Edgar Filing: IF Bancorp, Inc.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if smaller reporting company)

Smaller reporting company

Form 10-Q

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, 2015

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

For the transition period from to

Commission File No. 001-35226

IF Bancorp, Inc.

(Exact name of registrant as specified in its charter)


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

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

(815) 432-2476

(Registrant’s telephone number)

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)

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 4,288,557 shares of common stock, par value $0.01 per share, issued and outstanding as of May 4, 2015.

IF Bancorp, Inc.

Form 10-Q

Index


		Page
Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements		1

	Condensed Consolidated Balance Sheets as of March 31, 2015 (unaudited) and June 30, 2014		1

	Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended March 31, 2015 and 2014 (unaudited)		2

	Condensed Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended March 31, 2015 and 2014 (unaudited)		3

	Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended March 31, 2015 and 2014 (unaudited)		4

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2015 and 2014 (unaudited)		5

	Notes to Condensed Consolidated Financial Statements (unaudited)		6

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		53

Item 4.	Controls and Procedures		53

Part II. Other Information

Item 1.	Legal Proceedings		54

Item 1A.	Risk Factors		54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		54

Item 3.	Defaults upon Senior Securities		54

Item 4.	Mine Safety Disclosures		54

Item 5.	Other Information		54

Item 6.	Exhibits		54

	Signature Page		55

Part I. – Financial Information

Item 1.

Financial Statements

IF Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amount)


	March 31, 2015			June 30, 2014
	(Unaudited)
Assets
Cash and due from banks	$	12,104		$	12,615
Interest-bearing demand deposits		390			116

Cash and cash equivalents		12,494			12,731


Interest-bearing time deposits in banks		250			250
Available-for-sale securities		176,123			184,586
Loans, net of allowance for loan losses of $4,111 and $3,958 at March 31, 2015 and June 30, 2014, respectively		338,365			329,924
Premises and equipment, net of accumulated depreciation of $5,609 and $5,253 at March 31, 2015 and June 30, 2014, respectively		4,858			5,124
Federal Home Loan Bank stock, at cost		5,425			5,425
Foreclosed assets held for sale		371			436
Accrued interest receivable		1,669			1,788
Bank-owned life insurance		8,223			8,025
Mortgage servicing rights		476			506
Deferred income taxes		1,238			2,059
Other		260			489

Total assets	$	549,752		$	551,343


Liabilities and Equity
Liabilities
Deposits
Demand	$	13,695		$	16,705
Savings, NOW and money market		137,188			132,638
Certificates of deposit		225,593			219,675
Brokered certificates of deposit		37,208			35,575

Total deposits		413,684			404,593


Repurchase agreements		4,403			2,324
Federal Home Loan Bank advances		41,000			56,750
Advances from borrowers for taxes and insurance		1,229			997
Accrued post-retirement benefit obligation		2,432			2,387
Accrued interest payable		88			96
Other		1,701			2,110

Total liabilities		464,537			469,257


Commitments and Contingencies
Stockholders’ Equity
Common stock, $.01 par value per share, 100,000,000 shares authorized, 4,339,057 and 4,377,657 shares issued and outstanding at March 31, 2015 and June 30, 2014, respectively		43			44
Additional paid-in capital		46,940			46,689
Unearned ESOP shares, at cost, 312,731 and 327,165 shares at March 31, 2015 and June 30, 2014, respectively		(3,127	)		(3,272	)
Retained earnings		38,972			37,544
Accumulated other comprehensive income, net of tax		2,387			1,081

Total stockholders’ equity		85,215			82,086

Total liabilities and stockholders’ equity	$	549,752		$	551,343

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in thousands except per share amounts)


	Three Months Ended March 31,					Nine Months Ended March 31,
	2015		2014			2015			2014
Interest and Dividend Income
Interest and fees on loans	$	3,599	$	3,436		$	10,669		$	10,273
Securities:
Taxable		1,068		1,346			3,298			3,754
Tax-exempt		42		22			113			76
Federal Home Loan Bank dividends		7		8			23			18
Deposits with other financial institutions		4		2			10			6

Total interest and dividend income		4,720		4,814			14,113			14,127


Interest Expense
Deposits		592		580			1,842			1,732
Federal Home Loan Bank advances and repurchase agreements		198		209			591			617

Total interest expense		790		789			2,433			2,349


Net Interest Income		3,930		4,025			11,680			11,778

Provision for Loan Losses		17		140			259			366


Net Interest Income After Provision for Loan Losses		3,913		3,885			11,421			11,412


Noninterest Income
Customer service fees		111		114			382			406
Other service charges and fees		32		17			85			89
Insurance commissions		193		200			537			550
Brokerage commissions		194		172			565			508
Net realized gains (losses) on sales of available-for-sale securities		1		(95	)		(41	)		(199	)
Mortgage banking income, net		22		31			110			159
Gain on sale of loans		25		5			76			77
Bank-owned life insurance income, net		64		68			198			202
Other		160		159			488			446

Total noninterest income		802		671			2,400			2,238


Noninterest Expense
Compensation and benefits		2,185		2,141			6,272			6,330
Office occupancy		151		136			426			386
Equipment		241		223			762			658
Federal deposit insurance		78		69			230			210
Stationary, printing and office		43		41			132			120
Advertising		96		102			304			300
Professional services		93		80			339			278
Supervisory examinations		38		39			111			113
Audit and accounting services		14		20			84			101
Organizational dues and subscriptions		13		12			46			45
Insurance bond premiums		27		27			92			92
Telephone and postage		65		69			191			194
Loss on foreclosed assets, net		7		17			62			209
Other		308		306			931			849

Total noninterest expense		3,359		3,282			9,982			9,885


Income Before Income Tax		1,356		1,274			3,839			3,765
Provision for Income Tax		466		440			1,355			1,292

Net Income	$	890	$	834		$	2,484		$	2,473

Earnings Per Share:
Basic and diluted (Note 4)	$	.23	$	.21		$	.63		$	.60
Dividends declared per common share	$	.05	$	.05		$	.10		$	.10

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2015			2014

Net Income	$	890		$	834

Other Comprehensive Income
Unrealized appreciation on available-for-sale securities, net of taxes of $467 and $1,115, for 2015 and 2014, respectively		689			1,652

Less: reclassification adjustment for realized gains (losses) included in net income, net of taxes of $0 and $38 for 2015 and 2014, respectively		1			(57	)


		690			1,709

Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $0 and $(6) for 2015 and 2014, respectively		(1	)		(8	)


Other comprehensive income, net of tax		689			1,701


Comprehensive Income	$	1,579		$	2,535


	Nine Months Ended March 31,
	2015			2014

Net Income	$	2,484		$	2,473

Other Comprehensive Income
Unrealized appreciation on available-for-sale securities, net of taxes of $863 and $322, for 2015 and 2014, respectively		1,280			478

Less: reclassification adjustment for realized losses included in net income, net of taxes of $17 and $80, for 2015 and 2014, respectively		(24	)		(119	)


		1,304			597

Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $1 and $(19) for 2015 and 2014, respectively		2			(26	)


Other comprehensive income, net of tax		1,306			571


Comprehensive Income	$	3,790		$	3,044

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share amounts)


	Common Stock			Additional Paid-In Capital		Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total

For the nine months ended March 31, 2015

Balance, July 1, 2014	$	44		$	46,689	$	(3,272	)	$	37,544		$	1,081		$	82,086

Net income		—			—		—			2,484			—			2,484

Other comprehensive income		—			—		—			—			1,306			1,306

Dividends on common stock, $0.10 per share		—			—		—			(420	)		—			(420	)

Stock equity plan		—			152		—			—			—			152

Stock repurchase, 38,600 shares, average price $16.50 each		(1	)		—		—			(636	)		—			(637	)

ESOP shares earned, 14,434 shares		—			99		145			—			—			244


Balance, March 31, 2015	$	43		$	46,940	$	(3,127	)	$	38,972		$	2,387		$	85,215


For the nine months ended March 31, 2014

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


Balance, March 31, 2014	$	44		$	46,609	$	(3,320	)	$	37,347		$	186		$	80,866

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)


	Nine Months Ended March 31,
	2015			2014
Operating Activities
Net income	$	2,484		$	2,473
Items not requiring (providing) cash
Depreciation		325			304
Provision for loan losses		259			366
Amortization of premiums and discounts on securities		429			759
Deferred income taxes		(59	)		51
Net realized gains on loan sales		(186	)		(236	)
Net realized losses on sales of available-for-sale securities		41			199
Loss on foreclosed assets held for sale		62			209
Bank-owned life insurance income, net		(198	)		(202	)
Originations of loans held for sale		(5,828	)		(6,683	)
Proceeds from sales of loans held for sale		6,222			6,905
ESOP compensation expense		244			234
Stock equity plan expense		152			69
Changes in
Accrued interest receivable		119			(336	)
Other assets		229			463
Accrued interest payable		(8	)		37
Post-retirement benefit obligation		47			106
Other liabilities		(409	)		(246	)

Net cash provided by operating activities		3,925			4,472


Investing Activities
Purchases of available-for-sale securities		(39,017	)		(63,299	)
Proceeds from the sales of available-for-sale securities		41,732			42,676
Proceeds from maturities and pay-downs of available-for-sale securities		7,462			7,398
Net change in loans		(9,149	)		(12,390	)
Purchase of premises and equipment		(59	)		(911	)
Proceeds from sale of foreclosed assets		274			414

Net cash provided by (used in) investing activities		1,243			(26,112	)


Financing Activities
Net increase in demand deposits, money market, NOW and savings accounts		1,540			4,301
Net increase in certificates of deposit, including brokered certificates		7,551			28,810
Net increase in advances from borrowers for taxes and insurance		232			356
Proceeds from Federal Home Loan Bank advances		120,000			309,000
Repayments of Federal Home Loan Bank advances		(135,750	)		(312,000	)
Net increase in repurchase agreements		2,079			1,063
Dividends paid		(420	)		(211	)
Stock purchase per stock repurchase plan		(637	)		(3,798	)

Net cash provided by (used in) financing activities		(5,405	)		27,521


Net Increase (Decrease) in Cash and Cash Equivalents		(237	)		5,881
Cash and Cash Equivalents, Beginning of Period		12,731			6,580

Cash and Cash Equivalents, End of Period	$	12,494		$	12,461

Supplemental Cash Flows Information
Interest paid	$	2,441		$	2,313
Income taxes paid, net of refunds	$	1,438		$	1,391
Foreclosed assets acquired in settlement of loans	$	271		$	586
Dividends payable	$	217		$	221

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Form 10-Q (Unaudited)

(Table dollar amounts in thousands)

Notes to Condensed Consolidated Financial Statements

Note 1:

Basis of Financial Statement Presentation

IF Bancorp, Inc., a Maryland corporation (the “Company”), became the holding company for Iroquois Federal Savings and Loan Association (the “Association”) upon completion of the Association’s 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”.

