Overview

We have grown our organization to $511.3 million in assets at June 30, 2012 from $326.4 million in assets at June 30, 2007. We have increased our assets primarily through increased investment securities and loan growth.

Historically, we have operated as a traditional thrift institution. As recently as June 30, 2007, $165.0 million, or approximately 78.8% of our loan portfolio, consisted of longer-term, one- to four-family residential real estate loans. However, in recent years, we have increased our focus on the origination of commercial real estate loans, multi-family real estate loans and commercial business loans, which generally provide higher returns than one- to four-family residential mortgage loans, have shorter durations and are often originated with adjustable rates of interest. As a result, our net interest rate spread (the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities) increased to 2.89% for the year ended June 30, 2012 from 1.88% for the year ended June 30, 2007. This contributed to a corresponding increase in net interest income (the difference between interest income and interest expense) to $14.2 million for the fiscal year ended June 30, 2012 from $6.2 million for the fiscal year ended June 30, 2007.

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 $6.6 million or 1.30% of total assets at June 30, 2012.

Other than our loans for the construction of one- to four-family residential properties and the draw portion of our home equity lines of credit, we do not offer "interest only" mortgage loans on one- to four-family residential properties (where the borrower pays interest but no principal for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as "Option ARM" loans, where the borrower can pay less than the interest owed on their loan, resulting in an increased principal balance during the life of the loan. We do not offer "subprime loans" (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation). We also do not own any private label mortgage-backed securities that are collateralized by Alt-A, low or no documentation or subprime mortgage loans.

The Association's legal lending limit to any one borrower is 15% of unimpaired capital and surplus. On July 30, 2012 our Association received approval from the Office of the Comptroller of the Currency (OCC) to participate in the Supplemental Lending Limits Program (SLLP). This program allows eligible savings associations to make additional residential real estate loans or extensions of credit to one borrower, small business loans or extensions of credit to one borrower, or small farm loans or extensions of credit to one borrower. For our association this additional limit (or "supplemental limit(s)") for one-to four-family residential real estate, small business, or small farm loans is 10% of our Association's capital and surplus. In addition, the total outstanding amount of the Association's loans or extensions of credit or parts of loans and extensions of credit made to all of its borrowers under the SLLP may not exceed 100% of the Association's capital and surplus. By Association policy, participation of any credit facilities in the SLLP is to be infrequent and all credit facilities are to be with prior Board approval.

All of our mortgage-backed securities have been issued by Freddie Mac, Fannie Mae or Ginnie Mae, U.S. government-sponsored enterprises. These entities guarantee the payment of principal and interest on our mortgage-backed securities.

On July 7, 2011 we completed our initial public offering of common stock in connection with Iroquois Federal's 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.

Critical Accounting Policies

We consider accounting 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, to be critical accounting policies. 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 cover 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 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. See also "Business -Allowance for Loan Losses."

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 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.

We believe our tax policies and practices are critical accounting policies because the determination of our tax provision and current and deferred tax assets and liabilities have a material impact on our net income and the carrying value of our assets. We believe our tax liabilities and assets are properly recorded in the consolidated financial statements at June 30, 2012 and no valuation allowance was necessary.

Comparison of Financial Condition at June 30, 2012 and June 30, 2011

Total assets increased $514,000, or 0.1%, to $511.3 million at June 30, 2012 from $510.8 million at June 30, 2011. The increase was primarily due to a $33.0 million increase in investment securities and a $18.9 increase in net loans, partially offset by an decrease of $52.3 million in cash and cash equivalents. The large change in cash and cash equivalents was a result of our mutual-to-stock conversion that closed on July 7, 2011. The stock offering in connection with the conversion was oversubscribed which resulted in $68.9 million in over subscriptions being refunded to subscribers shortly after the closing of the conversion.

Net loans receivable, including loans held for sale, increased by $18.9 million, or 7.9%, to $258.9 million at June 30, 2012 from $240.0 million at June 30, 2011. The increase in net loans receivable during this period was due primarily to a $12.2 million, or 46.6%, increase in multi-family loans, a $5.5 million, or 20.2% increase in commercial real estate loans, a $4.4 million, or 107.9%, increase in construction loans, and a $1.8 million, or 15.3% increase in commercial loans. These increases were partially offset by a $2.2 million, or 13.9%, decrease in consumer loans, a $1.0 million, or 10.4% decrease in in home equity lines of credit, and a $762,000, or 0.51% decrease in one-to four-family residential loans (due primarily to increased sales of loans originated).

