SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2014
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
(Registrants telephone number)
N/A
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. YES x 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 x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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 | ¨ (Do not check if smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
The Registrant had 4,427,657 shares of common stock, par value $0.01 per share, issued and outstanding as of May 6, 2014.
IF Bancorp, Inc.
Form 10-Q
Page | ||||||
Part I. Financial Information | ||||||
Item 1. | 1 | |||||
Condensed Consolidated Balance Sheets as of March 31, 2014 (unaudited) and June 30, 2013 |
1 | |||||
2 | ||||||
3 | ||||||
4 | ||||||
5 | ||||||
Notes to Condensed Consolidated Financial Statements (unaudited) |
6 | |||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
37 | ||||
Item 3. | 53 | |||||
Item 4. | 53 | |||||
Part II. Other Information | ||||||
Item 1. | 54 | |||||
Item 1A. | 54 | |||||
Item 2. | 54 | |||||
Item 3. | 54 | |||||
Item 4. | 54 | |||||
Item 5. | 54 | |||||
Item 6. | 55 | |||||
56 |
Part I. Financial Information
Item 1. | Financial Statements |
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amount)
March 31, 2014 |
June 30, 2013 |
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(Unaudited) | ||||||||
Assets |
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Cash and due from banks |
$ | 12,323 | $ | 5,371 | ||||
Interest-bearing demand deposits |
138 | 1,209 | ||||||
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Cash and cash equivalents |
12,461 | 6,580 | ||||||
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Interest-bearing time deposits in banks |
250 | 250 | ||||||
Available-for-sale securities |
214,093 | 200,827 | ||||||
Loans, net of allowance for loan losses of $3,921 and $3,938 at March 31, 2014 and June 30, 2013, respectively |
327,213 | 315,775 | ||||||
Premises and equipment, net of accumulated depreciation of $5,498 and $5,193 at March 31, 2014 and June 30, 2013, respectively |
4,900 | 4,293 | ||||||
Federal Home Loan Bank stock, at cost |
5,425 | 5,425 | ||||||
Foreclosed assets held for sale |
381 | 418 | ||||||
Accrued interest receivable |
2,024 | 1,688 | ||||||
Bank-owned life insurance |
7,960 | 7,757 | ||||||
Mortgage servicing rights |
516 | 502 | ||||||
Deferred income taxes |
2,778 | 3,213 | ||||||
Other |
342 | 807 | ||||||
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Total assets |
$ | 578,343 | $ | 547,535 | ||||
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Liabilities and Equity |
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Liabilities |
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Deposits |
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Demand |
$ | 16,652 | $ | 12,820 | ||||
Savings, NOW and money market |
132,242 | 131,779 | ||||||
Certificates of deposit |
215,042 | 188,775 | ||||||
Brokered certificates of deposit |
40,371 | 37,829 | ||||||
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Total deposits |
404,307 | 371,203 | ||||||
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Repurchase agreements |
2,737 | 1,674 | ||||||
Federal Home Loan Bank advances |
84,500 | 87,500 | ||||||
Advances from borrowers for taxes and insurance |
1,322 | 966 | ||||||
Accrued post-retirement benefit obligation |
2,494 | 2,344 | ||||||
Accrued interest payable |
80 | 44 | ||||||
Other |
2,037 | 2,055 | ||||||
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Total liabilities |
497,477 | 465,786 | ||||||
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Commitments and Contingencies |
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Stockholders Equity |
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Common stock, $.01 par value per share, 100,000,000 shares authorized, 4,427,657 and 4,570,692 shares issued and outstanding at March 31, 2014 and June 30, 2013, respectively |
44 | 46 | ||||||
Additional paid-in capital |
46,609 | 46,451 | ||||||
Unearned ESOP shares, at cost, 331,976 and 346,410 shares at March 31, 2014 and June 30, 2013, respectively |
(3,320 | ) | (3,464 | ) | ||||
Retained earnings |
37,347 | 39,101 | ||||||
Accumulated other comprehensive income (loss), net of tax |
186 | (385 | ) | |||||
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Total stockholders equity |
80,866 | 81,749 | ||||||
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Total liabilities and stockholders equity |
$ | 578,343 | $ | 547,535 | ||||
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See accompanying notes to the unaudited condensed consolidated financial statements.
1
Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands except per share amounts)
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Interest and Dividend Income |
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Interest and fees on loans |
$ | 3,436 | $ | 3,140 | $ | 10,273 | $ | 9,188 | ||||||||
Securities: |
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Taxable |
1,346 | 1,221 | 3,754 | 3,816 | ||||||||||||
Tax-exempt |
22 | 28 | 76 | 88 | ||||||||||||
Federal Home Loan Bank dividends |
8 | 4 | 18 | 11 | ||||||||||||
Deposits with other financial institutions |
2 | 2 | 6 | 8 | ||||||||||||
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Total interest and dividend income |
4,814 | 4,395 | 14,127 | 13,111 | ||||||||||||
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Interest Expense |
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Deposits |
580 | 546 | 1,732 | 1,682 | ||||||||||||
Federal Home Loan Bank advances and repurchase agreements |
209 | 209 | 617 | 659 | ||||||||||||
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Total interest expense |
789 | 755 | 2,349 | 2,341 | ||||||||||||
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Net Interest Income |
4,025 | 3,640 | 11,778 | 10,770 | ||||||||||||
Provision for Loan Losses |
140 | 45 | 366 | 552 | ||||||||||||
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Net Interest Income After Provision for Loan Losses |
3,885 | 3,595 | 11,412 | 10,218 | ||||||||||||
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Noninterest Income |
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Customer service fees |
114 | 126 | 406 | 414 | ||||||||||||
Other service charges and fees |
17 | 60 | 89 | 207 | ||||||||||||
Insurance commissions |
200 | 200 | 550 | 572 | ||||||||||||
Brokerage commissions |
172 | 158 | 508 | 426 | ||||||||||||
Net realized gains (losses) on sales of available-for-sale securities |
(95 | ) | 61 | (199 | ) | 629 | ||||||||||
Mortgage banking income, net |
31 | 74 | 159 | 190 | ||||||||||||
Gain on sale of loans |
5 | 44 | 77 | 251 | ||||||||||||
Bank-owned life insurance income, net |
68 | 64 | 202 | 197 | ||||||||||||
Other |
159 | 144 | 446 | 509 | ||||||||||||
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Total noninterest income |
671 | 931 | 2,238 | 3,395 | ||||||||||||
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Noninterest Expense |
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Compensation and benefits |
2,141 | 2,032 | 6,330 | 5,798 | ||||||||||||
Office occupancy |
136 | 131 | 386 | 395 | ||||||||||||
Equipment |
223 | 253 | 658 | 717 | ||||||||||||
Federal deposit insurance |
69 | 81 | 210 | 218 | ||||||||||||
Stationary, printing and office |
41 | 39 | 120 | 123 | ||||||||||||
Advertising |
102 | 84 | 300 | 240 | ||||||||||||
Professional services |
80 | 47 | 278 | 284 | ||||||||||||
Supervisory examinations |
39 | 35 | 113 | 105 | ||||||||||||
Audit and accounting services |
20 | 21 | 101 | 123 | ||||||||||||
Organizational dues and subscriptions |
12 | 12 | 45 | 45 | ||||||||||||
Insurance bond premiums |
27 | 24 | 92 | 87 | ||||||||||||
Telephone and postage |
69 | 71 | 194 | 215 | ||||||||||||
Loss (gain) on foreclosed assets, net |
17 | (1 | ) | 209 | (22 | ) | ||||||||||
Other |
306 | 255 | 849 | 994 | ||||||||||||
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Total noninterest expense |
3,282 | 3,084 | 9,885 | 9,322 | ||||||||||||
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Income Before Income Tax |
1,274 | 1,442 | 3,765 | 4,291 | ||||||||||||
Provision for Income Tax |
440 | 518 | 1,292 | 1,525 | ||||||||||||
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Net Income |
$ | 834 | $ | 924 | $ | 2,473 | $ | 2,766 | ||||||||
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Earnings Per Share: |
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Basic and diluted (Note 4) |
$ | .21 | $ | .22 | $ | .60 | $ | .64 | ||||||||
Dividends declared per common share |
$ | .05 | $ | | $ | .10 | $ | |
See accompanying notes to the unaudited condensed consolidated financial statements.
2
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands)
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Net Income |
$ | 834 | $ | 924 | ||||
Other Comprehensive Income (Loss) |
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Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of $1,115 and $(438), for 2014 and 2013, respectively |
1,652 | (1,091 | ) | |||||
Less: reclassification adjustment for realized gains (losses) included in net income, net of taxes of $38 and $(25) for 2014 and 2013, respectively |
(57 | ) | 36 | |||||
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1,709 | (1,127 | ) | ||||||
Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $(6) and $(16) for 2014 and 2013, respectively |
(8 | ) | (18 | ) | ||||
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Other comprehensive income (loss), net of tax |
1,701 | (1,145 | ) | |||||
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Comprehensive Income (Loss) |
$ | 2,535 | $ | (221 | ) | |||
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Nine Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Net Income |
$ | 2,473 | $ | 2,766 | ||||
Other Comprehensive Income (Loss) |
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Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of $322 and $(413), for 2014 and 2013, respectively |
478 | (1,084 | ) | |||||
Less: reclassification adjustment for realized gains (losses) included in net income, net of taxes of $80 and $(255), for 2014 and 2013, respectively |
(119 | ) | 377 | |||||
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597 | (1,461 | ) | ||||||
Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $(19) and $(41) for 2014 and 2013, respectively |
(26 | ) | (61 | ) | ||||
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Other comprehensive income (loss), net of tax |
571 | (1,522 | ) | |||||
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Comprehensive Income |
$ | 3,044 | $ | 1,244 | ||||
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See accompanying notes to the unaudited condensed consolidated financial statements.
3
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 nine months ended March 31, 2014 |
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Balance, July 1, 2013 |
$ | 46 | $ | 46,451 | $ | (3,464 | ) | $ | 39,101 | $ | (385 | ) | $ | 81,749 | ||||||||||
Net income |
| | | 2,473 | | 2,473 | ||||||||||||||||||
Other comprehensive income |
| | | | 571 | 571 | ||||||||||||||||||
Dividends on common stock, $0.10 per share |
| | | (432 | ) | | (432 | ) | ||||||||||||||||
Stock equity plan |
1 | 68 | | | | 69 | ||||||||||||||||||
Stock repurchase, 228,535 shares, average price $16.61 each |
(3 | ) | | | (3,795 | ) | | (3,798 | ) | |||||||||||||||
ESOP shares earned, 14,434 shares |
| 90 | 144 | | | 234 | ||||||||||||||||||
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Balance, March 31, 2014 |
$ | 44 | $ | 46,609 | $ | (3,320 | ) | $ | 37,347 | $ | 186 | $ | 80,866 | |||||||||||
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For the nine months ended March 31, 2013 |
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Balance, July 1, 2012 |
$ | 48 | $ | 46,371 | $ | (3,656 | ) | $ | 38,728 | $ | 5,158 | $ | 86,649 | |||||||||||
Net income |
| | | 2,766 | | 2,766 | ||||||||||||||||||
Other comprehensive loss |
| | | | (1,522 | ) | (1,522 | ) | ||||||||||||||||
Stock repurchase, 214,035 shares, average price $13.71 each |
(2 | ) | | | (2,933 | ) | | (2,935 | ) | |||||||||||||||
ESOP shares earned, 14,434 shares |
| 55 | 144 | | | 199 | ||||||||||||||||||
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Balance, March 31, 2013 |
$ | 46 | $ | 46,426 | $ | (3,512 | ) | $ | 38,561 | $ | 3,636 | $ | 85,157 | |||||||||||
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See accompanying notes to the unaudited condensed consolidated financial statements.
4
Condensed Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Nine Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Operating Activities |
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Net income |
$ | 2,473 | $ | 2,766 | ||||
Items not requiring (providing) cash |
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Depreciation |
304 | 336 | ||||||
Provision for loan losses |
366 | 552 | ||||||
Amortization of premiums and discounts on securities |
759 | 957 | ||||||
Deferred income taxes |
51 | (79 | ) | |||||
Net realized gains on loan sales |
(236 | ) | (441 | ) | ||||
Net realized (gains)/losses on sales of available-for-sale securities |
199 | (629 | ) | |||||
(Loss) gain on foreclosed assets held for sale |
209 | (22 | ) | |||||
Bank-owned life insurance income, net |
(202 | ) | (197 | ) | ||||
Originations of loans held for sale |
(6,683 | ) | (17,697 | ) | ||||
Proceeds from sales of loans held for sale |
6,905 | 18,083 | ||||||
ESOP compensation expense |
234 | 199 | ||||||
Stock equity plan expense |
69 | | ||||||
Changes in |
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Accrued interest receivable |
(336 | ) | (237 | ) | ||||
Other assets |
463 | 259 | ||||||
Accrued interest payable |
37 | (2 | ) | |||||
Post-retirement benefit obligation |
106 | 45 | ||||||
Other liabilities |
(246 | ) | (187 | ) | ||||
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Net cash provided by operating activities |
4,472 | 3,706 | ||||||
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Investing Activities |
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Purchases of available-for-sale securities |
(63,299 | ) | (145,832 | ) | ||||
Proceeds from the sales of available-for-sale securities |
42,676 | 122,802 | ||||||
Proceeds from maturities and pay-downs of available-for-sale securities |
7,398 | 20,978 | ||||||
Net change in loans |
(12,390 | ) | (32,271 | ) | ||||
Purchase of FHLB stock |
| (1,250 | ) | |||||
Purchase of premises and equipment |
(911 | ) | (282 | ) | ||||
Proceeds from sale of foreclosed assets |
414 | 642 | ||||||
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Net cash used in investing activities |
(26,112 | ) | (35,213 | ) | ||||
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Financing Activities |
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Net increase in demand deposits, money market, NOW and savings accounts |
4,301 | 6,364 | ||||||
Net increase in certificates of deposit, including brokered certificates |
28,810 | 20,216 | ||||||
Net increase in advances from borrowers for taxes and insurance |
356 | 408 | ||||||
Proceeds from Federal Home Loan Bank advances |
309,000 | 508,665 | ||||||
Repayments of Federal Home Loan Bank advances |
(310,937 | ) | (496,000 | ) | ||||
Dividends paid |
(211 | ) | | |||||
Stock purchase per stock repurchase plan |
(3,798 | ) | (2,935 | ) | ||||
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Net cash provided by financing activities |
27,521 | 36,718 | ||||||
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Net Increase in Cash and Cash Equivalents |
5,881 | 5,211 | ||||||
Cash and Cash Equivalents, Beginning of Period |
6,580 | 8,193 | ||||||
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Cash and Cash Equivalents, End of Period |
$ | 12,461 | $ | 13,404 | ||||
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Supplemental Cash Flows Information |
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Interest paid |
$ | 2,313 | $ | 2,343 | ||||
Income taxes paid, net of refunds |
$ | 1,391 | $ | 1,799 | ||||
Foreclosed assets acquired in settlement of loans |
$ | 586 | $ | 58 | ||||
Dividends payable |
$ | 221 | $ | |
See accompanying notes to the unaudited condensed consolidated financial statements.
5
Form 10-Q (Unaudited)
(Table dollar amounts in thousands)
Notes to Condensed Consolidated Financial Statements
Note 1: | Basis of Financial Statement Presentation |
IF Bancorp, Inc., a Maryland corporation (the Company), became the holding company for Iroquois Federal Savings and Loan Association (the Association) upon completion of the Associations conversion from the mutual form of organization to the stock holding company form of organization (the Conversion) on July 7, 2011. At the time of the conversion, the Company also established an employee stock ownership plan that purchased 384,900 shares of Company stock, and a charitable foundation, Iroquois Federal Foundation, to which the Company donated 314,755 shares of Company stock and $450,000 cash. IF Bancorp, Inc.s common stock began trading on the NASDAQ Capital Market on July 8, 2011, under the symbol IROQ.
During the nine months ended March 31, 2014, a second stock repurchase plan was adopted whereby the Company could repurchase up to 228,535 shares of its common stock, or approximately 5% of the then current outstanding shares. As shares were repurchased, the Company treated them as shares repurchased for constructive retirement (although such shares may be reissued), and the excess of purchase price over par value was charged entirely to retained earnings in recognition of the fact that that the Company may always capitalize or allocate retained earnings for such purposes. The stock repurchase plan was completed on January 27, 2014, and the average price paid per share was $16.61.
