Business Overview and History
IF Bancorp, Inc. (NASDAQ:IROQ) is a savings and loan holding company headquartered in Watseka, Illinois. The company's primary subsidiary, Iroquois Federal Savings and Loan Association, has been serving local communities for over a century, providing a range of banking and mortgage services to individuals and businesses. Despite facing industry-wide headwinds, IF Bancorp has demonstrated a remarkable ability to adapt and maintain its position as a trusted financial institution.
IF Bancorp, Inc. was formed in 2011 when Iroquois Federal Savings and Loan Association, a mutual savings and loan association, converted from a mutual to a stock form of ownership. The company's initial public offering raised approximately $45 million in gross proceeds, with 4.5 million shares sold at $10 per share. Of these, 384,900 shares were sold to the Association's employee stock ownership plan, and an additional 314,750 shares were issued to the Iroquois Federal Foundation.
The Association, founded in 1883, has a long and storied history of serving its local markets. Over the decades, it has weathered economic downturns, regulatory changes, and industry consolidation, emerging as a resilient financial institution. Today, the company operates nine branch locations across Illinois and a loan production office in Missouri, catering to a diverse customer base within a 100-mile radius of its locations.
Throughout its history, IF Bancorp has maintained a focus on conservative lending practices and strong asset quality. This approach has resulted in consistently low levels of non-performing assets. As of June 30, 2024, the company's non-performing loans totaled just $173,000, or 0.10% of total loans, while non-performing assets also stood at $173,000, or 0.10% of total assets.
In 2020, the Association made a strategic decision to opt into the Federal Reserve's Community Bank Leverage Ratio framework. This move allowed the bank to operate under a simpler capital framework, reflecting its status as a well-capitalized institution under regulatory standards.
Financial Performance and Ratios
Despite the challenges posed by the interest rate environment in recent years, IF Bancorp has maintained a relatively strong financial profile. As of June 30, 2024, the company reported total assets of $887.75 million, with a net loan portfolio of $639.30 million and investment securities of $190.47 million. The company's capital ratios remain well above regulatory requirements, with a Community Bank Leverage Ratio of 9.20% as of June 30, 2024, exceeding the well-capitalized threshold of 9.00%.
The company's profitability metrics have been mixed in recent years. For the fiscal year ended June 30, 2024, IF Bancorp reported net income of $1.79 million, down from $4.66 million in the prior fiscal year. This decline was primarily attributable to an increase in interest expense and a decrease in noninterest income. The company's return on average assets and return on average equity for the fiscal year ended June 30, 2024, were 0.20% and 2.40%, respectively.
For the most recent fiscal year, IF Bancorp reported annual revenue of $22.11 million, annual net income of $1.79 million, annual operating cash flow of $2.28 million, and annual free cash flow of $2.04 million. In the most recent quarter, the company's revenue was $11.01 million, with net income of $1.22 million. The company experienced significant year-over-year growth, with revenue increasing by 7.6% compared to the same quarter last year, primarily due to an 8.6% increase in interest income on loans. Net income saw a substantial increase from $185,000 in the year-ago quarter to $1.22 million in the current quarter, driven by the increase in net interest income and a decrease in provision for credit losses.
Liquidity and Solvency
IF Bancorp maintains a strong liquidity position, with cash and cash equivalents totaling $9.57 million as of June 30, 2024. The company's current ratio, a measure of short-term liquidity, stood at 1.09 as of the same date, calculated as Total Current Assets of $19.09 million divided by Total Current Liabilities of $17.48 million. The quick ratio is also 1.09, as the company has no inventories. Additionally, the company's debt-to-equity ratio was 0.79, indicating a relatively conservative capital structure, calculated as Total Debt of $58.25 million divided by Stockholders' Equity of $73.92 million as of June 30, 2024.
The company's free cash flow generation has been consistent, with $2.04 million in free cash flow for the fiscal year ended June 30, 2024. This provides IF Bancorp with the financial flexibility to invest in growth initiatives, maintain its dividend, and support its operations during challenging economic conditions.
As of December 31, 2024, IF Bancorp had $31.1 million available to borrow from the Federal Home Loan Bank of Chicago, $14 million available from CIBC Bank, and $34.2 million available from the Federal Reserve based on current collateral pledged, further enhancing its liquidity position.
Industry Challenges and Strategic Initiatives
The banking industry has faced significant headwinds in recent years, including a prolonged low-interest-rate environment, increased competition from non-traditional financial institutions, and heightened regulatory scrutiny. IF Bancorp has navigated these challenges through a multi-faceted strategy.