Investment securities, consisting entirely of securities available for sale, increased $33.0 million, or 17.4%, to $223.3 million at June 30, 2012 from $190.3 million at June 30, 2011. 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. We had no securities held to maturity at June 30, 2012 or June 30, 2011.

As of June 30, 2012, other assets decreased $988,000 to $1.2 million, Federal Home Loan Bank stock increased $1.1 million to $4.2 million, and other real estate owned increased $558,000 to $1.3 million from the respective balances as of June 30, 2011. The decrease in other assets was mostly attributable to prepaid conversion costs which were $766,000 at June 30, 2011 and reduced to zero at June 30, 2012. Federal Home Loan Bank stock increased as a result of stock purchases to support an increase in Federal Home Loan Bank advances. Other real estate owned increased due to new foreclosures as of June 30, 2012.

At June 30, 2012, our investment in bank-owned life insurance was $7.5 million, an increase of $260,000 from $7.2 million at June 30, 2011. 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 the Association's Tier 1 capital plus our allowance for loan losses, which totaled $15.5 million at June 30, 2012.

Deposits decreased $99.6 million, or 22.4%, to $344.5 million at June 30, 2012 from $444.1 million at June 30, 2011. Certificates of deposit decreased $10.7 million, or 5.4%, to $188.7 million, savings, NOW, and money market accounts decreased $96.6 million, or 41.9%, to $133.7 million, brokered certificates of deposit increased $5.5 million, or 91.6%, to $11.5 million, and noninterest bearing demand accounts increased $2.2 million, or 26.3%, to $10.6 million. The large decrease in deposits was due to our mutual-to-stock conversion which closed on July 7, 2011, for which we held approximately $113 million in escrow deposit balances at June 30, 2011.

Borrowings, which consisted solely of advances from the Federal Home Loan Bank of Chicago, increased $52.5 million, or 233.3%, to $75.0 million at June 30, 2012 from $22.5 million at June 30, 2011. We increased our borrowings 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 remained consistent at $1.9 million at June 30, 2012 and June 30, 2011

Total equity increased $47.2 million, or 119.7%, to $86.6 million at June 30, 2012 from $39.4 million at June 30, 2011. The increase was primarily the result of our mutual-to-stock conversion which increased capital $46.4 million net of conversion costs of $1.7 million. Equity was also increased due to an increase in unrealized gains on

securities available for sale of $3.0 million and net income of $1.4 million. These increases to equity were partially offset by the purchase of employee stock ownership plan ("ESOP") shares of $3.8 million. The increase in unrealized gains on securities available-for-sale was due to higher market values of available-for-sale securities. The ESOP was established at the time of the conversion. The net income was impacted by a contribution to our newly established charitable foundation, Iroquois Federal Foundation, Inc., of 314,755 shares of IF Bancorp, Inc. stock (valued at $3,147,550 at the time of the conversion) and $450,000 in cash.

Comparison of Operating Results for the Years Ended June 30, 2012 and 2011

General. Net income decreased $1.4 million, or 50.5%, to $1.4 million net income for the year ended June 30, 2012 from $2.8 million net income for the year ended June 30, 2011. The decrease was primarily due to a $4.7 million increase in noninterest expense and a $106,000 decrease in noninterest income, partially offset by a $2.3 million increase in net interest income, a $226,000 decrease in provision for loan losses, and a $839,000 reduction in income tax expense. The increase in noninterest expense was primarily due to contributions to the charitable foundation that was established at the time of our mutual-to-stock conversion. IF Bancorp, Inc. donated 314,755 shares of its stock (valued at $3,147,550 at the time of the conversion) and the Association made a cash donation of $450,000.

Net Interest Income. Net interest income increased by $2.3 million, or 18.9%, to $14.2 million for the year ended June 30, 2012 from $12.0 million for the year ended June 30, 2011. The increase was due to a decrease of $1.2 million in interest expense and an increase of $1.1 million in interest income. The increase in net interest income was primarily the result of a $75.1 million, or 19.2% increase in the average balance of interest earning assets, partially offset by a $37.6 million, or 10.6% increase in average balance of interest bearing liabilities. Our net interest margin decreased 1 basis point to 3.04% for the year ended June 30, 2012 compared to 3.05% for the year ended June 30, 2011, and our net interest rate spread decreased 3 basis points to 2.89% for the year ended June 30, 2012 compared to 2.92% for the year ended June 30, 2011.