During the nine months ended March 31, 2014, the Board of Directors declared two cash dividends of $0.05 per common share each. The first dividend was paid on October 15, 2013, to the stockholders of record as of the close of business on September 12, 2013, and the second dividend was paid on April 15, 2014, to the stockholders of record as of the close of business on March 24, 2014.
At the annual meeting on November 19, 2012, the IF Bancorp, Inc. 2012 Equity Incentive Plan (the Equity Incentive Plan) was approved by stockholders. The purpose of the Equity Incentive Plan is to promote the long-term financial success of the Company and its Subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Companys stockholders. The Equity Incentive Plan authorizes the issuance or delivery to participants of up to 673,575 shares of the Company common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock unit awards, provided that the maximum number of shares of Company common stock that may be delivered pursuant to the exercise of stock options (all of which may be granted as incentive stock options) is 481,125 and the maximum number of shares of Company stock that may be issued as restricted stock awards or restricted stock units is 192,450. On December 10, 2013, the Board of Directors approved grants of 85,500 shares of restricted stock and 167,000 in stock options to be awarded to senior officers and directors of the Association. The restricted stock will vest in equal installments over 10 years and the stock options will vest in equal installments over 7 years, both starting in December 2014.
The unaudited condensed consolidated financial statements include the accounts of the Company, the Association, and the Associations 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 10Q and Regulation SX. 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
6
accruals) necessary for a fair presentation of the financial condition of the Company as of March 31, 2014 and June 30, 2013, and the results of its operations for the three month and nine month periods ended March 31, 2014 and 2013. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended June 30, 2013. The results of operations for the three month and nine month periods ended March 31, 2014 are not necessarily indicative of the results that may be expected for the entire year.
Note 2: | New Accounting Pronouncements |
Recent and Future Accounting Requirements
FASB ASU 2013-04 Liabilities (Topic 405): Obligations Resulting From Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. On February 28, 2013, FASB issued ASU 2013-40. The amendments in this Update provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this Update is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors.
The guidance in this Update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. This Accounting Standards Update is the final version of Proposed Accounting Standard Update EITF12D Liabilities (Topic 405) which has been deleted.
The amendments in this Update are effective for fiscal years beginning after December 31, 2013. Early adoption is permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.
FASB ASU 2014-04: Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. EITF Issue 13-E sought to define in substance repossession or foreclosure because of the diversity in practice regarding when entities were reclassifying loans receivable to other real estate owned (OREO) (instead of as a loan receivable). The timing of loan reclassifications to OREO may be qualitatively significant to regulators and other financial statement users. In substance repossession or foreclosure is clarified by the ASU.
A creditor is considered to have received physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following:
a. The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law.
b. The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor.
The ASU is effective for fiscal years beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.
7
Note 3: | Stock-based Compensation |
In connection with the conversion to stock form, the Association established an ESOP for the exclusive benefit of eligible employees (all salaried employees who have completed at least 1,000 hours of service in a twelve-month period and have attained the age of 21). The ESOP borrowed funds from the Company in an amount sufficient to purchase 384,900 shares (approximately 8% of the Common Stock issued in the stock offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Association and dividends received by the ESOP, with funds from any contributions on ESOP assets. Contributions will be applied to repay interest on the loan first, then the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest 100% in their accrued benefits under the employee stock ownership plan after six vesting years, with prorated vesting in years two through five. Vesting is accelerated upon retirement, death or disability of the participant or a change in control of the Association. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Since the Associations annual contributions are discretionary, benefits payable under the ESOP cannot be estimated. Participants receive the shares at the end of employment.
The Company is accounting for its ESOP in accordance with ASC Topic 718, Employers Accounting for Employee Stock Ownership Plans. Accordingly, the debt of the ESOP is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheets. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends, if any, on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.
A summary of ESOP shares at March 31, 2014 and June 30, 2013 are as follows (dollars in thousands):
March 31, 2014 | June 30, 2013 | |||||||
Allocated shares |
37,571 | 19,245 | ||||||
Shares committed for release |
14,434 | 19,245 | ||||||
Unearned shares |
331,976 | 346,410 | ||||||
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Total ESOP shares |
383,981 | 384,900 | ||||||
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Fair value of unearned ESOP shares (1) |
$ | 5,398 | $ | 5,293 | ||||
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(1) | Based on closing price of $16.26 and $15.28 per share on March 31, 2014, and June 30, 2013, respectively. |
During the nine months ended March 31, 2014, 919 ESOP shares were paid to ESOP participants due to separation from service.
At the annual meeting on November 19, 2012, the IF Bancorp, Inc. 2012 Equity Incentive Plan (the Equity Incentive Plan) was approved by stockholders. The purpose of the Equity Incentive Plan is to promote the long-term financial success of the Company and its Subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Companys stockholders. The Equity Incentive Plan authorizes the issuance or delivery to participants of up to 673,575 shares of the Company common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock unit awards, provided that the maximum number of shares of Company common stock that may be delivered pursuant to the exercise of stock options (all of which may be granted as incentive stock options) is 481,125 and the maximum number of shares of Company stock that may be issued as restricted stock awards or restricted stock units is 192,450.
8
On December 10, 2013, the Board of Directors approved grants of 85,500 shares of restricted stock and 167,000 in stock options to be awarded to senior officers and directors of the Association. The restricted stock will vest in equal installments over 10 years and the stock options will vest in equal installments over 7 years, both starting in December 2014. As of March 31, 2014, there were 106,950 shares of restricted stock and 314,125 stock option shares available for future grants under this plan.
The following table summarizes stock option activity for the nine months ended March 31, 2014 (dollars in thousands):
Options | Weighted-Average Exercise Price/Share |
Weighted-Average Remaining Contractual Life (in years) |
Aggregate Intrinsic Value | |||||||||||||
Outstanding, June 30, 2013 |
| $ | | |||||||||||||
Granted |
167,000 | 16.63 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
| | ||||||||||||||
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Outstanding, March 31, 2014 |
167,000 | $ | 16.63 | 9.67 | $ | 62 | (1) | |||||||||
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Exercisable, March 31, 2014 |
| $ | N/A | N/A | $ | | ||||||||||
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(1) | Based on closing price of $16.26 per share on March 31, 2014. |
Intrinsic value for stock options is defined as the difference between the current market value and the exercise price. The weighted-average grant-date fair value of options granted during the period was $2.54.
The fair value for each option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following assumptions. The Company used the seven year U.S. Treasury rate in effect at the time of the grant to determine the risk-free interest rate. The expected dividend yield was estimated using the projected semi-annual dividend level and recent stock price of the Companys common stock at the date of grant. Expected volatility was based on historical volatility of the Companys stock and other factors. The expected term of options granted represents the period of time that options are expected to be outstanding. The exercise price is the share price on the grant date of December 10, 2013.
The weighted-average assumptions used in the Black-Scholes option pricing model for the grants made on December 10, 2013, were as follows:
Risk-free interest rate |
2.17 | % | ||
Expected dividend yield |
0.60 | % | ||
Expected stock volatility |
9.87 | % | ||
Expected life (years) |
7.00 | |||
Exercise price |
$ | 16.63 |
There were no options that vested during the nine months ended March 31, 2014. Stock-based compensation expense and related tax benefit was considered nominal for stock options for the nine months ended March 31, 2014. Total unrecognized compensation cost related to non-vested stock options was $404,000 at March 31, 2014 and is expected to be recognized over the remaining weighted-average period of 6.75 years.
The following table summarizes non-vested restricted stock activity for the nine months ended March 31, 2014:
Shares | Weighted-Average Grant-Date Fair Value |
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Balance, June 30, 2013 |
| $ | | |||||
Granted |
85,500 | 16.63 | ||||||
Forfeited |
| | ||||||
Earned and issued |
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Balance, March 31, 2014 |
85,500 | $ | 16.63 | |||||
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9
The fair value of the restricted stock awards is amortized to compensation expense over the vesting period (ten years) and is based on the market price of the Companys 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. The weighted-average grant date fair value of restricted stock granted during the nine months ended March 31, 2014 was $16.63 per share or $1.4 million. Stock-based compensation expense and related tax benefit for restricted stock was nominal and was recognized in non-interest expense for the nine months ended March 31, 2014. Unrecognized compensation expense for non-vested restricted stock awards was $1.4 million and is expected to be recognized over ten years with a corresponding credit to paid-in capital.
Note 4: | Earnings Per Common Share (EPS) |
Basic and diluted earnings per common share are presented for the three month and nine month periods ended March 31, 2014 and 2013. The factors used in the earnings per common share computation are as follows:
Three Months Ended March 31, 2014 |
Three Months Ended March 31, 2013 |
Nine Months Ended March 31, 2014 |
Nine Months Ended March 31, 2013 |
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Net income |
$ | 834 | $ | 924 | $ | 2,473 | $ | 2,766 | ||||||||
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Basic weighted average shares outstanding |
4,347,860 | 4,614,486 | 4,474,147 | 4,710,586 | ||||||||||||
Less: Average unallocated ESOP shares |
(334,382 | ) | (353,627 | ) | (339,193 | ) | (358,438 | ) | ||||||||
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Basic average shares outstanding |
4,013,478 | 4,260,859 | 4,134,954 | 4,352,148 | ||||||||||||
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Diluted effect of restricted stock awards and stock options |
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Diluted average shares outstanding |
4,013,478 | 4,260,859 | 4,134,954 | 4,352,148 | ||||||||||||
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Basic earnings per common share |
$ | .21 | $ | .22 | $ | .60 | $ | .64 | ||||||||
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Diluted earnings per common share |
$ | .21 | $ | .22 | $ | .60 | $ | .64 | ||||||||
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On September 11, 2013, the Company announced a second stock repurchase program to repurchase up to 228,535 shares of its common stock, or approximately 5% of its then current outstanding shares. The stock repurchase plan was completed on January 27, 2014, and the average price paid per share was $16.61.
On December 10, 2013, the Company awarded 85,500 shares of restricted stock and 167,000 in stock options to officers and directors of the Association as part of the IF Bancorp, Inc. 2012 Equity Incentive Plan. The restricted stock will vest over 10 years and the stock options will vest over 7 years, both starting in December 2014. The 167,000 in stock options and 83,718 shares of non-vested restricted stock were not included in the computation of diluted earnings per share as the stock awards were considered antidilutive for the three and nine month periods ended March 31, 2014.
10
Note 5: | Securities |
The amortized cost and approximate fair value of securities, together with gross unrealized gains and losses on securities, are as follows:
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
Available-for-sale securities: |
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March 31, 2014: |
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U.S. Government and federal agency and Government sponsored enterprises (GSEs) |
$ | 130,593 | $ | 2,735 | $ | (1,348 | ) | $ | 131,980 | |||||||
Mortgage-backed: |
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GSE residential |
80,219 | 799 | (1,805 | ) | 79,213 | |||||||||||
State and political subdivisions |
2,774 | 148 | (22 | ) | 2,900 | |||||||||||
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$ | 213,586 | $ | 3,682 | $ | (3,175 | ) | $ | 214,093 | ||||||||
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June 30, 2013: |
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U.S. Government and federal agency and Government sponsored enterprises (GSEs) |
$ | 121,162 | $ | 3,543 | $ | (2,372 | ) | $ | 122,333 | |||||||
Mortgage-backed: |
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GSE residential |
76,407 | 465 | (2,263 | ) | 74,609 | |||||||||||
State and political subdivisions |
3,750 | 175 | (40 | ) | 3,885 | |||||||||||
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$ | 201,319 | $ | 4,183 | $ | (4,675 | ) | $ | 200,827 | ||||||||
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With the exception of U.S. Government and federal agency and GSE securities, and mortgage-backed GSE residential securities with a book value of approximately $130,593,000 and $80,219,000, respectively, and a market value of approximately $131,980,000 and $79,213,000, respectively, at March 31, 2014, the Company held no securities at March 31, 2014 with a book value that exceeded 10% of total equity.
All mortgage-backed securities at March 31, 2014, and June 30, 2013 were issued by GSEs.
The amortized cost and fair value of available-for-sale securities at March 31, 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available-for-sale Securities | ||||||||
Amortized Cost |
Fair Value |
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Within one year |
$ | 1,089 | $ | 1,124 | ||||
One to five years |
45,015 | 47,210 | ||||||
Five to ten years |
87,175 | 86,451 | ||||||
After ten years |
88 | 95 | ||||||
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133,367 | 134,880 | |||||||
Mortgage-backed securities |
80,219 | 79,213 | ||||||
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Totals |
$ | 213,586 | $ | 214,093 | ||||
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11
The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $50,316,000 and $49,416,000 as of March 31, 2014 and June 30, 2013, respectively.
Gross gains of $596,000 and $632,000, and gross losses of $795,000 and $2,000, resulting from sales of available-for-sale securities were realized for the nine month periods ended March 31, 2014 and 2013, respectively. The tax provision applicable to these net realized gains (losses) amounted to approximately $(80,000) and $255,000, respectively. Gross gains of $406,000 and $61,000, and gross losses of $501,000 and $0, resulting from the sale of available-for-sale securities were realized for the three month periods ended March 31, 2014, and 2013, respectively. The tax provision applicable to these net gains amounted to approximately $(38,000) and $25,000, respectively.
Certain investments in debt and marketable equity securities are reported in the financial statements at amounts less than their historical cost. Total fair value of these investments at March 31, 2014 and June 30, 2013 was $82,043,000 and $107,019,000, respectively, which is approximately 38.3% and 53.3% of the Companys available-for-sale investment portfolio. These declines primarily resulted from recent increases in market interest rates. Management believes the declines in fair value for these securities are temporary.
The following tables show the gross unrealized losses of the Companys securities and the fair value of the Companys securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2014 and June 30, 2013:
March 31, 2014 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Description of Securities |
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
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U.S. Government and federal agency and Government sponsored enterprises (GSEs) |
$ | 17,894 | $ | (641 | ) | $ | 18,286 | $ | (707 | ) | $ | 36,180 | $ | (1,348 | ) | |||||||||
Mortgage-backed: |
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GSE residential |
43,062 | (1,692 | ) | 1,762 | (113 | ) | 44,824 | (1,805 | ) | |||||||||||||||
State and political subdivisions |
| | 1,039 | (22 | ) | 1,039 | (22 | ) | ||||||||||||||||
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Total temporarily impaired securities |
$ | 60,956 | $ | (2,333 | ) | $ | 21,087 | $ | (842 | ) | $ | 82,043 | $ | (3,175 | ) | |||||||||
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June 30, 2013 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Description of Securities |
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
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U.S. Government and federal agency and Government sponsored enterprises (GSEs) |
$ | 55,825 | $ | (2,372 | ) | $ | | $ | | $ | 55,825 | $ | (2,372 | ) | ||||||||||
Mortgage-backed: |
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GSE residential |
50,172 | (2,263 | ) | | | 50,172 | (2,263 | ) | ||||||||||||||||
State and political subdivisions |
1,022 | (40 | ) | | | 1,022 | (40 | ) | ||||||||||||||||
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Total temporarily impaired securities |
$ | 107,019 | $ | (4,675 | ) | $ | | $ | | $ | 107,019 | $ | (4,675 | ) | ||||||||||
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12
The unrealized losses on the Companys investments were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2014.
Note 6: | Loans and Allowance for Loan Losses |
Classes of loans include:
March 31, 2014 | June 30, 2013 | |||||||
Real estate loans: |
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One-to four-family, including home equity loans |
$ | 149,310 | $ | 147,221 | ||||
Multi-family |
62,607 | 58,442 | ||||||
Commercial |
82,142 | 74,679 | ||||||
Home equity lines of credit |
7,540 | 8,228 | ||||||
Construction |
1,663 | 2,497 | ||||||
Commercial |
20,645 | 19,695 | ||||||
Consumer |
8,729 | 9,662 | ||||||
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Total loans |
332,636 | 320,424 | ||||||
Less: |
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Unearned fees and discounts, net |
137 | 67 | ||||||
Loans in process |
1,365 | 644 | ||||||
Allowance for loan losses |
3,921 | 3,938 | ||||||
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Loans, net |
$ | 327,213 | $ | 315,775 | ||||
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The Company believes that sound loans are a necessary and desirable means of employing funds available for investment. Recognizing the Companys 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 Companys principal lending activity is the origination of one-to four-family residential mortgage loans but also includes multi-family loans, commercial real estate loans, home equity lines of credits, commercial business loans, consumer loans (consisting primarily of automobile loans), and, to a much lesser extent, construction loans and land loans. The primary lending market includes the Illinois counties of Vermilion and Iroquois, as well as the adjacent counties in Illinois and Indiana. The Company also has a loan production and wealth management office in Osage Beach, Missouri, which serves the Missouri counties of Camden, Miller, and Morgan. Generally, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals. The loans are expected to be repaid from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.