One key initiative has been the company's focus on diversifying its revenue streams. While traditional lending activities remain a core part of the business, IF Bancorp has placed greater emphasis on fee-based services, such as its insurance agency, brokerage operations, and mortgage banking activities. This has helped to offset the pressure on net interest margins.
Additionally, the company has maintained a disciplined approach to loan underwriting and risk management, which has contributed to its relatively low levels of non-performing assets. As of June 30, 2024, non-performing loans amounted to just 0.10% of total loans, reflecting the company's prudent credit risk management practices.
Product Segments and Performance
IF Bancorp operates primarily through its wholly-owned subsidiary, Iroquois Federal Savings and Loan Association, offering a variety of financial services across several product segments:
Lending: The company's lending activities are a significant driver of its business, with a loan portfolio totaling $654.63 million as of December 31, 2024, an increase of $8.24 million, or 1.3%, from June 30, 2024. The growth was primarily driven by increases in commercial real estate loans ($5.33 million, or 2.7%), multi-family loans ($3.34 million, or 2.7%), and commercial business loans ($2.26 million, or 2.5%), partially offset by a decrease in construction loans ($2.38 million, or 7.1%).
The company's conservative underwriting standards have resulted in low levels of non-performing assets. At December 31, 2024, non-performing loans totaled $196,000, or 0.03% of total loans, compared to $173,000, or 0.03% of total loans, at June 30, 2024. The allowance for credit losses was $7.35 million, or 1.12% of total loans, at December 31, 2024, compared to $7.50 million, or 1.16% of total loans, at June 30, 2024.
Deposits: As of December 31, 2024, total deposits were $682.13 million, a decrease of $45.07 million, or 6.2%, from June 30, 2024. This decrease was primarily due to a $65.50 million, or 63.4%, decline in non-interest-bearing demand deposits, partially offset by a $15.34 million, or 5.0%, increase in savings, NOW, and money market accounts.
Other Financial Services: IF Bancorp, through its subsidiary L.C.I. Service Corporation, offers property and casualty insurance products. This segment generated insurance commissions of $398,000 for the six months ended December 31, 2024, an increase of $24,000, or 6.4%, from the same period in the prior year. The company's brokerage business, providing investment and wealth management services, generated brokerage commissions of $361,000 for the six months ended December 31, 2024, an increase of $42,000, or 13.2%, compared to the prior-year period.
Geographic Markets
IF Bancorp primarily serves the Illinois counties of Vermilion, Iroquois, Champaign and Kankakee, as well as the adjacent counties in Illinois and Indiana. The company also operates a loan production office in Osage Beach, Missouri, serving the Missouri counties of Camden, Miller, and Morgan. As a small-cap company, IROQ's operations are typically limited to this specific geographic region.
Shareholder Engagement and Governance
IF Bancorp has a track record of engaging with its shareholders and maintaining strong corporate governance practices. In 2024, the company's shareholders approved a non-binding proposal requesting the sale of the company, reflecting dissatisfaction with the company's financial performance. In response, the board of directors has indicated that it will carefully consider the shareholders' feedback and explore strategic alternatives to enhance shareholder value.
The company's board of directors is composed of experienced industry professionals, with a mix of independent and non-independent members. The board's committees, including the Audit Committee and the Compensation Committee, provide oversight and guidance to the management team, ensuring that the company's operations and decision-making align with the interests of shareholders.
Outlook and Risks
The banking industry's outlook remains uncertain, with continued pressure on net interest margins and the potential for economic headwinds. IF Bancorp's management team has acknowledged these challenges and is actively working to adapt the company's business model to navigate the changing landscape.
One key risk facing the company is the ongoing impact of the low-interest-rate environment on its net interest income. The company's ability to effectively manage its funding costs and loan yields will be crucial in maintaining its profitability. Additionally, the company's reliance on fee-based revenue streams, such as mortgage banking and insurance, exposes it to market volatility and competitive pressures in those areas.
Despite these challenges, IF Bancorp remains committed to serving its local communities and enhancing shareholder value. The company's strong liquidity position, conservative capital structure, and disciplined risk management practices provide a solid foundation for weathering industry headwinds and pursuing strategic growth opportunities.
Conclusion
IF Bancorp, Inc. is a resilient savings and loan holding company that has navigated the evolving banking landscape with a steady hand. While facing industry-wide challenges, the company has demonstrated its ability to adapt its business model, maintain a strong financial profile, and engage with its shareholders. As it continues to navigate the complexities of the banking industry, IF Bancorp remains poised to capitalize on opportunities and deliver value to its stakeholders. The company's diversified business model, with a focus on conservative lending, stable deposit funding, and complementary fee-based services, has contributed to its financial performance and positions it well for future growth in its core markets.