AMB Financial : 06-30-2020 Quarterly Report

AMB Financial Corp.

7880 Wicker Ave.

St. John, Indiana 46373

Financial Report

For the Three and Six Months Ended

June 30, 2020

Note: This report is intended to be read in conjunction with our Annual Report to Stockholders for the year ended December 31, 2019, copies of which are included on this website. This report is dated June 30, 2020 and should not be read to cover any subsequent periods. We specifically disclaim any obligation to update this report even if the contents thereof should become misleading.

This report has not been prepared in accordance with Securities and Exchange Commission rules applicable to public companies and is not intended to comply with such rules.

AMB FINANCIAL CORP.

TABLE OF CONTENTS

	Page
Consolidated Statements of Financial Condition at
June 30, 2020 (unaudited) and December 31, 2019	2
Consolidated Statements of Income for the three and six
months ended June 30, 2020 and 2019 (unaudited)	3
Consolidated Statements of Comprehensive Income for the
six months ended June 30, 2020 and 2019 (unaudited)	4
Consolidated Statements of Changes in Stockholders'
Equity for the six months ended June 30, 2020 and 2019 (unaudited)	5
Consolidated Statements of Cash Flows for the six months
ended June 30, 2020 and 2019 (unaudited)	6
Earnings per Share Analysis for the three and six
months ended June 30, 2020 and 2019 (unaudited)	7
Notes to Unaudited Consolidated Financial Statements	8
Management's Discussion and Analysis of Financial
Condition and Results of Operations	8 - 27

1

AMB Financial Corp. and Subsidiaries

Consolidated Balance Sheets

		June 30,		December 31,
		2020			2019
Assets		(unaudited)			(audited)
Cash and amounts due from depository institutions	$	2,341,278	$	1,886,373
Interest-bearing deposits		24,708,412			18,241,353
Total cash and cash equivalents		27,049,690			20,127,726
Mortgage backed securities, available for sale, at fair value		7,465,357			8,244,821
Stock in Federal Home Loan Bank of Indianapolis, at cost		1,372,000			1,372,000
Loans held for sale		4,228,072			924,170
Loans receivable (net of allowance for loan losses:
$2,516,000 at June 30, 2020 and
$2,150,000 at December 31, 2019)		197,100,386			181,025,719
Other real estate owned		1,059,652			1,217,567
Accrued interest receivable		684,270			709,546
Office properties and equipment- net		9,510,631			9,596,876
Bank owned life insurance		3,875,858			3,840,169
Prepaid expenses and other assets		1,346,186			1,519,612
Total assets	$	253,692,102	$	228,578,206
Liabilities and Stockholders' Equity
Liabilities
Deposits	$	217,049,428	$	193,294,379
Borrowed money		10,172,947			10,172,947
Junior subordinated debentures		3,093,000			3,093,000
Other liabilities		2,743,580			2,338,422
Total liabilities	$	233,058,955		$	208,898,748
Stockholders' Equity
Common Stock, $.01 par value; authorized 1,900,000 shares;
1,683,641 shares issued and 965,352 outstanding at June 30, 2020
and 965,352 outstanding at December 31, 2019	$	16,837	$	16,837
Additional paid-in capital		11,701,370			11,665,843
Retained earnings		16,807,191			16,022,234
Accumulated other comprehensive income (loss), net of tax		177,605			44,400
Treasury stock, at cost (718,289 shares outstanding at June 30, 2020
and 718,289 shares outstanding at December 31, 2019)		(8,069,856)			(8,069,856)
Total stockholders' equity	$	20,633,147		$	19,679,458
Total liabilities and stockholders' equity	$	253,692,102	$	228,578,206
See accompanying notes to audited consolidated financial statements.

2

AMB Financial Corp. and Subsidiaries

Consolidated Statements of Income

(unaudited)

		Three Months		Three Months				Six Months				Six Months
			Ended			Ended				Ended				Ended
			June 30,			June 30,				June 30,				June 30,
Interest income			2020			2019				2020				2019
Interest on Loans			2,180,308	$	2,245,826				4,356,433	$	4,394,752
Interest on mortgage-backed securities			36,753			45,855				83,044				82,183
Interest on interest-bearing deposits			4,160			61,468				57,547				165,534
Dividends on Federal Home Loan Bank stock			13,645			18,813				22,178				40,878
Total interest income	$	2,234,866		$	2,371,962		$	4,519,202		$	4,683,347
Interest expense
Interest on deposits			423,610	$	566,338	$	958,227	$	1,119,459
Interest on borrowings			73,479			90,929				154,933				182,605
Total interest expense	$	497,089		$	657,267		$	1,113,160		$	1,302,064
Net interest income	$	1,737,777	$	1,714,695	$	3,406,042	$	3,381,283
Provision for loan losses			300,682			20,000				331,186				20,000
Net interest income after
provision for loan losses	$	1,437,095	$	1,694,695	$	3,074,856	$	3,361,283
Non-interest income:
Loan fees and service charges			131,013	$	123,597	$	249,872	$	214,750
Deposit related fees			59,598			82,637				136,443				160,231
Other fee income			18,929			20,749				42,155				47,391
Rental Income			112,381			74,068				190,408				175,244
Gain on sale of loans			702,150			128,870				824,912				194,224
Net (loss) gain on sale of other real estate owned			4,240			-				4,240				10,829
Increase in cash surrender value of life insurance			17,831			19,275				35,689				42,441
Other income			4,749			28,076				61,422				33,135
Total non-interest income		$	1,050,891		$	477,272			$	1,545,141			$	878,245
Non-interest expense:
Staffing costs	$	1,006,711	$	968,038	$	1,988,213	$	1,944,401
Advertising			26,054			52,720				64,369				101,526
Occupancy and equipment expense			224,703			186,027				447,740				393,276
Data processing			197,704			179,653				403,305				354,569
Professional fees			36,100			54,684				101,407				121,136
Federal deposit insurance premiums			37,095			30,521				76,383				77,325
Insurance expense			27,320			26,904				51,181				50,399
Other operating expenses			214,910			224,046				434,247				428,747
Total non-interest expense		$	1,770,597		$	1,722,593			$	3,566,845			$	3,471,379
Income before income taxes	$	717,389	$	449,374	$	1,053,152	$	768,149
Income tax expense			182,254			113,871				268,198				197,423
Net income available to common shareholders			535,135			335,503				784,954				570,726
Earnings per common share:
Basic	$	0.55	$	0.34	$	0.81	$	0.58
Diluted	$	0.55		$	0.34		$	0.81		$	0.58

See accompanying notes to audited consolidated financial statements.