Management reviews and approves the Companys lending policies and procedures on a routine basis. Management routinely (at least quarterly) reviews our allowance for loan losses and reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Our underwriting standards are designed to encourage relationship banking rather than transactional banking. Relationship banking implies a primary banking relationship with the borrower that includes, at minimum, an active deposit banking relationship in addition to the lending relationship. The integrity and character of the borrower are significant factors in our loan underwriting. As a part of underwriting, tangible positive or negative evidence of the borrowers 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 borrowers character are the quality of the borrowers financial history, the liquidity of the underlying collateral and the reliability of the valuation of the underlying collateral.
13
The Companys policies and loan approval limits are established by the Board of Directors. The loan officers generally have authority to approve one-to four-family residential mortgage loans up to $100,000, other secured loans up to $50,000, and unsecured loans up to $10,000. Managing Officers (those with designated loan approval authority), generally have authority to approve one-to four-family residential mortgage loans up to $300,000, other secured loans up to $300,000, and unsecured loans up to $100,000. In addition, any two individual officers may combine their loan authority limits to approve a loan. Our Loan Committee may approve one-to four-family residential mortgage loans, commercial real estate loans, multi-family real estate loans and land loans up to $1,000,000 in aggregate loans or $750,000 for individual loans, and unsecured loans up to $300,000. All loans above these limits must be approved by the Operating Committee, consisting of the Chairman and up to four other Board members. At no time is a borrowers total borrowing relationship to exceed our regulatory lending limit. Loans to related parties, including executive officers and the Companys 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 Companys loan policy quarterly for mortgage, consumer, and small commercial loans on a sample basis, and all larger commercial loans on an annual basis. The Company also receives independent loan reviews performed by a third party on larger commercial loans to be performed semi-annually. In addition to compliance with our policy, the third party loan review process reviews the risk assessments made by our credit department, lenders and loan committees. Results of these reviews are presented to management and the Board of Directors.
The Companys 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 borrower.
In addition, the Company also offers home equity loans that are secured by a second mortgage on the borrowers primary or secondary residence. Home equity loans are generally underwritten using the same criteria used to underwrite one-to four-family residential mortgage loans.
As one-to four-family residential mortgage and home equity loan underwriting are subject to specific regulations, the Company typically underwrites its one-to four-family residential mortgage and home equity loans to conform to widely accepted standards. Several factors are considered in underwriting including the value of the underlying real estate and the debt to income ratio and credit history of the borrower.
Commercial Real Estate and Multi-Family Real Estate Loans
Commercial real estate mortgage loans are primarily secured by office buildings, owner-occupied businesses, strip mall centers, churches and farm loans secured by real estate. In underwriting commercial real estate and multi-family real estate loans, the Company considers a number of factors, which include the projected net cash flow to the loans debt service requirement, the age and condition of the collateral, the financial resources and income level of the borrower and the borrowers experience in owning or managing similar properties. Personal guarantees are typically obtained from
14
commercial real estate and multi-family real estate borrowers. In addition, the borrowers 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 borrowers 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 Companys 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.
Real Estate Construction Loans
The Company originates construction loans for one-to four-family residential properties and commercial real estate properties, including multi-family properties. The Company generally requires that a commitment for permanent financing be in place prior to closing the construction loan. The repayment of these loans is typically through permanent financing following completion of the construction. Real estate construction loans are inherently more risky than loans on completed properties as the unimproved nature and the financial risks of construction significantly enhance the risks of commercial real estate loans. These loans are closely monitored and subject to other industry guidelines.
Consumer Loans
Consumer loans consist of installment loans to individuals, primarily automotive loans. These loans are centrally underwritten utilizing the borrowers 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 Concentrations
The loan portfolio includes a concentration of loans secured by commercial real estate properties amounting to $144,749,000 and $133,121,000 as of March 31, 2014 and June 30, 2013, 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.
15
Purchased Loans and Loan Participations
The Companys loans receivable included purchased loans of $14,085,000 and $15,692,000 at March 31, 2014 and June 30, 2013, respectively. All of these purchased loans are secured by single family homes located out of our primary market area primarily in the Midwest. The Company has not purchased any loans since May of 2007. The Companys loans receivable also include commercial loan participations of $24,955,000 and $27,695,000 at March 31, 2014 and June 30, 2013, respectively, of which $7,944,000 and $9,803,000, at March 31, 2014 and June 30, 2013 were outside our primary market area. The Company did not purchase any new commercial participations during the quarter ended March 31, 2014. These participation loans are secured by real estate and other business assets.
Allowance for Loan Losses
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of the three month and nine month periods ended March 31, 2014 and 2013 and the year ended June 30, 2013:
Three Months Ended March 31, 2014 Real Estate Loans |
||||||||||||||||
One-to Four- Family |
Multi- Family |
Commercial | Home Equity Lines of Credit |
|||||||||||||
Allowance for loan losses: |
||||||||||||||||
Balance, beginning of period |
$ | 1,486 | $ | 814 | $ | 873 | $ | 90 | ||||||||
Provision charged to expense |
(1 | ) | 42 | 78 | (3 | ) | ||||||||||
Losses charged off |
(80 | ) | | | | |||||||||||
Recoveries |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 1,405 | $ | 856 | $ | 951 | $ | 87 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
$ | 187 | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
$ | 1,218 | $ | 856 | $ | 951 | $ | 87 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans: |
||||||||||||||||
Ending balance |
$ | 149,310 | $ | 62,607 | $ | 82,142 | $ | 7,540 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
$ | 3,120 | $ | 1,646 | $ | 57 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
$ | 146,190 | $ | 60,961 | $ | 82,085 | $ | 7,540 | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2014 (Continued) | ||||||||||||||||||||
Construction | Commercial | Consumer | Unallocated | Total | ||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||
Balance, beginning of period |
$ | 30 | $ | 526 | $ | 81 | $ | 6 | $ | 3,906 | ||||||||||
Provision charged to expense |
(19 | ) | 7 | 15 | 21 | 140 | ||||||||||||||
Losses charged off |
| (38 | ) | (9 | ) | | (127 | ) | ||||||||||||
Recoveries |
| | 2 | | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, end of period |
$ | 11 | $ | 495 | $ | 89 | $ | 27 | $ | 3,921 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | | $ | 21 | $ | | $ | 208 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: collectively evaluated for impairment |
$ | 11 | $ | 495 | $ | 68 | $ | 27 | $ | 3,713 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans: |
||||||||||||||||||||
Ending balance |
$ | 1,663 | $ | 20,645 | $ | 8,729 | $ | | $ | 332,636 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 32 | $ | 41 | $ | | $ | 4,896 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: collectively evaluated for impairment |
$ | 1,663 | $ | 20,613 | $ | 8,688 | $ | | $ | 327,740 | ||||||||||
|
|
|
|
|
|
|
|
|
|
16
Nine Months Ended March 31, 2014 Real Estate Loans |
||||||||||||||||
One-to Four- Family |
Multi- Family |
Commercial | Home Equity Lines of Credit |
|||||||||||||
Allowance for loan losses: |
||||||||||||||||
Balance, beginning of period |
$ | 1,616 | $ | 797 | $ | 838 | $ | 90 | ||||||||
Provision charged to expense |
74 | 59 | 141 | (3 | ) | |||||||||||
Losses charged off |
(331 | ) | | (28 | ) | | ||||||||||
Recoveries |
46 | | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 1,405 | $ | 856 | $ | 951 | $ | 87 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
$ | 187 | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
$ | 1,218 | $ | 856 | $ | 951 | $ | 87 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans: |
||||||||||||||||
Ending balance |
$ | 149,310 | $ | 62,607 | $ | 82,142 | $ | 7,540 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
$ | 3,120 | $ | 1,646 | $ | 57 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
$ | 146,190 | $ | 60,961 | $ | 82,085 | $ | 7,540 | ||||||||
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2014 (Continued) | ||||||||||||||||||||
Construction | Commercial | Consumer | Unallocated | Total | ||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||
Balance, beginning of period |
$ | 24 | $ | 431 | $ | 104 | $ | 38 | $ | 3,938 | ||||||||||
Provision charged to expense |
(13 | ) | 102 | 17 | (11 | ) | 366 | |||||||||||||
Losses charged off |
| (38 | ) | (37 | ) | | (434 | ) | ||||||||||||
Recoveries |
| | 5 | | 51 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, end of period |
$ | 11 | $ | 495 | $ | 89 | $ | 27 | $ | 3,921 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | | $ | 21 | $ | | $ | 208 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: collectively evaluated for impairment |
$ | 11 | $ | 495 | $ | 68 | $ | 27 | $ | 3,713 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans: |
||||||||||||||||||||
Ending balance |
$ | 1,663 | $ | 20,645 | $ | 8,729 | $ | | $ | 332,636 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 32 | $ | 41 | $ | | $ | 4,896 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: collectively evaluated for impairment |
$ | 1,663 | $ | 20,613 | $ | 8,688 | $ | | $ | 327,740 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2013 Real Estate Loans |
||||||||||||||||
One-to Four- Family |
Multi- Family |
Commercial | Home Equity Lines of Credit |
|||||||||||||
Allowance for loan losses: |
||||||||||||||||
Balance, beginning of year |
$ | 1,940 | $ | 679 | $ | 245 | $ | 81 | ||||||||
Provision charged to expense |
(295 | ) | 118 | 638 | 17 | |||||||||||
Losses charged off |
(78 | ) | | (45 | ) | (8 | ) | |||||||||
Recoveries |
49 | | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of year |
$ | 1,616 | $ | 797 | $ | 838 | $ | 90 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
$ | 403 | $ | | $ | 8 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
$ | 1,213 | $ | 797 | $ | 830 | $ | 90 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans: |
||||||||||||||||
Ending balance |
$ | 147,221 | $ | 58,442 | $ | 74,679 | $ | 8,228 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
$ | 4,100 | $ | 1,706 | $ | 194 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
$ | 143,121 | $ | 56,736 | $ | 74,485 | $ | 8,228 | ||||||||
|
|
|
|
|
|
|
|
17
Year Ended June 30, 2013 (Continued) | ||||||||||||||||||||
Construction | Commercial | Consumer | Unallocated | Total | ||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||
Balance, beginning of year |
$ | 78 | $ | 347 | $ | 139 | $ | 22 | $ | 3,531 | ||||||||||
Provision charged to expense |
(54 | ) | 134 | 21 | 16 | 595 | ||||||||||||||
Losses charged off |
| (50 | ) | (69 | ) | | (250 | ) | ||||||||||||
Recoveries |
| | 13 | | 62 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, end of year |
$ | 24 | $ | 431 | $ | 104 | $ | 38 | $ | 3,938 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 5 | $ | 25 | $ | | $ | 441 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: collectively evaluated for impairment |
$ | 24 | $ | 426 | $ | 79 | $ | 38 | $ | 3,497 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans: |
||||||||||||||||||||
Ending balance |
$ | 2,497 | $ | 19,695 | $ | 9,662 | $ | | $ | 320,424 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 242 | $ | 64 | $ | | $ | 6,306 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: collectively evaluated for impairment |
$ | 2,497 | $ | 19,453 | $ | 9,598 | $ | | $ | 314,118 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2013 Real Estate Loans |
||||||||||||||||
One-to Four- Family |
Multi- Family |
Commercial | Home Equity Lines of Credit |
|||||||||||||
Allowance for loan losses: |
||||||||||||||||
Balance, beginning of period |
$ | 1,985 | $ | 812 | $ | 566 | $ | 112 | ||||||||
Provision charged to expense |
| (53 | ) | 15 | (21 | ) | ||||||||||
Losses charged off |
| | | | ||||||||||||
Recoveries |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 1,985 | $ | 759 | $ | 581 | $ | 91 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
$ | 702 | $ | 195 | $ | 47 | $ | 16 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
$ | 1,283 | $ | 564 | $ | 534 | $ | 75 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans: |
||||||||||||||||
Ending balance |
$ | 146,087 | $ | 50,644 | $ | 60,709 | $ | 8,290 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
$ | 4,337 | $ | 1,725 | $ | 245 | $ | 23 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
$ | 141,750 | $ | 48,919 | $ | 60,464 | $ | 8,267 | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2013 (Continued) | ||||||||||||||||||||
Construction | Commercial | Consumer | Unallocated | Total | ||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||
Balance, beginning of period |
$ | 26 | $ | 301 | $ | 144 | $ | 19 | $ | 3,965 | ||||||||||
Provision charged to expense |
(4 | ) | 122 | (7 | ) | (7 | ) | 45 | ||||||||||||
Losses charged off |
| | (32 | ) | | (32 | ) | |||||||||||||
Recoveries |
| | 8 | | 8 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, end of period |
$ | 22 | $ | 423 | $ | 113 | $ | 12 | $ | 3,986 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 6 | $ | 27 | $ | | $ | 993 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: collectively evaluated for impairment |
$ | 22 | $ | 417 | $ | 86 | $ | 12 | $ | 2,993 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans: |
||||||||||||||||||||
Ending balance |
$ | 2,802 | $ | 16,073 | $ | 10,308 | $ | | $ | 294,913 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 41 | $ | 73 | $ | | $ | 6,444 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: collectively evaluated for impairment |
$ | 2,802 | $ | 16,032 | $ | 10,235 | $ | | $ | 288,469 | ||||||||||
|
|
|
|
|
|
|
|
|
|
18
Nine Months Ended March 31, 2013 | ||||||||||||||||
Real Estate Loans | ||||||||||||||||
One-to Four- Family |
Multi- Family |
Commercial | Home Equity Lines of Credit |
|||||||||||||
Allowance for loan losses: |
||||||||||||||||
Balance, beginning of period |
$ | 1,940 | $ | 679 | $ | 245 | $ | 81 | ||||||||
Provision charged to expense |
39 | 80 | 336 | 10 | ||||||||||||
Losses charged off |
(35 | ) | | | | |||||||||||
Recoveries |
41 | | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 1,985 | $ | 759 | $ | 581 | $ | 91 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
$ | 702 | $ | 195 | $ | 47 | $ | 16 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
$ | 1,283 | $ | 564 | $ | 534 | $ | 75 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans: |
||||||||||||||||
Ending balance |
$ | 146,087 | $ | 50,644 | $ | 60,709 | $ | 8,290 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
$ | 4,337 | $ | 1,725 | $ | 245 | $ | 23 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
$ | 141,750 | $ | 48,919 | $ | 60,464 | $ | 8,267 | ||||||||
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2013 (Continued) | ||||||||||||||||||||
Construction | Commercial | Consumer | Unallocated | Total | ||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||
Balance, beginning of period |
$ | 78 | $ | 347 | $ | 139 | $ | 22 | $ | 3,531 | ||||||||||
Provision charged to expense |
(56 | ) | 126 | 27 | (10 | ) | 552 | |||||||||||||
Losses charged off |
| (50 | ) | (64 | ) | | (149 | ) | ||||||||||||
Recoveries |
| | 11 | | 52 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, end of period |
$ | 22 | $ | 423 | $ | 113 | $ | 12 | $ | 3,986 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 6 | $ | 27 | $ | | $ | 993 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: collectively evaluated for impairment |
$ | 22 | $ | 417 | $ | 86 | $ | 12 | $ | 2,993 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans: |
||||||||||||||||||||
Ending balance |
$ | 2,802 | $ | 16,073 | $ | 10,308 | $ | | $ | 294,913 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 41 | $ | 73 | $ | | $ | 6,444 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance: collectively evaluated for impairment |
$ | 2,802 | $ | 16,032 | $ | 10,235 | $ | | $ | 288,469 | ||||||||||
|
|
|
|
|
|
|
|
|
|
19
Managements opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.