The unaudited condensed consolidated financial statements include the accounts of the Company, the Association, and the Association’s wholly owned subsidiary, L.C.I. Service Corporation. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and with instructions for Form 10–Q and Regulation S–X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from these estimates. In the opinion of management, the preceding unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of March 31, 2015 and June 30, 2014, and the results of its operations for the three month and nine month periods ended March 31, 2015 and 2014. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2014. The results of operations for the three month and nine month periods ended March 31, 2015 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

In January 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-04 which affects all creditors who obtain physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable. The ASU is effective for annual periods and interim periods within annual periods beginning after December 15, 2014. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

In May, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The update provides a five-step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are included in the scope of other standards). The guidance requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied either retrospectively or using the modified retrospective approach. Early adoption is not permitted. In April 2015, the

Financial Accounting Standards Board voted for a one year deferral of the effective date of ASU 2014-09 and is expected to issue an exposure draft during the second quarter of 2015. Management is evaluating the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company’s Consolidated Financial Statements.

Note 3:

Stock-based Compensation

In connection with the conversion to stock form, the Association established an ESOP for the exclusive benefit of eligible employees (all salaried employees who have completed at least 1,000 hours of service in a twelve-month period and have attained the age of 21). The ESOP borrowed funds from the Company in an amount sufficient to purchase 384,900 shares (approximately 8% of the Common Stock issued in the stock offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Association and dividends received by the ESOP, with funds from any contributions on ESOP assets. Contributions will be applied to repay interest on the loan first, then the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest 100% in their accrued benefits under the employee stock ownership plan after six vesting years, with prorated vesting in years two through five. Vesting is accelerated upon retirement, death or disability of the participant or a change in control of the Association. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Since the Association’s annual contributions are discretionary, benefits payable under the ESOP cannot be estimated. Participants receive the shares at the end of employment.

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

A summary of ESOP shares at March 31, 2015 and June 30, 2014 are as follows (dollars in thousands):


	March 31, 2015		June 30, 2014
Allocated shares		55,771		37,571
Shares committed for release		14,434		19,245
Unearned shares		312,731		327,165

Total ESOP shares		382,936		383,981

Fair value of unearned ESOP shares (1)	$	5,238	$	5,395

(1)	Based on closing price of $16.75 and $16.49 per share on March 31, 2015, and June 30, 2014, respectively.

During the nine months ended March 31, 2015, 1,045 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 Company’s stockholders. The Equity Incentive Plan authorizes the issuance or delivery to participants of up to 673,575 shares of the Company common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock unit awards, provided that the maximum number of shares of Company common stock that may be delivered pursuant to the exercise of stock options (all of which may be granted as incentive stock options) is 481,125 and the maximum number of shares of Company stock that may be issued as restricted stock awards or restricted stock units is 192,450.

On December 10, 2013, 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, 2015, 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, 2015 (dollars in thousands):


	Options		Weighted-Average Exercise Price/Share		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value

Outstanding, June 30, 2014		167,000	$	16.63
Granted		—		—
Exercised		—		—
Forfeited		—		—

Outstanding, March 31, 2015		167,000	$	16.63		8.7	$	20	(1)

Exercisable, March 31, 2015		23,857	$	16.63		8.7	$	3	(1)

(1)	Based on closing price of $16.75 per share on March 31, 2015.

Intrinsic value for stock options is defined as the difference between the current market value and the exercise price.

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 Company’s common stock at the date of grant. Expected volatility was based on historical volatility of the Company’s 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 23,857 options that vested during the nine months ended March 31, 2015. Stock-based compensation expense and related tax benefit was considered nominal for stock options for the nine months ended March 31, 2015. Total unrecognized compensation cost related to non-vested stock options was $343,384 at March 31, 2015 and is expected to be recognized over the remaining weighted-average period of 5.7 years.

The following table summarizes non-vested restricted stock activity for the nine months ended March 31, 2015:


	Shares		Weighted-Average Grant-Date Fair Value
Balance, June 30, 2014		85,500	$	16.63
Granted		—		—
Forfeited		—		—
Earned and issued		8,550		16.63

Balance, March 31, 2015		76,950	$	16.63

The fair value of the restricted stock awards is amortized to compensation expense over the vesting period (ten years) and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest. At the date of grant the par value of the shares granted was recorded in equity as a credit to common stock and a debit to paid-in capital. Stock-based compensation expense and related tax benefit for restricted stock was nominal and was recognized in non-interest expense for the nine months ended March 31, 2015. Unrecognized compensation expense for non-vested restricted stock awards was $1.2 million and is expected to be recognized over 8.7 years with a corresponding credit to paid-in capital.

Note 4:

Earnings Per Common Share (“EPS”)

Basic and diluted earnings per common share are presented for the three month and nine month periods ended March 31, 2015 and 2014. The factors used in the earnings per common share computation are as follows:


	Three Months Ended March 31, 2015			Three Months Ended March 31, 2014			Nine Months Ended March 31, 2015			Nine Months Ended March 31, 2014

Net income	$	890		$	834		$	2,484		$	2,473

Basic weighted average shares outstanding		4,253,557			4,347,860			4,277,647			4,474,147
Less: Average unallocated ESOP shares		(315,137	)		(334,382	)		(319,948	)		(339,193	)

Basic average shares outstanding		3,938,420			4,013,478			3,957,699			4,134,954

Diluted effect of restricted stock awards and stock options		—			—			—			—

Diluted average shares outstanding		3,938,420			4,013,478			3,957,699			4,134,954

Basic earnings per common share	$	.23		$	.21		$	.63		$	.60

Diluted earnings per common share	$	.23		$	.21		$	.63		$	.60

The Company announced a stock repurchase plan on May 14, 2014, whereby the Company could repurchase up to 221,383 shares of its common stock, or approximately 5% of its then current outstanding shares. As of March 31, 2015, 88,600 shares were repurchased at an average price of $16.50 per share.

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 76,950 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, 2015.

Note 5:

Securities

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
March 31, 2015:
U.S. Government and federal agency and Government sponsored enterprises (GSE’s)	$	106,839	$	2,990	$	(6	)	$	109,823
Mortgage-backed:
GSE residential		61,521		878		(215	)		62,184
State and political subdivisions		3,558		558		—			4,116


	$	171,918	$	4,426	$	(221	)	$	176,123

June 30, 2014:
U.S. Government and federal agency and Government sponsored enterprises (GSE’s)	$	112,511	$	2,773	$	(622	)	$	114,662
Mortgage-backed:
GSE residential		67,033		721		(1,022	)		66,732
State and political subdivisions		3,022		185		(15	)		3,192


	$	182,566	$	3,679	$	(1,659	)	$	184,586

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 $106,839,000 and $61,521,000, respectively, and a market value of approximately $109,823,000 and $62,184,000, respectively, at March 31, 2015, the Company held no securities at March 31, 2015 with a book value that exceeded 10% of total equity.

All mortgage-backed securities at March 31, 2015, and June 30, 2014 were issued by GSEs.

The amortized cost and fair value of available-for-sale securities at March 31, 2015, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available-for-sale Securities
	Amortized Cost		Fair Value

Within one year	$	7,080	$	7,192
One to five years		24,991		26,179
Five to ten years		76,368		78,205
After ten years		1,958		2,363

		110,397		113,939
Mortgage-backed securities		61,521		62,184


Totals	$	171,918	$	176,123

The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $55,461,000 and $50,144,000 as of March 31, 2015 and June 30, 2014, respectively.

Gross gains of $459,000 and $596,000, and gross losses of $500,000 and $795,000, resulting from sales of available-for-sale securities were realized for the nine month periods ended March 31, 2015 and 2014, respectively. The tax provision applicable to these net realized gains (losses) amounted to approximately $(17,000) and $(80,000), respectively. Gross gains of $1,000 and $406,000, and gross losses of $0 and $501,000, resulting from the sale of available-for-sale securities were realized for the three month periods ended March 31, 2015, and 2014, respectively. The tax provision applicable to these net gains amounted to approximately $0 and $(38,000), 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, 2015 and June 30, 2014 was $34,531,000 and $69,616,000, respectively, which is approximately 19.6% and 37.7% of the Company’s 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 Company’s securities and the fair value of the Company’s securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2015 and June 30, 2014:


	March 31, 2015
	Less Than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

U.S. Government and federal agency and Government sponsored enterprises (GSE’s)	$	3,993	$	(6	)	$	—	$	—		$	3,993	$	(6	)
Mortgage-backed:
GSE residential		10,786		(29	)		19,752		(186	)		30,538		(215	)


Total temporarily impaired securities	$	14,779	$	(35	)	$	19,752	$	(186	)	$	34,531	$	(221	)


	June 30, 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

U.S. Government and federal agency and Government sponsored enterprises (GSE’s)	$	6,616	$	(148	)	$	17,370	$	(474	)	$	23,986	$	(622	)
Mortgage-backed:
GSE residential		—		—			44,585		(1,022	)		44,585		(1,022	)
State and political subdivisions		—		—			1,045		(15	)		1,045		(15	)


Total temporarily impaired securities	$	6,616	$	(148	)	$	63,000	$	(1,511	)	$	69,616	$	(1,659	)

The unrealized losses on the Company’s 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, 2015.

