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 December 31, 2012

¨	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 4,617,849 shares of common stock, par value $0.01 per share, issued and outstanding as of February 8, 2013.

IF Bancorp, Inc.

Form 10-Q

Index


		Page
Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements		1

	Condensed Consolidated Balance Sheets as of December 31, 2012 (unaudited) and June 30, 2012		1

	Condensed Consolidated Statements of Income for the Three Months and Six Months Ended December 31, 2012 and 2011 (unaudited)		2

	Condensed Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended December 31, 2012 and 2011 (unaudited)		3

	Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended December 31, 2012 and 2011 (unaudited)		4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2012 and 2011 (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		55

Item 6.	Exhibits		55

	Signature Page		56

Part I. – Financial Information

Item 1.

Financial Statements

IF Bancorp, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amount)


	December 31,			June 30,
	2012			2012
	(Unaudited)
Assets
Cash and due from banks	$	10,909		$	7,623
Interest-bearing demand deposits		435			570

Cash and cash equivalents		11,344			8,193


Interest-bearing time deposits in banks		250			250
Available-for-sale securities		202,914			223,306
Loans, net of allowance for loan losses of $3,965 and $3,531 at December 31, 2012 and June 30, 2012, respectively		284,814			258,910
Premises and equipment, net of accumulated depreciation of $5,459 and $5,230 at December 31, 2012 and June 30, 2012, respectively		4,371			4,355
Federal Home Loan Bank stock, at cost		5,075			4,175
Foreclosed assets held for sale		1,092			1,268
Accrued interest receivable		1,684			1,861
Bank-owned life insurance		7,628			7,495
Mortgage servicing rights		356			329
Deferred income taxes		201			—
Other		975			1,188

Total assets	$	520,704		$	511,330


Liabilities and Equity
Liabilities
Deposits
Demand	$	22,457		$	10,605
Savings, NOW and money market		125,453			133,688
Certificates of deposit		185,044			188,692
Brokered certificates of deposit		21,636			11,500

Total deposits		354,590			344,485


Federal Home Loan Bank advances		75,500			75,000
Deferred income taxes		—			128
Advances from borrowers for taxes and insurance		1,078			955
Accrued post-retirement benefit obligation		2,279			2,183
Accrued interest payable		42			43
Other		1,365			1,887

Total liabilities		434,854			424,681


Commitments and Contingencies
Stockholders’ Equity
Common stock, $.01 par value per share, 100,000,000 shares authorized, 4,634,703 and 4,811,255 shares issued and outstanding at December 31, 2012 and June 30, 2012, respectively		46			48
Additional paid-in capital		46,403			46,371
Unearned ESOP shares, at cost, 356,033 and 365,655 shares at December 31, 2012 and June 30, 2012, respectively		(3,560	)		(3,656	)
Retained earnings		38,180			38,728
Accumulated other comprehensive income, net of tax		4,781			5,158

Total stockholders’ equity		85,850			86,649

Total liabilities and stockholders’ equity	$	520,704		$	511,330

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 December 31,					Six Months Ended December 31,
	2012		2011			2012			2011
Interest and Dividend Income
Interest and fees on loans	$	3,021	$	3,034		$	6,048		$	6,102
Securities:
Taxable		1,257		1,439			2,595			2,808
Tax-exempt		30		33			60			63
Federal Home Loan Bank dividends		4		—			7			1
Deposits with other financial institutions		2		3			6			15

Total interest and dividend income		4,314		4,509			8,716			8,989


Interest Expense
Deposits		565		757			1,136			1,566
Federal Home Loan Bank advances		222		227			450			453

Total interest expense		787		984			1,586			2,019


Net Interest Income		3,527		3,525			7,130			6,970

Provision for Loan Losses		405		195			507			334


Net Interest Income After Provision for Loan Losses		3,122		3,330			6,623			6,636


Noninterest Income
Customer service fees		149		176			288			332
Other service charges and fees		75		70			147			113
Insurance commissions		169		208			372			391
Brokerage commissions		154		108			268			229
Net realized gains on sales of available-for-sale securities		95		240			568			290
Mortgage banking income, net		209		109			323			81
Bank-owned life insurance income, net		67		65			133			131
Other		175		129			365			268

Total noninterest income		1,093		1,105			2,464			1,835


Noninterest Expense
Compensation and benefits		1,891		1,753			3,766			3,507
Office occupancy		133		111			264			232
Equipment		251		164			464			330
Federal deposit insurance		69		78			137			142
Stationary, printing and office		45		40			84			80
Advertising		86		89			156			167
Professional services		112		102			237			196
Supervisory examinations		35		33			70			98
Audit and accounting services		50		78			102			123
Organizational dues and subscriptions		15		14			33			32
Insurance bond premiums		38		26			63			50
Telephone and postage		85		62			144			117
(Gain) loss on foreclosed assets, net		3		(1	)		(21	)		(14	)
Charitable contributions		2		—			4			3,601
Other		331		266			735			500

Total noninterest expense		3,146		2,815			6,238			9,161


Income (Loss) Before Income Tax		1,069		1,620			2,849			(690	)
Provision (Benefit) for Income Tax		360		596			1,007			(339	)

Net Income (Loss)	$	709	$	1,024		$	1,842		$	(351	)

Earnings (Loss) Per Share:
Basic and diluted (Note 5)	$	.16	$	.23		$	.42		$	(.08	)

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 December 31,
	2012			2011

Net Income	$	709		$	1,024

Other Comprehensive Income (Loss)
Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of $(548) and $(136), for 2012 and 2011, respectively		(895	)		(221	)

Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $(13) and $(37) for 2012 and 2011, respectively		(20	)		(61	)


Other comprehensive income (loss), net of tax		(915	)		(282	)


Comprehensive Income (Loss)	$	(206	)	$	742


	Six Months Ended December 31,
	2012			2011

Net Income (Loss)	$	1,842		$	(351	)

Other Comprehensive Income (Loss)
Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of $(204) and $1,509, for 2012 and 2011, respectively		(335	)		2,456

Postretirement health plan amortization of transition obligation and prior service cost and change in net loss, net of taxes of $(26) and $(36) for 2012 and 2011, respectively		(42	)		(61	)


Other comprehensive income (loss), net of tax		(377	)		2,395


Comprehensive Income	$	1,465		$	2,044

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share amounts)


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

For the six months ended December 31, 2012

Balance, July 1, 2012	$	48		$	46,371	$	(3,656	)	$	38,728		$	5,158		$	86,649

Net income		—			—		—			1,842						1,842

Other comprehensive income (loss)		—			—		—			—			(377	)		(377	)

Stock repurchase, 176,552 shares, average price $13.54 each		(2	)		—		—			(2,390	)		—			(2,392	)

ESOP shares earned, 9,622 shares		—			32		96			—			—			128


Balance, December 31, 2012	$	46		$	46,403	$	(3,560	)	$	38,180		$	4,781		$	85,850


For the six months ended December 31, 2011

Balance, July 1, 2011	$	—		$	—	$	—		$	37,328		$	2,113		$	39,441

Net loss		—			—		—			(351	)		—			(351	)

Other comprehensive income		—			—		—			—			2,395			2,395

Common stock issued in initial public offering, 4,811,255 shares, net of issuance costs of $1,725		48			46,340		—			—			—			46,388

Acquisition of ESOP shares, 384,900 shares		—			—		(3,849	)		—			—			(3,849	)

ESOP shares earned, 9,622 shares		—			11		96			—			—			107


Balance, December 31, 2011	$	48		$	46,351	$	(3,753	)	$	36,977		$	4,508		$	84,131

See accompanying notes to the unaudited condensed consolidated financial statements.

IF Bancorp, Inc.

Condensed Consolidated Statement of Cash Flows (Unaudited)

(Dollars in thousands)


	Six Months Ended December 31,
	2012			2011
Operating Activities
Net income	$	1,842		$	(351	)
Items not requiring (providing) cash
Depreciation		230			203
Provision for loan losses		507			334
Amortization of premiums and discounts on securities		613			683
Deferred income taxes		(100	)		(1,278	)
Net realized gains on loan sales		(323	)		(81	)
Net realized gains on sales of available-for-sale securities		(568	)		(290	)
Gain on foreclosed assets held for sale		(21	)		(14	)
Bank-owned life insurance income, net		(133	)		(131	)
Originations of loans held for sale		(14,187	)		(7,181	)
Proceeds from sales of loans held for sale		14,483			7,363
ESOP compensation expense		128			107
Contribution of stock to the Foundation		—			3,148
Changes in
Accrued interest receivable		177			65
Other assets		213			878
Accrued interest payable		(1	)		(82	)
Post-retirement benefit obligation		29			41
Other liabilities		(522	)		(284	)

Net cash provided by operating activities		2,367			3,130


Investing Activities
Purchases of available-for-sale securities		(102,440	)		(103,055	)
Proceeds from the sales of available-for-sale securities		106,862			68,270
Proceeds from maturities and pay-downs of available-for-sale securities		15,386			29,469
Net change in loans		(26,450	)		(8,748	)
Purchase of FHLB stock		(900	)		(754	)
Purchase of premises and equipment		(246	)		(484	)
Proceeds from sale of foreclosed assets		236			441

Net cash used in investing activities		(7,552	)		(14,861	)


Financing Activities
Net increase (decrease) in demand deposits, money market, NOW and savings accounts		3,617			(107,035	)
Net increase (decrease) in certificates of deposit, including brokered certificates		6,488			(4,673	)
Net increase in advances from borrowers for taxes and insurance		123			133
Proceeds from Federal Home Loan Bank advances		329,000			300,000
Repayments of Federal Home Loan Bank advances		(328,500	)		(262,000	)
Proceeds from issuance of common stock, net of costs		—			43,240
Stock issuance from Employee Stock Ownership Plan purchase		—			(3,849	)
Stock purchase per stock repurchase plan		(2,392	)		—

Net cash provided by (used in) financing activities		8,336			(34,184	)


Net Increase (Decrease) in Cash and Cash Equivalents		3,151			(45,915	)
Cash and Cash Equivalents, Beginning of Period		8,193			60,506

Cash and Cash Equivalents, End of Period	$	11,344		$	14,591


Supplemental Cash Flows Information
Interest paid	$	1,587		$	2,101
Income taxes paid, net of refunds	$	1,254		$	933
Foreclosed assets acquired in settlement of loans	$	39		$	504
Supplemental disclosure of noncash financing activities
With the initial public offering in July 2011, the Company loaned $3,849 to the Employee Stock Ownership Plan, which was used to acquire 384,900 shares of the Company’s common stock. The loan is secured by the shares purchased and is shown as unearned ESOP shares in the consolidated balance sheets. Payments on the loan in the six months ended December 31, 2012, were $66 which included $36 in principal and $30 in interest. In addition, the Company donated 314,755 shares valued at $3,148 to a charitable foundation in the six months ended December 31, 2011.