The allowance for loan losses represents an estimate of the amount of losses believed inherent in our loan portfolio at the balance sheet date. The allowance calculation involves a high degree of estimation that management attempts to mitigate through the use of objective historical data where available. Loan losses are charged against the allowance for loan losses when management believes the uncollectability of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Overall, we believe the reserve to be consistent with prior periods and adequate to cover the estimated losses in our loan portfolio.
The Companys methodology for assessing the appropriateness of the allowance for loan losses consists of two key elements: (1) specific allowances for estimated credit losses on individual loans that are determined to be impaired through the Companys review for identified problem loans; and (2) a general allowance based on estimated credit losses inherent in the remainder of the loan portfolio.
The specific allowance is measured by determining the present value of expected cash flows, the loans observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expense. Factors used in identifying a specific problem loan include: (1) the strength of the customers 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 borrowers effort to cure the delinquency. In addition for loans secured by real estate, the Company also considers the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage.
The Company establishes a general allowance for loans that are not deemed impaired to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. The general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on the Companys historical loss experience and managements evaluation of the collectability of the loan portfolio. The allowance is then adjusted for qualitative factors that, in managements judgment, affect the collectability of the portfolio as of the evaluation date. These qualitative factors may include: (1) Managements assumptions regarding the minimal level of risk for a given loan category; (2) changes in lending policies and procedures, including changes in underwriting standards, and charge-off and recovery practices not considered elsewhere in estimating credit losses; (3) changes in international, national, regional and local economics and business conditions and developments that affect the collectability of the portfolio, including the conditions of various market segments; (4) changes in the nature and volume of the portfolio and in the terms of loans; (5) changes in the experience, ability, and depth of the lending officers and other relevant staff; (6) changes in the volume and severity of past due loans, the volume of non-accrual loans, the volume of troubled debt restructured and other loan modifications, and the volume and severity of adversely classified loans; (7) changes in the quality of the loan review system; (8) changes in the value of the underlying collateral for collateral-dependent loans; (9) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and (10) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. The applied loss factors are re-evaluated quarterly to ensure their relevance in the current environment.
Although the Companys policy allows for a general valuation allowance on certain smaller-balance, homogenous pools of loans classified as substandard, the Company has historically evaluated every loan classified as substandard, regardless of size, for impairment as part of the review for establishing specific allowances. The Companys policy also allows for general valuation allowance on certain smaller-balance, homogenous pools of loans which are loans criticized as special mention or watch. A separate general allowance calculation is made on these loans based on historical measured weakness, and which is no less than twice the amount of the general allowance calculated on the non-classified loans.
Because of the recent added concern based on the overall condition of the real estate market and in particular how the market is affecting the Junior Lien and Home Equity Lines of Credit (HELOC) loan portfolios, the Company has
20
reviewed these two portfolios to determine the adequacy of the allowance. The Company notes that Junior Lien loans are one-to four-family loans that are in a subordinate lien position, and can be subordinate to either a Company first lien or another institution first lien and all are fully amortizing loans. HELOC loans were initially underwritten to ensure adequate cash flow to make payments even under stressed conditions. Based on review of the HELOC portfolio, $2.5 million had initial combined loan to value ratios of between 81% and 90%. The March 31, 2014 allowance calculation includes 1.08% of qualitative factors to address added concerns, above a weighted average loss factor of 0.07%. The qualitative factor for HELOCs was 1.01% as of June 30, 2013.
There have been no changes to the Companys accounting policies or methodology from the prior periods.
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. All loans are graded at inception of the loan. Subsequently, analyses are performed on an annual basis and grade changes are made as necessary. Interim grade reviews may take place if circumstances of the borrower warrant a more timely review. The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Companys 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 managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Companys credit position at some future date.
Substandard Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of any pledged collateral. Loans so classified have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
Loss Loans classified as loss are the portion of the loan that is considered uncollectible so that its continuance as an asset is not warranted. The amount of the loss determined will be charged-off.
Risk characteristics applicable to each segment of the loan portfolio are described as follows.
Residential One-to Four-Family and Equity Lines of Credit Real Estate: The residential one-to four-family real estate loans are generally secured by owner-occupied one-to four-family residences. Repayment of these loans is primarily dependent on the personal income of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Companys market areas that might impact either property values or a borrowers 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 Companys market areas.
21
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 Companys 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 borrowers 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 borrowers 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 Companys market area) and the creditworthiness of a borrower.
The following tables present the credit risk profile of the Companys loan portfolio based on rating category and payment activity:
Real Estate Loans | ||||||||||||||||||||||||||||||||
One-to Four- Family |
Multi-Family | Commercial | Home Equity Lines of Credit |
Construction | Commercial | Consumer | Total | |||||||||||||||||||||||||
March 31, 2014: |
||||||||||||||||||||||||||||||||
Pass |
$ | 145,633 | $ | 60,783 | $ | 80,108 | $ | 7,525 | $ | 1,663 | $ | 18,116 | $ | 8,684 | $ | 322,512 | ||||||||||||||||
Watch |
823 | 1,510 | 1,977 | | | 2,497 | | 6,807 | ||||||||||||||||||||||||
Substandard |
2,854 | 314 | 57 | 15 | | 32 | 45 | 3,317 | ||||||||||||||||||||||||
Doubtful |
| | | | | | | | ||||||||||||||||||||||||
Loss |
| | | | | | | | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 149,310 | $ | 62,607 | $ | 82,142 | $ | 7,540 | $ | 1,663 | $ | 20,645 | $ | 8,729 | $ | 332,636 | ||||||||||||||||
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|
|
Real Estate Loans | ||||||||||||||||||||||||||||||||
One-to Four- Family |
Multi-Family | Commercial | Home Equity Lines of Credit |
Construction | Commercial | Consumer | Total | |||||||||||||||||||||||||
June 30, 2013: |
||||||||||||||||||||||||||||||||
Pass |
$ | 142,607 | $ | 56,554 | $ | 74,115 | $ | 8,228 | $ | 2,497 | $ | 18,443 | $ | 9,598 | $ | 312,042 | ||||||||||||||||
Watch |
483 | 182 | 370 | | | 1,010 | | 2,045 | ||||||||||||||||||||||||
Substandard |
4,131 | 1,706 | 148 | | | 242 | 64 | 6,291 | ||||||||||||||||||||||||
Doubtful |
| | 46 | | | | | 46 | ||||||||||||||||||||||||
Loss |
| | | | | | | | ||||||||||||||||||||||||
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|
|
|
|
|
|||||||||||||||||
Total |
$ | 147,221 | $ | 58,442 | $ | 74,679 | $ | 8,228 | $ | 2,497 | $ | 19,695 | $ | 9,662 | $ | 320,424 | ||||||||||||||||
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The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made to either during the past year.
22
The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in process of collection. Past due status is based on contractual terms of the loan. In all instances, loans are placed on non-accrual or are charged off at an earlier date if collection of principal and interest is considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income. The interest on these loans is accounted for on a cash basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The following tables present the Companys loan portfolio aging analysis:
30-59 Days Past Due |
60-89 Days Past Due |
90 Days or Greater |
Total Past Due |
Current | Total Loans Receivable |
Total Loans 90 Days Past Due & Accruing |
||||||||||||||||||||||
March 31, 2014: |
||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||
One-to four-family |
$ | 1,583 | $ | 973 | $ | 1,639 | $ | 4,195 | $ | 145,115 | $ | 149,310 | $ | 18 | ||||||||||||||
Multi-family |
44 | | | 44 | 62,563 | 62,607 | | |||||||||||||||||||||
Commercial |
| | | | 82,142 | 82,142 | | |||||||||||||||||||||
Home equity lines of credit |
80 | 23 | | 103 | 7,437 | 7,540 | | |||||||||||||||||||||
Construction |
| | | | 1,663 | 1,663 | | |||||||||||||||||||||
Commercial |
| | | | 20,645 | 20,645 | | |||||||||||||||||||||
Consumer |
32 | 35 | 40 | 107 | 8,622 | 8,729 | 3 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 1,739 | $ | 1,031 | $ | 1,679 | $ | 4,449 | $ | 328,187 | $ | 332,636 | $ | 21 | ||||||||||||||
|
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|
|
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, 2013: |
||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||
One-to four-family |
$ | 2,502 | $ | 827 | $ | 2,472 | $ | 5,801 | $ | 141,420 | $ | 147,221 | $ | 30 | ||||||||||||||
Multi-family |
| | | | 58,442 | 58,442 | | |||||||||||||||||||||
Commercial |
343 | | 46 | 389 | 74,290 | 74,679 | | |||||||||||||||||||||
Home equity lines of credit |
144 | 8 | | 152 | 8,076 | 8,228 | | |||||||||||||||||||||
Construction |
| | | | 2,497 | 2,497 | | |||||||||||||||||||||
Commercial |
| 15 | | 15 | 19,680 | 19,695 | | |||||||||||||||||||||
Consumer |
105 | 50 | 44 | 199 | 9,463 | 9,662 | | |||||||||||||||||||||
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|
|||||||||||||||
Total |
$ | 3,094 | $ | 900 | $ | 2,562 | $ | 6,556 | $ | 313,868 | $ | 320,424 | $ | 30 | ||||||||||||||
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A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Association will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loans and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
23
Impairment is measured on a loan-by-loan basis by either the present value of the expected future cash flows, the loans observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. Significantly restructured loans are considered impaired in determining the adequacy of the allowance for loan losses.
The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlements with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring. Included in certain loan categories in the impaired loans are $2.9 million in troubled debt restructurings that were classified as impaired.
The following tables present impaired loans:
Three Months Ended March 31, 2014 |
Nine Months Ended March 31, 2014 |
|||||||||||||||||||||||||||||||||||
Recorded Balance |
Unpaid Principal Balance |
Specific Allowance |
Average Investment in Impaired Loans |
Interest Income Recognized |
Interest on Cash Basis |
Average Investment in Impaired Loans |
Interest Income Recognized |
Interest on Cash Basis |
||||||||||||||||||||||||||||
March 31, 2014: |
||||||||||||||||||||||||||||||||||||
Loans without a specific valuation allowance |
||||||||||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||||||||||
One-to-four family |
$ | 2,504 | $ | 2,504 | $ | | $ | 2,530 | $ | 3 | $ | 6 | $ | 2,628 | $ | 12 | $ | 24 | ||||||||||||||||||
Multi-family |
1,646 | 1,646 | | 1,658 | 23 | 23 | 1,676 | 63 | 71 | |||||||||||||||||||||||||||
Commercial |
57 | 57 | | 58 | | | 60 | | | |||||||||||||||||||||||||||
Home equity line of credit |
| | | | | | | | | |||||||||||||||||||||||||||
Construction |
| | | | | | | | | |||||||||||||||||||||||||||
Commercial |
32 | 32 | | 32 | | | 35 | | | |||||||||||||||||||||||||||
Consumer |
5 | 5 | | 6 | | | 9 | | | |||||||||||||||||||||||||||
Loans with a specific valuation allowance |
||||||||||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||||||||||
One-to-four family |
616 | 616 | 187 | 622 | | | 626 | | 1 | |||||||||||||||||||||||||||
Multi-family |
| | | | | | | | | |||||||||||||||||||||||||||
Commercial |
| | | | | | | | | |||||||||||||||||||||||||||
Home equity line of credit |
| | | | | | | | | |||||||||||||||||||||||||||
Construction |
| | | | | | | | | |||||||||||||||||||||||||||
Commercial |
| | | | | | | | | |||||||||||||||||||||||||||
Consumer |
36 | 36 | 21 | 41 | 1 | 1 | 46 | 1 | 2 | |||||||||||||||||||||||||||
Total: |
||||||||||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||||||||||
One-to-four family |
3,120 | 3,120 | 187 | 3,152 | 3 | 6 | 3,254 | 12 | 25 | |||||||||||||||||||||||||||
Multi-family |
1,646 | 1,646 | | 1,658 | 23 | 23 | 1,676 | 63 | 71 | |||||||||||||||||||||||||||
Commercial |
57 | 57 | | 58 | | | 60 | | | |||||||||||||||||||||||||||
Home equity line of credit |
| | | | | | | | | |||||||||||||||||||||||||||
Construction |
| | | | | | | | | |||||||||||||||||||||||||||
Commercial |
32 | 32 | | 32 | | | 35 | | | |||||||||||||||||||||||||||
Consumer |
41 | 41 | 21 | 47 | 1 | 1 | 55 | 1 | 2 | |||||||||||||||||||||||||||
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|
|||||||||||||||||||
$ | 4,896 | $ | 4,896 | $ | 208 | $ | 4,947 | $ | 27 | $ | 30 | $ | 5,080 | $ | 76 | $ | 98 | |||||||||||||||||||
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24
Year Ended June 30, 2013 |
||||||||||||||||||||||||
Recorded Balance |
Unpaid Principal Balance |
Specific Allowance |
Average Investment in Impaired Loans |
Interest Income Recognized |
Interest on Cash Basis |
|||||||||||||||||||
June 30, 2013: |
||||||||||||||||||||||||
Loans without a specific valuation allowance |
||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
One-to four-family |
$ | 2,375 | $ | 2,375 | $ | | $ | 2,405 | $ | 14 | $ | 19 | ||||||||||||
Multi-family |
1,706 | 1,706 | | 1,773 | 3 | 5 | ||||||||||||||||||
Commercial |
148 | 148 | | 154 | 6 | 7 | ||||||||||||||||||
Home equity line of credit |
| | | | | | ||||||||||||||||||
Construction |
| | | | | | ||||||||||||||||||
Commercial |
204 | 204 | | 233 | 13 | 14 | ||||||||||||||||||
Consumer |
2 | 2 | | 3 | | | ||||||||||||||||||
Loans with a specific allowance |
||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
One-to four-family |
1,725 | 1,725 | 403 | 1,741 | 6 | 9 | ||||||||||||||||||
Multi-family |
| | | | | | ||||||||||||||||||
Commercial |
46 | 46 | 8 | 70 | | | ||||||||||||||||||
Home equity line of credit |
| | | | | | ||||||||||||||||||
Construction |
| | | | | | ||||||||||||||||||
Commercial |
38 | 38 | 5 | 40 | | 1 | ||||||||||||||||||
Consumer |
62 | 62 | 25 | 75 | 2 | 3 | ||||||||||||||||||
Total: |
||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
One-to four-family |
4,100 | 4,100 | 403 | 4,146 | 20 | 28 | ||||||||||||||||||
Multi-family |
1,706 | 1,706 | | 1,773 | 3 | 5 | ||||||||||||||||||
Commercial |
194 | 194 | 8 | 224 | 6 | 7 | ||||||||||||||||||
Home equity line of credit |
| | | | | | ||||||||||||||||||
Construction |
| | | | | | ||||||||||||||||||
Commercial |
242 | 242 | 5 | 273 | 13 | 15 | ||||||||||||||||||
Consumer |
64 | 64 | 25 | 78 | 2 | 3 | ||||||||||||||||||
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|
|
|
|||||||||||||
$ | 6,306 | $ | 6,306 | $ | 441 | $ | 6,494 | $ | 44 | $ | 58 | |||||||||||||
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|
Three Months Ended March 31, 2013 |
Nine Months Ended March 31, 2013 |
|||||||||||||||||||||||||||||||||||
Recorded Balance |
Unpaid Principal Balance |
Specific Allowance |
Average Investment in Impaired Loans |
Interest Income Recognized |
Interest on Cash Basis |
Average Investment in Impaired Loans |
Interest Income Recognized |
Interest on Cash Basis |
||||||||||||||||||||||||||||
March 31, 2013: |
||||||||||||||||||||||||||||||||||||
Loans without a specific valuation allowance |
||||||||||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||||||||||
One-to-four family |
$ | 1,585 | $ | 1,585 | $ | | $ | 1,591 | $ | | $ | 2 | $ | 1,607 | $ | 1 | $ | 8 | ||||||||||||||||||
Multi-family |
53 | 53 | | 54 | | 1 | 56 | 2 | 3 | |||||||||||||||||||||||||||
Commercial |
136 | 136 | | 137 | 2 | 2 | 139 | 6 | 7 | |||||||||||||||||||||||||||
Home equity line of credit |
| | | | | | | | | |||||||||||||||||||||||||||
Construction |
| | | | | | | | | |||||||||||||||||||||||||||
Commercial |
1 | 1 | | 1 | | | 2 | | | |||||||||||||||||||||||||||
Consumer |
11 | 11 | | 12 | | | 14 | 1 | 1 | |||||||||||||||||||||||||||
Loans with a specific valuation allowance |
||||||||||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||||||||||
One-to-four family |
2,752 | 2,752 | 702 | 2,712 | | 1 | 2,747 | 2 | 5 | |||||||||||||||||||||||||||
Multi-family |
1,672 | 1,672 | 195 | 1,690 | | | 1,727 | 1 | 3 | |||||||||||||||||||||||||||
Commercial |
109 | 109 | 47 | 109 | | | 110 | | | |||||||||||||||||||||||||||
Home equity line of credit |
23 | 23 | 16 | 23 | | | 23 | | | |||||||||||||||||||||||||||
Construction |
| | | | | | | | | |||||||||||||||||||||||||||
Commercial |
40 | 40 | 6 | 40 | | | 42 | | 1 | |||||||||||||||||||||||||||
Consumer |
62 | 62 | 27 | 65 | | | 69 | 2 | 3 | |||||||||||||||||||||||||||
Total: |
||||||||||||||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||||||||||
One-to-four family |
4,337 | 4,337 | 702 | 4,303 | | 3 | 4,354 | 3 | 13 | |||||||||||||||||||||||||||
Multi-family |
1,725 | 1,725 | 195 | 1,744 | | 1 | 1,783 | 3 | 6 | |||||||||||||||||||||||||||
Commercial |
245 | 245 | 47 | 246 | 2 | 2 | 249 | 6 | 7 | |||||||||||||||||||||||||||
Home equity line of credit |
23 | 23 | 16 | 23 | | | 23 | | | |||||||||||||||||||||||||||
Construction |
| | | | | | | | | |||||||||||||||||||||||||||
Commercial |
41 | 41 | 6 | 41 | | | 44 | | 1 | |||||||||||||||||||||||||||
Consumer |
73 | 73 | 27 | 77 | | | 83 | 3 | 4 | |||||||||||||||||||||||||||
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|
|
|
|
|
|||||||||||||||||||
$ | 6,444 | $ | 6,444 | $ | 993 | $ | 6,434 | $ | 2 | $ | 6 | $ | 6,536 | $ | 15 | $ | 31 | |||||||||||||||||||
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25
Interest income recognized on impaired loans includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on non-accruing impaired loans for which the ultimate collectability of principal is not uncertain.