Note 6:

Loans and Allowance for Loan Losses

Classes of loans include:


	March 31, 2015		June 30, 2014

Real estate loans:
One-to four-family, including home equity loans	$	145,355	$	149,549
Multi-family		56,147		61,603
Commercial		92,479		83,134
Home equity lines of credit		7,825		7,824
Construction		1,159		1,572
Commercial		32,125		23,120
Consumer		8,600		8,509


Total loans		343,690		335,311

Less:
Unearned fees and discounts, net		154		104
Loans in process		1,060		1,325
Allowance for loan losses		4,111		3,958


Loans, net	$	338,365	$	329,924

The Company believes that sound loans are a necessary and desirable means of employing funds available for investment. Recognizing the Company’s obligations to its depositors and to the communities it serves, authorized personnel are expected to seek to develop and make sound, profitable loans that resources permit and that opportunity affords. The Company maintains lending policies and procedures designed to focus our lending efforts on the types, locations, and duration of loans most appropriate for our business model and markets. The Company’s 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, Iroquois and Champaign, as well as the adjacent counties in Illinois and Indiana. The Company also has a loan production and wealth management office in Osage Beach, Missouri, which serves the Missouri counties of Camden, Miller, and Morgan. Generally, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals. The loans are expected to be repaid from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

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

The Company’s policies and loan approval limits are established by the Board of Directors. The loan officers generally have authority to approve one-to four-family residential mortgage loans up to $100,000, other secured loans up to $50,000, and unsecured loans up to $10,000. Managing Officers (those with designated loan approval authority), generally have authority to approve one-to four-family residential mortgage loans up to $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 borrower’s total borrowing relationship to exceed our regulatory lending limit. Loans to related parties, including executive officers and the Company’s directors, are reviewed for compliance with regulatory guidelines and the Board of Directors at least annually.

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

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

One-to four-family Residential Mortgage Loans

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

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

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

Commercial Real Estate and Multi-Family Real Estate Loans

Commercial real estate mortgage loans are primarily secured by office buildings, owner-occupied businesses, strip mall centers, churches and farm loans secured by real estate. In underwriting commercial real estate and multi-family real estate loans, the Company considers a number of factors, which include the projected net cash flow to the loan’s debt service requirement, the age and condition of the collateral, the financial resources and income level of the borrower and the borrower’s experience in owning or managing similar properties. Personal guarantees are typically obtained from

commercial real estate and multi-family real estate borrowers. In addition, the borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates. The repayment of these loans is primarily dependent on the cash flows of the underlying property. However, the commercial real estate loan generally must be supported by an adequate underlying collateral value. The performance and the value of the underlying property may be adversely affected by economic factors or geographical and/or industry specific factors. These loans are subject to other industry guidelines that are closely monitored by the Company.

Home Equity Lines of Credit

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

Commercial Business Loans

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

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

Real Estate Construction Loans

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

Consumer Loans

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

Loan Concentrations

The loan portfolio includes a concentration of loans secured by commercial real estate properties amounting to $148,626,000 and $144,737,000 as of March 31, 2015 and June 30, 2014, respectively. Generally, these loans are collateralized by multi-family and nonresidential properties. The loans are expected to be repaid from cash flows or from proceeds from the sale of the properties of the borrower.

Purchased Loans and Loan Participations

The Company’s loans receivable included purchased loans of $11,745,000 and $13,688,000 at March 31, 2015 and June 30, 2014, respectively. All of these purchased loans are secured by single family homes located out of our primary market area primarily in the Midwest. The Company’s loans receivable also include commercial loan participations of $28,534,000 and $24,772,000 at March 31, 2015 and June 30, 2014, respectively, of which $9,177,000 and $7,893,000, at March 31, 2015 and June 30, 2014 were outside our primary market area. The Company purchased one new commercial participation during the quarter ended March 31, 2015. This participation loan was secured by business assets and life insurance.

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, 2015 and 2014 and the year ended June 30, 2014:


	Three Months Ended March 31, 2015 Real Estate Loans
	One-to Four- Family			Multi- Family		Commercial		Home Equity Lines of Credit

Allowance for loan losses:
Balance, beginning of period	$	1,408		$	772	$	1,078	$	89
Provision charged to expense		13			22		26		(9	)
Losses charged off		(82	)		—		—		—
Recoveries		18			—		—		13

Balance, end of period	$	1,357		$	794	$	1,104	$	93

Ending balance: individually evaluated for impairment	$	174		$	—	$	27	$	7

Ending balance: collectively evaluated for impairment	$	1,183		$	794	$	1,077	$	86


Loans:

Ending balance	$	145,355		$	56,147	$	92,479	$	7,825

Ending balance: individually evaluated for impairment	$	3,353		$	1,557	$	48	$	7

Ending balance: collectively evaluated for impairment	$	142,002		$	54,590	$	92,431	$	7,818


	Three Months Ended March 31, 2015 (Continued)
	Construction		Commercial			Consumer			Unallocated		Total

Allowance for loan losses:
Balance, beginning of period	$	6	$	691		$	94		$	—	$	4,138
Provision charged to expense		1		(22	)		(14	)		—		17
Losses charged off		—		—			(2	)		—		(84	)
Recoveries		—		—			9			—		40

Balance, end of period	$	7	$	669		$	87		$	—	$	4,111

Ending balance: individually evaluated for impairment	$	—	$	—		$	11		$	—	$	219

Ending balance: collectively evaluated for impairment	$	7	$	669		$	76		$	—	$	3,892


Loans:

Ending balance	$	1,159	$	32,125		$	8,600		$	—	$	343,690

Ending balance: individually evaluated for impairment	$	—	$	116		$	21		$	—	$	5,102

Ending balance: collectively evaluated for impairment	$	1,159	$	32,009		$	8,579		$	—	$	338,588


	Nine Months Ended March 31, 2015 Real Estate Loans
	One-to Four- Family			Multi- Family			Commercial		Home Equity Lines of Credit

Allowance for loan losses:
Balance, beginning of period	$	1,391		$	842		$	968	$	111
Provision charged to expense		74			(48	)		136		(3	)
Losses charged off		(136	)		—			—		(28	)
Recoveries		28			—			—		13

Balance, end of period	$	1,357		$	794		$	1,104	$	93

Ending balance: individually evaluated for impairment	$	174		$	—		$	27	$	7

Ending balance: collectively evaluated for impairment	$	1,183		$	794		$	1,077	$	86


Loans:

Ending balance	$	145,355		$	56,147		$	92,479	$	7,825

Ending balance: individually evaluated for impairment	$	3,353		$	1,557		$	48	$	7

Ending balance: collectively evaluated for impairment	$	142,002		$	54,590		$	92,431	$	7,818


	Nine Months Ended March 31, 2015 (Continued)
	Construction			Commercial		Consumer			Unallocated		Total

Allowance for loan losses:
Balance, beginning of period	$	10		$	543	$	93		$	—	$	3,958
Provision charged to expense		(3	)		126		(23	)		—		259
Losses charged off		—			—		(11	)		—		(175	)
Recoveries		—			—		28			—		69

Balance, end of period	$	7		$	669	$	87		$	—	$	4,111

Ending balance: individually evaluated for impairment	$	—		$	—	$	11		$	—	$	219

Ending balance: collectively evaluated for impairment	$	7		$	669	$	76		$	—	$	3,892


Loans:

Ending balance	$	1,159		$	32,125	$	8,600		$	—	$	343,690

Ending balance: individually evaluated for impairment	$	—		$	116	$	21		$	—	$	5,102

Ending balance: collectively evaluated for impairment	$	1,159		$	32,009	$	8,579		$	—	$	338,588


	Year Ended June 30, 2014 Real Estate Loans
	One-to Four- Family			Multi- Family		Commercial			Home Equity Lines of Credit

Allowance for loan losses:
Balance, beginning of year	$	1,616		$	797	$	838		$	90
Provision charged to expense		143			45		158			37
Losses charged off		(418	)		—		(28	)		(16	)
Recoveries		50			—		—			—

Balance, end of year	$	1,391		$	842	$	968		$	111

Ending balance: individually evaluated for impairment	$	143		$	—	$	35		$	21

Ending balance: collectively evaluated for impairment	$	1,248		$	842	$	933		$	90


Loans:
Ending balance	$	149,549		$	61,603	$	83,134		$	7,824

Ending balance: individually evaluated for impairment	$	2,781		$	1,621	$	55		$	28

Ending balance: collectively evaluated for impairment	$	146,768		$	59,982	$	83,079		$	7,796


	Year Ended June 30, 2014 (Continued)
	Construction			Commercial			Consumer			Unallocated			Total

Allowance for loan losses:
Balance, beginning of year	$	24		$	431		$	104		$	38		$	3,938
Provision charged to expense		(14	)		150			21			(38	)		502
Losses charged off		—			(38	)		(38	)		—			(538	)
Recoveries		—			—			6			—			56

Balance, end of year	$	10		$	543		$	93		$	—		$	3,958

Ending balance: individually evaluated for impairment	$	—		$	—		$	16		$	—		$	215

Ending balance: collectively evaluated for impairment	$	10		$	543		$	77		$	—		$	3,743


Loans:
Ending balance	$	1,572		$	23,120		$	8,509		$	—		$	335,311

Ending balance: individually evaluated for impairment	$	—		$	29		$	31		$	—		$	4,545

Ending balance: collectively evaluated for impairment	$	1,572		$	23,091		$	8,478		$	—		$	330,766


	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


	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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


	Real Estate Loans
	One-to Four- Family		Multi-Family		Commercial		Home Equity Lines of Credit		Construction		Commercial		Consumer		Total

March 31, 2015:
Pass	$	141,853	$	55,721	$	88,262	$	7,818	$	1,159	$	30,933	$	8,579	$	334,325
Watch		648		171		754		—		—		1,076		—		2,649
Substandard		2,854		255		3,463		7		—		116		21		6,716
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—


Total	$	145,355	$	56,147	$	92,479	$	7,825	$	1,159	$	32,125	$	8,600	$	343,690


	Real Estate Loans
	One-to Four- Family		Multi-Family		Commercial		Home Equity Lines of Credit		Construction		Commercial		Consumer		Total

June 30, 2014:
Pass	$	146,124	$	59,806	$	81,152	$	7,797	$	1,572	$	20,636	$	8,477	$	325,564
Watch		782		1,501		336		—		—		—		—		2,619
Substandard		2,643		296		1,646		27		—		2,484		32		7,128
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—


Total	$	149,549	$	61,603	$	83,134	$	7,824	$	1,572	$	23,120	$	8,509	$	335,311

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.