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. For more information regarding the Conversion, see Note 2 of these notes to condensed consolidated financial statements.

During the six months ended December 31, 2012, a stock repurchase plan was adopted whereby the company may repurchase up to 240,563 shares of its common stock, or approximately 5% of the current outstanding shares. As shares are repurchased, the Company will treat them as shares repurchased for constructive retirement (although such shares may be reissued), and the excess of purchase price over par value will be charged entirely to retained earnings in recognition of the fact that that the Company may always capitalize or allocate retained earnings for such purposes.

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. No awards were made as of December 31, 2012.

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and with instructions for Form 10–Q and Regulation S–X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from these estimates. In the opinion of management, the preceding unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of December 31, 2012 and June 30, 2012, and the results of its operations for the three month and six month periods ended December 31, 2012 and 2011. 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, 2012. The results of operations for the three month and six month periods ended December 31, 2012 are not necessarily indicative of the results that may be expected for the entire year.

Note 2:

The Conversion

On March 8, 2011, the Association’s Board of Directors adopted a Plan of Conversion (“Plan”), as amended on March 8, 2011, to convert from the mutual form of organization to the capital stock form of organization (the “Conversion”). The Company was formed in March 2011 to become the savings and loan holding company of the Association upon consummation of the Conversion. In the Conversion, the Association became a wholly owned subsidiary of the Company, and the Company issued and sold shares of its common stock, par value $0.01 per share, to eligible members of the Association. A total of 4,811,255 shares of common stock were issued in the offering. A total of 4,496,500 shares were sold on July 7, 2011 in the Conversion at $10 per share, raising $44,965,000 of gross proceeds. The Company also donated 7% of the shares sold in the offering, or a total of 314,755 shares, to a newly established charitable foundation (the “Foundation”). The Association also contributed $450,000 in cash to the Foundation. The 314,755 donated shares were valued at $3,147,550 ($10.00 per share) at the time of the consummation of the Conversion. This $3,147,550 and the $450,000 cash donation were both expensed during the quarter ended September 30, 2011.

The subscription offering resulted in the receipt of $113 million in subscriptions including transfers from deposit accounts, ESOP, and 401(k) accounts, which was in excess of the maximum amount of shares to be offered under the Plan. At June 30, 2011, $113 million was held in escrow and reflected in deposits. During the quarter ended September 30, 2011, the Association refunded approximately $68.9 million to subscribers. The Company established an employee stock ownership plan that purchased 8% of the total shares issued in the offering, or 384,900 shares, for a total of $3,849,000. IF Bancorp, Inc.’s common stock began trading on the NASDAQ Capital Market under the symbol “IROQ” on July 8, 2011.

The cost of the Conversion and issuing the capital stock were deferred and deducted from the proceeds of the offering on July 7, 2011. For the period January 1, 2011 through June 30, 2011, the Association had incurred approximately $766,209 in conversion costs, which were included in other assets on the balance sheet at June 30, 2011. The total amount of the conversion costs was approximately $1.73 million and was netted from the Conversion proceeds.

In accordance with applicable regulations, at the time of the Conversion the Association substantially restricted its retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible holders who continue to maintain their accounts at the Association after the Conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Association, and only in such event, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Association may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

Note 3:

New Accounting Pronouncements

Recent and Future Accounting Requirements

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-11 “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 requires an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Retrospective disclosure is required for all comparative periods presented. The Company is assessing the impact of ASU 2011-11 on its disclosures.

In June 2011, the FASB issued ASU No. 2011-05 “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.” ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive

income along with a total for other comprehensive income, and a total amount for comprehensive income. In December 2011, FASB issued ASU No. 2011-12 which defers the effective date of the requirement in ASU 2011-05 to present items that are reclassified from accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. ASU 2011-05 was effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. The effect of applying this standard is reflected in the Consolidated Statements of Comprehensive Income and Consolidated Statements of Stockholders’ Equity.

In May 2011, the FASB issued ASU No. 2011-04 “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 changed the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Consequently, the amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs (International Financial Reporting Standards). ASU 2011-04 was effective prospectively during interim and annual periods beginning on or after December 15, 2011. Early application by public entities was not permitted. The effect of applying this standard is reflected in Note 11 – Fair Value Measurements.

Note 4:

Employee Stock Ownership Plan (ESOP)

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 December 31, 2012 and June 30, 2012 are as follows (dollars in thousands):


	December 31, 2012		June 30, 2012
Allocated shares		19,245		—
Shares committed for release		9,622		19,245
Unearned shares		356,033		365,655

Total ESOP shares		384,900		384,900

Fair value of unearned ESOP shares (1)	$	4,913	$	4,841

(1)	Based on closing price of $13.80 and $13.24 per share on December 31, 2012, and June 30, 2012, respectively.

Note 5:

Earnings Per Common Share (“EPS”)

Basic and diluted earnings per common share are presented for the three month and six month periods ended December 31, 2012 and 2011. Earnings per share data for the six months ended December 31, 2011 is from the date of conversion on July 7, 2011, to December 31, 2011 since there were no outstanding shares of common stock until that date. The factors used in the earnings per common share computation follow:


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	December 31, 2012			December 31, 2011			December 31, 2012			December 31, 2011

Net income (loss)	$	709		$	1,024		$	1,842		$	(351	)

Basic weighted average shares outstanding		4,704,920			4,811,255			4,757,591			4,811,255
Less: Average unallocated ESOP shares		(358,438	)		(380,037	)		(360,844	)		(382,442	)

Basic average shares outstanding		4,346,482			4,431,218			4,396,747			4,428,813

Basic and diluted earnings (loss) per common share	$	.16		$	.23		$	.42		$	(.08	)

There were no potential dilutive common shares for the periods presented. There were no common shares outstanding prior to July 7, 2011.

A stock repurchase program was adopted on September 12, 2012. Under the repurchase program, the Company may repurchase up to 240,563 shares of its common stock, or approximately 5% of the then current outstanding shares. As of December 31, 2012, 176,552 shares were repurchased at an average price of $13.54 per share, and the maximum number of shares that may yet be purchased under the plan was 64,011.

Note 6:

Securities

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
December 31, 2012:
U.S. government, federal agency, and government-sponsored enterprises (GSE)	$	122,038	$	5,279	$	—		$	127,317
Mortgage-backed:
GSE – residential		69,106		2,331		(16	)		71,421
State and political subdivisions		3,948		244		(16	)		4,176

	$	195,092	$	7,854	$	(32	)	$	202,914

June 30, 2012:
U.S. government, federal agency, and government-sponsored enterprises (GSE)	$	155,124	$	5,834	$	—		$	160,958
Mortgage-backed:
GSE – residential		56,601		2,268		(2	)		58,867
State and political subdivisions		3,221		260		—			3,481

	$	214,946	$	8,362	$	(2	)	$	223,306

With the exception of U.S. Government, federal agency and GSE securities and GSE residential mortgage-backed securities with a book value of approximately $122,038,000 and $69,106,000, respectively, and a market value of approximately $127,317,000 and $71,421,000, respectively, at December 31, 2012, the Company held no securities at December 31, 2012 with a book value that exceeded 10% of total equity.

All mortgage-backed securities at December 31, 2012, and June 30, 2012 were issued by GSEs.

The amortized cost and fair value of available-for-sale securities at December 31, 2012, 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	$	993	$	1,006
One to five years		59,818		64,403
Five to ten years		65,111		66,014
After ten years		64		70

		125,986		131,493
Mortgage-backed securities		69,106		71,421


Totals	$	195,092	$	202,914

The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $55,807,000 and $56,298,000 as of December 31, 2012 and June 30, 2012, respectively.

Gross gains of $571,000 and $299,000, and gross losses of $2,000 and $9,000, resulting from sales of available-for-sale securities were realized for the six month periods ended December 31, 2012 and 2011, respectively. The tax provision applicable to these net realized gains amounted to approximately $228,000 and $116,000, 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 December 31, 2012 was $5,191,000, which is approximately 2.6% of the Company’s available-for-sale investment portfolio. These declines primarily resulted from recent increases in market interest rates and failure of certain investments to maintain consistent credit quality ratings. 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 December 31, 2012 and June 30, 2012:


	December 31, 2012
	Less than 12 Months					12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Available-for-sale Securities:
Mortgage-backed: GSE residential	$	4,144	$	(16	)	$	—	$	—	$	4,144	$	(16	)
State and political subdivisions		1,047		(16	)		—		—		1,047		(16	)


Total temporarily impaired securities	$	5,191	$	(32	)	$	—	$	—	$	5,191	$	(32	)


	June 30, 2012
	Less than 12 Months					12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Available-for-sale Securities:
Mortgage-backed:
GSE residential	$	2,069	$	(2	)	$	—	$	—	$	2,069	$	(2	)


Total temporarily impaired securities	$	2,069	$	(2	)	$	—	$	—	$	2,069	$	(2	)

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 December 31, 2012.

Note 7:

Loans and Allowance for Loan Losses

Classes of loans include:


	December 31, 2012		June 30, 2012

Real estate loans:
One-to four-family, including home equity loans	$	145,544	$	147,686
Multi-family		49,865		38,547
Commercial		58,633		32,925
Home equity lines of credit		8,543		8,994
Construction		3,735		8,396
Commercial		12,484		13,917
Consumer		10,852		13,578


Total loans		289,656		264,043

Less:
Unearned fees and discounts, net		76		63
Loans in process		801		1,539
Allowance for loan losses		3,965		3,531


Loans, net	$	284,814	$	258,910

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 and Iroquois, as well as the adjacent counties in Illinois and Indiana. The Company also has a loan

production and wealth management office in Osage Beach, Missouri, which serves the Missouri counties of Camden, Miller, and Morgan. Generally, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals. The loans are expected to be repaid from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

Management reviews and approves the 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 $150,000. 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 $500,000. All loans above these limits must be approved by the Operating Committee, consisting of the Chairman, the President, 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 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 borrower.