The following table presents the Companys nonaccrual loans at March 31, 2014 and June 30, 2013:
March 31, 2014 |
June 30, 2013 |
|||||||
Real estate loans: |
||||||||
One-to four-family |
$ | 2,446 | $ | 3,439 | ||||
Multi-family |
314 | 353 | ||||||
Commercial |
57 | 194 | ||||||
Home equity lines of credit |
| | ||||||
Construction loans |
| | ||||||
Commercial business loans |
32 | 242 | ||||||
Consumer loans |
38 | 64 | ||||||
|
|
|
|
|||||
Total |
$ | 2,887 | $ | 4,292 | ||||
|
|
|
|
Included in certain loan categories in the impaired loans are troubled debt restructurings (TDR) which were classified as impaired, where economic concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs are considered impaired at the time of restructuring and may be returned to accrual status after considering the borrowers sustained repayment performance for a reasonable period of at least six months, and typically are returned to performing status after twelve months, unless impairment still exists.
When loans and leases are modified into a TDR, the Company evaluates any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, and uses the current fair value of the collateral, less selling costs for collateral dependent loans. If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance.
26
The following table presents the recorded balance, at original cost, of troubled debt restructurings. As of March 31, 2014 all loans listed were on nonaccrual except for ten, one-to four-family residential loans totaling $674,000, and one multi-family loan for $1.3 million. All loans listed as of June 30, 2013 were on nonaccrual except for eight, one-to four-family residential loans totaling $661,000, and one multi-family loan for $1.4 million.
March 31, 2014 | June 30, 2013 | |||||||
Real estate loans |
||||||||
One-to four-family |
$ | 1,535 | $ | 1,808 | ||||
Multi-family |
1,349 | | ||||||
Commercial |
16 | 1,379 | ||||||
Home equity lines of credit |
| 46 | ||||||
|
|
|
|
|||||
Total real estate loans |
2,900 | 3,233 | ||||||
|
|
|
|
|||||
Construction |
| | ||||||
Commercial and industrial |
32 | 39 | ||||||
Consumer loans |
| 2 | ||||||
|
|
|
|
|||||
Total |
$ | 2,932 | $ | 3,274 | ||||
|
|
|
|
During the nine month period ended March 31, 2014, the Company modified two, one-to four-family loans with a recorded investment of $14,000, and one commercial loan in the amount of $16,000, as troubled debt restructurings.
During the year ended June 30, 2013, the Company modified two one-to four-family residential real estate loans, with a recorded investment of $176,000, one multi-family residential real estate loan with a recorded investment of $25,000, and one commercial business loan with a recorded investment of $38,000.
During the nine month period ended March 31, 2013, the Company modified one, one-to four-family residential real estate loan, with a recorded investment of $67,000, and three commercial loans totaling $43,000 as troubled debt restructurings.
The Company has three TDRs, all of which were one-to four-family residential loans totaling $407,000, that were in default as of March 31, 2014, and were restructured in prior periods. All of these loans were in foreclosure at March 31, 2014. The Company had three TDRs, all one-to four-family residential loans totaling $460,000, that were in default as of June 30, 2013, and were restructured in the prior years. All of these loans were in foreclosure at June 30, 2013. A fourth loan, a commercial real estate loan for $46,000, defaulted in 2013 and was in foreclosure at June 30, 2013. The Company defines a default as any loan that becomes 90 days or more past due.
Specific loss allowances are included in the calculation of estimated future loss ratios, which are applied to the various loan portfolios for purposes of estimating future losses.
Management considers the level of defaults within the various portfolios, as well as the current adverse economic environment and negative outlook in the real estate and collateral markets when evaluating qualitative adjustments used to determine the adequacy of the allowance for loan losses. We believe the qualitative adjustments more accurately reflect collateral values in light of the sales and economic conditions that we have recently observed.
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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 $5,425,000 of Federal Home Loan Bank stock as of both March 31, 2014 and June 30, 2013. The FHLB provides liquidity and funding through advances.
Note 8: | Comprehensive Income (Loss) |
The components of accumulated other comprehensive income (loss), included in stockholders equity, were as follows at the dates specified:
March 31, 2014 | June 30, 2013 | |||||||
Net unrealized gains (losses) on securities available-for-sale |
$ | 507 | $ | (492 | ) | |||
Net unrealized postretirement health benefit plan obligations |
(197 | ) | (152 | ) | ||||
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310 | (644 | ) | ||||||
Tax effect |
(124 | ) | 259 | |||||
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Total |
$ | 186 | $ | (385 | ) | |||
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Note 9: | Changes in Accumulated Other Comprehensive Income (AOCI) by Component |
Amounts reclassified from AOCI and the affected line items in the statements of income during the three and nine month periods ended March 31, 2014 and 2013, were as follows:
Amounts Reclassified from AOCI | ||||||||||||||||||
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||||
2014 | 2013 | 2014 | 2013 |
Affected Line Item in the Condensed Consolidated Statements of Income | ||||||||||||||
Unrealized gains (losses) on available-for-sale securities |
$ | (95 | ) | $ | 61 | $ | (199 | ) | $ | 629 | Net realized gains (losses) on sale of available-for- sale securities | |||||||
Amortization of defined benefit pension items Transition obligation |
$ | 8 | $ | 9 | $ | 24 | $ | 25 | Components are included in computation of net periodic pension cost | |||||||||
Prior service costs |
$ | (12 | ) | $ | (12 | ) | $ | (36 | ) | $ | (36 | ) | ||||||
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Total reclassified amount before tax |
(99 | ) | 58 | (211 | ) | 618 | ||||||||||||
Tax expense (benefit) |
(40 | ) | 24 | (85 | ) | 249 | Provision for Income Tax | |||||||||||
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Total reclassification out of AOCI |
$ | (59 | ) | $ | 34 | $ | (126 | ) | $ | 369 | Net Income | |||||||
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Note 10: | Income Taxes |
A reconciliation of income tax expense (benefit) at the statutory rate to the Companys actual income tax expense (benefit) is shown below:
Three Months Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Computed at the statutory rate (34%) |
$ | 433 | $ | 490 | $ | 1,280 | $ | 1,459 | ||||||||
Decrease resulting from |
||||||||||||||||
Tax exempt interest |
(7 | ) | (10 | ) | (25 | ) | (30 | ) | ||||||||
Cash surrender value of life insurance |
(23 | ) | (22 | ) | (69 | ) | (67 | ) | ||||||||
State income taxes |
67 | 89 | 224 | 174 | ||||||||||||
Other |
(30 | ) | (29 | ) | (118 | ) | (11 | ) | ||||||||
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Actual expense |
$ | 440 | $ | 518 | $ | 1,292 | $ | 1,525 | ||||||||
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The Company established a charitable foundation at the time of its mutual-to-stock conversion and donated to it shares of common stock equal to 7% of the shares sold in the offering, or 314,755 shares. The donated shares were valued at $3,147,550 ($10.00 per share) at the time of conversion. The Association also contributed $450,000 in cash to the Foundation. The $3,147,550 and the $450,000 cash donation, or a total of $3,597,550 was expensed during the quarter ended September 30, 2011. The Company established a deferred tax asset associated with this charitable contribution. No valuation allowance was deemed necessary as it appears the Company will be able to deduct the contribution, which is subject to limitations each year, during the five year carry-forward period.
Note 11: | Disclosures About Fair Value of Assets and Liabilities |
Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:
Level 1 | Quoted prices in active markets for identical assets or liabilities |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities |
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Recurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2014 and June 30, 2013:
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) |
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March 31, 2014: |
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Available-for-sale securities: |
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US Government and federal agency |
$ | 131,980 | $ | | $ | 131,980 | $ | | ||||||||
Mortgage-backed securities GSE residential |
79,213 | | 79,213 | | ||||||||||||
State and political subdivisions |
2,900 | | 2,900 | | ||||||||||||
Mortgage servicing rights |
516 | | | 516 |
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) |
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June 30, 2013: |
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Available-for-sale securities: |
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US Government and federal agency |
$ | 122,333 | $ | | $ | 122,333 | $ | | ||||||||
Mortgage-backed securities GSE residential |
74,609 | | 74,609 | | ||||||||||||
State and political subdivisions |
3,885 | | 3,885 | | ||||||||||||
Mortgage servicing rights |
502 | | | 502 |
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended March 31, 2014. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Available-for-Sale Securities
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. There were no Level 1 securities as of March 31, 2014 or June 30, 2013. 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
30
one, or a combination of, observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government and federal agency, mortgage-backed securities (GSEresidential) and state and political subdivisions. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. There were no Level 3 securities as of March 31, 2014 or June 30, 2013.
Mortgage Servicing Rights
Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.
Level 3 Reconciliation
The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:
Mortgage Servicing Rights |
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Balance, July 1, 2013 |
$ | 502 | ||
Total realized and unrealized gains and losses included in net income |
4 | |||
Servicing rights that result from asset transfers |
53 | |||
Payments received and loans refinanced |
(43 | ) | ||
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Balance, March 31, 2014 |
$ | 516 | ||
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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 |
$ | 4 | ||
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Realized and unrealized gains and losses for items reflected in the table above are included in net income in the consolidated statements of income as noninterest income.
Nonrecurring Measurements
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2014 and June 30, 2013:
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) |
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March 31, 2014: |
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Impaired loans (collateral-dependent) |
$ | 83 | $ | | $ | | $ | 83 | ||||||||
Foreclosed assets |
38 | | | 38 | ||||||||||||
June 30, 2013: |
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Impaired loans (collateral-dependent) |
$ | 581 | $ | | $ | | $ | 581 | ||||||||
Foreclosed assets |
399 | | | 399 |
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The following table presents (losses)/recoveries recognized on assets measured on a non-recurring basis for the three months and nine months ended March 31, 2014 and 2013:
Three Months Ended March 31, |
Nine Months Ended March 31, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Impaired loans (collateral-dependent) |
$ | 18,000 | $ | 28,000 | $ | 59,000 | $ | 15,000 | ||||||||
Foreclosed and repossessed assets held for sale |
| (28,000 | ) | (75,000 | ) | (28,000 | ) | |||||||||
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Total losses on assets measured on a non-recurring basis |
$ | 18,000 | $ | | $ | (16,000 | ) | $ | (13,000 | ) | ||||||
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Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Collateral-dependent Impaired Loans, Net of the Allowance for Loan Losses
The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the senior lending officer. Appraisals are reviewed for accuracy and consistency by the senior lending officer. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the senior lending officer by comparison to historical results.
Foreclosed Assets
Foreclosed assets consist primarily of real estate owned. Real estate owned (OREO) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of OREO is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy.
Appraisals of OREO are obtained when the real estate is acquired and subsequently as deemed necessary by the senior lending officer. Appraisals are reviewed for accuracy and consistency by the senior lending officer. Appraisers are selected from the list of approved appraisers maintained by management.
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Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at March 31, 2014 and June 30, 2013.
Fair Value at March 31, 2014 |
Valuation Technique |
Unobservable Inputs |
Range (Weighted Average) | |||||||
Mortgage servicing rights |
$ | 516 | Discounted cash flow | Discount rate | 10.5% 11.5% (10.5%) | |||||
Constant prepayment rate | 10.4% - 12.4% (11.5%) | |||||||||
Probability of default | .20% - .35% (.34%) | |||||||||
Impaired loans (collateral-dependent ) |
83 | Market comparable properties | Marketability discount | 0% 24% (23%) | ||||||
Foreclosed assets |
38 | Market comparable properties | Comparability adjustments (%) | 24% (24%) | ||||||
Fair Value at June 30, 2013 |
Valuation Technique |
Unobservable Inputs |
Range (Weighted Average) | |||||||
Mortgage servicing rights |
$ | 502 | Discounted cash flow | Discount rate | 10.5% 11.5% (10.5%) | |||||
Constant prepayment rate | 10.7% - 12.68% (11.74%) | |||||||||
Probability of default | .20% - .35% (.34%) | |||||||||
Impaired loans (collateral-dependent) |
581 | Market comparable properties | Marketability discount | 16% 24% (23%) | ||||||
Foreclosed assets |
399 | Market comparable properties | Comparability adjustments (%) | 16% (16%) |
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Fair Value of Financial Instruments
The following tables present estimated fair values of the Companys financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2014 and June 30, 2013.
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) |
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March 31, 2014: |
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Financial assets |
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Cash and cash equivalents |
$ | 12,461 | $ | 12,461 | $ | | $ | | ||||||||
Interest-bearing time deposits in banks |
250 | 250 | | | ||||||||||||
Loans, net of allowance for loan losses |
327,213 | | | 331,121 | ||||||||||||
Federal Home Loan Bank stock |
5,425 | | 5,425 | | ||||||||||||
Accrued interest receivable |
2,024 | | 2,024 | | ||||||||||||
Financial liabilities |
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Deposits |
404,307 | | 148,894 | 255,611 | ||||||||||||
Repurchase agreements |
2,737 | | 2,737 | | ||||||||||||
Federal Home Loan Bank advances |
84,500 | | 86,017 | | ||||||||||||
Advances from borrowers for taxes and insurance |
1,322 | | 1,322 | | ||||||||||||
Accrued interest payable |
80 | | 80 | | ||||||||||||
Unrecognized financial instruments (net of contract amount) |
| | | | ||||||||||||
Commitments to originate loans |
| | | | ||||||||||||
Lines of credit |
| | | |
34
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) |
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June 30, 2013: |
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Financial assets |
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Cash and cash equivalents |
$ | 6,580 | $ | 6,580 | $ | | $ | | ||||||||
Interest-bearing time deposits in banks |
250 | 250 | | | ||||||||||||
Loans, net of allowance for loan losses |
315,775 | | | 319,624 | ||||||||||||
Federal Home Loan Bank stock |
5,425 | | 5,425 | | ||||||||||||
Accrued interest receivable |
1,688 | | 1,688 | | ||||||||||||
Financial liabilities |
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Deposits |
371,203 | | 115,560 | 226,908 | ||||||||||||
Repurchase agreements |
1,674 | | 1,674 | | ||||||||||||
Federal Home Loan Bank advances |
87,500 | | 89,336 | | ||||||||||||
Advances from borrowers for taxes and insurance |
966 | | 966 | | ||||||||||||
Accrued interest payable |
44 | | 44 | | ||||||||||||
Unrecognized financial instruments (net of contract amount) |
| | | | ||||||||||||
Commitments to originate loans |
| | | | ||||||||||||
Lines of credit |
| | | |
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.
