Business context and reporting period
Home Federal Bancorp, Inc. of Louisiana is the holding company for Home Federal Bank, a community bank serving the Shreveport–Bossier City area. This Form 10-Q covers the quarter and nine months ended March 31, 2019 (the third quarter of fiscal 2019); the request metadata’s “2018 Q3” does not match the filing period. Amounts below are in millions unless stated otherwise.
Financial performance and condition
- Quarterly results: Net interest income was $3.834 million, up 5.2% year over year; provision for loan losses was $0.100 million versus $0.350 million. Non-interest income was $0.483 million, down 13.1%, while non-interest expense was $2.721 million, up 1.8%. Net income rose 16.5% to $1.189 million. Diluted EPS was $0.63 versus $0.54; dividends declared were $0.14 per share.
- Nine-month results: Net interest income increased 4.7% to $11.643 million. Net income increased 49.8% to $3.582 million, and diluted EPS was $1.88 versus $1.26. Non-interest income declined 28.3% to $1.592 million; non-interest expense decreased 0.5% to $8.219 million.
- Margins: Net interest margin was 3.86% for both the quarter and nine-month period, compared with 3.76% and 3.78%, respectively, in the prior-year periods. Net interest rate spread was 3.56% for the quarter and 3.59% for nine months.
- Balance sheet at March 31: Total assets were $434.4 million, up 3.0% from June 30, 2018. Net loans were $323.8 million, up 2.0%; deposits were $382.1 million, up 6.1%; stockholders’ equity was $49.0 million, up 4.1%. Cash and cash equivalents were $11.4 million, down $4.5 million from June 30.
- Funding and liquidity: FHLB advances fell to $1.4 million from $11.6 million; deposits funded a larger share of the balance sheet. The Bank reported $149.1 million of additional FHLB borrowing capacity and a $15.5 million federal funds purchase facility, unused at quarter-end. Certificates of deposit of $100.8 million mature within one year. Loan commitments were $38.7 million and unused credit-line commitments were $12.5 million.
- Cash flows, nine months: Operating activities provided $6.1 million, investing activities used $19.2 million, and financing activities provided $8.6 million. Cash decreased $4.5 million to $11.4 million.
- Capital: The Bank exceeded regulatory minimums; reported tangible, common equity Tier 1, core, and risk-based capital ratios were 11.41%, 16.35%, 11.41%, and 17.55%, respectively.
Material changes versus comparable periods
- Quarterly net interest income benefited from higher loan yields, but deposit interest expense increased 49.6% year over year. The average loan yield rose 47 basis points; the spread edged down from 3.58% to 3.56%.
- Nine-month earnings benefited from lower loan-loss provisions and lower income taxes. The prior-year period included a $642,000 deferred-tax remeasurement charge following the Tax Act; the company reported a 21.55% effective tax rate for the current nine months.
- Nine-month non-interest income was lower mainly because the prior-year period included a securities-sale gain, and the current period recorded a $345,000 loss on real estate/fixed-asset sales and lower gains on loan sales. Management cited reduced emphasis on mortgage banking and fewer loans originated for sale.
- Loans grew in multifamily and commercial real estate, while certificates of deposit increased $24.8 million. The Bank opened a new banking office during the quarter; premises and equipment increased $1.3 million.
- The company repurchased $2.1 million of stock during the nine months. During the quarter it repurchased 34,160 shares at an average $31.03 per share.
Outlook, risks, contingencies, and unusual items
- No specific earnings or financial guidance is provided. Management said it intends to use liquidity to support lending and may sell available-for-sale securities if additional funding is needed.
- Credit quality warrants attention: the allowance for loan losses was $3.6 million, or 1.09% of total loans, versus $3.7 million, or 1.16%, a year earlier. Nine-month charge-offs were $297,000, compared with $911,000; provision expense was $450,000, versus $850,000.
- Nonperforming assets increased from $3.0 million at June 30, 2018. The filing gives differing March 31 figures: one discussion reports $5.9 million, while another reports $4.1 million of nonperforming loans plus $1.2 million of foreclosed assets, or $5.3 million. The filing also identifies $290,000 of a commercial raw-land development loan as doubtful and reports $3.8 million of TDRs involving a borrower group.
- Management cautions that the allowance depends on estimates and may not cover future losses. Funding risks include renewal costs on deposits maturing within one year and possible deposit outflows; deposit costs could rise in a higher-rate environment. Interest rates, local economic conditions, competition, and regulation may affect results.
- Available-for-sale securities had $915,000 of gross unrealized losses at March 31. Management attributed these losses to interest rates, not credit quality, and stated it had the intent and ability to hold the securities until recovery.
- The filing reports no material pending litigation, no off-balance-sheet arrangements as defined by SEC rules, and no material change in internal controls. Management provided no specific forward-looking financial targets.
Important facts for investors to verify
- Reconcile the filing’s $5.9 million and $5.3 million nonperforming-asset disclosures and review the underlying loan classifications, delinquencies, TDRs, and collateral values.
- Assess whether the $3.6 million allowance remains adequate given loan growth, the doubtful land-development exposure, and the rise in nonperforming assets.
- Track deposit pricing and retention, especially the $100.8 million of certificates maturing within one year and the increase in brokered deposits to $11.2 million.
- Confirm whether the improved earnings trend is sustainable after considering higher deposit costs, reduced mortgage banking activity, and the absence of the prior-year tax remeasurement charge.
- Monitor use of liquidity, securities portfolio valuation, branch investment, and continued share repurchases against lending and capital needs.