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 centrally 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.

The loan portfolio includes a concentration of loans secured by commercial real estate properties amounting to $108,498,000 and $71,472,000 as of December 31, 2012 and June 30, 2012, 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.

The Company’s loans receivable included purchased loans of $16,878,000 and $17,248,000 at December 31, 2012 and June 30, 2012, 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 $27,861,000 and $16,229,000 at December 31, 2012 and June 30, 2012, respectively, of which $9,825,000 and $7,300,000, at December 31, 2012 and June 30, 2012 were outside our primary market area. The Company purchased $19,918,000 of new commercial participations during the quarter ended December 31, 2012 related to four borrowers. These participation loans are secured by real estate and other business assets.

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 six month periods ended December 31, 2012 and 2011 and the year ended June 30, 2012:


	Three Months Ended December 31, 2012
	Real Estate Loans
	One-to Four- Family			Multi-Family		Commercial		Home Equity Lines of Credit

Allowance for loan losses:
Balance, beginning of period	$	1,939		$	694	$	416	$	99
Provision charged to expense		80			118		150		13
Losses charged off		(35	)		—		—		—
Recoveries		1			—		—		—

Balance, end of period	$	1,985		$	812	$	566	$	112

Ending balance: individually evaluated for impairment	$	687		$	231	$	48	$	35

Ending balance: collectively evaluated for impairment	$	1,298		$	581	$	518	$	77


Loans:

Ending balance	$	145,544		$	49,865	$	58,633	$	8,543

Ending balance: individually evaluated for impairment	$	3,900		$	1,708	$	109	$	55

Ending balance: collectively evaluated for impairment	$	141,644		$	48,157	$	58,524	$	8,488


	Three Months Ended December 31, 2012 (Continued)
	Construction		Commercial			Consumer			Unallocated			Total

Allowance for loan losses:
Balance, beginning of period	$	22	$	336		$	138		$	28		$	3,672
Provision charged to expense		4		15			34			(9	)		405
Losses charged off		—		(50	)		(29	)		—			(114	)
Recoveries		—		—			1			—			2

Balance, end of period	$	26	$	301		$	144		$	19		$	3,965

Ending balance: individually evaluated for impairment	$	—	$	6		$	53		$	—		$	1,060

Ending balance: collectively evaluated for impairment	$	26	$	295		$	91		$	19		$	2,905


Loans:

Ending balance	$	3,735	$	12,484		$	10,852		$	—		$	289,656

Ending balance: individually evaluated for impairment	$	—	$	41		$	112		$	—		$	5,925

Ending balance: collectively evaluated for impairment	$	3,735	$	12,443		$	10,740		$	—		$	283,731


	Six Months Ended December 31, 2012
	Real Estate Loans
	One-to Four- Family			Multi-Family		Commercial		Home Equity Lines of Credit

Allowance for loan losses:
Balance, beginning of period	$	1,940		$	679	$	245	$	81
Provision charged to expense		39			133		321		31
Losses charged off		(35	)		—		—		—
Recoveries		41			—		—		—

Balance, end of period	$	1,985		$	812	$	566	$	112

Ending balance: individually evaluated for impairment	$	687		$	231	$	48	$	35

Ending balance: collectively evaluated for impairment	$	1,298		$	581	$	518	$	77


Loans:

Ending balance	$	145,544		$	49,865	$	58,633	$	8,543

Ending balance: individually evaluated for impairment	$	3,900		$	1,708	$	109	$	55

Ending balance: collectively evaluated for impairment	$	141,644		$	48,157	$	58,524	$	8,488


	Six Months Ended December 31, 2012 (Continued)
	Construction			Commercial			Consumer			Unallocated			Total

Allowance for loan losses:
Balance, beginning of period	$	78		$	347		$	139		$	22		$	3,531
Provision charged to expense		(52	)		4			34			(3	)		507
Losses charged off		—			(50	)		(32	)		—			(117	)
Recoveries		—			—			3			—			44

Balance, end of period	$	26		$	301		$	144		$	19		$	3,965

Ending balance: individually evaluated for impairment	$	—		$	6		$	53		$	—		$	1,060

Ending balance: collectively evaluated for impairment	$	26		$	295		$	91		$	19		$	2,905


Loans:

Ending balance	$	3,735		$	12,484		$	10,852		$	—		$	289,656

Ending balance: individually evaluated for impairment	$	—		$	41		$	112		$	—		$	5,925

Ending balance: collectively evaluated for impairment	$	3,735		$	12,443		$	10,740		$	—		$	283,731


	Year Ended June 30, 2012 Real Estate Loans
	One-to Four- Family			Multi-Family		Commercial			Home Equity Lines of Credit

Allowance for loan losses:
Balance, beginning of year	$	1,987		$	250	$	232		$	120
Provision charged to expense		533			429		61			(4	)
Losses charged off		(651	)		—		(48	)		(35	)
Recoveries		71			—		—			—

Balance, end of year	$	1,940		$	679	$	245		$	81

Ending balance: individually evaluated for impairment	$	684		$	253	$	49		$	—

Ending balance: collectively evaluated for impairment	$	1,256		$	426	$	196		$	81


Loans:
Ending balance	$	147,686		$	38,547	$	32,925		$	8,994

Ending balance: individually evaluated for impairment	$	3,778		$	1,478	$	95		$	—

Ending balance: collectively evaluated for impairment	$	143,908		$	37,069	$	32,830		$	8,994


	Year Ended June 30, 2012 (Continued)
	Construction		Commercial			Consumer			Unallocated		Total

Allowance for loan losses:
Balance, beginning of year	$	30	$	352		$	169		$	9	$	3,149
Provision charged to expense		48		24			21			13		1,125
Losses charged off		—		(29	)		(88	)		—		(851	)
Recoveries		—		—			37			—		108

Balance, end of year	$	78	$	347		$	139		$	22	$	3,531

Ending balance: individually evaluated for impairment	$	—	$	1		$	41		$	—	$	1,028

Ending balance: collectively evaluated for impairment	$	78	$	346		$	98		$	22	$	2,503


Loans:
Ending balance	$	8,396	$	13,917		$	13,578		$	—	$	264,043

Ending balance: individually evaluated for impairment	$	—	$	2		$	113		$	—	$	5,466

Ending balance: collectively evaluated for impairment	$	8,396	$	13,915		$	13,465		$	—	$	258,577


	Three Months Ended December 31, 2011
	Real Estate Loans
	One-to Four- Family			Multi-Family		Commercial			Home Equity Lines of Credit

Allowance for loan losses:
Balance, beginning of year	$	1,852		$	270	$	228		$	114
Provision charged to expense		30			50		55			(19	)
Losses charged off		(62	)		—		(49	)		—
Recoveries		7			—		—			—

Balance, end of year	$	1,827		$	320	$	234		$	95

Ending balance: individually evaluated for impairment	$	641		$	16	$	56		$	9

Ending balance: collectively evaluated for impairment	$	1,186		$	304	$	178		$	86


Loans:
Ending balance	$	148,056		$	30,482	$	30,052		$	9,632

Ending balance: individually evaluated for impairment	$	4,967		$	1,556	$	101		$	37

Ending balance: collectively evaluated for impairment	$	143,089		$	28,926	$	29,951		$	9,595


	Three Months Ended December 31, 2011 (Continued)
	Construction		Commercial		Consumer			Unallocated		Total

Allowance for loan losses:
Balance, beginning of year	$	39	$	315	$	190		$	12	$	3,020
Provision charged to expense		8		68		(4	)		7		195
Losses charged off		—		—		(32	)		—		(143	)
Recoveries		—		—		29			—		36

Balance, end of year	$	47	$	383	$	183		$	19	$	3,108

Ending balance: individually evaluated for impairment	$	—	$	23	$	64		$	—	$	809

Ending balance: collectively evaluated for impairment	$	47	$	360	$	119		$	19	$	2,299


Loans:
Ending balance	$	5,017	$	13,535	$	14,865		$	—	$	251,639

Ending balance: individually evaluated for impairment	$	—	$	39	$	177		$	—	$	6,877

Ending balance: collectively evaluated for impairment	$	5,017	$	13,496	$	14,688		$	—	$	244,763


	Six Months Ended December 31, 2011
	Real Estate Loans
	One-to Four- Family			Multi-Family		Commercial			Home Equity Lines of Credit

Allowance for loan losses:
Balance, beginning of year	$	1,987		$	250	$	232		$	120
Provision charged to expense		137			70		51			(25	)
Losses charged off		(324	)		—		(49	)		—
Recoveries		27			—		—			—

Balance, end of year	$	1,827		$	320	$	234		$	95

Ending balance: individually evaluated for impairment	$	641		$	16	$	56		$	9

Ending balance: collectively evaluated for impairment	$	1,186		$	304	$	178		$	86


Loans:
Ending balance	$	148,056		$	30,482	$	30,052		$	9,632

Ending balance: individually evaluated for impairment	$	4,967		$	1,556	$	101		$	37

Ending balance: collectively evaluated for impairment	$	143,089		$	28,926	$	29,951		$	9,595


	Six Months Ended December 31, 2011 (Continued)
	Construction		Commercial		Consumer			Unallocated		Total

Allowance for loan losses:
Balance, beginning of year	$	30	$	352	$	169		$	9	$	3,149
Provision charged to expense		17		31		43			10		334
Losses charged off		—		—		(60	)		—		(433	)
Recoveries		—		—		31			—		58

Balance, end of year	$	47	$	383	$	183		$	19	$	3,108

Ending balance: individually evaluated for impairment	$	—	$	23	$	64		$	—	$	809

Ending balance: collectively evaluated for impairment	$	47	$	360	$	119		$	19	$	2,299


Loans:
Ending balance	$	5,017	$	13,535	$	14,865		$	—	$	251,639

Ending balance: individually evaluated for impairment	$	—	$	39	$	177		$	—	$	6,877

Ending balance: collectively evaluated for impairment	$	5,017	$	13,496	$	14,688		$	—	$	244,763

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.