Cash and Cash Equivalents, Interest-Bearing Time Deposits in Banks, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, Repurchase Agreements and Advances from Borrowers for Taxes and Insurance
The carrying amount approximates fair value.
Loans
The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.
35
Deposits
Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount of these types of deposits approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
Federal Home Loan Bank Advances
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.
Commitments to Originate Loans and Lines of Credit
The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of lines of credit are based on fees currently charged for similar agreements, or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.
Note 12: | 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 customers creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on managements 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 customers creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on managements credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.
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Item 2. | Managements 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 managements 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.
Managements 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 Associations loan or investment portfolios. Additional factors that may affect our results are discussed under Item 1A. - Risk Factors, in the Companys Annual Report on Form 10-K for the year ended June 30, 2013, and the Companys 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 Iroquois Federal Savings and Loan Associations (the Association) mutual-to-stock conversion, selling 4,496,500 shares of common stock at $10.00 per share, including 384,900 shares sold to the Associations 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 bringing the total shares issued in connection with the conversion to 4,811,255. The 314,755 shares donated to the foundation were valued at $3,147,550 ($10.00 per share) at the time of the conversion. This $3,147,550 and a $450,000 cash donation to the foundation were both expensed during the quarter ended September 30, 2011.
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 Companys 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, and Savoy, Illinois and Osage Beach, Missouri. Our newest branch located at 108 Arbours Drive, in Savoy, Illinois, was opened on April 1, 2014. The principal activity of the Associations wholly-owned subsidiary, L.C.I. Service Corporation (L.C.I.), is the sale of property and casualty insurance. The Association is subject to regulation by the Office of the Controller of the Currency and the Federal Deposit Insurance Corporation.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities and other interest-earning assets, and the interest paid on our interest-bearing liabilities, consisting primarily of savings and transaction accounts, certificates of deposit, repurchase agreements, and Federal Home Loan Bank of Chicago advances. Our results of operations also are affected by our provision for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of customer service fees, brokerage commission income, insurance commission income, net realized gains on loan sales, mortgage banking income, and income on bank-owned life insurance. Noninterest expense consists primarily of compensation and benefits, occupancy and equipment, data processing, professional fees, marketing, office supplies, federal deposit insurance premiums, and foreclosed assets. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.
37
Our net interest rate spread (the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities) increased to 2.83% for the nine months ended March 31, 2014 from 2.75% for the nine months ended March 31, 2013. An increase in interest-earning assets contributed to an increase in net interest income to $11.8 million for the nine months ended March 31, 2014 from $10.8 million for the nine months ended March 31, 2013.
Our emphasis on conservative loan underwriting has resulted in relatively low levels of non-performing assets at a time when many financial institutions are experiencing significant asset quality issues. Our non-performing assets totaled $3.3 million or 0.6% of total assets at March 31, 2014, and $4.7 million, or 0.87% of total assets at June 30, 2013.
At March 31, 2014, the Association was categorized as well capitalized under regulatory capital requirements.
Our net income for the nine months ended March 31, 2014 was $2.5 million, compared to a net income of $2.8 million for the nine months ended March 31, 2013. The decrease in net income was primarily due to a decrease in noninterest income and an increase in noninterest expense, partially offset by an increase in net interest income and a decrease in the provision for loan losses.
Managements discussion and analysis of the financial condition and results of operations at and for the three and nine months ended March 31, 2014 and 2013 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 Loan Losses. We believe that the allowance for loan losses and related provision for loan losses are particularly susceptible to change in the near term, due to changes in credit quality which are evidenced by trends in charge-offs and in the volume and severity of past due loans. In addition, our portfolio is comprised of a substantial amount of commercial real estate loans which generally have greater credit risk than one-to four-family residential mortgage and consumer loans because these loans generally have larger principal balances and are non-homogenous.
The allowance for loan losses is maintained at a level to provide for probable credit losses inherent in the loan portfolio at the balance sheet date. Based on our estimate of the level of allowance for loan losses required, we record a provision for loan losses as a charge to earnings to maintain the allowance for loan losses at an appropriate level. The estimate of our credit losses is applied to two general categories of loans:
| loans that we evaluate individually for impairment under ASC 310-10, Receivables; and |
| groups of loans with similar risk characteristics that we evaluate collectively for impairment under ASC 450-20, Loss Contingencies. |
The allowance for loan losses is evaluated on a regular basis by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio. The factors used to evaluate the collectability of the loan portfolio include, but are not limited to, current economic conditions, our historical loss experience, the nature and volume of the loan portfolio, the financial strength of the borrower, and the estimated value of any underlying collateral. This evaluation is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available. Actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results.
38
Income Tax Accounting. The provision for income taxes is based upon income in our consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date. Under U.S. GAAP, a valuation allowance is required to be recognized if it is more likely than not that a deferred tax asset will not be realized. The determination as to whether we will be able to realize the deferred tax assets is highly subjective and dependent upon judgment concerning our evaluation of both positive and negative evidence, our forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. Positive evidence includes the existence of taxes paid in available carryback years as well as the probability that taxable income will be generated in future periods, while negative evidence includes any cumulative losses in the current year and prior two years and general business and economic trends. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. Any required valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings. Positions taken in our tax returns may be subject to challenge by the taxing authorities upon examination. The benefit of an uncertain tax position is initially recognized in the financial statements only when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Differences between our position and the position of tax authorities could result in a reduction of a tax benefit or an increase to a tax liability, which could adversely affect our future income tax expense.
There are no material changes to the critical accounting policies disclosed in IF Bancorp, Inc.s Form 10-K for fiscal year ended June 30, 2013.
Comparison of Financial Condition at March 31, 2014 and June 30, 2013
Total assets increased $30.8 million, or 5.6%, to $578.3 million at March 31, 2014 from $547.5 million at June 30, 2013. The increase was primarily due to a $11.4 million increase in net loans, a $13.3 million increase in investment securities, and a $5.9 million increase in cash and cash equivalents.
Net loans receivable increased by $11.4 million, or 3.6%, to $327.2 million at March 31, 2014 from $315.8 million at June 30, 2013. The increase in net loans receivable during this period was due primarily to a $7.4 million, or 10.0%, increase in commercial real estate loans, a $4.2 million, or 7.1%, increase in multi-family loans, a $2.1 million, or 1.4%, increase in one-to four-family loans and a $950,000, or 4.8%, increase in commercial business loans. These increases were partially offset by a decrease of $834,000, or 33.4%, in construction loans, a decrease of $933,000, or 9.7%, in consumer loans, and a decrease of $688,000, or 8.4%, in home equity lines of credit.
Investment securities, consisting entirely of securities available-for-sale, increased $13.3 million, or 6.6%, to $214.1 million at March 31, 2014 from $200.8 million at June 30, 2013. Purchased investment securities consisted primarily of agency debt obligations with terms of four to seven years and fixed-rate mortgage backed securities with terms of 15 years, all of which are held as available-for-sale. We had no securities held to maturity at March 31, 2014 or June 30, 2013.
As of March 31, 2014, interest receivable increased $336,000 to $2.0 million, premises and equipment increased $607,000 to $4.9 million, foreclosed assets held for sale (other real estate owned) decreased $37,000 to $381,000 and other assets decreased $465,000 to $342,000 from the respective balances as of June 30, 2013. Federal Home Loan Bank stock was $5.4 million at both March 31, 2014 and June 30, 2013. The increase in interest receivable was primarily due to increases in interest receivable on investments and interest receivable on commercial loans and the increase in premises and equipment was due to the purchase of an office building, furniture, and equipment for our new branch office in Savoy, Illinois. The decrease in other real estate owned is due to the sale of other real estate owned, and the decrease in other assets resulted from a decrease in prepaid insurance due to the timing of multi-year premiums and also from a decrease in accounts receivable general due to the receipt of a receivable that was outstanding as of June 30, 2013.
39
At March 31, 2014, our investment in bank-owned life insurance was $8.0 million, an increase of $203,000 from $7.8 million at June 30, 2013. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Federal regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses, which totaled $17.3 million at March 31, 2014.
Deposits increased $33.1 million, or 8.9%, to $404.3 million at March 31, 2014 from $371.2 million at June 30, 2013. Certificates of deposit, excluding brokered certificates of deposit, increased $26.3 million, or 13.9%, to $215.0 million, savings, NOW, and money market accounts increased $463,000, or 0.4%, to $132.2 million, brokered certificates of deposit increased $2.5 million, or 6.7%, to $40.4 million, and noninterest bearing demand accounts increased $3.8 million, or 29.9%, to $16.7 million. Repurchase agreements increased $1.1 million to $2.7 million. Borrowings, which consisted solely of advances from the Federal Home Loan Bank of Chicago, decreased $3.0 million, or 3.4%, to $84.5 million at March 31, 2014 from $87.5 million at June 30, 2013.
Other liabilities decreased $18,000, or 0.9%, to $2.0 million at March 31, 2014 from $2.1 million on June 30, 2013. The decrease was attributable to a general decrease in accounts payable and accrued expenses payable due to timing of payments.
Total equity decreased $883,000, or 1.1%, to $80.9 million at March 31, 2014 from $81.7 million at June 30, 2013. Equity decreased due to stock repurchases of $3.8 million and the recognition of dividends in the amount of $432,000, partially offset by a net income of $2.5 million. A stock repurchase program was adopted during the nine months ended March 31, 2014, which authorized the Company to repurchase up to 228,535 shares of its common stock, or approximately 5% of then current outstanding shares. As of March 31, 2014, all 228,535 shares were repurchased. During the nine months ended March 31, 2014, the Companys Board of Directors declared two cash dividends of $0.05 per common share which were paid on October 15, 2013, and April 15, 2014.
Comparison of Operating Results for the Nine Months Ended March 31, 2014 and 2013
General. Net income decreased $293,000 to $2.5 million net income for the nine months ended March 31, 2014 from a $2.8 million net income for the nine months ended March 31, 2013. The decrease was primarily due to a decrease in noninterest income and an increase in noninterest expense, partially offset by an increase in net interest income and a decrease in provision for loan losses.
Net Interest Income. Net interest income increased by $1.0 million, or 9.4%, to $11.8 million for the nine months ended March 31, 2014 from $10.8 million for the nine months ended March 31, 2013. The increase was due to an increase of $1.0 million in interest and dividend income, partially offset by an increase of $8,000 in interest expense. The increase in net interest income was primarily the result of an increase in the average balance of interest earning assets and lower rates paid on certificates of deposit and FHLB advances. We had a $35.9 million, or 7.2% increase in the average balance of interest earning assets, partially offset by a $35.5 million, or 8.4% increase in average balance of interest bearing liabilities. Our interest rate spread increased by 8 basis points to 2.83% for the nine months ended March 31, 2014 from 2.75% for the nine months ended March 31, 2013, and our net interest margin increased by 6 basis points to 2.92% for the nine months ended March 31, 2014 from 2.86% for the nine months ended March 31, 2013.
Interest and Dividend Income. Interest and dividend income increased $1.0 million, or 7.7%, to $14.1 million for the nine months ended March 31, 2014 from $13.1 million for the nine months ended March 31, 2013. The increase in interest income was primarily due to an increase in interest income on loans, partially offset by a decrease in interest income on securities. Interest on securities decreased $74,000, or 1.9%, as an $8.8 million decrease in the average balance of securities to $204.7 million at March 31, 2014 was partially offset by a 5 basis point increase in the average yield on securities from 2.44% to 2.49%. An increase of $1.0 million in interest on loans resulted from a $47.1 million, or 16.9%, increase in the average balance of loans to $324.9 million for the nine months ended March 31, 2014, partially
40
offset by a 19 basis point, or 4.3%, decrease in the average yield on loans from 4.41% to 4.22%. The decrease in the average yield on loans reflected a reduction in the current interest rates charged on loans originated during the period versus the average rates on loans in the portfolio in the prior period.
Interest Expense. Interest expense increased $8,000, or 0.3%, and was $2.3 million for both the nine months ended March 31, 2014 and for the nine months ended March 31, 2013. The slight increase was primarily due to increased average balances of deposits and borrowings, partially offset by lower market interest rates during the period.
Interest expense on interest-bearing deposits increased by $50,000, or 3.0%, to $1.7 million for the nine months ended March 31, 2014 from $1.7 million for the nine months ended March 31, 2013. This increase was primarily due to an increase in the average balance of interest-bearing deposits to $372.5 million for the nine months ended March 31, 2014, from $334.9 million for the nine months ended March 31, 2013. This increase in average balance of interest-bearing deposits was partially offset by a decrease of 5 basis points in the average cost of interest-bearing deposits to 0.62% for the nine months ended March 31, 2014 from 0.67% for the nine months ended March 31, 2013. We experienced either decreases or no change in the average cost across all categories of interest-bearing deposits for the nine months ended March 31, 2014, reflecting lower market interest rates as compared to the prior period.
Interest expense on borrowings decreased $42,000, or 6.4%, to $617,000 for the nine months ended March 31, 2014 from $659,000 for the nine months ended March 31, 2013. This decrease was due to a 5 basis point decrease in the average cost of such borrowings to 0.95% for the nine months ended March 31, 2014 from 1.00% for the nine months ended March 31, 2013, and a decrease in the average balance of borrowings to $86.2 million for the nine months ended March 31, 2014 from $88.3 million for the nine months ended March 31, 2013.
Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable credit losses inherent in our loan portfolio. We recorded a provision for loan losses of $366,000 for the nine months ended March 31, 2014, compared to a provision for loan losses of $552,000 for the nine months ended March 31, 2013. The allowance for loan losses was $3.9 million, or 1.18% of total loans, at March 31, 2014, compared to $4.0 million, or 1.35% of total loans, at March 31, 2013, and $3.9 million, or 1.23% of total loans, at June 30, 2013. Non-performing loans decreased to $2.9 million during the nine month period ended March 31, 2014. During the nine months ended March 31, 2014, a net charge-off of $383,000 was recorded, while during the nine months ended March 31, 2013, a net charge-off of $97,000 was recorded.
41
The following table sets forth information regarding the allowance for loan losses and nonperforming assets at the dates indicated:
Nine Months Ended March 31, 2014 |
Year Ended June 30, 2013 |
|||||||
Allowance to non-performing loans |
134.82 | % | 91.12 | % | ||||
Allowance to total loans outstanding at the end of the period |
1.18 | % | 1.23 | % | ||||
Net charge-offs to average total loans outstanding during the period, annualized |
.16 | % | .07 | % | ||||
Total non-performing loans to total loans |
.87 | % | 1.35 | % | ||||
Total non-performing assets to total assets |
.57 | % | .87 | % |
Noninterest Income. Noninterest income decreased $1.2 million, or 34.1%, to $2.2 million for the nine months ended March 31, 2014 compared to $3.4 million for the nine months ended March 31, 2013. The decrease was primarily due to decreases in net realized gains on the sale of available-for-sale securities, gains on sale of loans, and other service charges and fees, partially offset by an increase in brokerage commissions. For the nine months ended March 31, 2014, net realized gains on the sale of securities available-for-sale decreased to a loss of $199,000 from a gain of $629,000, gains on sale of loans decreased to $77,000 from $251,000, and other service charges and fees decreased to $89,000 from $207,000, while brokerage commissions increased to $508,000 from $426,000. The decrease in net realized gains on the sale of available-for-sale securities was due to the rate environment in the nine months ended March 31, 2013, that allowed for profits to be gained when repositioning the investment portfolio that were not available in the nine months ended March 31, 2014. The decrease in gains on sale of loans was primarily due to a decrease in the number of loans sold to the Federal Home Loan Bank of Chicago in the nine months ended March 31, 2014, and the decrease in other service charges and fees was due to a decrease in the number of fees. The increase in brokerage commissions reflects increased activity due to movement in market interest rates.