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

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

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


	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due & Accruing

March 31, 2015:
Real estate loans:
One-to four-family	$	2,164	$	535	$	2,244	$	4,943	$	140,412	$	145,355	$	—
Multi-family		210		—		—		210		55,937		56,147		—
Commercial		83		—		—		83		92,396		92,479		—
Home equity lines of credit		7		5		—		12		7,813		7,825		—
Construction		—		—		—		—		1,159		1,159		—
Commercial		23		—		—		23		32,102		32,125		—
Consumer		38		14		21		73		8,527		8,600		—


Total	$	2,525	$	554	$	2,265	$	5,344	$	338,346	$	343,690	$	—


	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, 2014:
Real estate loans:
One-to four-family	$	2,985	$	876	$	1,500	$	5,361	$	144,188	$	149,549	$	182
Multi-family		—		—		—		—		61,603		61,603		—
Commercial		—		349		—		349		82,785		83,134		—
Home equity lines of credit		49		36		—		85		7,739		7,824		—
Construction		—		—		—		—		1,572		1,572		—
Commercial		—		—		—		—		23,120		23,120		—
Consumer		97		33		—		130		8,379		8,509		—


Total	$	3,131	$	1,294	$	1,500	$	5,925	$	329,386	$	335,311	$	182

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 borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

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

The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlements with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring. Included in certain loan categories in the impaired loans are $2.8 million in troubled debt restructurings that were classified as impaired.

The following tables present impaired loans:


							Three Months Ended March 31, 2015						Nine Months Ended March 31, 2015
	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, 2015:
Loans without a specific valuation allowance
Real estate loans:
One-to four-family	$	2,853	$	2,853	$	—	$	2,756	$	6	$	8	$	2,770	$	15	$	27
Multi-family		1,557		1,557		—		1,565		23		23		1,583		54		69
Commercial		—		—		—		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		116		116		—		370		—		—		73		—		2
Consumer		10		10		—		11		—		—		14		—		—

Loans with a specific valuation allowance
Real estate loans:
One-to four-family		500		500		174		620		2		2		629		5		6
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		48		48		27		48		—		—		51		—		—
Home equity line of credit		7		7		7		8		—		—		8		—		1
Construction		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Consumer		11		11		11		12		—		—		14		—		—
Total:
Real estate loans:
One-to four-family		3,353		3,353		174		3,376		8		10		3,399		20		33
Multi-family		1,557		1,557		—		1,565		23		23		1,583		54		69
Commercial		48		48		27		48		—		—		51		—		—
Home equity line of credit		7		7		7		8		—		—		8		—		1
Construction		—		—		—		—		—		—		—		—		—
Commercial		116		116		—		370		—		—		73		—		2
Consumer		21		21		11		23		—		—		28		—		—


	$	5,102	$	5,102	$	219	$	5,390	$	31	$	33	$	5,142	$	74	$	105


							Year Ended June 30, 2014
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis

June 30, 2014:
Loans without a specific valuation allowance
Real estate loans:
One-to four-family	$	2,107	$	2,107	$	—	$	2,174	$	25	$	31
Multi-family		1,621		1,621		—		1,664		78		94
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		29		29		—		—		—		—
Consumer		15		15		—		26		—		—

Loans with a specific allowance
Real estate loans:
One-to four-family		674		674		143		689		1		1
Multi-family		—		—		—		—		—		—
Commercial		55		55		35		59		—		—
Home equity line of credit		28		28		21		29		1		1
Construction		—		—		—		—		—		—
Commercial		—		—		—		34		—		—
Consumer		16		16		16		19		1		1
Total:
Real estate loans:
One-to four-family		2,781		2,781		143		2,863		26		32
Multi-family		1,621		1,621		—		1,664		78		94
Commercial		55		55		35		59		—		—
Home equity line of credit		28		28		21		29		1		1
Construction		—		—		—		—		—		—
Commercial		29		29		—		34		—		—
Consumer		31		31		16		45		1		1


	$	4,545	$	4,545	$	215	$	4,694	$	106	$	128


							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


	$	4,896	$	4,896	$	208	$	4,947	$	27	$	30	$	5,080	$	76	$	98

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

The following table presents the Company’s nonaccrual loans at March 31, 2015 and June 30, 2014:


	March 31, 2015		June 30, 2014
Mortgages on real estate:
One-to four-family	$	2,815	$	2,146
Multi-family		254		296
Commercial		48		55
Home equity lines of credit		7		28
Construction loans		—		—
Commercial business loans		116		29
Consumer loans		21		30


Total	$	3,261	$	2,584

At March 31, 2015 and June 30, 2014, the Company had a number of loans that were modified in troubled debt restructurings (TDR’s) and impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.

The following table presents the recorded balance, at original cost, of troubled debt restructurings. As of March 31, 2015 all loans listed were on nonaccrual except for nine, one-to four-family residential loans totaling $536,000, and one multi-family loan for $1.3 million. All loans listed as of June 30, 2014 were on nonaccrual except for nine, one-to four-family residential loans totaling $635,000, and one multi-family loan for $1.3 million.


	March 31, 2015		June 30, 2014
Real estate loans
One-to four-family	$	1,420	$	1,477
Multi-family		1,302		1,335
Commercial		12		15
Home equity lines of credit		—		—


Total real estate loans		2,734		2,827


Construction		—		—
Commercial and industrial		23		29
Consumer loans		—		—


Total	$	2,757	$	2,856

During the nine month period ended March 31, 2015, the Company modified two, one-to four-family loans with a recorded investment of $28,000.

During the year ended June 30, 2014, the Company modified two one-to four-family residential real estate loans, with a recorded investment of $13,000, and one commercial business loan with a recorded investment of $15,000.

During the nine month period ended March 31, 2014, the Company modified two, one-to four-family residential real estate loans with a recorded investment of $14,000, and one commercial loan totaling $16,000 as troubled debt restructurings.

The Company has three TDRs, all of which were one-to four-family residential loans totaling $450,000, that were in default as of March 31, 2015, and were restructured in prior periods. Two of these loans were in foreclosure at March 31, 2015. The Company had three TDRs, all one-to four-family residential loans totaling $384,000, that were in default as of June 30, 2014, and were restructured in the prior years. All three loans were in foreclosure at June 30, 2014. 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.

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, 2015 and June 30, 2014. The FHLB provides liquidity and funding through advances.

Note 8:

Accumulated Other Comprehensive Income

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


	March 31, 2015			June 30, 2014

Net unrealized gains on securities available-for-sale	$	4,204		$	2,020
Net unrealized postretirement health benefit plan obligations		(209	)		(211	)

		3,995			1,809
Tax effect		(1,608	)		(728	)


Total	$	2,387		$	1,081

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, 2015 and 2014, were as follows:


	Amounts Reclassified from AOCI
	Three Months Ended March 31,						Nine Months Ended March 31,
	2015			2014			2015			2014			Affected Line Item in the Condensed Consolidated Statements of Income

Unrealized gains (losses) on available-for-sale securities	$	1		$	(95	)	$	(41	)	$	(199	)	Net realized gains (losses) on sale of available-for-sale securities

Amortization of defined benefit pension items:													Components are included in computation of net periodic pension cost
Transition obligation	$	6		$	8		$	18		$	24
Actuarial losses	$	5		$	—		$	19		$	—
Prior service costs	$	(12	)	$	(12	)	$	(36	)	$	(36	)

Total reclassified amount before tax		—			(99	)		(40	)		(211	)

Tax expense (benefit)		—			(40	)		(16	)		(85	)	Provision for Income Tax


Total reclassification out of AOCI	$	—		$	(59	)	$	(24	)	$	(126	)	Net Income

Note 10:

Income Taxes

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


	Three Months Ended March 31,						Nine Months Ended March 31,
	2015			2014			2015			2014

Computed at the statutory rate (34%)	$	461		$	433		$	1,305		$	1,280
Decrease resulting from
Tax exempt interest		(14	)		(7	)		(38	)		(25	)
Cash surrender value of life insurance		(22	)		(23	)		(67	)		(69	)
State income taxes		81			67			220			224
Other		(40	)		(30	)		(65	)		(118	)


Actual expense	$	466		$	440		$	1,355		$	1,292

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:

Regulatory Capital

The federal banking agencies have adopted regulations that substantially amend the capital regulations currently applicable to us. These regulations implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.

Effective January 1, 2015 (with some changes transitioned into full effectiveness over two to four years), the Association became subject to new capital requirements adopted by the OCC. These new requirements create a new required ratio for common equity Tier 1 (“CETI”) capital, increase the leverage and Tier 1 capital ratios, change the risk weight of certain assets for purposes of the risk-based capital ratios, create an additional capital conservation buffer over the required capital ratios, and change what qualifies as capital for purposes of meeting these various capital requirements. Beginning in 2016, failure to maintain the required capital conservation buffer will limit the ability of the Association to pay dividends, repurchase shares, or pay discretionary bonuses. The Company is exempt from consolidated capital requirements as those requirements do not apply to certain small savings and loan holding companies with assets under $1 billion.

Under the new capital regulations, the minimum capital ratios are: (1) CETI capital ratio of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6.0% of risk-weighted assets: (3) a total capital ratio of 8.0% of risk-weighted assets; and (4) a leverage ratio of 4.0%. CETI generally consists of common stock and retained earnings, subject to applicable regulatory adjustments and deductions.