Allowance for Loan Losses

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.

Because of the recent added concern based on the overall condition of the real estate market and in particular how the market is affecting the Junior Lien and Home Equity Lines of Credit (HELOC) loan portfolios, as with all portfolios, the Company has reviewed these two portfolios to determine the adequacy of the allowance. The Company notes that Junior Lien loans are one-to four-family loans that are in a subordinate lien position, and can be subordinate to either a Company first lien or another institution first lien and all are fully amortizing loans. HELOC loans were initially underwritten to ensure adequate cash flow to make payments even under stressed conditions. Based on review of the HELOC portfolio, $2.4 million had initial combined loan to value ratios of between 81% and 90%. The present allowance calculation includes 0.53% of qualitative factors to address added concerns, above a weighted average loss factor of 0.37%.

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

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

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

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

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

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

December 31, 2012:
Pass	$	139,674	$	47,917	$	58,000	$	8,488	$	3,735	$	11,102	$	10,734	$	279,650
Watch		1,084		185		387		—		—		1,109		3		2,768
Substandard		4,786		1,763		246		55		—		273		115		7,238
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—


Total	$	145,544	$	49,865	$	58,633	$	8,543	$	3,735	$	12,484	$	10,852	$	289,656


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

June 30, 2012:
Pass	$	143,180	$	37,069	$	32,830	$	8,986	$	8,396	$	12,739	$	13,465	$	256,665
Watch		612		—		—		—		—		1,176		—		1,788
Substandard		3,894		1,478		95		8		—		2		113		5,590
Doubtful		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—


Total	$	147,686	$	38,547	$	32,925	$	8,994	$	8,396	$	13,917	$	13,578	$	264,043

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

December 31, 2012:
Real estate loans:
One-to four-family	$	2,770	$	860	$	3,054	$	6,684	$	138,860	$	145,544	$	747
Multi-family		—		—		—		—		49,865		49,865		—
Commercial		40		—		—		40		58,593		58,633		—
Home equity lines of credit		480		12		55		547		7,996		8,543		—
Construction		—		—		—		—		3,735		3,735		—
Commercial		14		7		—		21		12,463		12,484		—
Consumer		186		35		68		289		10,563		10,852		3


Total	$	3,490	$	914	$	3,177	$	7,581	$	282,075	$	289,656	$	750


	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, 2012:
Real estate loans:
One-to four-family	$	2,290	$	1,057	$	1,949	$	5,296	$	142,390	$	147,686	$	—
Multi-family		—		—		—		—		38,547		38,547		—
Commercial		176		—		—		176		32,749		32,925		—
Home equity lines of credit		75		57		7		139		8,855		8,994		—
Construction		—		—		—		—		8,396		8,396		—
Commercial		28		11		—		39		13,878		13,917		—
Consumer		185		23		40		248		13,330		13,578		—


Total	$	2,754	$	1,148	$	1,996	$	5,898	$	258,145	$	264,043	$	—

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 $3.2 million in troubled debt restructurings that were classified as impaired.

The following tables present impaired loans:


							Three Months Ended December 31, 2012						Six Months Ended December 31, 2012
	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

December 31, 2012 (Unaudited):
Loans without a specific valuation allowance
Real estate loans:
One-to-four family	$	1,638	$	1,638	$	—	$	1,643	$	—	$	—	$	1,655	$	—	$	—
Multi-family		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—		—		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		2		2		—		2		—		—		2		—		—
Consumer		4		4		—		6		—		—		6		—		—

Loans with a specific valuation allowance
Real estate loans:
One-to-four family		2,262		2,262		687		2,280		—		1		2,297		1		3
Multi-family		1,708		1,708		231		1,727		—		—		1,745		1		3
Commercial		109		109		48		110		—		—		110		—		—
Home equity line of credit		55		55		35		55		—		—		56		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		40		40		6		41		—		—		41		—		1
Consumer		107		107		53		111		1		1		112		1		2
Total:
Real estate loans:
One-to-four family		3,900		3,900		687		3,923		—		1		3,952		1		3
Multi-family		1,708		1,708		231		1,727		—		—		1,745		1		3
Commercial		109		109		48		110		—		—		110		—		—
Home equity line of credit		55		55		35		55		—		—		56		—		—
Construction		—		—		—		—		—		—		—		—		—
Commercial		41		41		6		43		—		—		43		—		1
Consumer		112		112		53		117		1		1		118		1		2


	$	5,925	$	5,925	$	1,060	$	5,975	$	1	$	2	$	6,024	$	3	$	9


							Year Ended June 30, 2012
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest on Cash Basis

June 30, 2012:
Loans without a specific valuation allowance
Real estate loans:
One-to four-family	$	1,563	$	1,563	$	—	$	1,573	$	4	$	5
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Consumer		14		14		—		17		1		1

Loans with a specific allowance
Real estate loans:
One-to four-family		2,215		2,215		684		2,259		25		32
Multi-family		1,478		1,478		253		1,495		23		32
Commercial		95		95		49		98		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		2		2		1		3		—		—
Consumer		99		99		41		113		3		4

Total:
Real estate loans:
One-to four-family		3,778		3,778		684		3,832		29		37
Multi-family		1,478		1,478		253		1,495		23		32
Commercial		95		95		49		98		—		—
Home equity line of credit		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Commercial		2		2		1		3		—		—
Consumer		113		113		41		130		4		5

	$	5,466	$	5,466	$	1,028	$	5,558	$	56	$	74

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 December 31, 2012 and June 30, 2012:


	December 31, 2012		June 30, 2012
Mortgages on real estate:
One-to four-family	$	3,896	$	3,667
Multi-family		1,708		1,477
Commercial		109		95
Home equity lines of credit		55		—
Construction loans		—		—
Commercial business loans		41		2
Consumer loans		112		113


Total	$	5,921	$	5,354

Included in certain loan categories in the impaired loans are troubled debt restructurings (“TDR”) which were classified as impaired, where economic concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs are considered impaired at the time of restructuring and may be returned to accrual status after considering the borrower’s sustained repayment performance for a reasonable period of a least six months, and typically are returned to performing status after twelve months, unless impairment still exists.

When loans and leases are modified into a TDR, the Company evaluates any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, and uses the current fair value of the collateral, less selling costs for collateral dependent loans. If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance.

Beginning with the quarter ended September 30, 2011, the Company adopted ASU 2011-02. The amendments in ASU 2011-02 require prospective application of the impairment measurement guidance in ASC 310-10-35 for those receivables newly identified as impaired. As a result of adopting ASU 2011-02, the Company reassessed all restructurings that occurred on or after July 1, 2011, for identification as TDRs. The Company identified no loans as troubled debt restructurings for which the allowance for loan losses had previously been measured under a general allowance for credit losses methodology. Therefore, there was no additional impact to the allowance for loan losses as a result of the adoption.

The following table presents the recorded balance, at original cost, of troubled debt restructurings. Three one-to four-family TDRs totaling $324,000 were not performing as of December 31, 2012, while two one-to four-family TDRs totaling $368,000 were not performing according to the terms of the restructuring, as of June 30, 2012. As of December 31, 2012 all loans listed were on nonaccrual except for seven, one- to four-family residential loans totaling $423,000. All loans listed as of June 30, 2012 were on nonaccrual except for four, one-to four-family residential loans totaling $310,000.


	December 31, 2012		June 30, 2012
Real estate loans
One-to four-family	$	2,066	$	2,146
Home equity lines of credit		—		—
Multi-family		1,416		1,478
Commercial		91		95


Total real estate loans		3,573		3,719


Construction		—		—
Commercial and industrial		41		2
Consumer loans		20		32


Total	$	3,634	$	3,753

During the six month period ended December 31, 2012, the Company modified three commercial loans totaling $41,000 as troubled debt restructurings.

During the year ended June 30, 2012, the Company modified 13 one-to four-family residential real estate loans, with a recorded investment of $949,000, one multi-family residential real estate loan with a recorded investment of $1.5 million, and one consumer auto loan with a recorded investment of $8,000.

During the six month period ended December 31, 2011, the Company modified 13 one-to four-family residential real estate loans, with a recorded investment of $1.1 million, and one multi-family residential real estate loan with a recorded investment of $1.6 million.

The Company has 3 TDRs, all of which were one-to four-family residential loans totaling $324,000, that were in default as of December 31, 2012, and were restructured in prior periods. Two of these loans are currently in foreclosure. The Company had two TDRs, both one-to four-family residential loans totaling $368,000, that were in default as of June 30, 2012, and were restructured in the prior years. Both loans were in foreclosure at June 30, 2012.

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 8:

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 $5,075,000 and $4,175,000 of Federal Home Loan Bank stock as of December 31, 2012 and June 30, 2012 respectively.

The FHLB provides liquidity and funding through advances and the increase in Federal Home Loan Bank stock allowed the Company to increase borrowing capacity of Federal Home Loan Bank advances. In the calendar year 2012, first, second and third quarter dividends were paid at an annualized rate of 25, 30, and 35 basis points, respectively. Management performed an analysis as of December 31, 2012 and June 30, 2012 and deemed the cost method investment in FHLB stock was ultimately recoverable.

Note 9:

Comprehensive Income

Other comprehensive income (loss) components and related taxes were as follows:


	Six Months Ended December 31,
	2012			2011

Net unrealized gains on securities available for sale	$	29		$	4,256

Less reclassification adjustment for realized gains included in income		568			290

		(539	)		3,965

Postretirement health plan
Amortization of transition obligation		16			17
Amortization of prior service cost		(24	)		(24	)
Change in net loss		(60	)		(91	)

		(68	)		(98	)

Other comprehensive income, before tax effect		(607	)		3,868
Less tax expense		(230	)		1,473


Other comprehensive income (loss)	$	(377	)	$	2,395

The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:


	December 31, 2012			June 30, 2012

Net unrealized gains on securities available for sale	$	7,821		$	8,360
Net unrealized postretirement health benefit plan obligations		(110	)		(42	)

		7,711			8,318
Tax effect		(2,930	)		(3,160	)


Total	$	4,781		$	5,158

Note 10:

Income Taxes

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


	Three Months Ended December 31,						Six Months Ended December 31,
	2012			2011			2012			2011

Computed at the statutory rate (34%)	$	363		$	550		$	969		$	(235	)
Decrease resulting from
Tax exempt interest		(4	)		(14	)		(9	)		(27	)
Cash surrender value of life insurance		(23	)		(23	)		(45	)		(45	)
State income taxes		53			52			174			(22	)
Other		(29	)		31			(82	)		(10	)


Actual expense (benefit)	$	360		$	596		$	1,007		$	(339	)

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 six month period ended December 31, 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 initial year ended June 30, 2012 and the five year carry forward period.