3

AMB Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited)

		Six Months Ended June 30,
		2020			2019
Net income	$	784,954	$	570,726
Other comprehensive (loss) income, net of tax:
Unrealized gains on securities
available for sale--
Unrealized holding gain (loss) arising during the period		133,205			103,300
Other comprehensive income (loss), net of tax		133,205			103,300
Total comprehensive income	$	918,159		$	674,026

See accompanying notes to audited consolidated financial statements.

4

AMB Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity For the Six Months Ended June 30, 2020 and 2019 (unaudited)

				Accumulated
		Additional			Other
	Common	Paid-in	Retained	Comprehensive	Treasury
	Stock	Capital	Earnings	Income (Loss)	Stock	Total
Balance at December 31, 2018	$ 16,837	$11,610,546	$14,673,158	$	(49,517)	$ (7,733,978)	$18,517,046
Net income			570,726				570,726
Other comprehensive income, net of tax					103,300		103,300
Stock-based compensation expense		36,529					36,529
Common sharees repurchased - Retired
as Treasury stock						(301,268)	(301,268)
Balance at June 30, 2019	$ 16,837	$11,647,075	$15,243,884	$	53,783	$ (8,035,246)	$18,926,333

Balance at December 31, 2019 Net income

Other comprehensive income, net of tax Stock-based compensation expense

$ 16,837	$11,665,843	$16,022,234	$	44,400	$ (8,069,856)	$19,679,458
		784,954				784,954
				133,205		133,205
	35,527					35,527

Balance at June 30, 2020	$ 16,837	$11,701,370	$16,807,188	$	177,605	$ (8,069,856)	$20,633,144
See accompanying notes to audited consolidated financial statements.

5

AMB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

		Six Months Ended June 30,
		2020			2019
		(unaudited)
Cash flows from operating activities:
Net income	$	784,954	$	570,726
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		218,090			198,720
Amortization of premiums and accretion of discounts		40,383			(89,916)
Proceeds from sale of loans originated for sale		38,598,355			9,496,879
Loans originated for sale		(38,036,225)			(9,361,925)
Gain on sale of loans		(824,912)			(194,224)
Gain on sale of other real estate owned		(4,240)			(10,829)
Provision for loan losses		331,186			20,000
Stock based compensation expense		35,527			36,529
Net change in:
Increase in cash surrender value of life insurance		(35,689)			(42,441)
Increase in deferred yield adjustments on loans		916,607			35,592
Increase in prepaid and deferred income taxes		(300,828)			(255,588)
Decrease (increase) in accrued interest receivable		25,276			(77,474)
Decrease in other assets		471,770			311,739
Increase in other liabilites		615,919			356,355
Net cash provided by (for) operating activities		2,836,173			994,143
Cash flows from investing activities:
Purchase of mortgage-backed securities		(500,000)			(2,998,907)
Proceeds from repayments of mortgage-backed securities		1,426,791			646,046
Change in loans held for sale		(3,303,902)			824,728
Net increase in loans		(17,322,460)			(9,219,325)
Real estate owned expenditures		(61,964)			-
Proceeds from sale of other real estate owned		224,119			108,330
Property and equipment expenditures, net		(131,845)			(314,765)
Net cash used for investing activities		(19,669,261)			(10,953,893)
Cash flows from financing activities:
Net increase in deposits		23,834,388			(4,110,862)
Net (decrease) in advance payments by
borrowers for taxes and insurance		(79,339)			42,284
Share repurchase program common stock		-			(301,268)
Net cash provided by financing activities		23,755,049			(4,369,846)
Net change in cash and cash equivalents		6,921,961			(14,329,596)
Cash and cash equivalents at beginning of period		20,127,726			28,615,335
Cash and cash equivalents at end of period	$	27,049,687	$	14,285,739
Supplemental disclosure of cash flow information:
Interest paid	$	1,109,291	$	1,301,387
Income taxes paid		93,000			60,000
Transfer of loans to other real estate owned		-			1,441,983

See accompanying notes to audited consolidated financial statements.

6

AMB Financial Corp. and Subsidiaries
	Earnings Per Share
	(Unaudited)	Three Months					Three Months
			Ended					Ended
			June 30, 2020					June 30, 2019
Net income available to common shareholders
	$	535,135		$	335,503
Weighted average common shares
outstanding for basic computation			965,352					969,398
Basic income per common share	$	0.55	$	0.34
Weighted average common shares
outstanding for basic computation			965,352					969,398
Common stock equivalents due to
dilutive effect of restricted stock			3,875					3,698
Weighted average common shares and
equivalents outstanding for diluted
computation			969,227					973,096
Diluted income per common share	$	0.55	$	0.34
			Six Months					Six Months
			Ended					Ended
			June 30, 2020					June 30, 2019
Net income available to common shareholders
	$	784,954		$	570,726
Weighted average common shares
outstanding for basic computation			971,291					976,520
Basic income per common share	$	0.81	$	0.58
Weighted average common shares
outstanding for basic computation			971,291					976,520
Common stock equivalents due to
dilutive effect of restricted stock			3,875					3,698
Weighted average common shares and
equivalents outstanding for diluted
computation			975,166					980,218
Diluted income per common share		$	0.81			$	0.58

See accompanying notes to audited consolidated financial statements

7

AMB Financial Corp

And Subsidiaries

Status as Non-ReportingCompany. We are not subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934 and accordingly this report has not been prepared in accordance with applicable Securities Exchange Commission rules. This report is intended to cover the three and six month periods ended June 30, 2020 and should not be read to cover any other periods.

Notes to Consolidated Financial Statements. The accompanying unaudited consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America and in the opinion of management contain all adjustments (all of which are normal and recurring in nature) necessary for a fair presentation. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the year ending December 31, 2020. The June 30, 2020 consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2019 included in the Company's Annual Report. The Company's consolidated statement of condition as of December 31, 2019 has been derived from the Company's audited consolidated statement of condition as of that date.

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that could have a material effect on the carrying value of certain assets and liabilities. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided. The determination of the allowance for loan losses, valuations and impairments of investment securities, and the accounting for income tax expense are highly dependent on management's estimates and assumptions where changes in any of these could have a significant impact on the financial statements.

The consolidated financial statements include the accounts of AMB Financial Corp. (the "Company"), and its wholly-owned subsidiary, American Community Bank of Indiana (the "Bank").

Earnings per Share. Earnings per share for the three and six month periods ended June 30, 2020 and 2019 were determined by dividing net income available to common shareholders for the periods by the weighted average number of both basic and diluted shares of common stock, as well as common stock equivalents outstanding.

Reclassifications. Certain 2019 items or amounts may have been reclassified or restated in order to conform to the 2020 presentation.

