Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: Quarter and nine months ended March 31, 2021; the company’s fiscal year ends June 30. The filing is for fiscal Q3 2021, notwithstanding the request metadata’s “2020 Q3.” Unaudited consolidated results are compared with the periods ended March 31, 2020; balance-sheet comparisons are to June 30, 2020. Amounts below are in millions unless otherwise stated.
Business context and financial results
The company is a Louisiana bank holding company serving the Shreveport-Bossier City area through Home Federal Bank, which operates seven full-service branches. Banking results are driven mainly by net interest income, credit costs, and mortgage loan sales.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income | $4.44 | $3.54 | $12.91 | $11.13 |
| Provision for loan losses | $0.45 | $0.32 | $1.75 | $1.44 |
| Non-interest income | $1.21 | $1.05 | $4.43 | $2.93 |
| Non-interest expense | $3.39 | $3.03 | $10.41 | $9.12 |
| Net income | $1.42 | $0.98 | $4.07 | $2.81 |
| Diluted EPS | $0.41 | $0.27 | $1.20 | $0.77 |
Q3 net income rose 45% year over year; nine-month net income rose 45%. Q3 net interest margin was 3.53%, up from 3.30%; for nine months it was 3.41%, down from 3.47%. The nine-month effective tax rate was 21.4%, versus 19.7%.
Financial condition, cash flow, and liquidity
- At March 31, 2021, assets were $563.3 million, up 8.7% from June 30, 2020. Cash and equivalents increased to $101.0 million from $54.9 million.
- Deposits grew 9.7% to $505.4 million. Non-interest-bearing deposits rose to $129.3 million; certificates of deposit declined to $125.2 million. Brokered deposits were $10.7 million, down from $16.1 million.
- Net loans receivable fell 4.9% to $342.3 million, partly reflecting $33.4 million of SBA Paycheck Protection Program loans forgiven and repaid by the SBA. Loans held for sale rose to $22.3 million.
- Stockholders’ equity was $52.1 million, up from $50.5 million. Reported liabilities included $0.9 million in FHLB advances and $1.6 million in other borrowings.
- For the nine months, operating cash flow was negative $1.3 million, investing cash flow was positive $6.0 million, and financing cash flow was positive $41.4 million. Cash increased $46.1 million, driven primarily by deposit growth and loan principal payoffs.
- Liquidity included $46.5 million in deposits at the FHLB. The Bank had $187.6 million of additional FHLB borrowing capacity and a separate $20.4 million federal-funds purchase facility with no balance drawn. A $5.0 million line of credit had $1.6 million outstanding.
- Outstanding loan commitments were $64.5 million, with $8.6 million of commitments under unused lines of credit. Certificates of deposit totaling $75.9 million were scheduled to mature within one year.
- Regulatory capital ratios were 9.69% tangible equity, 15.97% common equity Tier 1, 9.69% core, and 17.2% total risk-based capital; management reported the Bank exceeded minimum requirements.
Material changes and management commentary
- Net interest income improved as deposit interest expense fell, reflecting lower rates paid on interest-bearing deposits. Q3 average interest-rate spread increased to 3.31% from 2.98%.
- Nine-month non-interest income growth was led by a $3.6 million gain on loan sales, up from $1.8 million a year earlier. The company says it sells most long-term fixed-rate residential mortgage originations to manage interest-rate risk.
- Non-interest expense increased, including higher compensation, data processing, and deposit insurance costs. The nine-month results also included a $0.2 million valuation adjustment on foreclosed real estate.
- Non-performing assets declined to $2.7 million from $7.2 million at June 30, 2020. The allowance for loan losses was $4.4 million, or 1.26% of loans; nine-month charge-offs were $1.6 million and recoveries $0.2 million.
- At March 31, three COVID-related loan modifications totaling $5.0 million remained, equal to 1.4% of loans. At June 30, 2020, 216 modified loans totaled $84.1 million. Management cautioned that it was too early to determine whether the remaining modified loans would perform as agreed.
- A two-for-one stock split was paid March 31, 2021. The company declared a post-split quarterly cash dividend of $0.0825 per share, payable May 17, 2021. It repurchased 16,000 shares during the quarter at an average $15.27 under its repurchase program.
Outlook, risks, and contingencies
The filing provides no quantified earnings or operating guidance. Management intends to use its liquidity to fund lending and may sell available-for-sale securities if needed. It notes that deposit behavior and loan prepayments are sensitive to interest rates, economic conditions, and competition, and that maturing deposits could renew at higher cost if rates rise.
Key stated risks include the scope and duration of COVID-19 and its effects on borrowers and the economy, local economic conditions, interest-rate and deposit-cost changes, credit quality and adequacy of loss reserves, real-estate values, geographic concentration, competition, and regulatory or accounting changes. Management’s allowance estimate is judgmental and subject to change. The company reported no material pending litigation beyond ordinary-course matters, no material change in internal control, and effective disclosure controls. It stated there were no off-balance-sheet arrangements as defined by SEC rules.
Important facts for investors to verify
- Confirm the period being analyzed: this filing covers the quarter ended March 31, 2021, not 2020 Q3.
- Assess whether the sharp improvement in loan-sale gains and lower deposit costs can persist, and how rates may affect net interest margin.
- Review loan-credit trends, including remaining COVID modifications, non-performing assets, charge-offs, and the adequacy of the allowance.
- Evaluate liquidity against loan commitments and near-term certificate maturities, including potential renewal costs.
- Reconcile share-count and per-share comparisons for the two-for-one stock split and subsequent dividend.
- Consider that the filing says nine-month results are not necessarily indicative of the full fiscal year; its expected impact from adoption of the expected-credit-loss accounting standard was not yet known.