Note 11:

Disclosures About Fair Value of Assets and Liabilities

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


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

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

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

Recurring Measurements

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2012 and June 30, 2012:


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2012:
Available-for-sale securities:
US Government and federal agency	$	127,317	$	—	$	127,317	$	—
Mortgage-backed securities – GSE residential		71,421		—		71,421		—
State and political subdivisions		4,176		—		4,176		—

Mortgage servicing rights		356		—		—		356


			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, 2012:
Available-for-sale securities:
US Government and federal agency	$	160,958	$	—	$	160,958	$	—
Mortgage-backed securities – GSE residential		58,867		—		58,867		—
State and political subdivisions		3,481		—		3,481		—

Mortgage servicing rights		329		—		—		329

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 balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended December 31, 2012. 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 December 31, 2012 or June 30, 2012. 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 December 31, 2012 or June 30, 2012.

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, 2012	$	329

Total realized and unrealized gains and losses included in net income		(20	)
Servicing rights that result from asset transfers		82
Payments received and loans refinanced		(35	)


Balance, December 31, 2012	$	356


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	$	(20	)

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 December 31, 2012 and June 30, 2012:


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2012:

Impaired loans (collateral-dependent)	$	512	$	—	$	—	$	512

June 30, 2012:

Impaired loans (collateral-dependent)	$	2,438	$	—	$	—	$	2,438
Foreclosed assets		279		—		—		279

The following table presents losses recognized on assets measured on a non-recurring basis for the three months and six months ended December 31, 2012 and 2011:


	Three Months Ended December 31,						Six Months Ended December 31,
	2012			2011			2012			2011

Impaired loans (collateral-dependent)	$	(25,000	)	$	(61,000	)	$	(41,000	)	$	(146,000	)
Foreclosed and repossessed assets held for sale		—			(2,000	)		—			(2,000	)


Total losses on assets measured on a non-recurring basis	$	(25,000	)	$	(63,000	)	$	(41,000	)	$	(148,000	)

Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying 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 December 31, 2012 and June 30, 2012.


	Fair Value at December 31, 2012		Valuation Technique	Unobservable Inputs	Range (Weighted Average)

Mortgage servicing rights	$	356	Discounted cash flow	Discount rate	10.5% – 11.5% (10.5%)

				Constant prepayment rate	18.9% – 24.5% (23.1%)

				Probability of default	.29% – .32% (.32%)

Collateral-dependent impaired loans		512	Market comparable properties	Marketability discount	0% – 24% (16%)


	Fair Value at June 30, 2012		Valuation Technique	Unobservable Inputs	Range (Weighted Average)

Mortgage servicing rights	$	329	Discounted cash flow	Discount rate	10.5% –11.5% (10.5%)

				Constant prepayment rate	16.9% –22.4% (21.0%)

				Probability of default	.29% – .32% (.32%)

Collateral-dependent impaired loans		2,438	Market comparable properties	Marketability discount	0% – 24% (15%)

Foreclosed assets		279	Market comparable properties	Comparability adjustments (%)	12% – 24% (19%)

Fair Value of Financial Instruments

The following tables present estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2012 and June 30, 2012.


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

December 31, 2012:
Financial assets
Cash and cash equivalents	$	11,344	$	11,344	$	—	$	—
Interest-bearing time deposits in banks		250		250		—		—
Loans, net of allowance for loan losses		284,814		—		—		291,882
Federal Home Loan Bank stock		5,075		—		5,075		—
Accrued interest receivable		1,684		—		1,684		—

Financial liabilities
Deposits		354,590		—		147,410		207,180
Federal Home Loan Bank advances		75,500		—		77,827		—
Advances from borrowers for taxes and insurance		1,078		—		1,078		—
Accrued interest payable		42		—		42		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—
Lines of credit		—		—		—		—

Fair Value at
December 31, 2012

Valuation Technique

Unobservable Inputs

Range
(Weighted Average)

Loans, net of allowance for loan losses

291,882

Discounted
cash flow

Current
rate sheets

1.5% –11.9%

(4.4%)

Deposits

207,180

Discounted
cash flow

Current
rate sheets

0.3% – 1.3%
(0.8%)


	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, 2012:
Financial assets
Cash and cash equivalents	$	8,193	$	8,193	$	—	$	—
Interest-bearing time deposits in banks		250		250		—		—
Loans, net of allowance for loan losses		258,910		—		—		262,954
Federal Home Loan Bank stock		4,175		—		4,175		—
Accrued interest receivable		1,861		—		1,861		—

Financial liabilities
Deposits		344,485		—		144,293		200,893
Federal Home Loan Bank advances		75,000		—		74,496		—
Advances from borrowers for taxes and insurance		955		—		955		—
Accrued interest payable		43		—		43		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—
Lines of credit		—		—		—		—


	Fair Value at June 30, 2012		Valuation Technique	Unobservable Inputs	Range (Weighted Average)

Loans, net of allowance for loan losses	$	262,954	Discounted cash flow	Current rate sheets	1.5% – 11.9% (4.4%)

Deposits		200,893	Discounted cash flow	Current rate sheets	0.3% – 1.3% (0.8%)

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 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 12:

Commitments

Commitments to Originate Loans

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each 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, 2012, 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 Iroquois Federal’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 our total shares 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 and Hoopeston, Illinois and Osage Beach, Missouri. The principal activity of the Association’s wholly-owned subsidiary, L.C.I. Service Corporation (“L.C.I.”), is the sale of property and casualty insurance. The Association is subject to regulation by the Office of the Controller of the Currency and the Federal Deposit Insurance Corporation.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities and other interest-earning assets, and the interest paid on our interest-bearing liabilities, consisting primarily of savings and transaction accounts, certificates of deposit, 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) decreased to 2.77% for the six months ended December 31, 2012 from 2.89% for the six months ended December 31, 2011. An increase in interest-earning assets contributed to an increase in net interest income to $7.1 million for the six months ended December 31, 2012 from $7.0 million for the six months ended December 31, 2011.

Our emphasis on conservative loan underwriting has resulted in relatively low levels of non-performing assets at a time when many financial institutions are experiencing significant asset quality issues. Our non-performing assets totaled $7.8 million or 1.5% of total assets at December 31, 2012, and $6.6 million, or 1.3% of total assets at June 30, 2012.

At December 31, 2012, the Association was categorized as “well capitalized” under regulatory capital requirements.

Our net income for the six months ended December 31, 2012 was $1.8 million, compared to a net loss of $351,000 for the six months ended December 31, 2011. The increase in net income was due to a decrease in noninterest expense, which occurred because the six months ended December 31, 2011 included a $3.6 million contribution to our newly established charitable foundation, an increase in noninterest income and a decrease in interest expense, partially offset by a decrease in interest income and an increase in the provision for loan losses.

Management’s discussion and analysis of the financial condition and results of operations at and for three and six months ended December 31, 2012 and 2011 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.

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, 2012, as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on September 18, 2012.

Comparison of Financial Condition at December 31, 2012 and June 30, 2012

Total assets increased $9.4 million, or 1.8%, to $520.7 million at December 31, 2012 from $511.3 million at June 30, 2012. The increase was primarily due to a $25.9 million increase in net loans and a $3.2 million increase in cash and cash equivalents, partially offset by a decrease of $20.4 million in investment securities.

Net loans receivable, including loans held for sale, increased by $25.9 million, or 10.0%, to $284.8 million at December 31, 2012 from $258.9 million at June 30, 2012. The increase in net loans receivable during this period was due primarily to a $25.7 million, or 78.1%, increase in commercial real estate loans and an $11.3 million or 29.4% increase in multi-family loans. These increases were partially offset by a decrease of $4.7 million, or 55.5% in construction loans, a decrease of $2.7 million, or 20.1% in consumer loans, a decrease of $2.1 million, or 1.5% in one- to four-family loans, a decrease of $1.4 million, or 10.3% in commercial business loans, and a decrease of $451,000, or 5.0% in home equity lines of credit.

Investment securities, consisting entirely of securities available for sale, decreased $20.4 million, or 9.1%, to $202.9 million at December 31, 2012 from $223.3 million at June 30, 2012. This decrease was a result of security sales to reposition our investment portfolio and to fund loans. Purchased investment securities, consisted primarily of agency debt obligations with terms of four to seven years and fixed-rate mortgage backed securities with terms of 15 years, all of which are held as available for sale. We had no securities held to maturity at December 31, 2012 or June 30, 2012.

As of December 31, 2012, Federal Home Loan Bank stock increased $900,000 to $5.1 million, interest receivable decreased $177,000 to $1.7 million, foreclosed assets held for sale (other than real estate owned) decreased $176,000 to $1.1 million and other assets decreased $213,000 to $975,000 from the respective balances as of June 30, 2012. Federal Home Loan Bank stock increased due to stock purchases to support fluctuations in Federal Home Loan Bank advances as we repositioned our investment portfolio. The decrease in interest receivable is primarily due to a decrease in interest receivable on investments, the decrease in other real estate owned is due to the sale of other real estate owned, and the decrease in other assets resulted from a decrease in prepaid insurance due to the timing of multi-year premiums and also from a decrease in accounts receivable general due to the receipt of a receivable that was outstanding as of June 30, 2012.

At December 31, 2012, our investment in bank-owned life insurance was $7.6 million, an increase of $133,000 from $7.5 million at June 30, 2012. 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 $15.4 million at December 31, 2012.