There are a number of changes in what constitutes regulatory capital, some of which are subject to transition periods. These changes include the phasing-out of certain instruments as qualifying capital. The Association does not use any of these instruments. Under the new requirements for total capital, Tier 2 capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights, certain deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of CETI will be deducted from capital. The Association has elected to permanently opt-out of the inclusion of accumulated other comprehensive income in our capital calculations, as permitted by the regulations. This opt-out will reduce the impact of market volatility on our regulatory capital levels.

The new requirements also include changes in the risk-weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (increased from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and for non-residential mortgage loans that are 90 days past due or otherwise in non-accrual status; a 20% (increased from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250% risk weight (increased from 100%) for mortgage servicing and deferred tax assets that are not deducted from capital; and increased risk weights (0% to 600%) for equity exposures.

In addition to the minimum CETI, Tier 1 and total capital ratios, the Association will have to maintain a capital conservation buffer consisting of additional CETI capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented in January 2019.

Note 12:

Disclosures About Fair Value of Assets and Liabilities

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


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

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

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

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2015 and June 30, 2014:


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2015:
Available-for-sale securities:
US Government and federal agency	$	109,823	$	—	$	109,823	$	—
Mortgage-backed securities – GSE residential		62,184		—		62,184		—
State and political subdivisions		4,116		—		4,116		—

Mortgage servicing rights		476		—		—		476


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2014:
Available-for-sale securities:
US Government and federal agency	$	114,662	$	—	$	114,662	$	—
Mortgage-backed securities – GSE residential		66,732		—		66,732		—
State and political subdivisions		3,192		—		3,192		—

Mortgage servicing rights		506		—		—		506

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, 2015. 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, 2015 or June 30, 2014. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. For these investments, the inputs used by the pricing service to determine fair value may include

one, or a combination of, observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government and federal agency, mortgage-backed securities (GSE - residential) and state and political subdivisions. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. There were no Level 3 securities as of March 31, 2015 or June 30, 2014.

Mortgage Servicing Rights

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

Level 3 Reconciliation

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


	Mortgage Servicing Rights

Balance, July 1, 2014	$	506

Total realized and unrealized gains and losses included in net income		(27	)
Servicing rights that result from asset transfers		45
Payments received and loans refinanced		(48	)


Balance, March 31, 2015	$	476


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	$	(27	)

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, 2015 and June 30, 2014:


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2015:

Impaired loans (collateral-dependent)	$	40	$	—	$	—	$	40
Foreclosed assets		88		—		—		88

June 30, 2014:

Impaired loans (collateral-dependent)	$	401	$	—	$	—	$	401
Foreclosed assets		38		—		—		38

The following table presents recoveries (losses) recognized on assets measured on a non-recurring basis for the three months and nine months ended March 31, 2015 and 2014:


	Three Months Ended March 31,					Nine Months Ended March 31,
	2015			2014		2015			2014

Impaired loans (collateral-dependent)	$	11,000		$	18,000	$	24,000		$	59,000
Foreclosed and repossessed assets held for sale		(10,000	)		—		(44,000	)		(75,000	)


Total recoveries (losses) on assets measured on a non-recurring basis	$	1,000		$	18,000	$	(20,000	)	$	(16,000	)

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.

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, 2015 and June 30, 2014.


	Fair Value at March 31, 2015		Valuation Technique	Unobservable Inputs	Range (Weighted Average)

Mortgage servicing rights	$	476	Discounted cash flow	Discount rate	10.5% – 11.5% (10.5%)

				Constant prepayment rate	12.8% - 14.8% (13.8%)

				Probability of default	.20% - .35% (.34%)

Impaired loans (collateral-dependent)		40	Market comparable properties	Marketability discount	11.1% (11.1%)

Foreclosed assets		88	Market comparable properties	Comparability adjustments (%)	10% - 50% (16%)


	Fair Value at June 30, 2014		Valuation Technique	Unobservable Inputs	Range (Weighted Average)

Mortgage servicing rights	$	506	Discounted cash flow	Discount rate	10.0% – 11.0% (10.0%)

				Constant prepayment rate	10.8% - 13.1% (11.9%)

				Probability of default	.13% - .26% (.25%)

Impaired loans (collateral-dependent)		401	Market comparable properties	Marketability discount	0% – 24% (23.7%)

Foreclosed assets		38	Market comparable properties	Comparability adjustments (%)	24% (24%)

Fair Value of Financial Instruments

The following tables present estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2015 and June 30, 2014.


	Carrying Amount		Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

March 31, 2015:
Financial assets
Cash and cash equivalents	$	12,494	$	12,494	$	—	$	—
Interest-bearing time deposits in banks		250		250		—		—
Loans, net of allowance for loan losses		338,365		—		—		341,294
Federal Home Loan Bank stock		5,425		—		5,425		—
Accrued interest receivable		1,669		—		1,669		—

Financial liabilities
Deposits		413,684		—		150,883		263,149
Repurchase agreements		4,403		—		4,403		—
Federal Home Loan Bank advances		41,000		—		41,985		—
Advances from borrowers for taxes and insurance		1,229		—		1,229		—
Accrued interest payable		88		—		88		—
Unrecognized financial instruments (net of contract amount)		—		—		—		—
Commitments to originate loans		—		—		—		—
Lines of credit		—		—		—		—


	Carrying Amount		Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

June 30, 2014:
Financial assets
Cash and cash equivalents	$	12,731	$	12,731	$	—	$	—
Interest-bearing time deposits in banks		250		250		—		—
Loans, net of allowance for loan losses		329,924		—		—		333,282
Federal Home Loan Bank stock		5,425		—		5,425		—
Accrued interest receivable		1,788		—		1,788		—

Financial liabilities
Deposits		404,593		—		149,343		255,451
Repurchase agreements		2,324		—		2,324		—
Federal Home Loan Bank advances		56,750		—		58,146		—
Advances from borrowers for taxes and insurance		997		—		997		—
Accrued interest payable		96		—		96		—
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.

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 13:

Commitments

Commitments to Originate Loans

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

Lines of Credit

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

Item 2.

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

Cautionary Note Regarding Forward-Looking Statements

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

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on our actual results include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets and changes in the quality or composition of the Association’s loan or investment portfolios. Additional factors that may affect our results are discussed under “Item 1A. - Risk Factors”, in the Company’s Annual Report on Form 10-K for the year ended June 30, 2014, and the Company’s other filings with the SEC. These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. IF Bancorp, Inc. assumes no obligation to update any forward-looking statement, except as may be required by law.

Overview

On July 7, 2011 we completed our initial public offering of common stock in connection with Iroquois Federal Savings and Loan Association’s (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 Association’s employee stock ownership plan, and raising approximately $45.0 million of gross proceeds. In addition, we issued 314,755 shares of our common stock to the Iroquois Federal Foundation 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 Company’s business activities are limited to oversight of its investment in the Association.

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

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

Our net interest rate spread (the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities) increased to 2.86% for the nine months ended March 31, 2015 from 2.83% for the nine months ended March 31, 2014. A decrease in interest-earning assets contributed to a decrease in net interest income to $11.7 million for the nine months ended March 31, 2015, from $11.8 million for the nine months ended March 31, 2014.

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 loans totaled $3.3 million, or 1.0% of loans at March 31, 2015, and $2.8 million, or 0.8% of total loans at June 30, 2014. Our non-performing assets totaled $3.6 million or 0.7% of total assets at March 31, 2015, and $3.2 million, or 0.6% of total assets at June 30, 2014.

At March 31, 2015, the Association was categorized as “well capitalized” under regulatory capital requirements.

Our net income was $2.5 million for both the nine months ended March 31, 2015, and for the nine months ended March 31, 2014. The slight increase in net income was primarily due to an increase in noninterest income and a decrease in provision for loan losses, mostly offset by an increase in noninterest expense and a decrease in net interest income.

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended March 31, 2015 and 2014 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.

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.

The Company established a charitable foundation at the time of its mutual-to-stock conversion and donated to it cash and shares of common stock for a total value of approximately $3.6 million. The Company established a deferred tax asset associated with this charitable contribution. No valuation allowance has been established, as it appears that the Company will be able to deduct the contribution, which is subject to limitations each year, during the five year carry-forward period which ends June 30, 2017.

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, 2014.

Comparison of Financial Condition at March 31, 2015 and June 30, 2014

Total assets decreased $1.6 million, or 0.3%, to $549.8 million at March 31, 2015 from $551.3 million at June 30, 2014. The decrease was primarily due to an $8.5 million decrease in investment securities, an $821,000 decrease in deferred income taxes, and a $237,000 decrease in cash and cash equivalents, mostly offset by an $8.4 million increase in net loans.

Net loans receivable, including loans held for sale, increased by $8.4 million, or 2.6%, to $338.4 million at March 31, 2015 from $329.9 million at June 30, 2014. The increase in net loans receivable during this period was due primarily to a $9.3 million, or 11.2%, increase in commercial real estate loans, a $9.0 million, or 38.9%, increase in commercial business loans, and a $91,000, or 1.1%, increase in consumer loans. These increases were partially offset by a decrease of $5.5 million, or 8.9%, in multi-family loans, a decrease of $4.2 million in one-to four-family loans, and a decrease of $413,000, or 26.3% in construction loans.

Investment securities, consisting entirely of securities available-for-sale, decreased $8.5 million, or 4.6%, to $176.1 million at March 31, 2015 from $184.6 million at June 30, 2014. The decrease was primarily due to the sale of securities to fund loan growth. We had no securities classified as held to maturity at March 31, 2015 or June 30, 2014.

As of March 31, 2015, interest receivable decreased $119,000 to $1.7 million, premises and equipment decreased $266,000 to $4.9 million, deferred income taxes decreased $821,000 to $1.2 million and other assets decreased $229,000 to $260,000 from the respective balances as of June 30, 2014. The decrease in interest receivable was primarily due to the

reduction of the investment security portfolio and the decrease in premises and equipment was primarily due to normal depreciation. The decrease in deferred income taxes was mostly due to an increase in the unrealized gain on the sale of available-for-sale securities and the decrease in other assets resulted from a decrease in accounts receivable general due to the receipt of a receivable that was outstanding as of June 30, 2014.