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

Forward-LookingStatements. The Company and the Bank may from time to time make written or oral "forward-looking statements." These forward-looking statements may be included in this Financial Report, which are made in good faith by us. These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in the forward- looking statements:

8

• the current condition of the United States economy in general and in our local economy (including unemployment) in which we conduct operations;
• the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board and the United States Treasury ("UST");
• our ability to manage and reduce our non-performing assets;
• our ability to repay our holding company debt, including our $3 million of trust preferred stock, when due;
• the impact of new regulations imposed by the Federal Reserve System, the Federal Deposit Insurance Corporation ("FDIC") and the State of Indiana Department of Financial Institutions;
• future deposit premium levels which may rise;
• future loan underwriting and consumer protection requirements including those issued by the Consumer Financial Protection Bureau;
• inflation, interest rate, market and monetary fluctuations and its impact on our interest rate sensitive balance sheet;
• the decline in loan demand and real estate values within our local market;
• the future financial strength, dividend level and activities of the FHLB of Indianapolis in which we own stock and from which we borrow money;
• the impact of any new government foreclosure relief and loan modification programs;
• the timely development of and acceptance of our new products and services and the perceived overall value of these products and services by users, including the features, pricing and quality thereof compared to competitors' products and services;
• the willingness of users to substitute our products and services for products and services of our competitors;
• our ability to reinvest our cash flows in today's interest rate environment;
• our success in gaining regulatory approval of our products and services, when required;
• the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance);
• the impact of technological changes;
• competition from other financial service providers in the Company's market area;
• the success of our executives in managing our business operations;
• the success of our loan restructuring and work out arrangements;
• our ability to accurately estimate the value of our assets and the appropriate level of our allowance for loan losses;
• our ability to lease space in our branch facilities when vacancies occur; and
• future changes in consumer spending and saving habits.

The COVID-19 pandemic has caused substantial disruption to the global, national, and local economies which may have an adverse effect on the Company's business and results of operations. The future impacts of the COVID-19 pandemic on the global economy and the Company's business, results of operations and financial condition remains uncertain.

In March 2020, the World Health Organization declared novel coronavirus disease 2019 (COVID-19) as a global pandemic. The pandemic has resulted in governmental authorities implementing numerous measures attempting to contain the spread and impact of COVID-19 such as travel bans and restrictions, quarantines, shelter in place orders, and limitations on business activities, including in markets in which the Company and its clients are located or do business. The COVID-19 pandemic, and governmental

9

responses to the pandemic, have negatively impacted the economy, creating significant volatility and disruption in financial markets, and increased unemployment levels.

Should current economic impacts persist or continue to deteriorate, this economic environment could have an adverse effect on our business and operations, including, but not limited to, decreased demand for the Company's products and services, protracted periods of lower interest rates, loss of income resulting from deferrals and fee waivers provided by the Company to its consumer and commercial borrowers, increased credit losses due to deterioration in the financial condition of our consumer and commercial borrowers, including declining asset and collateral values, which may result in increases in provision for credit losses and net charge-offs. The business operations of the Company may also be disrupted if significant portions of its workforce or those of vendors or third-party service providers are unable to work effectively, including because of illness, quarantines, government actions, restrictions in connection with the pandemic, and technology limitations and/or disruptions. The Company also faces an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the pandemic on market and economic conditions and actions taken by governmental authorities in response to those conditions.

The extent to which the COVID-19 pandemic impacts the Company's business, results of operations, and financial condition, as well as its regulatory capital ratios, will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. Moreover, the effects of the COVID-19 pandemic may heighten many of the other risks described in the section entitled "Forward Looking Statements" in our most recent Annual Report or any subsequent Quarterly Report including, but not limited to, financial market conditions, economic conditions, credit risk, interest rate risk and risk of security breaches.

The Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the State Banking Regulators (hereafter, the agencies) provided guidance to financial institutions to work with borrowers affected by the COVID-19. The Company has established a loan deferral program to provide temporary relief for borrowers who are experiencing short-term financial or operational problems because of COVID-19. At June 30, 2020, eligible loan modifications under Section 4013, Temporary Relief from Troubled Debt Restructurings, of the 2020 Coronavirus Aid, Relief, and Economic Security Act totaled $28.7 million consisting of 76 loans. Most of these loans had an initial payment deferral period of three months which ended on June 30, 2020. The Company is communicating with impacted customers to determine if such borrowers are still experiencing short-term financial or operational problems because of COVID-19 and if further relief will be needed. Loans with deferrals granted due to COVID-19 are not reported as past due per regulatory guidance.

Financial Condition. Total assets of the Company were $253.7 million at June 30, 2020, an increase of $25.1 million, from $228.6 million at December 31, 2019. The change was primarily due to a $6.9 million increase in cash and cash equivalents, a $16.1 million increase in loans receivable and a $3.3 million increase in loans held for sale. There was also a $23.8 million increase in customer deposits.

Cash and cash equivalents, which consist primarily of interest-earning deposits, totaled $27.0 million at June 30, 2020, an increase of $6.9 million, from $20.1 million at December 31, 2019. Cash and cash equivalents can fluctuate significantly on a day-to-day basis due to cash demands, customer deposit levels and loan and investment activity.

10

Mortgage-backed securities, available for sale, decreased $779,000 to $7.5 million at June 30, 2020, from $8.2 million at December 31, 2019. The decrease was the result of principal repayments totaling $1.4 million, offset, in part, by new purchases of $0.5 million and a $133,000 increase in the unrealized gain on available for sale mortgage-backed securities. The Company recorded an unrealized gain on available for sale mortgage-backed securities of $250,000 at June 30, 2020 compared to a $63,000 unrealized gain at December 31, 2019. These amounts are included as part of the carrying cost of mortgage-backed securities, available for sale, at each respective period.

The Bank is a member of the FHLBI and had a $1.4 million investment in stock of the FHLBI at June 30, 2020 and December 31, 2019. Members are required to own a certain amount of stock based on the level of borrowings and other factors. The investment is carried at par value, as there is not an active market for FHLBI stock.

Net loans receivable totaled $197.1 million at June 30, 2020, a $16.1 million increase from the $181.0 million balance at December 31, 2019. Loans held for sale totaled $4.2 million at June 30, 2020, a $3.3 million increase from the $0.9 million balance at December 31, 2019. The increase in loans was primarily impacted by the Company's participation in the Small Business Administration's Paycheck Protection Program (SBA PPP). Section 1102 of the CARES Act temporarily adds a new product, titled the "Paycheck Protection Program," to the U.S. Small Business Administration's (SBA's) 7(a) Loan Program. Section 1106 of the Act provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the Paycheck Protection Program. The Paycheck Protection Program and loan forgiveness was designed to provide a direct incentive for small businesses to keep their workers on the payroll due to disruptions caused by COVID-19. At June 30, 2020, SBA PPP net loans totaled $19.8 million. The Company originated $38.0 million of loans held for sale which were subsequently sold during the six month period ended June 30, 2020, as compared to $9.4 million during the prior year period. The increase in loan sales is due to the substantial decline in interest rates which has accelerated refinancing activity. Loans originated for sale are fixed-rate,single-family mortgage loans, which are sold to manage interest rate risk and generate fee income.