Deposits increased $10.1 million, or 2.9%, to $354.6 million at December 31, 2012 from $344.5 million at June 30, 2012. Certificates of deposit, excluding brokered certificates of deposit, decreased $3.6 million, or 1.9%, to $185.0 million, savings, NOW, and money market accounts decreased $8.2 million, or 6.2%, to $125.5 million, brokered certificates of deposit increased $10.1 million, or 88.1%, to $21.6 million, and noninterest bearing demand accounts increased $11.9 million, or 111.8%, to $22.5 million. Borrowings, which consisted solely of advances from the Federal Home Loan Bank of Chicago, increased $500,000, or 0.7%, to $75.5 million at December 31, 2012 from $75.0 million at June 30, 2012. We increased our borrowings slightly to fund loans, replace deposit outflow, and purchase investment securities as we reposition our portfolio in anticipation of securities being called over the next several months. Current interest rates on borrowings are more favorable than rates paid on deposits.

Other liabilities decreased $522,000, or 27.7%, to $1.4 million at December 31, 2012 from $1.9 million on June 30, 2012. The decrease was attributable to a general decrease in accounts payable and accrued expenses payable due to timing of payments.

Total equity decreased $799,000, or 0.9%, to $85.9 million at December 31, 2012 from $86.6 million at June 30, 2012. Equity decreased due to a decrease in unrealized gains on securities available for sale of $377,000 and the repurchase of 176,552 shares of common stock at an aggregate cost of approximately $2.4 million, partially offset by a net income of $1.8 million. The decrease in unrealized gains on securities available for sale was due to a $20.4 million decrease in our available-for-sale securities (which included a $507,000 gain on sale of securities included in income). A stock repurchase program was adopted during the quarter ended September 30, 2012, which authorized the company to repurchase up to 240,563 shares of its common stock, or approximately 5% of the current outstanding shares. As of December 31, 2012, 176,552 shares were repurchased, leaving the maximum number of shares that may yet be purchased under the plan at 64,011.

Comparison of Operating Results for the Six Months Ended December 31, 2012 and 2011

General. Net income increased $2.2 million to $1.8 million net income for the six months ended December 31, 2012 from a $351,000 net loss for the six months ended December 31, 2011. The increase was primarily due to a decrease in noninterest expense, which occurred because the six months ended December 31, 2011 included a $3.6 million contribution to our newly established charitable foundation, an increase in noninterest income and a decrease in interest expense, partially offset by a decrease in interest and dividend income and an increase in the provision for loan losses.

Net Interest Income. Net interest income increased by $160,000, or 2.3%, to $7.1 million for the six months ended December 31, 2012 from $7.0 million for the six months ended December 31, 2011. The increase was due to a decrease of $433,000 in interest expense, partially offset by a decrease of $273,000 in interest and dividend income. The increase in net interest income was primarily the result of lower rates paid on certificates of deposit. We had a $35.7 million, or 7.8% increase in the average balance of interest earning assets, partially offset by a $29.0 million, or 7.0% increase in average balance of interest bearing liabilities. We also had a decrease in our interest rate spread by 12 basis points to 2.77% for the six months ended December 31, 2012 compared to 2.89% for the six months ended December 31, 2011, and a decrease in our net interest margin by 15 basis points to 2.90% for the six months ended December 31, 2012 compared to 3.05% for the six months ended December 31, 2011.

Interest and Dividend Income. Interest and dividend income decreased $273,000, or 3.0%, to $8.7 million for the six months ended December 31, 2012 from $9.0 million for the six months ended December 31, 2011. The decrease in interest income was primarily due to decreases in interest income on loans and securities. A decrease of $54,000 in interest on loans, which resulted from a 51 basis point, or 10.2% decrease in the average yield on loans from 4.99% to 4.48%, was partially offset by a $25.2 million, or 10.3% increase in the average balance of loans to $269.8 million for the six months ended December 31, 2012, from $244.6 million for the six months ended December 31, 2011. Interest on securities decreased $213,000, or 7.4%, as a $10.3 million increase in the average balance of securities to $212.2 at December 31, 2012 was more than offset by a 34 basis point decrease in the average yield on securities from 2.84% to 2.50%. The decrease in the average yield on loans and securities reflected a reduction in the current interest rates charged on loans originated and on securities purchased during the period versus the average rates on loans and securities in the portfolio in the prior period.

Interest Expense. Interest expense decreased $433,000, or 21.4%, to $1.6 million for the six months ended December 31, 2012 from $2.0 million for the six months ended December 31, 2011. The decrease was primarily due to lower market interest rates during the period.

Interest expense on interest-bearing deposits decreased by $430,000, or 27.5%, to $1.1 million for the six months ended December 31, 2012 from $1.6 million for the six months ended December 31, 2011. This decrease was primarily due to a decrease of 27 basis points in the average cost of interest-bearing deposits to 0.69% for the six months ended December 31, 2012 from 0.96% for the six months ended December 31, 2011. We experienced decreases in the average cost across all categories of interest-bearing deposits for the six months ended December 31, 2012, reflecting lower market interest rates as compared to the prior period. The decrease in average cost was partially offset by a $5.8 million, or 1.8%, increase in the average balance of interest-bearing deposits to $330.4 million for the six months ended December 31, 2012 from $324.6 million for the six months ended December 31, 2011.

Interest expense on borrowings decreased $3,000, or 0.7%, to $450,000 for the six months ended December 31, 2012 from $453,000 for the six months ended December 31, 2011. This decrease was due a 41 basis point decrease in the average cost of such borrowings to 1.07% for the six months ended December 31, 2012 from 1.48% for the six months ended December 31, 2011, largely offset by an increase in the average balance of borrowings to $84.4 million for the six months ended December 31, 2012 from $61.2 million for the six months ended December 31, 2011.

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 $507,000 for the six months ended December 31, 2012, compared to a provision for loan losses of $334,000 for the six months ended December 31, 2011. The allowance for loan losses was $4.0 million, or 1.37% of total loans, at December 31, 2012, compared to $3.1 million, or 1.23% of total loans, at December 31, 2011 and $3.5 million, or 1.34% of total loans, at June 30, 2012. Non-performing loans increased during the six month period ended December 31, 2012 mainly due to the addition of three relationships: one in the amount of $400,000 where the borrower has expressed financial difficulty but all loans were current at December 31, 2012; and, two home loans totaling $420,000 entering the foreclosure process. Although the loans were substantially collateralized, the first relationship accounted for an addition to the reserves of $68,000 while one of the two home loan relationships required $153,000 in additional reserves. During the six months ended December 31, 2012, a net charge-off of $73,000 was recorded while during the six months ended December 31, 2011, a net charge-off of $375,000 was recorded.

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


	Six Months Ended December 31, 2012			Year Ended June 30, 2012

Allowance to non-performing loans		59.44	%		65.95	%
Allowance to total loans outstanding at the end of the period		1.37	%		1.34	%
Net charge-offs to average total loans outstanding during the period, annualized		.05	%		.30	%
Total non-performing loans to total loans		2.31	%		2.03	%
Total non-performing assets to total assets		1.49	%		1.30	%

Noninterest Income. Noninterest income increased $629,000, or 34.3%, to $2.5 million for the six months ended December 31, 2012 compared to $1.8 million for the six months ended December 31, 2011. The increase was primarily due to increases in net realized gains on the sale of securities available for sale and mortgage banking income, partially offset by a decrease in customer service fees. For the six months ended December 31, 2012, net realized gains on the sale of securities available for sale increased from $290,000 to $568,000 and mortgage banking income increased from $81,000 to $323,000, while customer service fees decreased from $332,000 to $288,000. The increase in net realized gains on the sale of available-for-sale securities was due to the rate environment in the six months ended December 31, 2012, that allowed for profits to be gained when repositioning the investment portfolio that were not available in the six months ended December 31, 2011. The increase in mortgage banking income was primarily due to an increase in mortgage servicing rights as a result of a higher balance of loans sold at December 31, 2012 compared to December 31, 2011. The decrease in customer service fees reflects fewer service fees and charges collected on deposit accounts.

Noninterest Expense. Noninterest expense decreased $2.9 million, or 31.9%, to $6.2 million for the six months ended December 31, 2012 from $9.2 million for the six months ended December 31, 2011. The largest components of this decrease were charitable contributions, which decreased $3.6 million, or 99.9%, and audit and examinations, which decreased $49,000, or 22.2%. The decrease in charitable contributions was a result of a donation of $3.6 million in stock and cash to fund our charitable foundation in the six months ended December 31, 2011. The decrease in audit and examinations was the result of increased costs associated with transitioning to a public company in the six months ended December 31, 2011. These decreases were partially offset by increases in compensation and benefits of $259,000, equipment expense of $134,000, and professional services of $41,000. Increased staffing, normal salary increases and increases in payroll taxes primarily accounted for the increase in compensation and benefits expense. Increases in equipment expense were due to routine technology upgrades and expenses incurred to move our information technology department to a more secure and efficient location, while increases in professional services were a result of increased costs associated with operating as a public company.

Income Tax Expense (Benefit). We recorded a provision for income tax of $1.0 million for the six months ended December 31, 2012, compared to a benefit for income tax of ($339,000) for the six months ended December 31, 2011, reflecting effective tax rates of 35.3% and (49.1%), respectively. The increased tax rate for the six months ended December 31, 2012, was a result of a lower taxable income in the six months ended December 31, 2011, due to a contribution of $3.6 million to establish our charitable foundation, Iroquois Federal Foundation, Inc.

Comparison of Operating Results for the Three Months Ended December 31, 2012 and 2011

General. Net income decreased $315,000 to $709,000 net income for the three months ended December 31, 2012 from a $1.0 million net income for the three months ended December 31, 2011. The decrease was primarily due to increases in the provision for loan losses and noninterest expense, and a decrease in interest income, partially offset by a decrease in interest expense.