Interest Income. Interest income increased $1.1 million, or 6.3%, to $18.0 million for the year ended June 30, 2012 from $16.9 million for the year ended June 30, 2011. The increase in interest income was primarily due to a $1.5 million increase in interest income on securities, which resulted from an increase in the average balance of securities of $63.0 million, or 43.5%, to $207.7 million for the year ended June 30, 2012 from $144.7 million for the year ended June 30, 2011. The average balance of securities increased due to the investment of the proceeds received in the mutual-to-stock conversion. This increased average balance of securities was partially offset by a 17 basis point, or 5.7% decrease in the average yield on securities from 2.96% to 2.79%. The decrease in the average yield was primarily due to lower market interest rates during the period.

Interest income on loans decreased $468,000 as a $10.8 million increase in the average balance of loans to $250.8 million at June 30, 2012 was more than offset by a 41 basis point decrease in the average yield on loans from 5.27% to 4.86%. The decrease in the average yield on loans reflected both a reduction in the current interest rates charged on loans originated during the period versus the average rates on existing loans in the portfolio, and the adjustment of a portion of our adjustable rate one-to four-family residential loans to a lower rate at the contractual adjustment term.

Interest Expense. Interest expense decreased $1.2 million, or 24.1%, to $3.8 million for the year ended June 30, 2012 from $5.0 million for the year ended June 30, 2011. The decrease occurred due to lower market interest rates partially offset by and increase in the average balance of borrowings.

Interest expense on interest-bearing deposits decreased by $1.2 million, or 29.7%, to $2.9 million for the year ended June 30, 2012 from $4.1 million for the year ended June 30, 2011. This decrease was primarily due to a decrease of 37 basis points in the average cost of interest-bearing deposits to 0.88% for the year ended June 30, 2012 from 1.25% for the year ended June 30, 2011. We experienced decreases in the average cost across all categories of interest-bearing deposits for the year ended June 30, 2012, reflecting lower market interest rates as compared to the prior period. The decrease in average cost was partially offset due to a $610,000, or 0.2%, increase in the average balance of interest-bearing deposits to $327.3 million for the year ended June 30, 2012 from $326.7 million for the year ended June 30, 2011.

Interest expense on borrowings increased $13,000, or 1.5%, to $908,000 for the year ended June 30, 2012 from $895,000 for the year ended June 30, 2011. This increase was due to an increase in the average balance of borrowings to $65.8 million for the year ended June 30, 2012 from $28.8 million for the year ended June 30, 2011, partially offset by a 173 basis point decrease in the average cost of such borrowings to 1.38% for the year ended June 30, 2012 from 3.11% for the year ended June 30, 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 $1.1 million for the year ended June 30, 2012, compared to a provision for loan losses of $1.4 million for the year ended June 30, 2011. The allowance for loan losses was $3.5 million, or 1.34% of total loans, at June 30, 2012, compared to $3.1 million, or 1.29% of total loans, at June 30, 2011. Non-performing loans increased during the year ended June 30, 2012 due to the addition of one loan relationship totaling $2.1 million that is classified as a troubled debt restructuring. The loans were substantially collateralized, thus the impact to the allowance for loan losses was minimal. During the year ended June 30, 2012 and 2011, $743,000 and $969,000 in net charge-offs were recorded.

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

                                                      Year Ended                 Year Ended
                                                    June 30,  2012             June 30,  2011
Allowance to non-performing loans                             65.95 %                    59.73 %
Allowance to total loans outstanding at the
end of the period                                              1.34 %                     1.29 %
Net charge-offs to average total loans
outstanding during the period, annualized                       .30 %                      .40 %
Total non-performing loans to total loans                      2.03 %                     2.16 %
Total non-performing assets to total assets                    1.30 %                     1.17 %