The determination of the allowance for loan losses involves material estimates that are susceptible to significant change in the near term. The allowance for loan losses is maintained at a level appropriate to absorb management's estimate of probable incurred losses inherent in the loan portfolio. The provision for loan losses is based upon management's quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets that the Company serves. To determine the appropriate level for the allowance for loan losses, management applies historical loss percentages to performing residential real estate, nonresidential real estate, consumer, and commercial business loan balances. In addition, nonperforming loans are evaluated for current collateral deficiencies. When such loans are found to have collateral deficiencies, the deficiency is charged-off to the allowance for loan losses. Management evaluates the results of the allowance for loan losses by applying the historical and subjective loss factors to the current loan balances and identifying any required collateral deficiency reserves for the period. Based upon this analysis, management will record any required loan loss provisions to establish the appropriate level for the allowance for loan losses.

The allowance for loan losses totaled $2,516,000 at June 30, 2020, representing a $366,000 increase as compared to December 31, 2019. The Bank's allowance for loan losses to total loans was 1.26% at June 30, 2020 as compared to 1.17% at December 31, 2019. Management believes that the allowance for loan losses is adequate to meet probable incurred loan losses in the portfolio. While management uses

11

available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in information and economic conditions. In addition, both the FDIC and the Indiana Department of Financial Institutions, as an integral part of their examination process, will periodically review the Bank's allowance for loan losses and may require the Bank to recognize additions to the loan loss allowance based upon their judgments about information available to them at the time of their examination.

The following table sets forth the activity in the allowance for loan losses for the six months ended June 30, 2020 and 2019.

	Six Months	Six Months
		Ended		Ended
		June 30,		June 30,
	2020				2019
Balance at beginning of period: ............................................	$2,150,000	$1,990,574
Charge-offs:
One- to four family .............................................................	-			12,102
Multi-family........................................................................	-			-
Non-residential....................................................................	-	-
Land ....................................................................................	-			-
Construction .......................................................................	-			1,485
Home Equity Lines of Credit ..............................................	-			92,003
Consumer ............................................................................	-	-
Commercial business ..........................................................	-		-
..............................................................Total charge-offs		-			105,590
Recoveries:
One- to four family .............................................................	21,406	20,789
Multi-family........................................................................	-	-
Non-residential....................................................................	9,480	-
Land ....................................................................................	-			-
Consumer ............................................................................	3,633			-
Commercial business ..........................................................	295			72
................................................................Total recoveries		34,814				20,861
..................................................Net recoveries (charge-offs)		34,814				(84,729)
Provisions for loan losses......................................................	331,186			20,000
.......................................................Balance at end of period		$2,516,000			$1,925,845
Ratio of net recoveries (charge-offs) during the period to average
gross loans outstanding during the period.............................	0.02%	(0.05)%
Ratio of net recoveries (charge-offs) during the period to average
non-performing loans during the period ...............................	1.18%	(4.72)%

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Loans receivable are summarized as follows at the dates indicated:

		June 30,		December 31,
Mortgage loans:		2020			2019
One-to-four family	$	60,591,920	$	63,990,654
Multi-family		4,081,343			5,370,038
Non-residential		72,324,147			71,949,284
Construction		10,910,949			10,495,108
Land		8,360,189			8,193,394
Equity lines of credit		8,889,329			10,030,826
Consumer		1,097,286			818,734
Commercial business loans - SBA PPP		19,813,611			-
Commercial business loans - other		13,547,612			12,327,681
Total loans		199,616,386			183,175,719
Less:
Allowance for loan losses		2,516,000			2,150,000
Loans receivable, net	$	197,100,386	$	181,025,719
Allowance for loan losses as a
percentage of loans		1.26%			1.17%

13

Criticized and Classified Assets. The following table sets forth the amounts and categories of non-performing assets and other criticized and classified assets, on the dates indicated.

		June 30,			December 31,
Substandard non-accruing loans:		2020			2019
One- to four-family	$	2,047,884	$	1,998,377
Multi-family		332,262			334,761
Non-residential		502,882			386,917
Equity lines of credit		81,490			81,552
Other consumer		-			880
Total substandard non-accruing loans	$	2,964,518		$	2,802,487
Total loans receivable	$	199,616,386		$	183,175,719
Total non-accrual / loans receivable		1.49%			1.53%
Substandard - accruing loans
Non-residential	$	-	$	557,952
Total substandard - accruing loans	$	-		$	557,952
Total loans receivable	$	199,616,386		$	183,175,719
Total substandard accruing / loans		0.00%			0.30%
Total classified loans	$	2,964,518	$	3,360,439
Total loans receivable	$	199,616,386		$	183,175,719
Total classified loans / loans receivable		1.49%			1.83%
Substandard other real estate owned:
One- to four-family	$	904,302	$	1,047,717
Land	$	155,350	$	169,850
Total substandard other real estate	$	1,059,652		$	1,217,567
Total classified assets	$	4,024,170	$	4,578,006
Total assets	$	253,692,102		$	228,578,206
Total classified assets / total assets		1.59%			2.00%

14

Non-Performing Assets, Impaired Loans and Allowance for Loan Losses.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the dates indicated:

								Allowance for Loan Losses
				At June 30, 2020							At December 31, 2019
	Individually		Collectively					Individually	Collectively
	Evaluated		Evaluated					Evaluated	Evaluated
		for			for						for		for
	Impairment		Impairment			Total		Impairment	Impairment			Total
One-to-four family	$	208,861		$	560,258		$	769,119	$	209,467	$	457,739		$	667,206
Multi-family		-			32,763			32,763			-		33,616			33,616
Non-residential		-			1,125,577			1,125,577			14,791		965,738			980,529
Construction		-			175,075			175,075			-		135,365			135,365
Land		-			104,828			104,828			-		82,885			82,885
Equity lines of credit		-			109,736			109,736			-		101,483			101,483
Other consumer		-			31,739			31,739			-		21,743			21,743
Commercial business loans		-			167,163			167,163			-		127,173			127,173
Total	$	208,861	$		2,307,139	$		2,516,000		$	224,258	$	1,925,742	$		2,150,000
								Loan Balances
				At June 30, 2020							At December 31, 2019
	Individually		Collectively					Individually	Collectively
	Evaluated		Evaluated					Evaluated	Evaluated
		for			for						for		for
	Impairment		Impairment			Total		Impairment	Impairment			Total
One-to-four family	$	2,267,225		$	58,324,695		$	60,591,920	$	2,218,291	$	61,772,363		$	63,990,654
Multi-family		332,262			3,749,081			4,081,343			334,761		5,035,277			5,370,038
Non-residential		502,882			71,821,265			72,324,147			386,917		71,562,367			71,949,284
Construction		-			10,910,949			10,910,949			-		10,495,108			10,495,108
Land		-			8,360,189			8,360,189			-		8,193,394			8,193,394
Equity lines of credit		81,490			8,807,839			8,889,329			81,552		9,949,274			10,030,826
Other consumer		-			1,097,286			1,097,286			880		817,854			818,734
Commercial business loans		-			33,361,223			33,361,223			-		12,327,681			12,327,681
Total	$	3,183,859	$		196,432,527	$		199,616,386		$	3,022,401	$	180,153,318	$		183,175,719