Noninterest Expense. Noninterest expense increased $563,000, or 6.0%, to $9.9 million for the nine months ended March 31, 2014 from $9.3 million for the nine months ended March 31, 2013. The largest components of this increase were compensation and benefits, which increased $532,000, or 9.2%, and loss on foreclosed assets, net, which increased $231,000, to a loss of $209,000 for the nine months ended March 31, 2014 from a gain of $22,000 for the nine months ended March 31, 2013. Increased medical insurance costs, normal salary increases, and stock equity plan expenses primarily accounted for the increase in compensation and benefits expense, while loss on foreclosed assets, net, increased due to gains taken in the nine months ended March 31, 2013. These increases were partially offset by decreases in equipment expense, professional services, and audit and accounting. The decrease in equipment expense was due to increased expenses in the nine months ended March 31, 2013, when we relocated our information technology department to a more secure and efficient location. Decreases in audit and accounting and professional services were due to additional services received in the nine months ended March 31, 2013.
Income Tax Expense. We recorded a provision for income tax of $1.3 million for the nine months ended March 31, 2014, compared to a provision for income tax of $1.5 million for the nine months ended March 31, 2013, reflecting effective tax rates of 34.3% and 35.5%, respectively.
42
Comparison of Operating Results for the Three Months Ended March 31, 2014 and 2013
General. Net income decreased $90,000 to $834,000 net income for the three months ended March 31, 2014 from a $924,000 net income for the three months ended March 31, 2013. The decrease was primarily due to a decrease in noninterest income and increases in interest expense and noninterest expense, partially offset by an increase in interest and dividend income and a decrease in the provision for loan losses.
Net Interest Income. Net interest income increased $385,000 to $4.0 million for the three months ended March 31, 2014 from $3.6 million for the three months ended March 31, 2013. The increase was the result of an increase of $419,000 in interest and dividend income offset by an increase of $34,000 in interest expense. We had a $33.1 million, or 6.4%, increase in the average balance of interest earning assets, partially offset by a $35.0 million, or 8.0%, increase in average balance of interest bearing liabilities. Our interest rate spread increased by 13 basis points to 2.83% for the three months ended March 31, 2014 from 2.70% for the three months ended March 31, 2013, and our net interest margin increased by 11 basis points to 2.92% for the three months ended March 31, 2014 from 2.81% for the three months ended March 31, 2013.
Interest and Dividend Income. Interest and dividend income increased $419,000, or 9.5%, to $4.8 million for the three months ended March 31, 2014 from $4.4 million for the three months ended March 31, 2013. The increase in interest and dividend income was due to a $296,000 increase in interest income on loans and a $119,000 increase in interest on securities. Interest income on securities increased due to a 24 basis point, or 10.4%, increase in the average yield on securities from 2.31% to 2.55%, partially offset by a $1.5 million, or 0.7%, decrease in the average balance of securities to $214.7 million for the three months ended March 31, 2014, from $216.2 million for the three months ended March 31, 2013. Interest on loans increased $296,000, or 9.4%, as a $35.9 million increase in the average balance of loans to $329.8 at March 31, 2014 was partially offset by a 10 basis point decrease in the average yield on loans from 4.27% to 4.17%. The decrease in the average yield on loans reflected a reduction in the current interest rates charged on loans originated during the period versus the average rates on loans in the portfolio during the prior period.
Interest Expense. Interest expense increased $34,000, or 4.5%, to $789,000 for the three months ended March 31, 2014 from $755,000 for the three months ended March 31, 2013. The increase was primarily due to an increase in the average balance of deposits, partially offset by a decrease in the average balance of borrowings and lower market interest rates during the period.
Interest expense on interest-bearing deposits increased by $34,000, or 6.2%, to $580,000 for the three months ended March 31, 2014 from $546,000 for the three months ended March 31, 2013. This increase was primarily due to a $38.9 million, or 11.3%, increase in the average balance of interest-bearing deposits to $383.0 million for the three months ended March 31, 2014 from $344.1 million for the three months ended March 31, 2013. The increase was partially offset by a 2 basis point decrease in the average cost of interest-bearing deposits to 0.61% for the three months ended March 31, 2014 from 0.63% for the three months ended March 31, 2013. We experienced either decreases or no change in the average cost across all categories of interest-bearing deposits for the three months ended March 31, 2014, reflecting lower market interest rates as compared to the prior period.
Interest expense on borrowings was $209,000 for both the three months ended March 31, 2014 and the three months ended March 31, 2013. A decrease in the average balance of borrowings of $3.9 million, or 4.1%, to $92.0 million for the three months ended March 31, 2014, from $95.9 million for the three months ended March 31, 2013, was offset by an increase in the average cost of borrowings to 0.91% for the three months ended March 31, 2014 from 0.87% for the three months ended March 31, 2013.
Provision for Loan Losses. We recorded a provision for loan losses of $140,000 for the three months ended March 31, 2014, compared to a provision for loan losses of $45,000 for the three months ended March 31, 2013. During the three months ended March 31, 2014 and 2013, $124,000 and $24,000 in net charge-offs were recorded, respectively.
43
Noninterest Income. Noninterest income decreased $260,000, or 27.9%, to $671,000 for the three months ended March 31, 2014 from $931,000 for the three months ended March 31, 2013. The decrease was primarily due to decreases in net realized gains on the sale of available-for-sale securities, mortgage banking income, net, gain on sale of loans, and other service charges and fees, partially offset by an increase in brokerage commissions. For the three months ended March 31, 2014, net realized gains on the sale of available-for-sale securities decreased to a loss of $95,000 from a gain of $61,000, mortgage banking income, net decreased to $31,000 from $74,000, gain on sale of loans decreased to $5,000 from $44,000, and other service charges and fees decreased to $17,000 from $60,000, while brokerage commissions increased to $172,000 from $158,000. The decrease in net realized gains on the sale of available-for-sale securities was due to the rate environment in the three months ended March 31, 2013, that allowed for profits to be gained when repositioning the investment portfolio that were not available in the three months ended March 31, 2014. The decreases in mortgage banking income, net, and gain on sale of loans were primarily due to a decrease in number of loans sold to the Federal Home Loan Bank of Chicago in the three months ended March 31, 2014, and the decrease in other service charges and fees was due to a decrease in the number of fees. The increase in brokerage commissions reflects increased activity due to movement in market interest rates.
Noninterest Expense. Noninterest expense increased $198,000, or 6.4%, to $3.3 million for the three months ended March 31, 2014 from $3.1 million for the three months ended March 31, 2013. The largest components of this increase were compensation and benefits, which increased $109,000 or 5.4%, and professional services, which increased $33,000 or 70.2%, partially offset by a decrease of $30,000, or 11.9% in equipment expense. Increased medical insurance costs, normal salary increases, and stock equity plan expenses primarily accounted for the increase in compensation and benefits expense, while the increase in professional services was due to increased services received during the three months ended March 31, 2014. The decrease in equipment expense was due to increased expenses in the three months ended March 31, 2013, as a result of routine technology upgrades and expenses incurred to move our information technology department to a more secure and efficient location.
Income Tax Expense. We recorded a provision for income tax of $440,000 for the three months ended March 31, 2014, compared to a provision for income tax of $518,000 for the three months ended March 31, 2013, reflecting effective tax rates of 34.5% and 35.9%, respectively.
Asset Quality
At March 31, 2014, our non-accrual loans totaled $2.9 million, including $2.4 million in one-to four-family loans, $314,000 in multi-family loans, $57,000 in commercial real estate loans, $32,000 in commercial business loans and $38,000 in consumer loans. The commercial real estate loans are secured by commercial rental properties. At March 31, 2014, we had $21,000 in loans delinquent 90 days or greater and still accruing interest, including 2 one-to four-family loans totaling $18,000 and 1 auto loan for $3,000.
At March 31, 2014, $3.3 million in loans were classified as substandard. Loans classified as substandard consisted of $2.9 million in one-to four-family loans, $314,000 in multi-family loans, $57,000 in commercial real estate loans, $15,000 in home equity lines of credit, $32,000 in commercial business loans and $45,000 in consumer loans. At March 31, 2014, no loans were classified as doubtful or loss.
At March 31, 2014, watch assets consisted of $823,000 in one-to four-family loans, $1.5 million in multi-family loans, $2.0 million in commercial real estate loans, and $2.5 million in commercial business loans.
Troubled Debt Restructurings. Troubled debt restructurings include loans for which economic concessions have been granted to borrowers with financial difficulties. We periodically modify loans to extend the term or make other concessions to help borrowers stay current on their loans and to avoid foreclosure. At March 31, 2014 and June 30, 2013, we had $2.9 million and $3.3 million, respectively, of troubled debt restructurings. At March 31, 2014 our troubled debt restructurings consisted of $1.5 million in one-to four-family loans, $1.3 million in multi-family loans, $16,000 in commercial real estate loans, and $32,000 in commercial business loans.
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At March 31, 2014, we had $381,000 in foreclosed assets compared to $418,000 as of June 30, 2013. Foreclosed assets at March 31, 2014 consisted of $338,000 in residential real estate properties, $20,000 in commercial real estate and one piece of commercial equipment valued at $23,000, while at June 30, 2013, foreclosed assets consisted entirely of residential real estate properties.
Allowance for Loan Loss Activity
The Company regularly reviews its allowance for loan losses and makes adjustments to its balance based on managements analysis of the loan portfolio, the amount of non-performing and classified loans, as well as general economic conditions. Although the Company maintains its allowance for loan losses at a level that it considers sufficient to provide for losses, there can be no assurance that future losses will not exceed internal estimates. In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies, which can order the establishment of additional loss provisions. The following table summarizes changes in the allowance for loan losses over the nine-month periods ended March 31, 2014 and 2013:
Nine months ended March 31, |
||||||||
2014 | 2013 | |||||||
Balance, beginning of period |
$ | 3,938 | $ | 3,531 | ||||
Loans charged off |
||||||||
Real estate loans: |
||||||||
One-to four-family |
(331 | ) | (35 | ) | ||||
Multi-family |
| | ||||||
Commercial |
(28 | ) | ||||||
HELOC |
| | ||||||
Construction |
| | ||||||
Commercial business |
(38 | ) | (50 | ) | ||||
Consumer |
(37 | ) | (64 | ) | ||||
|
|
|
|
|||||
Gross charged off loans |
(434 | ) | (149 | ) | ||||
|
|
|
|
|||||
Recoveries of loans previously charged off |
||||||||
Real estate loans: |
||||||||
One-to four-family |
46 | 41 | ||||||
Multi-family |
| | ||||||
Commercial |
| | ||||||
HELOC |
| | ||||||
Construction |
| | ||||||
Commercial business |
| | ||||||
Consumer |
5 | 11 | ||||||
|
|
|
|
|||||
Gross recoveries of charged off loans |
51 | 52 | ||||||
|
|
|
|
|||||
Net charge offs |
(383 | ) | (97 | ) | ||||
|
|
|
|
|||||
Provision charged to expense |
366 | 552 | ||||||
|
|
|
|
|||||
Balance, end of period |
$ | 3,921 | $ | 3,986 | ||||
|
|
|
|
The allowance for loan losses has been calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Companys loans. Management considers such factors as the repayment status of a loan, the estimated net fair value of the underlying collateral, the borrowers intent and ability to repay the loan, local economic conditions, and the Companys historical loss ratios. We maintain the allowance for loan losses through the provisions for loan losses that we charge to income. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. The allowance for loan losses decreased $17,000 to $3.9 million at March 31, 2014, from $3.9 million at June 30, 2013. The decrease was a result of a decrease in nonperforming loans partially offset by an increase in outstanding loans and was necessary in order to bring the allowance for loan losses to a level that reflects managements estimate of the probable loss in the Companys loan portfolio at March 31, 2014.
In its quarterly evaluation of the adequacy of its allowance for loan losses, the Company employs historical data including past due percentages, charge offs, and recoveries. The Companys allowance methodology weights the most recent
45
twelve-quarter periods net charge-offs and uses this information as one of the primary factors for evaluation of allowance adequacy. The most recent four-quarter net charge-offs are given a higher weight of 50%, while quarters 5-8 are given a 30% weight and quarters 9-12 are given only a 20% weight. The average net charge-offs in each period are calculated as net charge-offs by portfolio type for the period as a percentage of the quarter end balance of respective portfolio type over the same period. As the Company and the industry have seen increases in loan defaults in the past several years, the Company believes that it is prudent to emphasize more recent historical factors in the allowance evaluation. The following table sets forth the Companys weighted average historical net charge-offs as of March 31, 2014 and June 30, 2013:
Portfolio segment |
March 31, 2014 Net charge-offs 12 quarter weighted historical |
June 30, 2013 Net charge-offs 12 quarter weighted historical |
||||||
Real Estate: |
||||||||
One-to four-family |
.06 | % | .12 | % | ||||
Multi-family |
.00 | % | (.02 | %) | ||||
Commercial |
.04 | % | .80 | % | ||||
HELOC |
.07 | % | .90 | % | ||||
Construction |
.00 | % | .00 | % | ||||
Commercial business |
.25 | % | .30 | % | ||||
Consumer |
.31 | % | .32 | % | ||||
|
|
|
|
|||||
Total portfolio |
.07 | % | .12 | % |
Additionally, in its quarterly evaluation of the adequacy of the allowance for loan losses, the Company evaluates changes in financial conditions of individual borrowers; changes in local, regional, and national economic conditions; the Companys historical loss experience; and changes in market conditions for property pledged to the Company as collateral. The Company has identified specific qualitative factors that address these issues and subjectively assigns a percentage to each factor. At March 31, 2014, these qualitative factors included: (1) managements assumptions regarding the minimal level of risk for a given loan category; (2) changes in lending policies and procedures, including changes in underwriting standards, and charge-off and recovery practices not considered elsewhere in estimating credit losses; (3) changes in international, national, regional and local economics and business conditions and developments that affect the collectability of the portfolio, including the conditions of various market segments; (4) changes in the nature and volume of the portfolio and in the terms of loans; (5) changes in the experience, ability, and depth of the lending officers and other relevant staff; (6) changes in the volume and severity of past due loans, the volume of non-accrual loans, the volume of troubled debt restructured and other loan modifications, and the volume and severity of adversely classified loans; (7) changes in the quality of the loan review system; (8) changes in the value of the underlying collateral for collateral-dependent loans; (9) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and (10) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. The applied loss factors are re-evaluated quarterly to ensure their relevance in the current environment.
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The qualitative factors are applied to the allowance for loan losses based upon the following percentages by loan type:
Portfolio segment |
Qualitative factor applied at March 31, 2014 |
Qualitative factor applied at June 30, 2013 |
||||||
Real Estate: |
||||||||
One-to four-family |
.77 | % | .72 | % | ||||
Multi-family |
1.40 | % | 1.42 | % | ||||
Commercial |
1.20 | % | 1.12 | % | ||||
HELOC |
1.08 | % | 1.01 | % | ||||
Construction |
.65 | % | .99 | % | ||||
Commercial business |
2.15 | % | 1.89 | % | ||||
Consumer |
.44 | % | .47 | % | ||||
|
|
|
|
|||||
Total portfolio |
1.05 | % | .98 | % |
At March 31, 2014, the amount of our allowance for loan losses attributable to these qualitative factors was approximately $3.4 million, as compared to $3.1 million at June 30, 2013. The general increase in qualitative factors was attributable primarily to the change in criticized loans.
Because of the recent added concern based on the overall condition of the real estate market, and in particular how the market is affecting the Junior Lien and HELOC loan portfolios, as with all portfolios, the Company has reviewed these two portfolios to determine the adequacy of the allowance. The Company notes that Junior Lien loans are one-to four-family loans that are in a subordinate lien position, and can be subordinate to either a Company first lien or another institution first lien and all are fully amortized loans, and HELOC loans were initially underwritten to ensure adequate cash flow to make payments even under stressed conditions. Based on review of the HELOC portfolio, $2.5 million had initial combined loan to value ratios of between 81% and 90%. The March 31, 2014 allowance calculation includes 1.08% of qualitative factors to address added concerns, above a weighted average loss factor of 0.07%. The qualitative factor for HELOCs was 1.01% as of June 30, 2013.