At March 31, 2015, our investment in bank-owned life insurance was $8.2 million, an increase of $198,000 from $8.0 million at June 30, 2014. 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 $16.1 million at March 31, 2015.

Deposits increased $9.1 million, or 2.2%, to $413.7 million at March 31, 2015 from $404.6 million at June 30, 2014. Certificates of deposit, excluding brokered certificates of deposit, increased $5.9 million, or 2.7%, to $225.6 million, savings, NOW, and money market accounts increased $4.6 million, or 3.4%, to $137.2 million, brokered certificates of deposit increased $1.6 million, or 4.6%, to $37.2 million, and noninterest bearing demand accounts decreased $3.0 million, or 18.0%, to $13.7 million. Repurchase agreements increased $2.1 million, or 89.5%, to $4.4 million. Borrowings, which consisted solely of advances from the Federal Home Loan Bank of Chicago, decreased $15.8 million, or 27.8%, to $41.0 million at March 31, 2015 from $56.8 million at June 30, 2014.

Other liabilities decreased $409,000, or 19.4%, to $1.7 million at March 31, 2015 from $2.1 million on June 30, 2014. The decrease was attributable to a general decrease in accounts payable and accrued expenses payable due to timing of payments.

Total equity increased $3.1 million, or 3.8%, to $85.2 million at March 31, 2015 from $82.1 million at June 30, 2014. Equity increased due to net income of $2.5 million and an increase in accumulated other comprehensive income, net of tax, of $1.3 million, partially offset by a decrease due to stock repurchases of $637,000 and the recognition of dividends in the amount of $420,000. A stock repurchase program was adopted on May 14, 2014, which authorized the Company to repurchase up to 221,383 shares of its common stock, or approximately 5% of then current outstanding shares. As of March 31, 2015, 88,600 shares were repurchased, 38,600 of which were repurchased during the nine months ended March 31, 2015, leaving the maximum number of shares that may yet be repurchased under the plan at 132,783.

Comparison of Operating Results for the Nine Months Ended March 31, 2015 and 2014

General. Net income was $2.5 million for both the nine months ended March 31, 2015 and for the nine months ended March 31, 2014. The net income the was same in each of the nine month periods due to an increase in noninterest income and a decrease in provision for loan losses, mostly offset by an increase in noninterest expense and a decrease in net interest income.

Net Interest Income. Net interest income decreased by $98,000, or 0.8%, to $11.7 million for the nine months ended March 31, 2015 from $11.8 million for the nine months ended March 31, 2014. The slight decrease was due to a decrease of $14,000 in interest and dividend income and an increase of $84,000 in interest expense. We had a $13.1 million, or 2.4%, decrease in the average balance of interest earning assets, offset by a $13.3 million, or 2.9%, decrease in the average balance of interest bearing liabilities. Our interest rate spread increased by 3 basis points to 2.86% for the nine months ended March 31, 2015, compared to 2.83% for the nine months ended March 31, 2014, while our net interest margin increased by 5 basis points to 2.97% for the nine months ended March 31, 2015 compared to 2.92% for the nine months ended March 31, 2014.

Interest and Dividend Income. Interest and dividend income was $14.1 million for both the nine months ended March 31, 2015 and for the nine months ended March 31, 2014. The interest and dividend income was the same in both periods primarily due to an increase in interest income on loans, offset by a decrease in interest income on securities. Interest on securities decreased $456,000, or 12.1%, as a $31.9 million decrease in the average balance of securities to $172.9 million at March 31, 2015 was partially offset by a 14 basis point increase in the average yield on securities from 2.49% to 2.63%. An increase of $396,000 in interest on loans resulted from a $16.2 million, or 5.0%, increase in the average balance of

loans to $341.1 million for the nine months ended March 31, 2015, partially offset by a 5 basis point, or 1.1%, decrease in the average yield on loans from 4.22% 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 in the prior period.

Interest Expense. Interest expense increased $84,000, or 3.6%, to $2.4 million for the nine months ended March 31, 2015 from $2.3 million for the nine months ended March 31, 2014. The increase was primarily due to increased average balances of deposits, partially offset by decreased balance on borrowings.

Interest expense on interest-bearing deposits increased by $110,000, or 6.4%, to $1.8 million for the nine months ended March 31, 2015 from $1.7 million for the nine months ended March 31, 2014. This increase was primarily due to an increase in the average balance of interest-bearing deposits to $394.4 million for the nine months ended March 31, 2015, from $372.4 million for the nine months ended March 31, 2014. The average cost of interest-bearing deposits was 0.62% for both the nine months ended March 31, 2015 and for the nine months ended March 31, 2014.

Interest expense on borrowings decreased $26,000, or 4.2%, to $591,000 for the nine months ended March 31, 2015 from $617,000 for the nine months ended March 31, 2014. This decrease was due to a decrease in average balance of borrowings to $51.0 million for the nine months ended March 31, 2015, from $86.2 million for the nine months ended March 31, 2014. This was offset by a 67 basis point increase in the average cost of such borrowings to 1.62% for the nine months ended March 31, 2015 from 0.95% for the nine months ended March 31, 2014

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 $259,000 for the nine months ended March 31, 2015, compared to a provision for loan losses of $366,000 for the nine months ended March 31, 2014. The allowance for loan losses was $4.1 million, or 1.20% of total loans, at March 31, 2015, compared to $3.9 million, or 1.18% of total loans, at March 31, 2014, and $4.0 million, or 1.18% of total loans, at June 30, 2014. Non-performing loans increased to $3.3 million during the nine month period ended March 31, 2015. During the nine months ended March 31, 2015, a net charge-off of $106,000 was recorded, while during the nine months ended March 31, 2014, a net charge-off of $383,000 was recorded.

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


	Nine Months Ended March 31, 2015			Year Ended June 30, 2014

Allowance to non-performing loans		126.04	%		143.10	%
Allowance to total loans outstanding at the end of the period		1.20	%		1.18	%
Net charge-offs to average total loans outstanding during the period, annualized		0.04	%		0.15	%
Total non-performing loans to total loans		0.95	%		0.82	%
Total non-performing assets to total assets		0.66	%		0.58	%

Noninterest Income. Noninterest income increased $162,000, or 7.2%, to $2.4 million for the nine months ended March 31, 2015 compared to $2.2 million for the nine months ended March 31, 2014. The increase was primarily due to a reduction in net realized losses on the sale of available-for-sale securities and brokerage commissions, partially offset by a decrease in mortgage banking income, net. For the nine months ended March 31, 2015, net realized gains (losses) on the sale of available-for-sale securities decreased to ($41,000) from ($199,000), and brokerage commissions increased to $565,000 from $508,000, while mortgage banking income, net, decreased to $110,000 from $159,000. The reduction in net realized losses on the sale of available-for-sale securities was due to the rate environment in the nine months ended March 31, 2015, that allowed for a repositioning of the investment portfolio that was not available in the nine months ended March 31, 2014. The increase in brokerage commissions reflects increased activity due to movement in market interest rates. The decrease in mortgage banking income, net, was due to a lower number of loans sold to the secondary market and a lower valuation of mortgage servicing rights in the nine months ended March 31, 2015.

Noninterest Expense. Noninterest expense increased $97,000, or 1.0%, to $10.0 million for the nine months ended March 31, 2015 from $9.9 million for the nine months ended March 31, 2014. The largest components of this increase were equipment expense, which increased $104,000, or 15.8%, professional services, which increased $61,000, or 21.9%, and net occupancy expense, which increased $40,000, or 10.4%. The increase in equipment expense was due to routine technology upgrades, the increase in professional services was the result of additional services received in the nine months ended March 31, 2015, and the increase in net occupancy expense was due to increased expenses due to the addition of the Savoy office. These increases were partially offset by decreases in loss on sale of foreclosed assets, net, and compensation and benefits. Compensation and benefits decreased due to a lower accrual of executive compensation in the annual incentive plan in the nine months ended March 31, 2015, while the loss on foreclosed assets decreased due to smaller losses taken in the nine months ended March 31, 2015.

Income Tax Expense. We recorded a provision for income tax of $1.4 million for the nine months ended March 31, 2015, compared to a provision for income tax of $1.3 million for the nine months ended March 31, 2014, reflecting effective tax rates of 35.3% and 34.3%, respectively.

Comparison of Operating Results for the Three Months Ended March 31, 2015 and 2014

General. Net income increased $56,000 to $890,000 net income for the three months ended March 31, 2015 from a $834,000 net income for the three months ended March 31, 2014. The increase was primarily due to an increase in noninterest income and a decrease in provision for loan losses, partially offset by an increase in interest expense, an increase in noninterest expense, and a decrease in interest income.

Net Interest Income. Net interest income decreased $95,000 to $3.9 million for the three months ended March 31, 2015 from $4.0 million for the three months ended March 31, 2014. The decrease was the result of a decrease of $94,000 in interest and dividend income and an increase of $1,000 in interest expense. We had a $23.1 million, or 4.2%, decrease in the average balance of interest earning assets, offset by a $26.6 million, or 5.6%, decrease in average balance of interest bearing liabilities. Our interest rate spread increased by 3 basis points to 2.86% for the three months ended March 31, 2015 from 2.83% for the three months ended March 31, 2014, and our net interest margin increased by 5 basis points to 2.97% for the three months ended March 31, 2015 from 2.92% for the three months ended March 31, 2014.

Interest and Dividend Income. Interest and dividend income decreased $94,000, or 2.0%, to $4.7 million for the three months ended March 31, 2015 from $4.8 million for the three months ended March 31, 2014. The decrease in interest and dividend income was mostly due to a $278,000 decrease in interest income on securities, partially offset by a $163,000 increase in interest on loans. Interest income on securities decreased due to a $44.0 million, or 20.5%, decrease in the average balance of securities to $170.7 million for the three months ended March 31, 2015, from $214.7 million for the three months ended March 31, 2014, partially offset by a 5 basis point, or 2.1%, increase in the average yield on securities from 2.55% to 2.60%. Interest on loans increased $163,000, or 4.7%, as a $15.8 million increase in the average balance of loans to $345.6 at March 31, 2015 was partially offset by a 1 basis point decrease in the average yield on loans from 4.17% to 4.16%. 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 $1,000, or 0.1%, to $790,000 for the three months ended March 31, 2015 from $789,000 for the three months ended March 31, 2014. The increase was primarily due to an increase in the average balance of deposits and an increase in the average cost of borrowings, partially offset by a decrease in the average balance of borrowings and a decrease in the average cost of deposits.