Net Interest Income. Net interest income remained at $3.5 million for the three months ended December 31, 2012 and for the three months ended December 31, 2011. The nearly identical net interest income in the two periods was a result of a decrease of $197,000 in interest expense offset by a decrease of $195,000 in interest and dividend income. We had a $31.3 million, or 6.7% increase in the average balance of interest earning assets, partially offset by a $22.2 million, or 5.7% increase in average balance of interest bearing liabilities. We also had a decrease in our interest rate spread by 17 basis points to 2.72% for the three months ended December 31, 2012 compared to 2.89% for the three months ended December 31, 2011, and a decrease in our net interest margin by 19 basis points to 2.85% for the three months ended December 31, 2012 compared to 3.04% for the three months ended December 31, 2011.

Interest and Dividend Income. Interest and dividend income decreased $195,000, or 4.3%, to $4.3 million for the three months ended December 31, 2012 from $4.5 million for the three months ended December 31, 2011. The decrease in interest and dividend income was primarily due to a $185,000 decrease in interest income on securities, which resulted from a 37 basis point, or 13.1% decrease in the average yield on securities from 2.82% to 2.45%, partially offset by a $2.0 million, or 1.0% increase in the average balance of securities to $210.4 million for the three months ended December 31, 2012, from $208.4 million for the three months ended December 31, 2011. Interest on loans decreased $13,000, or 0.4%, as a $31.3 million increase in the average balance of loans to $277.5 at December 31, 2012 was more than offset by a 57 basis point decrease in the average yield on securities from 4.93% to 4.36%. The decrease in the average yield on loans and securities reflected a reduction in the current interest rates charged on loans originated and on securities purchased during the period versus the average rates on loans and securities in the portfolio during the prior period.

Interest Expense. Interest expense decreased $197,000, or 20.0%, to $787,000 for the three months ended December 31, 2012 from $984,000 for the three months ended December 31, 2011. The decrease was primarily due to lower market interest rates during the period.

Interest expense on interest-bearing deposits decreased by $192,000, or 25.4%, to $565,000 for the three months ended December 31, 2012 from $757,000 for the three months ended December 31, 2011. This decrease was primarily due to a decrease of 25 basis points in the average cost of interest-bearing deposits to 0.68% for the three months ended December 31, 2012 from 0.93% for the three months ended December 31, 2011. We experienced decreases in the average cost across all categories of interest-bearing deposits for the three months ended December 31, 2012, reflecting lower market interest rates as compared to the prior period. The decrease was partially offset by a $7.2 million, or 2.2%, increase in the average balance of interest-bearing deposits to $332.3 million for the three months ended December 31, 2012 from $325.1 million for the three months ended December 31, 2011.

Interest expense on borrowings decreased $5,000, or 2.2%, to $222,000 for the three months ended December 31, 2012 from $227,000 for the three months ended December 31, 2011. This decrease was due to a 27 basis point decrease in the average cost of such borrowings to 1.08% for the three months ended December 31, 2012 from 1.35% for the three months ended December 31, 2011, partially offset by an increase in the average balance of borrowings to $82.2 million for the three months ended December 31, 2012 from $67.2 million for the three months ended December 31, 2011.

Noninterest Income. Noninterest income decreased $12,000, or 1.1%, remaining at $1.1 million for the three months ended December 31, 2012 and the three months ended December 31, 2011. The slight decrease was primarily due to decreases in net realized gains on the sale of securities available for sale and customer service fees, partially offset by increases in mortgage banking income and brokerage commissions. For the three months ended December 31, 2012, net realized gains on the sale of securities available for sale decreased from $240,000 to $95,000 and customer service fees decreased from $176,000 to $149,000, while mortgage banking income increased from $109,000 to $209,000, and brokerage commissions increased from $108,000 to $154,000. The decrease in net realized gains on the sale of available-for-sale securities was due to the rate environment in the three months ended December 31, 2011, that allowed for profits to be gained when repositioning the investment portfolio that were not available in the three months ended December 31, 2012, and the decrease in number of service fees and charges collected on deposit accounts. The increase in mortgage banking income was primarily due to an increase in mortgage servicing rights as a result of a higher balance of loans sold at December 31, 2012 compared to December 31, 2011, while increase in brokerage commissions was due to an increase in the amount of financial services sold.

Noninterest Expense. Noninterest expense increased $331,000, or 11.8%, to $3.1 million for the three months ended December 31, 2012 from $2.8 million for the three months ended December 31, 2011. The largest components of this increase were compensation and benefits, which increased $138,000 or 7.9%, equipment expense, which increased $87,000 or 53.0%, net occupancy expenses, which increased $22,000 or 19.8% and other operating expense, which increased $65,000 or 24.4%. These increases were partially offset by decreases in audit and examination of $26,000 and deposit insurance premium of $9,000. Increased staffing, normal salary increases and increases in payroll taxes primarily accounted for the increase in compensation and benefits expense. Increases in equipment expense were due to routine technology upgrades and expenses incurred to move our information technology department to a more secure and efficient location. Increase in net occupancy expenses was a result of increased office building repairs and maintenance and other operating expense increased due to an increase in loan expenses. The decrease in audit and examination was due to increased audit expenses in the three months ended December 31, 2011 as we transitioned to operating as a public company and the decrease in deposit insurance premium was a result of the new FDIC formula used to calculate this premium.

Income Tax Expense. We recorded a provision for income tax of $360,000 for the three months ended December 31, 2012, compared to a provision for income tax of $596,000 for the three months ended December 31, 2011, reflecting effective tax rates of 33.7% and 36.8%, respectively.

Asset Quality

At December 31, 2012, our non-accrual loans totaled $5.9 million, including $3.9 million in one-to four-family loans, $1.7 million in multi-family loans, $109,000 in commercial real estate loans, $55,000 in home equity lines of credit, $41,000 in commercial business loans and $112,000 in consumer loans. The commercial real estate loans are secured by commercial rental properties. At December 31, 2012, we had $750,000 in loans delinquent 90 days or greater and still accruing interest, including 10 one-to four-family loans totaling $747,000 and 1 auto loan in the amount of $3,000.

At December 31, 2012, loans classified as substandard equaled $7.2 million. Loans classified as substandard consisted of $4.8 million in one-to four-family loans, $1.8 million in multi-family loans, $246,000 in commercial real estate loans, $55,000 in home equity lines of credit, $273,000 in commercial business loans and $115,000 in consumer loans. At December 31, 2012, no loans were classified as doubtful or loss.

At December 31, 2012, one-to four-family residential mortgage loans classified as substandard equal $4.8 million compared to $3.9 million at June 30, 2012. At December 31, 2012, watch assets consisted of $1.1 million in one-to four-family loans, $185,000 in multi-family loans, $387,000 in commercial real estate loans, $1.1 million in commercial business loans and $3,000 in consumer loans.

Troubled Debt Restructuring. 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 December 31, 2012 and June 30,

2012, we had $3.6 million and $3.8 million, respectively, of troubled debt restructurings. At December 31, 2012 our troubled debt restructurings consisted of $2.1 million in one-to four-family loans, $1.4 million in multi-family loans, $91,000 in commercial real estate loans, $41,000 in commercial business loans and $20,000 in consumer loans.

At December 31 2012, we had $1.1 million in foreclosed assets compared to $1.3 million as of June 30, 2012. Foreclosed assets at December 31, 2012 consisted of $1.1 million in residential real estate properties and one piece of commercial equipment while at June 30, 2012, foreclosed assets consisted entirely of residential real estate properties.

Allowance for Loan Loss Activity

The Company regularly reviews its allowance for loan losses and makes adjustments to its balance based on 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 six-month periods ended December 31, 2012 and 2011:


	Six months ended December 31,
	2012			2011

Balance, beginning of period	$	3,531		$	3,149
Loans charged off
Real estate loans
One-to four-family		(35	)		(324	)
Multi-family		—			—
Commercial		—			(49	)
HELOC		—			—
Construction		—			—
Commercial business		(50	)		—
Consumer		(32	)		(60	)

Gross charged off loans		(117	)		(433	)

Recoveries of loans previously charged off
Real estate loans
One-to four-family		41			27
Multi-family		—			—
Commercial		—			—
HELOC		—			—
Construction		—			—
Commercial business		—			—
Consumer		3			31

Gross recoveries of charged off loans		44			58

Net charge offs		(73	)		(375	)

Provision charged to expense		507			334

Balance, end of period	$	3,965		$	3,108

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 $434,000 to $4.0 million at December 31, 2012, from $3.5 million at June 30, 2012. The increase was a result of an increase in both outstanding loans and nonperforming 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 December 31, 2012.

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 December 31 and June 30, 2012:


Portfolio segment	December 31, 2012 Net charge offs – 12 quarter weighted historical			June 30, 2012 Net charge offs – 12 quarter weighted historical

Real Estate:
One-to four-family		.34	%		.48	%
Multi-family		.31	%		.33	%
Commercial		.08	%		.13	%
HELOC		.37	%		.12	%
Construction		.00	%		.00	%
Commercial business		.35	%		.16	%
Consumer		.36	%		.16	%

Entire portfolio total		.30	%		.39	%

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 December 31, 2012, 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 December 31, 2012			Qualitative factor applied at June 30, 2012

Real Estate:
One-to four-family		.58	%		.39	%
Multi-family		.90	%		.82	%
Commercial		.94	%		.46	%
HELOC		.53	%		.78	%
Construction		.71	%		.94	%
Commercial business		2.02	%		2.33	%
Consumer		.45	%		.54	%

Entire portfolio total		.71	%		.57	%

At December 31, 2012, the amount of our allowance for loan losses attributable to these qualitative factors was approximately $2.1 million, as compared to $1.5 million at June 30, 2012. The general increase in qualitative factors was attributable primarily to the increase in past due and non-accrual loans.

Because of the recent added concern based on the overall condition of the real estate market and in particular how the market is affecting the Junior Lien and HELOC loan portfolios, as with all portfolios, the Company has reviewed these two portfolios to determine the adequacy of the allowance. The Company notes that Junior Lien loans are one-to four-family loans that are in a subordinate lien position, and can be subordinate to either a Company first lien or another institution first lien and all are fully amortized loans, and HELOC loans were initially underwritten to ensure adequate cash flow to make payments even under stressed conditions. Based on review of the HELOC portfolio, $2.4 million had initial combined loan to value ratios of between 81% and 90%. The present allowance calculation includes .53% of qualitative factors to address added concerns, above a weighted average loss factor of .37%.

