Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: The filing covers the quarter ended March 31, 2017 and the nine months then ended (fiscal Q3 2017; fiscal year ends June 30). Although the request metadata says 2016 Q3, the filing itself reports 2017 periods. Unaudited consolidated figures; dollar amounts below are in millions unless stated otherwise.
Financial performance and condition
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net interest income | $3.519 in 2017; $3.217 in 2016 | $10.381 in 2017; $9.478 in 2016 |
| Provision for loan losses | $0.155; prior year $0.090 | $0.755; prior year $0.181 |
| Net income | $0.852; prior year $0.774 | $2.617; prior year $2.396 |
| Diluted earnings per share | $0.44; prior year $0.40 | $1.38; prior year $1.22 |
| Net interest margin | 3.62%; prior year 3.75% | 3.68%; prior year 3.66% |
- For the quarter, total interest income was $4.232 million and non-interest income $0.785 million; non-interest expense was $2.869 million. Nine-month figures were $12.389 million, $2.724 million and $8.490 million, respectively.
- At March 31, total assets were $416.0 million, up 9.0% from June 30, 2016. Net loans were $305.5 million, deposits $326.4 million, and stockholders’ equity $45.2 million.
- Cash and cash equivalents were $11.0 million, compared with $4.8 million at June 30, 2016. FHLB advances were $42.7 million, down from $47.7 million; other bank borrowings were zero. Management reported $141.0 million of additional FHLB borrowing capacity and $15.5 million available under a federal funds purchase agreement, unused at period-end.
- For the nine months, operating cash flow was $9.6 million, investing cash flow was negative $35.3 million, and financing cash flow was $31.9 million. The financing inflow primarily reflected $38.6 million of net deposit growth.
- Regulatory capital ratios were 11.01% tangible, 16.02% common equity Tier 1, 11.01% core and 17.27% risk-based; the Bank reported exceeding minimum requirements.
Changes versus comparable periods
- Quarterly net income increased 10.1%; nine-month net income increased 9.2%. Higher net interest income was the main driver, partly offset by greater credit provision and operating expenses.
- Quarterly net interest income rose 9.4%, while net interest margin declined 13 basis points to 3.62%. Nine-month net interest income rose 9.5%, and margin increased 2 basis points to 3.68%.
- The nine-month loan-loss provision rose to $0.755 million from $0.181 million. The allowance reached $3.582 million, or 1.16% of total loans, versus $2.845 million, or 0.97%, at June 30, 2016.
- Deposits increased $38.6 million, while net loans grew $14.7 million. Investment securities increased $15.4 million, including $27.2 million of held-to-maturity mortgage-backed securities purchased during the period.
- Non-performing assets increased to $6.5 million from $0.114 million. The March 31 balance included $3.696 million of other real estate owned (OREO).
Outlook, risks and unusual items
- No specific earnings or financial guidance was provided. Management said it intends to use liquidity to support lending and may sell available-for-sale securities if additional funding is needed. It noted that $63.3 million of certificates of deposit mature within one year and renewal costs could rise in a higher-rate environment.
- Credit quality is a key risk. Two borrowers associated with $2.8 million of commercial business loans filed for Chapter 11; a $0.272 million payment reduced exposure to approximately $2.5 million. Management expects adequate-protection payments, believes the allowance is adequate and currently anticipates no additional losses on these credits.
- Two commercial real estate loans were converted to OREO after principal paydown from $4.7 million to $2.3 million. Separately, the Bank acquired 91 residential rental properties valued at $2.9 million through deed in lieu of foreclosure; management reported all were under contract for sale and expected no material loss. Three quarter transactions added approximately $3.7 million to OREO.
- Liquidity and interest-rate sensitivity remain relevant: securities with carrying value of $205.4 million and mortgage loans were pledged to secure FHLB advances. Available-for-sale securities had $0.983 million of gross unrealized losses, which management attributed to interest-rate changes rather than credit quality and did not consider other-than-temporary impairment.
- Management identifies the allowance for loan losses and realization of deferred tax assets as estimates involving judgment. The filing states that results for the nine months are not necessarily indicative of full-year results. No material pending legal proceedings or off-balance-sheet arrangements were reported; the filing lists risk factors as not applicable.
Important facts for investors to verify
- Track the resolution, repayment performance and collateral recovery for the Chapter 11-related commercial loans and the $2.3 million commercial real estate exposure moved to OREO.
- Confirm whether the 91 rental properties under contract closed as expected and whether realized proceeds align with their $2.9 million recorded value.
- Monitor subsequent non-performing assets, delinquencies, charge-offs, provisions and allowance coverage, particularly given the increase in non-performing assets and nine-month provision.
- Assess deposit retention and pricing, certificate maturities, brokered-deposit levels, FHLB funding reliance and the effect of interest-rate changes on margins and securities values.
- Review subsequent filings for updated earnings, liquidity, capital ratios and any material developments not quantified in this quarter’s filing.