Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: Quarter and six months ended December 31, 2023 (fiscal 2024 second quarter). Unless noted otherwise, financial amounts are in millions of dollars. The bank serves northwest Louisiana through ten full-service offices.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2023 | Prior-year quarter | Six months ended Dec. 31, 2023 | Prior-year six months |
|---|---|---|---|---|
| Interest income | $8.08 | $6.09 | $16.15 | $11.87 |
| Net interest income | $4.90 | $5.32 | $10.19 | $10.63 |
| Net income | $1.00 | $1.71 | $2.22 | $3.38 |
| Diluted earnings per share | $0.33 | $0.55 | $0.72 | $1.05 |
| Net interest margin | 3.14% | 3.91% | 3.26% | 3.91% |
- At December 31, total assets were $654.2 million, down 1.0% from June 30, 2023. Net loans were $501.8 million, up 2.5%; deposits were $583.7 million, down 2.3%.
- Quarterly interest expense rose to $3.18 million from $0.76 million, outpacing growth in interest income and reducing net interest income. The average interest-rate spread narrowed to 2.45% from 3.67%.
- Six-month operating cash flow was negative $0.19 million, versus positive $5.03 million a year earlier. Investing and financing cash flows were negative $7.82 million and $8.08 million, respectively. Cash and cash equivalents fell $16.1 million to $8.7 million.
- At period end, the bank had $5.4 million of FHLB advances and $9.7 million of other borrowings. It reported $192.8 million of additional FHLB borrowing capacity, a $20.4 million federal funds purchase facility with no balance drawn, and an $11.0 million credit line with $9.7 million outstanding.
- Shareholders’ equity was $52.6 million. The bank’s regulatory capital ratios were 9.15% tangible equity, 13.09% common equity Tier 1, 9.15% core, and 14.19% total risk-based capital; the filing says each exceeded minimum requirements.
Material changes and notable items
- Interest expense for the six-month period increased $4.7 million year over year, while interest income increased $4.3 million. Net interest income consequently declined 4.2%; net income declined 34.3%.
- Deposit outflows included a $24.2 million estate settlement: $15.4 million had been paid out and $8.8 million remained payable. Customers also shifted funds from lower-yielding accounts to higher-yielding categories. Certificates of deposit increased $28.9 million, while money-market and savings balances decreased.
- Non-interest income fell to $0.14 million for the quarter, including a $0.38 million loss on sale of real estate. The loss reflected the bulk sale of 21 distressed rental properties. For the six months, the real-estate sale loss was $0.42 million.
- Non-interest expense increased 19.4% for the quarter and 15.4% for the six months. Higher compensation, audit and examination fees, professional fees, deposit insurance premiums, and core deposit intangible amortization contributed; management cited additional branch and back-office staff.
- Home Federal adopted CECL on July 1, 2023. Adoption increased the allowance by $0.36 million through the transition and purchased-credit-deteriorated-loan adjustments, and reduced retained earnings by $0.19 million before tax (approximately $0.15 million net of tax). The ending allowance was $5.07 million, or 1.00% of gross loans; the six-month provision was a $0.02 million recovery.
- Non-performing assets increased to $2.2 million from $1.6 million at June 30. The filing reports $1.68 million of loans 90 or more days past due; none were reported as accruing. Management recorded no allowance for unfunded commitments because the commitments were considered unconditionally cancellable.
- Available-for-sale securities had a $2.85 million gross unrealized loss; held-to-maturity securities had $11.81 million of gross unrealized losses and a $59.73 million fair value versus $71.53 million carrying value. Management attributed mortgage-backed securities losses to interest rates, and said it intended and was able to hold them until recovery.
- Premises and equipment increased $1.0 million, primarily for a new Minden branch expected to open in April 2024. The filing provides no earnings or financial guidance. Management notes results to date are not necessarily indicative of full-year results.
Outlook, risks, and contingencies
Management identifies interest rates, deposit flows and funding costs, loan demand and credit quality, competition, local economic conditions, real-estate values, and regulatory or accounting changes as factors that could affect results. Certificates of deposit totaling $184.7 million were scheduled to mature within one year; management expects a significant portion to remain, but cautions renewal costs could be higher. Outstanding loan commitments were $52.6 million, with $14.3 million in unused lines of credit. No material pending legal proceedings or SEC-defined off-balance-sheet arrangements were reported. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether deposit outflows continue after the estate settlement and whether upcoming certificate maturities renew at higher rates.
- Whether the low cash balance, FHLB borrowing, and available borrowing capacity remain adequate as loans and commitments are funded.
- Whether loan delinquencies, non-performing assets, charge-offs, or criticized loan balances worsen, and whether the CECL allowance remains appropriate.
- Whether net interest margin stabilizes as deposit costs rise and the balance-sheet mix changes.
- The full-year cost and expected opening timing of the Minden branch, and whether real-estate disposition losses recur.
- The extent to which unrealized securities losses could affect liquidity or capital if securities must be sold before recovery.