Impaired loans, which consist of the Company's non-accrual loans and troubled debt restructured loans, were as follows:

Period end loans with allocated allowance for loan losses Period end loans with no allocated allowance for loan losses Total

Valuation reserve relating to impaired loans

	June 30,		December 31,
	2020		2019
$	1,631,631	$	1,879,007
	1,552,229		1,143,394
$	3,183,860	$	3,022,402
$	208,861	$	224,258

15

The following table presents loans individually evaluated for impairment by class of loans as of the dates indicated:

		At June 30, 2020			At December 31, 2019
		Unpaid	Allowance for			Unpaid	Allowance for
		Principal	Loan Losses		Principal	Loan Losses
With an allowance recorded:		Balance	Allocated		Balance	Allocated
One-to-four family		$ 1,631,631	$	208,861	$	1,635,007	$	209,467
Non-residential		-		-			244,001		14,791
With no related allowance recorded:
One-to-four family		635,595		-			583,285		-
Multi-family		332,262		-			334,761		-
Non-residential		502,882		-			142,916		-
Equity lines of credit		81,490		-			81,552		-
Other consumer		-		-			880		-
Total	$	3,183,860	$	208,861	$	3,022,402	$	224,258
Nonaccrual loans are summarized as follows:
				June 30,		December 31,
				2020			2019
One-to-four family			$	2,047,884	$	1,998,377
Multi-family				332,262			334,761
Non-residential				502,882			386,917
Equity lines of credit				81,490			81,552
Other consumer				-			880
Total			$	2,964,518		$	2,802,487

16

The following tables present the aging of the recorded investment in past due loans.

									June 30, 2020
		30 - 89			90 Days								Loans
		Days			or Greater				Total		Not
		Past Due			Past Due				Past Due				Past Due			Total
One-to-four family	$	1,202,498	$	1,641,944	$	2,844,442			$	57,747,478	$	60,591,920
Multi-family		-			332,262				332,262				3,749,081			4,081,343
Non-residential		216,984			57,970				274,954				72,049,193			72,324,147
Construction		245,978			-				245,978				10,664,971			10,910,949
Land		107,460			-				107,460				8,252,729			8,360,189
Equity lines of credit		645,622			-				645,622				8,243,707			8,889,329
Other consumer		257,856			-				257,856				839,430			1,097,286
Commercial business loans		250,832			-				250,832				33,110,391			33,361,223
Total	$	2,927,230	$	2,032,176	$	4,959,406			$	194,656,980	$	199,616,386
								December 31, 2019
		30 - 89			90 Days								Loans
		Days			or Greater				Total		Not
		Past Due			Past Due				Past Due				Past Due			Total
One-to-four family	$	1,103,493	$	1,659,170	$	2,762,663			$	61,227,991	$	63,990,654
Multi-family		-			60,000				60,000				5,310,038			5,370,038
Non-residential		89,112			760,868				849,980				71,099,304			71,949,284
Construction		-			-				-				10,495,108			10,495,108
Land		114,373			-				114,373				8,079,021			8,193,394
Equity lines of credit		856,926			62				856,988				9,173,838			10,030,826
Other consumer		258,227			880				259,107				559,627			818,734
Commercial business loans		1,492,253			-				1,492,253				10,835,428			12,327,681
Total	$	3,914,384		$	2,480,980		$	6,395,364			$	176,780,355		$	183,175,719

The Company has allocated $43,536 and $44,142 of loan loss reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2020 and December 31, 2019, respectively.

The following table presents loans classified as troubled debt restructurings.

		June 30,		December 31,
Trouble debt restructured loans -		2020			2019
non-accrual loans	$	232,289	$	235,092
Trouble debt restructured loans -
accrual loans		219,341			219,914
Total	$	451,630		$	455,006

17

Risk Classification of Loans. The Company's policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are of lesser quality as substandard, doubtful, or criticized assets designated as special mention.

A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Risk rating guidance clarifies that a loan with a well-defined weakness does not have to present a probability of default for the loan to be rated substandard, and that an individual loan's loss potential does not have to be distinct for the loan to be rated substandard. An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted; such balances are promptly charged-off as required by applicable federal regulations. A special mention asset has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Based on a review of the Company's classified assets, loans classified substandard as well as other real estate owned decreased $0.5 million to $4.0 million at June 30, 2020.

Non-PerformingLoans. Non-performing loans, which consist primarily of those nonaccrual loans which are past due ninety days or more as well as loans less than ninety days past due for which the collectability of principal and interest is in doubt totaled $3.0 million, or 1.49% of total loans receivable at June 30, 2020, compared to $2.8 million, or 1.53% of total loans receivable at December 31, 2019.

Potential Problem Loans. The Company defines potential problem loans as performing loans rated substandard, which do not meet the definition of a non-performing loan. The Company does not necessarily expect to realize losses on potential problem loans but does recognize that potential problem loans carry a higher probability of default and require additional attention by management. As part of its loan review process, the Company evaluates a borrower's financial condition as well as the underlying collateral's cash flows to determine the appropriate loan grade/classification. The Company reviews nonresidential real estate loans, commercial business loans and multiple non-owner occupied single- family loans made to the same borrower to determine if these loans should be classified. As a result of these reviews, loans totaling $0 were classified as performing substandard at June 30, 2020, compared to $558,000 at December 31, 2019. The loan totaling $558,000 was move from performing substandard to non-accrual substandard during the recent year.

The ratio of allowance for loan losses to classified and criticized loans was 84.87% at June 30, 2020, compared to 63.98% at December 31, 2019.

