Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Business context and reporting period. The unaudited filing covers the quarter and six months ended December 31, 2015, the company’s fiscal second quarter. The company is the holding company for Home Federal Bank, a community bank operating in the Shreveport-Bossier City area. Unless otherwise noted, amounts below are in millions of dollars.
Financial performance and position
| Metric | Three months ended Dec. 31, 2015 | Three months ended Dec. 31, 2014 | Six months ended Dec. 31, 2015 | Six months ended Dec. 31, 2014 |
|---|---|---|---|---|
| Interest income | $3.752 | $3.723 | $7.597 | $7.278 |
| Net interest income | $3.083 | $3.105 | $6.261 | $6.080 |
| Non-interest income | $0.620 | $0.594 | $1.532 | $1.224 |
| Non-interest expense | $2.666 | $2.375 | $5.299 | $4.713 |
| Net income | $0.681 | $0.835 | $1.622 | $1.658 |
| Diluted earnings per share | $0.35 | $0.41 | $0.83 | $0.81 |
- Margins: Net interest margin was 3.58% for the quarter versus 3.83% a year earlier; for the six-month period it was 3.62% versus 3.83%. Six-month average interest rate spread declined to 3.43% from 3.64%.
- Cash flow: Six-month operating cash flow was $9.328 million, versus $1.300 million. Investing activities provided $4.128 million, compared with using $25.440 million; financing activities used $10.261 million, compared with providing $15.118 million. Cash and cash equivalents increased $3.195 million to $24.361 million.
- Balance sheet at Dec. 31, 2015: Total assets were $360.981 million, down 2.4% from June 30, 2015. Net loans were $268.415 million, essentially unchanged; deposits were $288.900 million, up 0.9%. Stockholders’ equity was $42.829 million, down from $43.386 million.
- Debt and liquidity: FHLB advances fell to $26.289 million from $38.411 million; the company also reported $1.5 million of other borrowings. The bank had $116.3 million of additional FHLB borrowing capacity and a separate federal funds purchase facility of up to $15.1 million, unused at period-end. Certificates of deposit totaling $64.7 million mature within one year.
- Credit quality: The allowance for loan losses was $2.650 million, or 0.98% of total loans, compared with $2.515 million at June 30. Nonperforming loans/assets were $248,000, versus $80,000 at June 30; substandard loans rose to $384,000 from $37,000. There were no troubled debt restructurings or loans classified as doubtful at Dec. 31. Past-due loans totaled $4.709 million, including $248,000 over 90 days.
- Capital: Management said the bank exceeded regulatory minimums. Reported ratios were 12.11% tangible capital, 18.32% common equity tier 1, 12.11% core capital, and 19.42% risk-based capital.
Material changes versus comparable periods
- Quarterly net income fell 18.4% year over year, while six-month net income declined 2.2%. Quarterly non-interest expense rose 12.3%; six-month non-interest expense rose 12.4%, led by compensation and benefits, which increased $363,000 for the six-month period.
- Six-month non-interest income increased 25.2%, primarily from a $267,000 increase in gains on loan sales and a $59,000 increase in deposit service charges. Loan-sale gains were $1.154 million versus $887,000.
- Six-month net interest income increased 3.0%, but funding costs rose and net interest margin narrowed. For the quarter, net interest income decreased 0.7% as interest expense increased faster than interest income.
- Assets declined chiefly because available-for-sale and held-to-maturity securities together decreased about $6.5 million and loans held for sale fell $7.3 million. Cash rose $3.2 million, while premises and equipment increased $1.7 million, reflecting branch construction and property purchases.
- Shareholders’ equity decreased $557,000, reflecting $1.8 million of share repurchases, dividends, and a $252,000 decline in accumulated other comprehensive income, partly offset by net income and equity compensation activity. Book value per share increased from $20.57 to $21.02.
Outlook, commentary, risks, and unusual items
- The filing gives no earnings, revenue, or margin guidance. Management said it intended to use liquidity to fund lending and could sell available-for-sale securities if needed. A new North Shreveport branch was expected to open in April 2016.
- Management identified the allowance for loan losses as a critical accounting estimate, subject to judgment and change. It cautioned that the allowance may not be sufficient to cover future losses and that deposit renewals could cost more in a rising-rate environment. Actual results may differ from forward-looking statements, which the company said it did not intend to update.
- At Dec. 31, the bank had $27.7 million of outstanding loan commitments. Management expected a significant portion of near-term maturing CDs to remain, but gave no assurance.
- The company repurchased 65,000 shares during the quarter at an average $23.12 per share. A prior 108,000-share repurchase program was completed in November; a new program authorized up to 102,000 shares and had no expiration date.
- The filing reported no material pending litigation, no SEC-defined off-balance-sheet arrangements, and no applicable risk factors. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether lower net interest margin and higher operating expenses continue to pressure earnings.
- Whether nonperforming and substandard loans continue to rise, and whether the allowance remains adequate as credit conditions evolve.
- Deposit retention and repricing, including the $64.7 million of CDs scheduled to mature within one year and the use of brokered deposits.
- Execution and cost of the branch expansion, and the pace and price of share repurchases under the new authorization.
- The filing is unaudited and states that six-month results are not necessarily indicative of the full fiscal year.