Home Federal Bancorp, Inc. of Louisiana — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2022 (fiscal second quarter and first half of fiscal 2023). Financial statement amounts below are in millions of dollars unless otherwise stated. Comparisons are with the same periods of 2021 for operating results, and with June 30, 2022 for balance-sheet data.
Business context
The company is the holding company for Home Federal Bank, a Shreveport-based community bank serving northwest Louisiana through nine full-service branches. Its results are driven primarily by net interest income, loan performance, deposit costs, and mortgage loan sales.
Financial performance
| Metric | Three months ended Dec. 31 | Six months ended Dec. 31 |
|---|---|---|
| Total interest income | $6.09 vs. $4.69 in 2021 | $11.87 vs. $9.46 |
| Net interest income | $5.32 vs. $4.19 | $10.63 vs. $8.41 |
| Net income | $1.71 vs. $1.18 | $3.38 vs. $2.53 |
| Diluted earnings per share | $0.55 vs. $0.34 | $1.05 vs. $0.73 |
| Net interest margin | 3.91% vs. 3.15% | 3.91% vs. 3.15% |
| Provision for loan losses | $0.15 vs. $0.06 | $0.57 vs. $0.06 |
For the six-month period, operating cash flow was $5.03 million, investing cash outflow was $32.45 million, and financing cash outflow was $16.21 million. Cash and cash equivalents declined $43.63 million to $20.45 million.
Financial condition and liquidity
- Total assets were $576.5 million, down 2.4% from June 30, 2022. Net loans rose 8.1% to $419.2 million; total deposits declined 2.6% to $518.2 million.
- Deposits shifted toward certificates of deposit: CDs increased $29.2 million to $109.5 million, while savings deposits fell $28.7 million to $104.3 million. CDs maturing within one year totaled $77.8 million.
- Borrowings included $6.55 million on a bank credit line and $0.81 million of short-term FHLB advances. The company reported $182.5 million of additional FHLB borrowing capacity and an unused $20.4 million federal funds purchase agreement.
- Outstanding commitments were $58.4 million to originate loans and $13.9 million under unused lines of credit. Management said available-for-sale securities could be sold if additional funding were needed.
- Stockholders’ equity was $48.7 million, down 7.0%, reflecting $6.0 million of stock repurchases, $0.78 million of dividends, and an $0.88 million decline in accumulated other comprehensive income, partly offset by earnings.
- Bank regulatory capital ratios were 9.99% tangible equity, 14.08% common equity Tier 1, 9.99% core, and 15.25% total risk-based capital; the filing states these exceeded minimum requirements.
Changes versus prior periods
- Net interest income increased 27.2% for the quarter and 26.4% for the six months, reflecting higher loan and other asset yields and growth in loans. Net interest margin rose from 3.15% to 3.91% in both comparisons.
- Net income increased to $1.71 million for the quarter and $3.38 million for the six months. Higher net interest income and, for the quarter, lower non-interest expense more than offset weaker non-interest income and higher loan-loss provisions.
- Non-interest income fell 48.1% for the quarter and 47.1% for the six months, principally because lower mortgage refinance activity reduced gains on loan sales. Six-month gains on loan sales were $0.32 million versus $1.42 million.
- Loan growth was concentrated in commercial real estate and one-to-four-family residential lending. Net loans increased $31.3 million from June 30, 2022.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings or financial guidance. Management highlights sensitivity to interest rates, deposit flows and funding costs, local economic conditions, real estate values, competition, loan quality, and the adequacy of loan-loss reserves.
- Credit indicators included $2.2 million of non-performing assets at December 31, 2022, consisting of non-performing loans and $0.27 million of other real estate owned. Past-due loans of 90 days or more totaled $1.81 million; the filing also reports $1.90 million recorded investment more than 90 days past due and accruing. One commercial equipment loan was in foreclosure. Management’s allowance was $4.79 million, or 1.14% of total loans.
- Available-for-sale securities had $3.28 million of gross unrealized losses; held-to-maturity securities had $13.74 million. Management attributed the declines primarily to interest-rate changes and stated it intended and was able to hold the securities for recovery. These valuation losses are an interest-rate and liquidity consideration.
- The company was preparing to adopt the current expected credit losses (CECL) standard. Management said the impact was not yet known and was evaluating its model and methodology.
- Subsequent event: On February 1, 2023, the company completed its acquisition of Northwest Bancshares Corporation for approximately $10.2 million in cash. Before closing, Northwest paid its shareholders a special distribution of approximately $9.3 million. The acquisition occurred after the reporting date.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The company disclosed no material pending legal proceedings, and identified no off-balance-sheet arrangements under SEC rules.
Key facts for investors to verify
- Whether deposit outflows and the higher share of CDs persist, and the cost and retention of CDs renewing within one year.
- How loan growth, delinquencies, foreclosure activity, and the allowance develop, including the impact of CECL adoption.
- The effect of interest rates on net interest margin, funding costs, and the fair value and liquidity of securities.
- The post-acquisition financial impact, integration costs, and resulting capital and liquidity position following the Northwest Bancshares transaction.
- The company’s capital allocation: the six-month $6.0 million repurchase program, dividends, and the effect of repurchases on share count and per-share results.