Interest expense on interest-bearing deposits increased by $12,000, or 2.1%, to $592,000 for the three months ended March 31, 2015 from $580,000 for the three months ended March 31, 2014. This increase was primarily due to a $12.2 million, or 3.2%, increase in the average balance of interest-bearing deposits to $395.3 million for the three months ended March 31, 2015 from $383.0 million for the three months ended March 31, 2014. The increase was partially offset by a 1 basis point decrease in the average cost of interest-bearing deposits to 0.60% for the three months ended March 31, 2015 from 0.61% for the three months ended March 31, 2014.

Interest expense on borrowings decreased by $11,000, or 5.3%, to $198,000 for the three months ended March 31, 2015 from $209,000 for the three months ended March 31, 2014. An increase in the average cost of borrowings to 1.57% for the three months ended March 31, 2015 from 0.91% for the three months ended March 31, 2014, was partially offset by a decrease in the average balance of borrowings of $38.8 million, or 42.2%, to $53.2 million for the three months ended March 31, 2015, from $92.0 million for the three months ended March 31, 2014.

Provision for Loan Losses. We recorded a provision for loan losses of $17,000 for the three months ended March 31, 2015, compared to a provision for loan losses of $140,000 for the three months ended March 31, 2014. During the three months ended March 31, 2015 and 2014, $44,000 and $125,000 in net charge-offs were recorded, respectively.

Noninterest Income. Noninterest income increased $131,000, or 19.5%, to $802,000 for the three months ended March 31, 2015 from $671,000 for the three months ended March 31, 2014. The increase was primarily due to increases in net realized gains on the sale of available-for-sale securities, gain on sale of loans, and brokerage commissions. For the three months ended March 31, 2015, net realized gains on the sale of available-for-sale securities increased to a gain of $1,000 from a loss of $95,000, gain on sale of loans increased to $25,000 from $5,000, and brokerage commissions increased to

$194,000 from $172,000. The increase 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, 2015, 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 increase in gain on sale of loans was primarily due to an increase in number of loans sold to the Federal Home Loan Bank of Chicago in the three months ended March 31, 2015, and the increase in brokerage commissions reflects increased activity due to movement in market interest rates.

Noninterest Expense. Noninterest expense increased $77,000, or 2.4%, to $3.4 million for the three months ended March 31, 2015 from $3.3 million for the three months ended March 31, 2014. The largest components of this increase were compensation and benefits, which increased $44,000, or 2.1%, equipment expense, which increased $18,000, or 8.1%, net occupancy expenses, which increased $15,000, or 11.0%, and professional services, which increased $13,000, or 16.3%, partially offset by a decrease of $10,000, or 58.8% in loss on foreclosed assets, net. 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 equipment expense was due to routine technology upgrades, the increase in net occupancy was due to increased expenses due to the addition of the Savoy office, and the increase in professional services was due to increased services received during the three months ended March 31, 2015. The decrease in loss on foreclosed assets, net was due to smaller losses taken in the three months ended March 31, 2015.

Income Tax Expense. We recorded a provision for income tax of $466,000 for the three months ended March 31, 2015, compared to a provision for income tax of $440,000 for the three months ended March 31, 2014, reflecting effective tax rates of 34.4% and 34.5%, respectively.

Asset Quality

At March 31, 2015, our non-accrual loans totaled $3.3 million, including $2.8 million in one-to four-family loans, $254,000 in multi-family loans, $48,000 in commercial real estate loans, $7,000 in home equity lines of credit, $116,000 in commercial business loans and $21,000 in consumer loans. The commercial real estate loans are secured by commercial rental properties. At March 31, 2015, we had no loans delinquent 90 days or greater and still accruing interest.

At March 31, 2015, $6.7 million in loans were classified as substandard. Loans classified as substandard consisted of $2.9 million in one-to four-family loans, $255,000 in multi-family loans, $3.5 million in commercial real estate loans, $7,000 in home equity lines of credit, $116,000 in commercial business loans and $21,000 in consumer loans. At March 31, 2015, no loans were classified as doubtful or loss.

At March 31, 2015, watch assets consisted of $648,000 in one-to four-family loans, $171,000 in multi-family loans, $754,000 in commercial real estate loans, and $1.1 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, 2015 and June 30, 2014, we had $2.8 million and $2.9 million, respectively, of troubled debt restructurings. At March 31, 2015 our troubled debt restructurings consisted of $1.4 million in one-to four-family loans, $1.3 million in multi-family loans, $12,000 in commercial real estate loans, and $23,000 in commercial business loans.

At March 31, 2015, we had $371,000 in foreclosed assets compared to $436,000 as of June 30, 2014. Foreclosed assets consisted entirely of residential real estate properties at both March 31, 2015 and June 30, 2014

Allowance for Loan Loss Activity

The Company regularly reviews its allowance for loan losses and makes adjustments to its balance based on management’s analysis of the loan portfolio, the amount of non-performing and classified loans, as well as general economic conditions. Although the Company maintains its allowance for loan losses at a level that it considers sufficient

to provide for losses, there can be no assurance that future losses will not exceed internal estimates. In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies, which can order the establishment of additional loss provisions. The following table summarizes changes in the allowance for loan losses over the nine-month periods ended March 31, 2015 and 2014:


	Nine months ended March 31,
	2015			2014

Balance, beginning of period	$	3,958		$	3,938
Loans charged off
Real estate loans:
One-to four-family		(136	)		(331	)
Multi-family		—			—
Commercial		(28	)		(28	)
HELOC		—			—
Construction		—			—
Commercial business					(38	)
Consumer		(11	)		(37	)

Gross charged off loans		(175	)		(434	)

Recoveries of loans previously charged off
Real estate loans:
One-to four-family		28			46
Multi-family		—			—
Commercial		—			—
HELOC		13			—
Construction		—			—
Commercial business		—			—
Consumer		28			5

Gross recoveries of charged off loans		69			51

Net charge offs		(106	)		(383	)

Provision charged to expense		259			366

Balance, end of period	$	4,111		$	3,921

The allowance for loan losses has been calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Company’s loans. Management considers such factors as the repayment status of a loan, the estimated net fair value of the underlying collateral, the borrower’s intent and ability to repay the loan, local economic conditions, and the Company’s historical loss ratios. We maintain the allowance for loan losses through the provisions for loan losses that we charge to income. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. The allowance for loan losses increased $153,000 to $4.1 million at March 31, 2015, from $4.0 million at June 30, 2014. The increase was a result of an increase in outstanding loans and was necessary in order to bring the allowance for loan losses to a level that reflects management’s estimate of the probable loss in the Company’s loan portfolio at March 31, 2015.

In its quarterly evaluation of the adequacy of its allowance for loan losses, the Company employs historical data including past due percentages, charge offs, and recoveries. The Company’s allowance methodology weights the most recent twelve-quarter period’s net charge-offs and uses this information as one of the primary factors for evaluation of allowance adequacy. The most recent four-quarter net charge-offs are given a higher weight of 50%, while quarters 5-8 are given a 30% weight and quarters 9-12 are given only a 20% weight. The average net charge-offs in each period are calculated as net charge-offs by portfolio type for the period as a percentage of the quarter end balance of respective portfolio type over the same period. 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 Company’s weighted average historical net charge-offs as of March 31, 2015 and June 30, 2014:


Portfolio segment	March 31, 2015 Net charge-offs 12 quarter weighted historical			June 30, 2014 Net charge-offs 12 quarter weighted historical

Real Estate:
One-to four-family		.00	%		.04	%
Multi-family		.01	%		.00	%
Commercial		.02	%		.06	%
HELOC		.28	%		.26	%
Construction		.00	%		.00	%
Commercial business		.13	%		.25	%
Consumer		(.02	%)		.25	%

Total portfolio		.02	%		.06	%

Additionally, in its quarterly evaluation of the adequacy of the allowance for loan losses, the Company evaluates changes in financial conditions of individual borrowers; changes in local, regional, and national economic conditions; the Company’s historical loss experience; and changes in market conditions for property pledged to the Company as collateral. The Company has identified specific qualitative factors that address these issues and subjectively assigns a percentage to each factor. At March 31, 2015, these qualitative factors included: (1) management’s assumptions regarding the minimal level of risk for a given loan category; (2) changes in lending policies and procedures, including changes in underwriting standards, and charge-off and recovery practices not considered elsewhere in estimating credit losses; (3) changes in international, national, regional and local economics and business conditions and developments that affect the collectability of the portfolio, including the conditions of various market segments; (4) changes in the nature and volume of the portfolio and in the terms of loans; (5) changes in the experience, ability, and depth of the lending officers and other relevant staff; (6) changes in the volume and severity of past due loans, the volume of non-accrual loans, the volume of troubled debt restructured 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.

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, 2015			Qualitative factor applied at June 30, 2014

Real Estate:
One-to four-family		0.83	%		0.81	%
Multi-family		1.44	%		1.40	%
Commercial		1.24	%		1.14	%
HELOC		0.82	%		0.89	%
Construction		0.63	%		0.65	%
Commercial business		1.96	%		2.10	%
Consumer		0.86	%		0.62	%

Total portfolio		1.13	%		1.07	%

At March 31, 2015, the amount of our allowance for loan losses attributable to these qualitative factors was approximately $3.8 million, as compared to $3.6 million at June 30, 2014. The general increase in qualitative factors was attributable primarily to the change in criticized loans.

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, 2015 and the year ended June 30, 2014, our liquidity ratio averaged 31.5% and 36.3% of our total assets, respectively. We believe that we had enough sources of liquidity to satisfy our short- and long-term liquidity needs as of March 31, 2015.

