Business context and reporting period
Home Federal Bancorp, Inc. of Louisiana is the holding company for Home Federal Bank, a community savings bank serving Shreveport and Bossier City, Louisiana. Its business is primarily deposit-taking and lending, with a growing focus on commercial lending.
This is the company’s Form 10-K for the fiscal year ended June 30, 2017, comparing primarily with fiscal 2016. Although the request metadata refers to “2016 Q4,” the filing is an annual report for fiscal 2017; it does not provide a standalone fourth-quarter results summary.
Financial results and position
| Metric | FY17 / June 30, 2017 | FY16 / June 30, 2016 |
|---|---|---|
| Total assets | $426.6 million | $381.7 million |
| Net loans receivable | $312.8 million | $290.8 million |
| Deposits | $329.0 million | $287.8 million |
| FHLB advances | $48.9 million | $47.7 million |
| Stockholders’ equity | $46.2 million | $43.4 million |
| Net interest income | $14.1 million | $12.8 million |
| Net income | $3.65 million | $3.38 million |
| Basic / diluted EPS | $2.01 / $1.91 | $1.80 / $1.74 |
- Net income rose about 8%; net interest income increased 9.7%. Net interest margin was 3.70%, slightly below 3.71% in FY16; the average interest-rate spread remained 3.53%.
- Average yield on interest-earning assets was 4.44%, compared with 4.46%; average cost of interest-bearing liabilities was 0.91%, compared with 0.93%.
- Non-interest income increased 19.6% to $3.9 million, including $2.8 million of loan-sale gains and $164,000 of real estate and fixed-asset sale gains. Non-interest expense increased 8.0% to $11.7 million. The efficiency ratio improved to 64.9% from 67.1%.
- The provision for loan losses increased to $900,000 from $271,000. The allowance ended at $3.7 million, or 1.18% of loans; its coverage of non-performing loans was 123.65%.
- Operating cash flow was $3.4 million, down from $7.1 million. Investing activities used $37.0 million and financing activities provided $40.8 million; cash and cash equivalents increased $7.1 million to $11.9 million.
- Return on average assets was 0.90% versus 0.91%; return on average equity was 7.80% versus 7.44%.
- The Bank reported regulatory capital ratios of 11.06% tangible/core, 16.14% common equity Tier 1, and 17.39% total risk-based capital, and was categorized as well capitalized.
Material changes versus the prior comparable period
- Assets grew 11.8%, loans 7.5%, and deposits 14.3%. Loan growth included commercial real estate, commercial business, and residential lending.
- Deposits rose $41.2 million, including growth in certificates of deposit, savings, and non-interest-bearing accounts. Brokered certificates of deposit increased to $11.5 million from $8.2 million.
- Investment securities increased overall: held-to-maturity securities rose to $28.4 million from $2.3 million following purchases of mortgage-backed securities, while available-for-sale securities declined to $36.9 million from $50.2 million.
- Asset quality weakened materially: non-performing assets increased to $3.5 million, or 0.83% of assets, from $114,000. Non-performing loans were approximately 0.95%–0.96% of loans, versus 0.04% a year earlier.
- Shareholders received $0.36 per share in declared dividends during FY17, compared with $0.32 in FY16.
Outlook, commentary, risks and unusual items
- No quantified earnings or financial guidance is provided. Management intends to grow and diversify commercial real estate and business lending, sell a substantial portion of fixed-rate residential mortgage originations, expand products and services, manage expenses, and preserve asset quality. It may consider additional branches or acquisitions.
- Management attributed higher net interest income mainly to increased average earning assets, while noting that low rates and asset yields continue to pressure margins. Rising rates could increase deposit and borrowing costs and adversely affect spreads.
- The largest credit concern disclosed was a $2.5 million commercial-business exposure to related borrowers; one borrower filed for Chapter 11. The loans were substandard, at least 90 days past due, and on non-accrual at year-end. Management said it expected further adequate-protection payments, believed the allowance was adequate, and did not anticipate additional losses at that time.
- Four commercial real estate loans to two borrowers, with pre-modification balances totaling $4.7 million, were restructured and subsequently defaulted. Related properties were transferred to real estate owned; 91 residential rental properties were disposed of by year-end, with a $54,000 gain recognized in the fourth quarter. A separate foreclosed residential lot was held at $540,000.
- Liquidity indicators included a 22.01% average liquidity ratio for the June 2017 quarter and $135.0 million of additional FHLB borrowing capacity. However, $37.3 million of FHLB advances and $68.5 million of certificates of deposit were scheduled to mature within one year. Outstanding loan commitments and unused lines totaled $55.6 million.
- Other stated risks include local economic and real-estate conditions, competition, regulation, interest-rate sensitivity, loan-loss estimation, and the renewal cost or retention of maturing deposits. The company said it had no SEC-defined off-balance-sheet arrangements; customer lending commitments are separately disclosed.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an opinion on internal control.
Important facts for investors to verify
- Track the $2.5 million non-accrual commercial-business exposure, borrower bankruptcy proceedings, collateral or guarantees, recoveries, and any subsequent reserve or charge-off changes.
- Review the performance and disposition of the restructured commercial real estate credits and the remaining foreclosed property.
- Assess whether the $3.7 million allowance remains adequate as commercial lending and non-performing assets evolve.
- Monitor deposit renewal and pricing, including the $68.5 million of CDs maturing within a year, brokered deposits, and large certificates of deposit.
- Confirm loan growth, loan-sale gains, margin trends, and the effects of rate changes on both funding costs and securities values.
- Reconcile any reported loan-balance figures against the audited statements: the filing’s selected-data table shows $312.722 million while the balance sheet and loan note report $312.772 million.