Other real estate owned, which is classified substandard, totaled $1.1 million at June 30, 2020 as compared to $1.2 million at December 31, 2019. Other real estate owned at June 30, 2020 consists of two single family residential properties totaling $0.9 million and three vacant residential building lots totaling $155,000. Other real estate owned properties are initially recorded at fair value less estimated

18

cost to sell at acquisition, establishing a new cost basis. If the fair value declines after foreclosure, a valuation allowance is recorded through expense. There can be no assurance whether, when, and at what price the Company will be able to sell the remaining inventory of other real estate owned properties.

Office properties and equipment totaled $9.5 million at June 30, 2020, an $86,000 decrease from the balance at December 31, 2019. The decrease represents normal depreciation of $218,000, offset, in part, by additions totaling $132,000.

Bank owned life insurance increased $36,000 to $3.9 million at June 30, 2020. The change represents an increase in the cash surrender value of the life insurance policies purchased in connection with deferred compensation plans utilized by directors and officers of the Company.

Prepaid expenses and other assets decreased $173,000 to $1.3 million at June 30, 2020. Included in prepaid expenses and other assets is a $84,000 net deferred tax asset.

Total deposits increased $23.8 million to $217.0 million at June 30, 2020. The increase in deposits during the period was due to a $23.3 million increase in checking deposits, a $1.5 million increase in money market accounts and a $1.4 million increase in passbook deposits, offset, in part, by a $2.4 million decrease in certificates of deposit accounts. At June 30, 2020, the Bank's core deposits (passbook, checking and money market accounts) comprised $155.1 million, or 71.5% of deposits, compared to $129.0 million, or 66.7% of deposits, at December 31, 2019. Most of the Bank's deposits are derived from core client sources, relating to long-term relationships with local individuals, businesses, and municipal entities. The Company does not utilize brokered deposits.

Borrowed money, which consists of FHLBI advances, totaled $10.2 million at June 30, 2020 and December 31, 2019. Borrowings from the FHLBI at June 30, 2020 had a weighted average rate of 2.18% and a weighted term to maturity of 2.0 years.

The Company's trust preferred subordinated debentures remained unchanged totaling $3.1 million at June 30, 2020. The interest rate payable on the debentures adjusts quarterly to the three month LIBOR plus 1.65% and was 1.96% at June 30, 2020. These debentures have a contractual maturity date of June 15, 2037 and the Company has the right to redeem the debentures, in whole or in part, on any interest payment date.

Other liabilities increased $0.4 million totaling $2.7 million at June 30, 2020 as compared to December 31, 2019.

Total stockholders' equity increased $954,000 to $20.6 million, or 8.13% of total assets at June 30, 2020, compared to $19.7 million, or 8.61% of total assets, at December 31, 2019. The increase in stockholders' equity was attributable to $785,000 of net income for the six month period ended June 30, 2020, a $36,000 increase in paid-in-capital and a $133,000 increase in the unrealized gain on available for sale securities, net of tax. The number of common shares outstanding at June 30, 2020 and December 31, 2019 remained unchanged at 965,352. The book value per common share outstanding at June 30, 2020 was $21.37. The Bank's Tier 1 leverage capital ratio, risked-based common equity Tier 1 capital ratio, risk-based Tier 1 capital ratio and risk-based total capital ratio percentages of 8.78%, 11.97%, 11.97% and 13.22%, respectively, at June 30, 2020 exceeded all regulatory requirements and categorize the Bank as well capitalized under applicable regulations.

19

Comparison of the Results of Operations for the Quarter Ended June 30, 2020 and June 30, 2019

General. Net income for the quarter ended June 30, 2020 was $535,000, or $0.55 per diluted common share, an increase of $200,000 or 59.5%, compared to $335,000, or $0.34 per diluted common share, for the same period in 2019. The increase in the current quarter net income compared to the prior year quarter was the result of a $23,000 increase in net interest income and a $574,000 increase in non- interest income, offset, in part, by a $281,000 increase in the provision for loan losses, a $48,000 increase other non-interest expense and a $68,000 increase in income tax expense.

Interest Income. Total interest income decreased $137,000, or 5.8%, to $2.2 million for the quarter ended June 30, 2020, from the prior year quarter as the result of an 87 basis point decrease in the weighted average yield on interest-earning assets to 3.87%, offset, in part, by a $30.5 million increase in the average balance of interest-earning assets outstanding.

Interest income on loans receivable decreased $66,000, to $2.2 million for the quarter ended June 30, 2020, as compared to the prior year quarter as the result of a 69 basis point decrease in the average yield to 4.27%, offset, in part, by a $23.1 million increase in the average balance of loans outstanding. Interest income on mortgage-backed securities decreased $9,000 to $37,000 for the quarter ended June 30, 2020, compared to the prior year quarter as the result of an 83 basis point decrease in the average yield to 1.91%, offset, in part, by a $1.0 million increase in the average outstanding balance of mortgage-backed securities. Interest income on interest-bearing deposits decreased $57,000 to $4,000 for the quarter ended June 30, 2020, compared to the prior year quarter as the result of a 214 basis point decrease in the average yield to 0.10%, offset, in part, by a $6.4 million increase in the average outstanding balance. Dividend income on FHLBI stock decreased $5,000 to $14,000 for the quarter ended June 30, 2020, compared to the prior year quarter due to a 151 basis point decrease in the average yield to 3.99%.

Interest Expense. Total interest expense decreased $160,000, or 24.4%, to $497,000 for the quarter ended June 30, 2020, compared to the prior year quarter as the result of a 45 basis point decrease in the average cost to 0.90%, offset, in part, by a $27.7 million increase in the average balance of interest- bearing liabilities outstanding. The Federal Funds interest rate decreased by 150 basis points during March 2020. In connection with these declining interest rates, the Company's total cost of funds decreased from the prior year period.

Interest expense on deposits decreased $143,000, or 25.2%, to $424,000 for the quarter ended June 30, 2020, compared to the prior year quarter as the result of a 44 basis point decrease in the average cost of deposits to 0.81%, offset, in part, by a $27.9 million increase in the average balance of deposits outstanding.

Interest expense on borrowings decreased $17,000, or 19.2%, to $73,000 for the quarter ended June 30, 2020, compared to the prior year quarter end as the result of a $162,000 decrease in the average balance of borrowings outstanding and a 51 basis point decrease in the average cost to 2.22%.

Net Interest Income. As a result of the above changes in interest income and interest expense, net interest income increased $23,000 for the quarter ended June 30, 2020, compared to the prior year quarter ended June 30, 2019. The net interest rate spread decreased 42 basis points to 2.97% for the quarter ended June 30, 2020, while the net interest margin, expressed as a percentage of average earning assets, decreased 41 basis points to 3.01% for the quarter ended June 30, 2020.