While management believes that our asset quality remains strong, it recognizes that, due to the continued growth in the loan portfolio, the increase in troubled debt restructurings and the potential changes in market conditions, our level of nonperforming assets and resulting charge-offs may fluctuate. Higher levels of net charge-offs requiring additional provisions for loan losses could result. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan sales and repayments, advances from the Federal Home Loan Bank of Chicago, and maturities of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. For the three months ended March 31, 2014 and the year ended June 30, 2013, our liquidity ratio averaged 37.3% and 40.1% of our total assets, respectively. We believe that we had enough sources of liquidity to satisfy our short- and long-term liquidity needs as of March 31, 2014.
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.
47
Our most liquid assets are cash and cash equivalents. The levels of these assets are affected by our operating, financing, lending and investing activities during any given period. At March 31, 2014, cash and cash equivalents totaled $12.5 million. Interest-bearing time deposits which can offer additional sources of liquidity, totaled $250,000 at March 31, 2014.
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 $4.5 million and $3.7 million for the nine months ended March 31, 2014 and 2013, 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 $26.1 million and $35.2 million for the nine months ended March 31, 2014 and 2013, respectively. Net cash provided by financing activities consisted primarily of the activity in deposit accounts and FHLB Advances. The net cash provided by financing activities was $27.5 million and $36.7 million for the nine months ended March 31, 2014 and 2013, respectively.
The Company must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments. The Company anticipates that it will have sufficient funds available to meet its current commitments principally through the use of current liquid assets and through its borrowing capacity discussed above. The following table summarizes these commitments at March 31, 2014 and June 30, 2013.
March 31, 2014 | June 30, 2013 | |||||||
(Dollars in thousands) | ||||||||
Commitments to fund loans |
$ | 1,303 | $ | 12,020 | ||||
Lines of credit |
19,728 | 15,863 |
At March 31, 2014, certificates of deposit due within one year of March 31, 2014 totaled $183.3 million, or 45.3% of total deposits. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2015. 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 exist with the Federal Home Loan Bank of Chicago, which provides an additional source of funds. Federal Home Loan Bank advances were $84.5 million at March 31, 2014. At March 31, 2014, we had the ability to borrow up to an additional $55.9 million from the Federal Home Loan Bank of Chicago and also had the ability to borrow $27.0 million from the Federal Reserve based on current collateral pledged.
On July 2, 2013, the Board of Governors of the Federal Reserve System announced its approval of the final rule to implement the Basel III regulatory capital reforms, among other changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Office of the Comptroller of the Currency, as well as the Federal Deposit Insurance Corporation, adopted the new rule as of July 9, 2013. The approved rule includes a new minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%, as well as common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking institutions.
The phase-in for banking organizations such as the Company and the Association will not begin until January 2015, while the phase-in period for larger banks starts in January 2014. The Company and the Association are currently evaluating the impact of the implementation of the new capital and liquidity standards.
During the nine months ended March 31, 2014, a stock repurchase program was adopted whereby the Company may repurchase up to 228,535 shares of its common stock, or approximately 5% of the then current outstanding shares.
48
Repurchases are made at managements discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Companys financial performance. The repurchase plan may be suspended, terminated, or modified at any time for any reason, including market conditions, the cost of purchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. The repurchase program does not obligate the Company to purchase any particular number of shares. As of March 31, 2014, the stock repurchase plan was completed as all 228,535 shares were repurchased at an average price of $16.61 per share.
At the annual meeting on November 19, 2012, the IF Bancorp, Inc. 2012 Equity Incentive Plan (the Equity Incentive Plan) was approved by stockholders. The purpose of the Equity Incentive Plan is to promote the long-term financial success of the Company and its Subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Companys stockholders. The Equity Incentive Plan authorizes the issuance or delivery to participants of up to 673,575 shares of the Company common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock unit awards, provided that the maximum number of shares of Company common stock that may be delivered pursuant to the exercise of stock options (all of which may be granted as incentive stock options) is 481,125 and the maximum number of shares of Company stock that may be issued as restricted stock awards or restricted stock units is 192,450. On December 10, 2013, the Board of Directors approved grants of 85,500 shares of restricted stock and 167,000 in stock options to be awarded to senior officers and directors of the Association. The restricted stock will vest in equal installments over 10 years and the stock options vest in equal installments over 7 years, both starting in December 2014.
The Association is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2014, the Association exceeded all regulatory capital requirements. The Association is considered well capitalized under regulatory guidelines.
March 31, 2014 | June 30, 2013 | Minimum to Be Well | ||||||||||
Actual | Actual | Capitalized | ||||||||||
Tier 1 capital to total assets |
||||||||||||
Association |
11.3 | % | 11.4 | % | 5.0 | % | ||||||
Company |
13.9 | % | 15.0 | % | N/A | |||||||
Tier 1 capital to risk-weighted assets |
||||||||||||
Association |
21.4 | % | 20.3 | % | 6.0 | % | ||||||
Company |
26.1 | % | 26.6 | % | N/A | |||||||
Total capital to risk-weighted assets |
||||||||||||
Association |
20.2 | % | 21.6 | % | 10.0 | % | ||||||
Company |
24.9 | % | 27.9 | % | N/A |
The net proceeds from the Companys stock offering in connection with its conversion have significantly increased our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of new loans. Our financial condition and results of operations will be enhanced by the net proceeds from the stock offering, resulting in increased net interest-earning assets and net interest income. However, due to the increase in equity resulting from the net proceeds raised in the stock offering, our return on equity will be adversely affected until we can deploy the proceeds effectively.
49
Average Balances and Yields
The following tables set forth average balance sheets, average yields and costs, and certain other information at and for the periods indicated. Yields and costs are presented on an annualized basis. Tax-equivalent yield adjustments have not been made for tax-exempt securities. All average balances are based on month-end balances, which management deems to be representative of the operations of the Company. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
For the Three Months Ended March 31, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Average Balance |
Interest Income/ Expense |
Yield/ Cost |
Average Balance |
Interest Income/ Expense |
Yield/ Cost |
|||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||
Loans |
$ | 329,786 | $ | 3,436 | 4.17 | % | $ | 293,892 | $ | 3,140 | 4.27 | % | ||||||||||||
Securities: |
||||||||||||||||||||||||
U.S. government, federal agency and government-sponsored enterprises |
132,736 | 816 | 2.46 | % | 139,839 | 781 | 2.23 | % | ||||||||||||||||
Mortgage-backed: |
||||||||||||||||||||||||
GSE-residential |
79,212 | 543 | 2.74 | % | 72,599 | 453 | 2.50 | % | ||||||||||||||||
State and political subdivisions |
2,775 | 9 | 1.30 | % | 3,759 | 15 | 1.60 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total securities |
214,723 | 1,368 | 2.55 | % | 216,197 | 1,249 | 2.31 | % | ||||||||||||||||
Other |
7,522 | 10 | 0.53 | % | 8,860 | 6 | 0.27 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total interest-earning assets |
552,031 | 4,814 | 3.49 | % | 518,949 | 4,395 | 3.39 | % | ||||||||||||||||
Non-interest earning assets |
21,018 | 24,156 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total assets |
$ | 573,049 | $ | 543,105 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Interest-bearing checking or NOW |
$ | 36,271 | 8 | 0.09 | % | $ | 33,769 | 15 | 0.18 | % | ||||||||||||||
Savings accounts |
34,458 | 19 | 0.22 | % | 32,540 | 22 | 0.27 | % | ||||||||||||||||
Money market accounts |
58,927 | 35 | 0.24 | % | 65,869 | 39 | 0.24 | % | ||||||||||||||||
Certificates of deposit |
253,384 | 518 | 0.82 | % | 211,949 | 470 | 0.89 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total interest-bearing deposits |
383,040 | 580 | 0.61 | % | 344,127 | 546 | 0.63 | % | ||||||||||||||||
Federal Home Loan Bank Advances and repurchase agreements |
92,027 | 209 | 0.91 | % | 95,925 | 209 | 0.87 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total interest-bearing liabilities |
475,067 | 789 | 0.66 | % | 440,052 | 755 | 0.69 | % | ||||||||||||||||
Noninterest-bearing liabilities |
17,480 | 18,018 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities |
492,547 | 458,070 | ||||||||||||||||||||||
Stockholders equity |
80,502 | 85,035 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 573,049 | $ | 543,105 | ||||||||||||||||||||
|
|
|
|
50
For the Three Months Ended March 31, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Average Balance |
Interest Income/ Expense |
Yield/ Cost |
Average Balance |
Interest Income/ Expense |
Yield/ Cost |
|||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Net interest income |
$ | 4,025 | $ | 3,640 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Interest rate spread (1) |
2.83 | % | 2.70 | % | ||||||||||||||||||||
Net interest margin (2) |
2.92 | % | 2.81 | % | ||||||||||||||||||||
Net interest-earning assets (3) |
$ | 76,964 | $ | 78,897 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Average interest-earning assets to interest-bearing liabilities |
116 | % | 118 | % |
(1) | Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
(2) | Net interest margin represents net interest income divided by average total interest-earning assets. |
(3) | Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
For the Nine Months Ended March 31, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Average Balance |
Interest Income/ Expense |
Yield/Cost | Average Balance |
Interest Income/ Expense |
Yield/Cost | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||
Loans |
$ | 324,937 | $ | 10,273 | 4.22 | % | $ | 277,848 | $ | 9,188 | 4.41 | % | ||||||||||||
Securities: |
||||||||||||||||||||||||
U.S. government, federal agency and government-sponsored enterprises |
124,926 | 2,267 | 2.42 | % | 139,813 | 2,452 | 2.34 | % | ||||||||||||||||
Mortgage-backed: |
||||||||||||||||||||||||
GSE-residential |
76,490 | 1,527 | 2.66 | % | 69,889 | 1,408 | 2.69 | % | ||||||||||||||||
State and political subdivisions |
3,293 | 36 | 1.46 | % | 3,825 | 44 | 1.53 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total securities |
204,709 | 3,830 | 2.49 | % | 213,527 | 3,904 | 2.44 | % | ||||||||||||||||
Other |
7,550 | 24 | 0.42 | % | 9,931 | 19 | 0.26 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total interest-earning assets |
537,196 | 14,127 | 3.51 | % | 501,306 | 13,111 | 3.49 | % | ||||||||||||||||
Non-interest earning assets |
19,664 | 27,323 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total assets |
$ | 556,860 | $ | 528,629 | ||||||||||||||||||||
|
|
|
|
51
For the Nine Months Ended March 31, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Average Balance |
Interest Income/ Expense |
Yield/Cost | Average Balance |
Interest Income/ Expense |
Yield/Cost | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Interest-bearing checking or NOW |
$ | 34,335 | 27 | 0.10 | % | $ | 31,645 | 42 | 0.18 | % | ||||||||||||||
Savings accounts |
32,810 | 56 | 0.23 | % | 30,207 | 62 | 0.27 | % | ||||||||||||||||
Money market accounts |
58,813 | 109 | 0.25 | % | 64,989 | 120 | 0.25 | % | ||||||||||||||||
Certificates of deposit |
246,516 | 1,540 | 0.83 | % | 208,106 | 1,458 | 0.93 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total interest-bearing deposits |
372,474 | 1,732 | 0.62 | % | 334,947 | 1,682 | 0.67 | % | ||||||||||||||||
Federal Home Loan Bank Advances and repurchase agreements |
86,189 | 617 | 0.95 | % | 88,253 | 659 | 1.00 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total interest-bearing liabilities |
458,663 | 2,349 | 0.68 | % | 423,200 | 2,341 | 0.74 | % | ||||||||||||||||
Noninterest-bearing liabilities |
16,752 | 19,510 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities |
475,415 | 442,710 | ||||||||||||||||||||||
Stockholders equity |
81,445 | 85,919 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 556,860 | $ | 528,629 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest income |
$ | 11,778 | $ | 10,770 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Interest rate spread (1) |
2.83 | % | 2.75 | % | ||||||||||||||||||||
Net interest margin (2) |
2.92 | % | 2.86 | % | ||||||||||||||||||||
Net interest-earning assets (3) |
$ | 78,533 | $ | 78,106 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Average interest-earning assets to interest-bearing liabilities |
117 | % | 118 | % |
(1) | Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
(2) | Net interest margin represents net interest income divided by average total interest-earning assets. |
(3) | Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
52
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated to the changes due to rate and the changes due to volume in proportion to the relationship of the absolute dollar amounts of change in each.
Three Months Ended March 31, 2014 vs. 2013 |
Nine Months Ended March 31, 2014 vs. 2013 |
|||||||||||||||||||||||
Increase (Decrease) Due to |
Total Increase (Decrease) |
Increase (Decrease) Due to |
Total Increase (Decrease) |
|||||||||||||||||||||
Volume | Rate | Volume | Rate | |||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Loans |
$ | 742 | $ | (446 | ) | $ | 296 | $ | 1,707 | $ | (622 | ) | $ | 1,085 | ||||||||||
Securities |
(57 | ) | 176 | 119 | (192 | ) | 118 | (74 | ) | |||||||||||||||
Other |
(6 | ) | 10 | 4 | (7 | ) | 12 | 5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest-earning assets |
$ | 679 | $ | (260 | ) | $ | 419 | $ | 1,508 | $ | (492 | ) | $ | 1,016 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Interest-bearing checking or NOW |
$ | 8 | $ | (15 | ) | $ | (7 | ) | $ | 6 | $ | (21 | ) | $ | (15 | ) | ||||||||
Savings accounts |
7 | (10 | ) | (3 | ) | 7 | (13 | ) | (6 | ) | ||||||||||||||
Certificates of deposit |
246 | (198 | ) | 48 | 315 | (233 | ) | 82 | ||||||||||||||||
Money market accounts |
(4 | ) | | (4 | ) | (11 | ) | | (11 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest-bearing deposits |
257 | (223 | ) | 34 | 317 | (267 | ) | 50 | ||||||||||||||||
Federal Home Loan Bank advances and repurchase agreements |
(36 | ) | 36 | | (42 | ) | | (42 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest-bearing liabilities |
$ | 221 | $ | (187 | ) | $ | 34 | $ | 275 | $ | (267 | ) | $ | 8 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Change in net interest income |
$ | 458 | $ | (73 | ) | $ | 385 | $ | 1,233 | $ | (225 | ) | $ | 1,008 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
An internal interest rate risk analysis is performed at least quarterly to assess the Companys Earnings at Risk, Capital at Risk, and Value at Risk. As of March 31, 2014, there were no material changes in interest rate risk from the analysis disclosed in the Companys Form 10-K for the fiscal year ended June 30, 2013, 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 Companys management, including the Companys principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2014. 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 Companys 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 SECs rules and forms, and (2) is accumulated and communicated to the Companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
During the quarter ended March 31, 2014, there have been no changes in the Companys internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
53
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 Associations or the Companys 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, 2013, 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 |
The following table provides information about purchases by the Company for the quarter ended March 31, 2014 regarding the Companys common stock.
PURCHASES OF EQUITY SECURITIES BY COMPANY (1) |
||||||||||||||||
Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
1/1/14 1/31/14 |
30,126 | $ | 16.90 | 30,126 | 0 | |||||||||||
2/1/14 2/28/14 |
0 | 0 | 0 | |||||||||||||
3/1/14 3/31/14 |
0 | 0 | 0 | |||||||||||||
|
|
|
|
|||||||||||||
Total |
30,126 | $ | 16.90 | 30,126 |
(1) | On September 11, 2013, the Company announced the commencement of its second stock repurchase program to acquire up to 228,535, or 5%, of the Companys then outstanding common stock. The stock repurchase plan was completed on January 27, 2014, and the average price per share was $16.61. |
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
None.
Item 5. | Other Information |
None.
54
Item 6. | Exhibits |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of March 31, 2014 and June 30, 2013, (ii) the Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2014 and 2013, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2014 and 2013, (iv) the Condensed Consolidated Statements of Stockholders Equity for the nine months ended March 31, 2014 and 2013, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2014 and 2013, 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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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IF BANCORP, INC. | ||||
Date: May 12, 2014 | /s/ Alan D. Martin | |||
Alan D. Martin | ||||
President and Chief Executive Officer | ||||
Date: May 12, 2014 | /s/ Pamela J. Verkler | |||
Pamela J. Verkler | ||||
Vice President and Chief Financial Officer (Principal Financial Officer) |
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