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 December 31, 2012 and the year ended June 30, 2012, our liquidity ratio averaged 41.1% and 42.6% of our total assets, respectively. We believe that we had enough sources of liquidity to satisfy our short- and long-term liquidity needs as of December 31, 2012.

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are affected by our operating, financing, lending and investing activities during any given period. At December 31, 2012, cash and cash equivalents totaled $11.3 million. Interest-earning time deposits which can offer additional sources of liquidity, totaled $250,000 at December 31, 2012.

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 $2.4 million and $3.1 million for the six months ended December 31, 2012 and 2011, respectively. Net cash provided by (used in) investing activities consisted primarily of disbursements for loan originations and the purchase of securities, offset by net cash provided by principal collections on loans, and proceeds from maturing securities, the sale of securities and pay downs on mortgage-backed securities. Net cash used in investing activities was $7.6 million and $14.9 million for the six months ended December 31, 2012 and 2011, respectively. Net cash provided by (used in) financing activities consisted primarily of the activity in deposit accounts and FHLB Advances. The net cash provided by (used in) financing activities was $8.3 million and $(34.2) million for the six months ended December 31, 2012 and 2011, respectively.

In the six months ended December 31, 2011, net cash used in financing activities consisted primarily of a decrease in deposits held in escrow for our mutual to stock conversion which closed on July 7, 2012, offset by proceeds from Federal Home Loan Bank Advances and proceeds from the issuance of common stock, net of costs, from the mutual-to-stock conversion.

The Company must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments. The Company anticipates that it will have sufficient funds available to meet its current commitments principally through the use of current liquid assets and through its borrowing capacity discussed above. The following table summarizes these commitments at December 31, 2012 and June 30, 2012.


	December 31, 2012		June 30, 2012
	(Dollars in thousands)

Commitments to fund loans	$	6,637	$	7,150
Lines of credit		16,297		15,461

At December 31, 2012, certificates of deposit due within one year of December 31, 2012 totaled $150.9 million, or 42.6% of total deposits. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2013. 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 $75.5 million at December 31, 2012. At December 31, 2012, we had the ability to borrow up to an additional $47.3 million from the Federal Home Loan Bank of Chicago and also had the ability to borrow $11.5 million from the Federal Reserve based on current collateral pledged.

On September 12, 2012, the Company announced, a stock repurchase program whereby the Company may repurchase up to 240,563 shares of its common stock, or approximately 5% of the 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 December 31, 2012, 176,552 shares were repurchased at an average price of $13.54 per share, and the maximum number of shares that may yet be purchased under the plan was 64,011.

The Association is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2012, the Association exceeded all regulatory capital requirements. The Association is considered “well capitalized” under regulatory guidelines.


	December 31, 2012			June 30, 2012			Minimum to Be Well
	Actual			Actual			Capitalized

Tier 1 capital to total assets
Association		11.8	%		11.6	%		5.0	%
Company		15.7	%		16.1	%		N/A
Tier 1 capital to risk-weighted assets
Association		21.8	%		23.0	%		6.0	%
Company		29.1	%		32.1	%		N/A
Total capital to risk-weighted assets
Association		23.0	%		24.3	%		10.0	%
Company		30.4	%		33.3	%		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 December 31,
	2012							2011
	Average Balance		Interest Income/ Expense		Yield/ Cost			Average Balance		Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)

Assets
Loans	$	277,455		3,021		4.36	%	$	246,128		3,034		4.93	%
Securities:
U.S. government, federal agency and government-sponsored enterprises		136,330		803		2.36	%		160,872		1,057		2.63	%
U.S. government-sponsored enterprise MBS		69,904		468		2.68	%		44,696		401		3.59	%
State and political subdivisions		4,146		16		1.54	%		2,822		14		1.98	%

Total securities		210,380		1,287		2.45	%		208,390		1,472		2.83	%
Other		7,323		6		0.33	%		9,365		3		0.13	%

Total interest-earning assets		495,158		4,314		3.48	%		463,883		4,509		3.89	%
Non-interest earning assets		27,232							26,554

Total assets	$	522,390						$	490,437


Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing checking or NOW	$	31,107		13		0.17	%	$	27,562		14		0.20	%
Savings accounts		29,456		20		0.27	%		26,771		22		0.33	%
Money market accounts		64,265		41		0.26	%		68,377		52		0.30	%
Certificates of deposit		207,507		491		0.95	%		202,432		669		1.32	%

Total interest-bearing deposits		332,335		565		0.68	%		325,142		757		0.93	%
Federal Home Loan Bank Advances		82,167		222		1.08	%		67,167		227		1.35	%

Total interest-bearing liabilities		414,502		787		0.76	%		392,309		984		1.00	%
Noninterest-bearing liabilities		22,931							14,550

Total liabilities		437,433							406,859
Stockholders’ equity		84,956							83,578

Total liabilities and stockholders’ equity	$	522,389						$	490,437


	For the Three Months Ended December 31,
	2012								2011
	Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)

Net interest income				$	3,527							$	3,525


Interest rate spread (1)							2.72	%							2.89	%

Net interest margin (2)							2.85	%							3.04	%

Net interest-earning assets (3)	$	80,656							$	71,574


Average interest-earning assets to interest-bearing liabilities		119	%							118	%

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

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

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

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


	For the Six Months Ended December 31,
	2012							2011
	Average Balance		Interest Income/ Expense		Yield/ Cost			Average Balance		Interest Income/ Expense		Yield/ Cost
	(Dollars in thousands)

Assets
Loans	$	269,826		6,048		4.48	%	$	244,620		6,102		4.99	%
Securities:
U.S. government, federal agency and government-sponsored enterprises		139,801		1,671		2.39	%		156,474		2,053		2.62	%
U.S. government-sponsored enterprise MBS		68,534		955		2.79	%		42,713		791		3.70	%
State and political subdivisions		3,858		29		1.50	%		2,695		27		2.00	%

Total securities		212,193		2,655		2.50	%		201,882		2,871		2.84	%
Other		10,467		13		0.25	%		10,292		16		0.31	%

Total interest-earning assets		492,486		8,716		3.54	%		456,794		8,989		3.94	%
Non-interest earning assets		28,907							26,658

Total assets	$	521,393						$	483,452


	For the Six Months Ended December 31,
	2012								2011
	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	$	30,583			27		0.18	%	$	26,971			28		0.21	%
Savings accounts		29,041			40		0.28	%		26,057			48		0.37	%
Money market accounts		64,549			81		0.25	%		68,079			105		0.31	%
Certificates of deposit		206,185			988		0.96	%		203,487			1,385		1.36	%

Total interest-bearing deposits		330,358			1,136		0.69	%		324,593			1,566		0.96	%
Federal Home Loan Bank Advances		84,417			450		1.07	%		61,167			453		1.48	%

Total interest-bearing liabilities		414,775			1,586		0.76	%		385,760			2,019		1.05	%
Noninterest-bearing liabilities		20,257								14,667

Total liabilities		435,032								400,427
Stockholders’ equity		86,361								83,025

Total liabilities and stockholders’ equity	$	521,393							$	483,452


Net interest income				$	7,130							$	6,970


Interest rate spread (1)							2.77	%							2.89	%

Net interest margin (2)							2.90	%							3.05	%

Net interest-earning assets (3)	$	77,711							$	71,034


Average interest-earning assets to interest-bearing liabilities		119	%							118	%

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

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

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

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

Rate/Volume Analysis

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


	Three Months Ended December 31, 2012 vs. 2011									Six Months Ended December 31, 2012 vs. 2011
	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	$	1,464		$	(1,476	)	$	(12	)	$	1,226		$	(1,279	)	$	(53	)
Securities		92			(280	)		(188	)		346			(563	)		(217	)
Other		(5	)		10			5			1			(4	)		(3	)


Total interest-earning assets	$	1,551		$	(1,746	)	$	(195	)	$	1,573		$	(1,846	)	$	(273	)


Interest-bearing liabilities:
Interest-bearing checking or NOW	$	7		$	(8	)	$	(1	)	$	8		$	(9	)	$	(1	)
Savings accounts		11			(13	)		(2	)		12			(20	)		(8	)
Certificates of deposit		108			(286	)		(178	)		54			(451	)		(397	)
Money market accounts		(34	)		23			(11	)		(21	)		(3	)		(24	)

Total interest-bearing deposits		92			(284	)		(192	)		52			(482	)		(430	)
Federal Home Loan Bank advances		189			(194	)		(5	)		288			(291	)		(3	)


Total interest-bearing liabilities	$	281		$	(478	)	$	(197	)	$	341		$	(774	)	$	(433	)


Change in net interest income	$	1,271		$	(1,269	)	$	2		$	1,233		$	(1,073	)	$	160

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 December 31, 2012, 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, 2012, as filed with the Securities and Exchange Commission.

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2012. Based upon such evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended December 31, 2012, 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, 2012, which could materially affect our business, financial condition or future results of operations. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about purchases by the Company of the quarter ended December 31, 2012 regarding the Company’s common stock.


PURCHASES OF EQUITY SECURITIES BY COMPANY (1)
Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
10/1/12 – 10/31/12		109,563	$	13.49		109,563		122,996
11/1/12 – 11/30/12		22,720		13.68		22,720		100,276
12/1/12 – 12/31/12		36,265		13.71		36,265		64,011

Total		168,548	$	13.56		168,548		64,011

(1)

On September 12, 2012, the Company announced the commencement of a stock repurchase program to acquire up to 240,563, or 5%, of the Company’s then outstanding common stock. The repurchase program may be suspended, terminated or modified at any time for any reason. The repurchase program does not obligate the Company to purchase any particular number of shares.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

None.

Item 5.

Other Information

None.

Item 6.

Exhibits


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

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

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

101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of December 31, 2012 and June 30, 2012, (ii) the Condensed Consolidated Statements of Income for the three and six months ended December 31, 2012 and 2011, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2012 and 2011, (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the six months ended December 31, 2012 and 2011, (v) the Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2012 and 2011, 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: February 12, 2013						/s/ Alan D. Martin
						Alan D. Martin
						President and Chief Executive Officer

Date: February 12, 2013						/s/ Pamela J. Verkler
						Pamela J. Verkler
						Vice President and Chief Financial Officer