20

Provision for Loan Losses. The Company recorded $301,000 in provision for loan losses for the quarter ended June 30, 2020, compared to $20,000 for the prior year quarter. The provision for loan losses is a function of the allowance for loan loss methodology used to determine the appropriate level of the allowance for inherent loan losses after adjusting for loan charge-offs and recoveries. Loan losses are charged-off against the allowance when it is believed that the loan balance, or a portion of the loan balance, is no longer realizable by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Recoveries of amounts previously charged-off are credited to the allowance. The Company recorded net recoveries of $22,000 for the quarter ended June 30, 2020, compared to net charge-offs of $5,000 for the prior year quarter ended June 30, 2019.

Non-InterestIncome. Non-interest income increased $574,000 to $1.0 million for the quarter ended June 30, 2020, compared to prior year quarter due primarily to a $7,000 increase in loan fees, a $38,000 increase in rental income due to the collection of delinquent rents, a $573,000 increase in gain on sale of loan income due to increased volume and a $4,000 increase in gains on the sale of other real estate owned, offset, in part, by a $23,000 decrease in deposit related fees and a $23,000 decrease in other income.

Non-InterestExpense. Non-interest expense increased $48,000 to $1.8 million for the quarter ended June 30, 2020, compared to prior year quarter primarily as the result of a $39,000 increase in compensation expenses, a $39,000 increase in occupancy expenses, an $18,000 increase in data processing expenses and a $6,000 increase in FDIC insurance expense, offset, in part, by a $27,000 decrease in advertising expense, a $19,000 decrease in professional expenses and a $9,000 decrease in other operating expenses.

Income Taxes. The Company recorded income tax expense of $182,000 for the quarter ended June 30, 2020, resulting in an effective tax rate of 25.4%, compared to income tax expense of $114,000, for an effective income tax rate of 25.3%, for the prior year quarter. The increase in the current quarter income tax expense was impacted by a $268,000 increase in net income before income taxes as compared to the prior year's period.

21

Analysis of Net Interest Income. Net interest income represents the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.

The following table presents, for the periods indicated, the total dollar amounts of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances were calculated using average daily balances and include non-accruing loans.

Yield Analysis

		(Dollars in thousands)
	Three Months Ended	Three Months Ended
	June 30, 2020	June 30, 2019
	Average		Average			Average
		Yield/	Average		Yield/
Assets:	Balance	Interest	Cost	Balance	Interest	Cost
Interest-Earning Assets:
Loans receivable	$204,387	$2,180	4.27%	$181,251	$2,246	4.96%
Mortgage-backed securities	7,701	37	1.91	6,692	46	2.74
Interest-bearing deposits	17,356	4	0.10	10,988	61	2.24
FHLBI stock	1,372	14	3.99	1,372	19	5.50
Total interest-earning assets	230,816	2,235	3.87	200,303	2,372	4.74
Non interest-earning assets	16,716			17,354
Total assets	247,532			217,657
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Passbook accounts	27,698	3	0.05%	27,274	5	0.08%
Demand accounts	118,865	108	0.36	89,067	219	0.99
Certificate accounts	62,921	313	1.99	65,288	342	2.10
Total deposits	209,484	424	0.81	181,629	566	1.25
Borrowings	13,266	73	2.22	13,428	91	2.73
Total interest-bearing liabilities	222,750	497	0.90	195,057	657	1.35
Non-interest-bearing liabilities	4,464			3,791
Total liabilities	227,214			198,848
Stockholders' equity	20,318			18,809
Total liabilities and stockholders' equity	$247,532			$217,657
Net interest income / interest rate spread		$1,738	2.97%		$1,715	3.39%
Net interest margin			3.01%			3.42%

22

Comparison of the Results of Operations for the Six Months Ended June 30, 2020 and June 30, 2019

General. Net income for the six months ended June 30, 2020 was $785,000, or $0.81 per diluted common share, an increase of $214,000 or 37.5%, compared to $571,000, or $0.58 per diluted common share, for the same period in 2019. The increase in the current six months net income compared to the prior year six month period was the result of a $25,000 increase in net interest income and a $667,000 increase in non-interest income, offset, in part, by a $311,000 increase in the provision for loan losses, a $96,000 increase other non-interest expense and a $71,000 increase in income tax expense.

Interest Income. Total interest income decreased $164,000, or 3.5%, to $4.5 million for the six months ended June 30, 2020, from the prior year six month period as the result of a 59 basis point decrease in the weighted average yield on interest-earning assets to 4.06%, offset, in part, by a $20.8 million increase in the average balance of interest-earning assets outstanding.

Interest income on loans receivable decreased $38,000, to $4.4 million for the six months ended June 30, 2020, as compared to the prior year six month period as the result of a 43 basis point decrease in the average yield to 4.46%, offset, in part, by a $15.7 million increase in the average balance of loans outstanding. Interest income on mortgage-backed securities increased $1,000 to $83,000 for the six months ended June 30, 2020, compared to the prior year six month period as the result of a $2.0 million increase in the average outstanding balance of mortgage-backed securities, offset, in part, by a 64 basis point decrease in the average yield to 2.08%. Interest income on interest-bearing deposits decreased $108,000 to $58,000 for the six months ended June 30, 2020, compared to the prior year six month period as the result of a 162 basis point decrease in the average yield to 0.65%, offset, in part, by a $3.0 million increase in the average outstanding balance. Dividend income on FHLBI stock decreased $19,000 to $22,000 for the six months ended June 30, 2020, compared to the prior year six month period due to a 277 basis point decrease in the average yield to 3.24%.

Interest Expense. Total interest expense decreased $189,000, or 14.5%, to $1.1 million for the six months ended June 30, 2020, compared to the prior year six month period as the result of a 29 basis point decrease in the average cost to 1.04%, offset, in part, by an $18.7 million increase in the average balance of interest-bearing liabilities outstanding.

Interest expense on deposits decreased $161,000, or 14.4%, to $958,000 for the six months ended June 30, 2020, compared to the prior year six month period as the result of a 28 basis point decrease in the average cost of deposits to 0.95%, offset, in part, by a $18.8 million increase in the average balance of deposits outstanding.

Interest expense on borrowings decreased $28,000, or 15.2%, to $155,000 for the six months ended June 30, 2020, compared to the prior year six month period ended June 30, 2019 as the result of a $147,000 decrease in the average balance of borrowings outstanding and a 40 basis point decrease in the average cost to 2.34%.

Net Interest Income. As a result of the above changes in interest income and interest expense, net interest income increased $25,000 for the six months ended June 30, 2020, compared to the prior year six month period ended June 30, 2019. The net interest rate spread decreased 30 basis points to 3.02% for the six months ended June 30, 2020, while the net interest margin, expressed as a percentage of average earning assets, decreased 29 basis points to 3.06% for the six months ended June 30, 2020.