Noninterest Income. Noninterest income decreased $106,000, or 2.8%, to $3.7 million for the year ended June 30, 2012 compared to $3.8 million for the year ended June 30, 2011. The decrease was primarily due to decreases in mortgage banking income and brokerage commissions, partially offset by increased insurance commissions. For the year ended June 30, 2012, mortgage banking income decreased $376,000 to $317,000 and brokerage commissions decreased $91,000 to $521,000. The decrease in mortgage banking income was due primarily to a reduction in the fair value of mortgage servicing rights as a result of decreased market interest rates and a slow down of mortgage refinancing, and the decrease in brokerage commissions was a result of less activity due to decreased market interest rates. These decreases were partially offset by an increase of $132,000 in insurance commissions due to an increase in insurance sales and an increase of $264,000 in net realized gains on the sale of available-for-sale securities which was due to the interest rate environment in the year ended June 30, 2012, that allowed for profits to be gained when repositioning the investment portfolio that were not available in the year ended June 30, 2011.

Noninterest Expense. Noninterest expense increased $4.7 million, or 45.7%, to $14.8 million for the year ended June 30, 2012 from $10.2 million for the year ended June 30, 2011. The largest components of this increase were charitable contributions, which increased $3.6 million, compensation and benefits, which increased $639,000, or 9.8%, professional services expense, which increased $132,000, or 68.4%, and audit and examinations, which increased $183,000, or 100.0%. The increase in charitable contributions was primarily due to a contribution to our newly established charitable foundation, Iroquois Federal Foundation, Inc., of 314,755 shares of IF Bancorp, Inc. stock (valued at $3,147,550 at time of conversion) as well as a cash donation of $450,000. Increased staffing, normal salary increases and increases in payroll taxes primarily accounted for the increase in compensation and benefits expense. Increases in professional services and audit and examinations expense were a result of increased costs associated with transitioning to a public company. These increases were partially offset by a decrease of $128,000 in deposit insurance premium resulting from the new FDIC formula used to calculate this premium.

Income Tax Expense. We recorded a provision for income tax of $559,000 for the year ended June 30, 2012, compared to a provision for income tax of $1.4 million for the year ended June 30, 2011, reflecting effective tax rates of 28.5% and 33.1%, respectively. The decreased tax rate for the year ended June 30, 2012 was a result of a lower taxable income due to a contribution to our newly established charitable foundation, Iroquois Federal Foundation, Inc., of 314,755 shares of IF Bancorp, Inc. stock (valued at $3,147,550 at time of conversion) as well as a cash donation of $450,000.

Asset Quality

At June 30, 2012, our non-accrual loans totaled $5.4 million, including $3.7 million in one-to four-family loans, $1.5 million in multi-family loans, $95,000 in commercial real estate loans, $2,000 in commercial business loans and $113,000 in consumer loans. The commercial real estate loans are secured by commercial rental properties. At June 30, 2012, we had no loans delinquent 90 days or greater and still accruing interest.

At June 30, 2012, loans classified as substandard equaled $5.6 million. Loans classified as substandard consisted of $3.9 million in one- to four-family loans, $1.5 million in multi-family loans, $95,000 in commercial real estate loans, $8,000 in home equity lines of credit, $2,000 in commercial business loans and $113,000 in consumer loans. At June 30, 2012, no loans were classified as doubtful or loss. At June 30, 2012 there were also $1.3 million in real estate owned assets.

At June 30, 2012, watch assets consisted of $1.2 million in commercial business loans and $612,000 in one-to four-family 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 June 30, 2012 and June 30, 2011, we had $3.8 million and $1.8 million, respectively, of troubled debt restructurings. At June 30, 2012 our troubled debt restructurings consisted of $2.1 million in one-to four-family loans, $1.5 million in multi-family loans, $95,000 in commercial real estate loans, $2,000 in commercial business loans and $32,000 in consumer loans.

Of the increase in troubled debt restructurings, an increase of $949,000 in one-to four-family and $1.5 million in multi-family real estate loans were the result of the Company modifying loans by advancing funds for real estate taxes, in exchange for the taxes being capitalized into the loan and all future loan payments to include real estate tax escrow in addition to principal and interest payments. Prior to such troubled debt restructurings, only principal and interest payments were being made by the customers.

At June 30, 2012, we had $1.3 million in foreclosed assets compared to $710,000 as of June 30, 2011. Foreclosed assets at June 30, 2012, consisted of $1.3 million in residential real estate properties while foreclosed assets at June 30, 2011, consisted of $690,000 in residential real estate and $20,000 in other repossessed assets.