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are affected by our operating, financing, lending and investing activities during any given period. At March 31, 2015, 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, 2015.

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 $3.9 million and $4.5 million for the nine months ended March 31, 2015 and 2014, 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 provided by (used in) investing activities was $1.2 million and $(26.1) million for the nine months ended March 31, 2015 and 2014, respectively. Net cash provided by (used in) financing activities consisted primarily of the activity in deposit accounts, FHLB Advances, dividends paid, and stock repurchases. The net cash provided by (used in) financing activities was $(5.4) million and $27.5 million for the nine months ended March 31, 2015 and 2014, 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, 2015 and June 30, 2014.


	March 31, 2015		June 30, 2014
	(Dollars in thousands)

Commitments to fund loans	$	7,705	$	8,949
Lines of credit		20,469		18,663

At March 31, 2015, certificates of deposit due within one year of March 31, 2015 totaled $177.6 million, or 42.9% 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, 2016. 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 $41.0 million at March 31, 2015. At March 31, 2015, we had the ability to borrow up to an additional $97.5 million from the Federal Home Loan Bank of Chicago and also had the ability to borrow $20.9 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 began in January 2015, while the phase-in period for larger banks started in January 2014. The implementation of the new capital and liquidity standards is not expected to have a material impact on the Company’s Consolidated Financial Statements.

During the nine months ended March 31, 2015, the Company repurchased 38,600 of its shares as part of the stock repurchase program that was adopted by the Company in the year ended June 30, 2014, which allowed the Company to repurchase up to 221,383 shares of its common stock, or approximately 5 % of the then current outstanding shares. Repurchases are made at management’s 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 Company’s 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, 2015, the Company had repurchased 88,600 shares and the maximum number of shares that may yet be purchased under the plan was 132,783.

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. The OCC’s prompt corrective action standards changed effective January 1, 2015. Under the new standards, in order to be considered well-capitalized, the Association must have a Tier 1 capital to total assets ratio of 5.0% (unchanged), a common equity Tier 1 to risk-weighted assets ratio (CETI) of 6.5% (new ratio), a Tier 1 capital to risk-weighted assets ratio of 8.0% (increased from 6.0%), and a total capital to risk-weighted assets ratio of 10.0% (unchanged). The Association exceeds all these new regulatory capital requirements. The Association is considered “well capitalized” under regulatory guidelines.


	March 31, 2015			June 30, 2014			Minimum to Be Well
	Actual			Actual			Capitalized

Tier 1 capital to total assets
Association		11.8	%		12.1	%		5.0	%
Company		15.2	%		14.7	%		N/A
Common equity tier 1 to risk-weighted assets Association		19.6	%		N/A			6.5	%
Company		25.2	%		N/A			N/A
Tier 1 capital to risk-weighted assets
Association		19.6	%		20.7	%		8.0	%
Company		25.2	%		25.1	%		N/A
Total capital to risk-weighted assets
Association		20.9	%		21.9	%		10.0	%
Company		26.5	%		26.3	%		N/A

The net proceeds from the Company’s 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.

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,
	2015							2014
	Average Balance		Interest Income/ Expense		Yield/ Cost			Average Balance		Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)

Assets
Loans	$	345,591	$	3,599		4.16	%	$	329,786	$	3,436		4.17	%
Securities:
U.S. government, federal agency and government-sponsored enterprises		104,863		695		2.65	%		132,736		816		2.46	%
Mortgage-backed:
GSE-residential		62,288		391		2.51	%		79,212		543		2.74	%
State and political subdivisions		3,558		24		2.70	%		2,775		9		1.30	%

Total securities		170,709		1,110		2.60	%		214,723		1,368		2.55	%
Other		12,612		11		0.38	%		7,522		10		0.53	%

Total interest-earning assets		528,912		4,720		3.57	%		552,031		4,814		3.49	%
Non-interest earning assets		23,657							21,018

Total assets	$	552,569						$	573,049


Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing checking or NOW	$	38,430		9		0.09	%	$	36,271		8		0.09	%
Savings accounts		35,636		15		0.17	%		34,458		19		0.22	%
Money market accounts		58,090		28		0.19	%		58,927		35		0.24	%
Certificates of deposit		263,126		540		0.82	%		253,384		518		0.82	%

Total interest-bearing deposits		395,282		592		0.60	%		383,040		580		0.61	%
Federal Home Loan Bank Advances and repurchase agreements		53,196		198		1.57	%		92,027		209		0.91	%

Total interest-bearing liabilities		448,478		790		0.70	%		475,067		789		0.66	%
Noninterest-bearing liabilities		19,043							17,480

Total liabilities		467,521							492,547
Stockholders’ equity		85,048							80,502

Total liabilities and stockholders’ equity	$	552,569						$	573,049


	For the Three Months Ended March 31,
	2015								2014
	Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)

Net interest income				$	3,930							$	4,025


Interest rate spread (1)							2.86	%							2.83	%

Net interest margin (2)							2.97	%							2.92	%

Net interest-earning assets (3)	$	80,434							$	76,964


Average interest-earning assets to interest-bearing liabilities		118	%							116	%

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

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

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


	For the Nine Months Ended March 31,
	2015							2014
	Average Balance		Interest Income/ Expense		Yield/ Cost			Average Balance		Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)
Assets
Loans	$	341,130	$	10,669		4.17	%	$	324,937	$	10,273		4.22	%
Securities:
U.S. government, federal agency and government-sponsored enterprises		105,315		2,127		2.69	%		124,926		2,267		2.42	%
Mortgage-backed:
GSE-residential		64,076		1,220		2.54	%		76,490		1,527		2.66	%
State and political subdivisions		3,461		64		2.47	%		3,293		36		1.46	%

Total securities		172,852		3,411		2.63	%		204,709		3,830		2.49	%
Other		10,129		33		0.43	%		7,550		24		0.42	%

Total interest-earning assets		524,111		14,113		3.59	%		537,196		14,127		3.51	%
Non-interest earning assets		23,665							19,664

Total assets	$	547,776						$	556,860


	For the Nine Months Ended March 31,
	2015								2014
	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	$	35,419			24		0.09	%	$	34,335			27		0.10	%
Savings accounts		34,777			44		0.17	%		32,810			56		0.23	%
Money market accounts		57,593			85		0.20	%		58,813			109		0.25	%
Certificates of deposit		266,609			1,689		0.84	%		246,516			1,540		0.83	%

Total interest-bearing deposits		394,398			1,842		0.62	%		372,474			1,732		0.62	%
Federal Home Loan Bank Advances and repurchase agreements		51,015			591		1.62	%		86,189			617		0.95	%

Total interest-bearing liabilities		445,413			2,433		0.73	%		458,663			2,349		0.68	%
Noninterest-bearing liabilities		18,672								16,752

Total liabilities		464,085								475,415
Stockholders’ equity		83,691								81,445

Total liabilities and stockholders’ equity	$	547,776							$	556,860


Net interest income				$	11,680							$	11,778


Interest rate spread (1)							2.86	%							2.83	%

Net interest margin (2)							2.97	%							2.92	%

Net interest-earning assets (3)	$	78,698							$	78,533


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

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

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

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

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, 2015 vs. 2014									Nine Months Ended March 31, 2015 vs. 2014
	Increase (Decrease) Due to						Total Increase (Decrease)			Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate			Total Increase (Decrease)			Volume			Rate			Total Increase (Decrease)
	(In thousands)

Interest-earning assets:
Loans	$	217		$	(55	)	$	162		$	582		$	(186	)	$	396
Securities		(431	)		173			(258	)		(729	)		310			(419	)
Other		17			(15	)		2			8			1			9


Total interest-earning assets	$	(197	)	$	103		$	(94	)	$	(139	)	$	125		$	(14	)


Interest-bearing liabilities:
Interest-bearing checking or NOW	$	1		$	—		$	1		$	1		$	(4	)	$	(3	)
Savings accounts		5			(9	)		(4	)		6			(18	)		(12	)
Certificates of deposit		22			—			22			116			33			149
Money market accounts		(4	)		(3	)		(7	)		(4	)		(20	)		(24	)

Total interest-bearing deposits		24			(12	)		12			119			(9	)		110
Federal Home Loan Bank advances and repurchase agreements		(460	)		449			(11	)		(440	)		414			(26	)


Total interest-bearing liabilities	$	(436	)	$	437		$	1		$	(321	)	$	405		$	84


Change in net interest income	$	239		$	(334	)	$	(95	)	$	182		$	(280	)	$	(98	)

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

An internal interest rate risk analysis is performed at least quarterly to assess the Company’s Earnings at Risk, Capital at Risk, and Value at Risk. As of March 31, 2015, there were no material changes in interest rate risk from the analysis disclosed in the Company’s Form 10-K for the fiscal year ended June 30, 2014, as filed with the Securities and Exchange Commission.

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2015. Based upon such evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended March 31, 2015, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Item1A.- Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014, 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

On May 14, 2014, the Company announced the commencement of a stock repurchase program to acquire up to 221,383, or 5%, of the Company’s then outstanding common stock. The repurchase plan is scheduled to terminate on May 20, 2015, but may be suspended, terminated, modified or extended at any time for any reason. The repurchase program does not obligate the Company to purchase any particular number of shares.

There were no purchases of the Company’s common stock by the Company during the quarter ended March 31, 2015. As of March 31, 2015, the Company had repurchased 88,600 shares and the maximum number of shares that may yet be purchased under the plan was 132,783.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

None.

Item 5.

Other Information

None.

Item 6. Exhibits

31.1

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

31.2

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

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, 2015 and June 30, 2014, (ii) the Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2015 and 2014, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2015 and 2014, (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended March 31, 2015 and 2014, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2015 and 2014, and (vi) the notes to the Condensed Consolidated Financial Statements.*

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

SIGNATURES

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


						IF BANCORP, INC.

Date: May 12, 2015						/s/ Alan D. Martin
						Alan D. Martin
						President and Chief Executive Officer

Date: May 12, 2015						/s/ Pamela J. Verkler
						Pamela J. Verkler
						Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)