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Provision for Loan Losses. The Company recorded $331,000 in provision for loan losses for the six months ended June 30, 2020, compared to $20,000 for the prior year six month period. The provision for loan losses is a function of the allowance for loan loss methodology used to determine the appropriate level of the allowance for inherent loan losses after adjusting for loan charge-offs and recoveries. Loan losses are charged-off against the allowance when it is believed that the loan balance, or a portion of the loan balance, is no longer realizable by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Recoveries of amounts previously charged-off are credited to the allowance. The Company recorded net recoveries of $35,000 for the six months ended June 30, 2020, compared to net charge-offs of $85,000 for the prior year six month period ended June 30, 2019.

Non-InterestIncome. Non-interest income increased $667,000 to $1.5 million for the six months ended June 30, 2020, compared to prior year six month period due primarily to a $35,000 increase in loan fees, a $15,000 increase in rental income due to the collection of delinquent rents, a $631,000 increase in gain on sale of loan income due to increased volume and a $28,000 increase in other income, offset, in part, by a $24,000 decrease in deposit related fees, a $5,000 decrease in other fee income, a $7,000 decrease in gains on the sale of other real estate owned, and a $7,000 decrease in cash value of life insurance income.

Non-InterestExpense. Non-interest expense increased $95,000 to $3.6 million for the six months ended June 30, 2020, compared to prior year six month period primarily as the result of a $44,000 increase in compensation expenses, a $54,000 increase in occupancy expenses, an $49,000 increase in data processing expenses and a $5,000 increase in other expenses, offset, in part, by a $37,000 decrease in advertising expense and a $20,000 decrease in professional expenses.

Income Taxes. The Company recorded income tax expense of $268,000 for the six months ended June 30, 2020, resulting in an effective tax rate of 25.5%, compared to income tax expense of $197,000, for an effective income tax rate of 25.7%, for the prior year six month period. The increase in the current six months income tax expense was impacted by a $285,000 increase in net income before income taxes as compared to the prior year's period.

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The following table presents, for the periods indicated, the total dollar amounts of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances were calculated using average daily balances and include non-accruing loans.

Yield Analysis

		(Dollars in thousands)
	Six Months Ended	Six Months Ended
	June 30, 2020	June 30, 2019
	Average		Average			Average
		Yield/	Average		Yield/
Assets:	Balance	Interest	Cost	Balance	Interest	Cost
Interest-Earning Assets:
Loans receivable	$195,485	$4,356	4.46%	$179,739	$4,395	4.89%
Mortgage-backed securities	7,994	83	2.08	6,040	82	2.72
Interest-bearing deposits	17,741	58	0.65	14,698	165	2.27
FHLBI stock	1,372	22	3.24	1,372	41	6.01
Total interest-earning assets	222,592	4,519	4.06	201,849	4,683	4.65
Non interest-earning assets	16,737			16,962
Total assets	239,329			218,811
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Passbook accounts	27,263	7	0.05%	27,355	10	0.08%
Demand accounts	111,171	294	0.53	90,306	445	0.99
Certificate accounts	63,667	657	2.07	65,627	664	2.04
Total deposits	202,101	958	0.95	183,288	1,119	1.23
Borrowings	13,281	155	2.34	13,428	183	2.74
Total interest-bearing liabilities	215,382	1,113	1.04	196,716	1,302	1.33
Non-interest-bearing liabilities	3,862			3,377
Total liabilities	219,244			200,093
Stockholders' equity	20,085			18,718
Total liabilities and stockholders' equity	$239,329			$218,811
Net interest income / interest rate spread		$3,406	3.02%		$3,381	3.32%
Net interest margin			3.06%			3.35%

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Capital Standards.

As a state chartered commercial bank, the Bank's deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). The Bank is a member of the Federal Home Loan Bank ("FHLB") of Indianapolis, which is one of the twelve regional banks comprising the FHLB system. The Bank is regulated by the FDIC and the State of Indiana Department of Financial Institutions. The Holding Company is regulated and examined by the Board of Governors of the Federal Reserve System ("FRB"). Such regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities. Any change in such regulation, whether by the FDIC, State of Indiana Department of Financial Institutions, the FRB or Congress could have a material impact on the Company and its operations.

In July 2013, federal bank regulatory agencies issued a final rule that revised the leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a Tier 1 leverage adequately capitalized ratio of 4.0% (well capitalized ratio of 5.00%), a risked-based common equity Tier 1 adequately capitalized ratio requirement of 4.50% (well capitalized ratio of 6.50%), a risked-based Tier 1 adequately capitalized capital ratio requirement of 6.00% (well capitalized ratio of 8.00%) and a risk- based total capital adequately capitalized ratio of 8.00% (well capitalized ratio of 10.00%). The final rule also required unrealized gains and losses on certain "available-for-sale" securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-timeopt-in or opt-out is exercised. The Bank elected to opt-out regarding the aforementioned. The rule limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital to risk- weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

This final rule became effective for the Bank on January 1, 2016 and continues to maintain the exemption of consolidated capital requirements for bank holding companies, such as the Company.

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At June 30, 2020, the Bank was in compliance with all of its capital requirements as follows:

				Percent of
				Average
Well Capitalized Capital Requirement:		Amount	Assets
Tier 1 Leverage Ratio:
Average Total Assets	$	247,363,000
Common Equity Tier 1 Capital		$	21,719,000	8.78%
Common Equity Tier 1 Capital Requirement		12,368,150	5.00%
Excess		$	9,350,850	3.78%
Risk-Based Common Equity Tier 1 Capital Ratio:
Risk-Weighted Assets	$	181,407,000
Common Equity Tier 1 Capital		$	21,719,000	11.97%
Common Equity Tier 1 Capital Requirement		11,791,455	6.50%
Excess		$	9,927,545	5.47%
Risk-Based Tier 1 Capital Ratio:
Risk-Weighted Assets	$	181,407,000
Common Equity Tier 1 Capital		$	21,719,000	11.97%
Common Equity Tier 1 Capital Requirement		14,512,560	8.00%
Excess		$	7,206,440	3.97%
Risk-Based Total Capital Ratio:
Risk-Weighted Assets	$	181,407,000
Common Equity Tier 1 Capital		$	21,719,000
Includable Allowance for Loan Losses		2,270,000
Total Tier 2 Risk-Based Capital		$	23,989,000	13.22%
Total Risk-Based Capital Requirement		18,140,700	10.00%
Excess		$	5,848,300	3.22%
Capital Conservation Buffer - Actual			5.22%
Capital Conservation Buffer - Required			2.50%

Legal Proceedings. At June 30, 2020, we were not involved in any legal proceedings or lawsuits that are not routine and incidental to our business.

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