Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Business context and period. Home Federal Bancorp is the holding company for Home Federal Bank, a community bank serving the Shreveport–Bossier City area through seven full-service offices. This filing covers the three and six months ended December 31, 2019—the company’s fiscal second quarter and first half of fiscal 2020. Dollar amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Three months ended Dec. 31, 2019 | Prior-year quarter | Six months ended Dec. 31, 2019 | Prior-year half year |
|---|---|---|---|---|
| Interest income | $5.16 | $5.00 | $10.33 | $9.88 |
| Net interest income | $3.78 | $3.92 | $7.59 | $7.81 |
| Provision for loan losses | $0.95 | $0.10 | $1.13 | $0.35 |
| Non-interest income | $0.92 | $0.44 | $1.88 | $1.11 |
| Non-interest expense | $3.01 | $2.72 | $6.08 | $5.50 |
| Net income | $0.59 | $1.18 | $1.84 | $2.39 |
| Diluted earnings per share | $0.32 | $0.62 | $1.00 | $1.25 |
| Net interest margin | 3.52% | 3.86% | 3.56% | 3.86% |
Quarterly net income fell about 50% year over year; first-half net income declined about 23%. The company declared dividends of $0.16 per share for the quarter and $0.32 for the half year.
Financial condition, cash flow and liquidity
- At December 31, 2019, total assets were $455.3 million, up 2.9% from June 30, 2019. Net loans were $323.6 million, little changed, while loans held for sale rose to $13.8 million from $8.6 million.
- Investment securities totaled $79.4 million, up from $67.0 million at fiscal year-end, primarily reflecting purchases of mortgage-backed securities. Cash and cash equivalents were $14.9 million, down from $18.1 million.
- Deposits increased 3.4% to $401.4 million. Savings balances increased by $23.9 million, while certificates of deposit fell by $16.1 million. Brokered deposits were $16.0 million, versus $11.2 million at June 30.
- Borrowings were modest relative to deposits: $1.2 million of FHLB advances and $1.2 million of other borrowings at period-end. Total liabilities were $405.3 million; stockholders’ equity was $50.0 million.
- For the first half, operating cash flow was negative $2.1 million, investing cash flow was negative $12.2 million and financing cash flow was positive $11.1 million. Cash decreased $3.2 million overall.
- Management reported $161.5 million of additional FHLB borrowing capacity and a separate $15.5 million federal-funds purchase facility with no balance outstanding. A $2.0 million line of credit had a $1.2 million balance.
- Regulatory capital ratios exceeded minimum requirements: tangible equity 11.10%, common equity Tier 1 16.38%, core capital 11.10% and total risk-based capital 17.51%.
Material changes, risks and management commentary
- Net interest income declined as deposit interest expense increased faster than interest income. The average cost of interest-bearing deposits rose to 1.62% for the quarter from 1.30%; the net interest margin narrowed to 3.52% from 3.86%.
- Loan-loss provisions increased sharply, principally following a $917,000 charge-off on a commercial business loan to a borrower that declared bankruptcy. The allowance ended at $3.50 million. Non-performing assets were $3.8 million, compared with $5.1 million at June 30, 2019.
- Non-interest income increased, supported by gains on loan sales and deposit service charges. The income statement reports quarterly non-interest income of $917,000 versus $439,000 a year earlier, despite a conflicting narrative sentence in MD&A that calls the change a decrease.
- Non-interest expense rose, particularly compensation and benefits. Management identifies the allowance for loan losses as a critical estimate subject to judgment and potential revision. It cautions that the allowance may not cover future losses.
- At December 31, the Bank had $35.6 million in loan origination commitments, $8.8 million in unused credit lines and $92.0 million in certificates of deposit scheduled to mature within a year. Management expects a significant portion of maturing deposits to remain, but gives no assurance; renewal costs could be higher.
- The company reported no material pending legal proceedings, no material change in internal controls and no separately stated forward earnings guidance. Management says first-half results are not necessarily indicative of full-year results.
- The Bank adopted a new stock incentive plan approved in November 2019; no awards under that plan were outstanding at December 31. The company repurchased $2.0 million of stock during the half year.
Important facts for investors to verify
- Confirm the credit status and remaining exposure associated with the commercial borrower bankruptcy and the $917,000 charge-off; also monitor subsequent charge-offs, non-performing assets and the allowance.
- Reconcile the allowance ratio: the filing reports an allowance of $3.497 million against $327.270 million of loans, which implies approximately 1.07%, while one MD&A passage states 1.7%.
- Review deposit pricing, brokered-deposit reliance and upcoming certificate maturities, and assess whether deposit-cost pressure continues to compress net interest margin.
- Assess cash generation and liquidity alongside loan commitments, unused credit lines, securities availability and the stated borrowing facilities.
- Check the stock-repurchase table’s apparent date inconsistency: its monthly rows say October–December 2020, although the table concerns the quarter ended December 31, 2019.