%		249,639			1,208		0.97	%
Total interest-bearing deposits		636,630			8,171		2.57	%		615,455			2,059		0.67	%
Borrowings and repurchase agreements		108,618			2,378		4.38	%		61,994			830		2.68	%
Total interest-bearing liabilities		745,248			10,549		2.83	%		677,449			2,889		0.85	%
Noninterest-bearing liabilities		48,405								53,776
Other Noninterest-bearing liabilities		5,788								10,231
Total liabilities		799,441								741,456
Stockholders’ equity		69,301								69,859
Total liabilities and stockholders’ equity	$	868,742							$	811,315
Net interest income				$	8,971							$	12,295
Interest rate spread (1)							1.88	%							3.10	%
Net interest margin (2)							2.16	%							3.20	%
Net interest-earning assets (3)	$	83,786							$	92,121
Average interest-earning assets to interest-bearing liabilities		111	%							114	%

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

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

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

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

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Rate/Volume Analysis

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

	Three Months Ended December 31, 2023 vs. 2022									Six Months Ended December 31, 2023 vs. 2022
	Increase (Decrease) Due to						Total Increase (Decrease)			Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate						Volume			Rate
	(In thousands)
Interest-earning assets:
Loans	$	1,084		$	1,019		$	2,103		$	1,834		$	2,402		$	4,236
Securities		(271	)		267			(4	)		(440	)		494			54
Other		(68	)		92			24			(80	)		126			46
Total interest-earning assets	$	745		$	1,378		$	2,123		$	1,314		$	3,022		$	4,336
Interest-bearing liabilities:
Interest-bearing checking or NOW	$	(7	)	$	(10	)	$	(17	)	$	(17	)	$	(6	)	$	(23	)
Savings accounts		(67	)		108			41			(50	)		152			102
Certificates of deposit		218			1,812			2,030			283			3,827			4,110
Money market accounts		(101	)		940			839			14			1,909			1,923
Total interest-bearing deposits		43			2,850			2,893			230			5,882			6,112
Federal Home Loan Bank advances and repurchase agreements		596			291			887			840			708			1,548
Total interest-bearing liabilities	$	639		$	3,141		$	3,780		$	1,070		$	6,590		$	7,660
Change in net interest income	$	106		$	(1,763	)	$	(1,657	)	$	244		$	(3,568	)	$	(3,324	)

Item 3. Quantitative and Qualitative Disclosures About Market Risk

An internal interest rate risk analysis is performed at least quarterly to assess the Company’s Earnings at Risk and Value at Risk. As of December 31, 2023, there were no material changes in interest rate risk from the analysis disclosed in the Company’s Form 10-K for the fiscal year ended June 30, 2023, as filed with the Securities and Exchange Commission.

Item 4. Controls and Procedures

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

During the quarter ended December 31, 2023, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II – Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Item1A.- Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, which could materially affect our business, financial condition or future results of operations. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of December 31, 2023 and June 30, 2023 (ii) the Condensed Consolidated Statements of Income for the three and six months ended December 31, 2023 and 2022, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2023 and 2022, (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended December 31, 2023 and 2022, (v) the Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2023 and 2022, and (vi) the notes to the Condensed Consolidated Financial Statements.

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

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SIGNATURES

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

	IF BANCORP, INC.
Date: February 12, 2024	/s/ Walter H. Hasselbring III
	Walter H. Hasselbring III
	President and Chief Executive Officer
Date: February 12, 2024	/s/ Pamela J. Verkler
	Pamela J. Verkler
	Senior Executive Vice President and Chief Financial Officer

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