Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: Quarter and six months ended December 31, 2020 (the company’s fiscal second quarter; unaudited). The filing compares quarterly and six-month results with the periods ended December 31, 2019, and balance-sheet amounts with June 30, 2020. Amounts below are in millions unless stated otherwise.
Business context and financial performance
The company is the holding company for Home Federal Bank, a community bank serving the Shreveport-Bossier City area of Louisiana through seven full-service branches. Results principally reflect net interest income, loan sales, credit-loss provisions, and operating expenses.
| Metric | Three months ended Dec. 31, 2020 | Six months ended Dec. 31, 2020 |
|---|---|---|
| Net interest income | $4.475; up 18.5% year over year | $8.463; up 11.5% |
| Non-interest income | $1.508; up 64.4% | $3.213; up 70.7% |
| Provision for loan losses | $0.600; down from $0.950 | $1.300; up from $1.125 |
| Non-interest expense | $3.590; up 19.4% | $7.013; up 15.3% |
| Net income | $1.403, versus $0.588 | $2.650, versus $1.835 |
| Diluted earnings per share | $0.83, versus $0.32 | $1.58, versus $1.00 |
| Net interest margin | 3.50%, versus 3.52% | 3.34%, versus 3.56% |
For the six-month period, higher gains on loan sales were a major contributor to non-interest income, rising to $2.618 million from $1.147 million. Management says the bank sells most long-term fixed-rate residential mortgage originations to manage interest-rate risk. Lower deposit funding costs supported net interest income: six-month interest expense declined $0.841 million, mainly from lower deposit rates. Margin nevertheless narrowed year over year.
Financial condition, cash flow, and liquidity
- Assets and funding: Total assets were $535.4 million, up 3.3% from June 30, 2020. Deposits increased 3.7% to $477.9 million; savings balances rose $24.5 million while certificates of deposit declined $17.7 million. Brokered deposits were $11.6 million, down from $16.1 million.
- Loans and securities: Net loans receivable fell 6.5% to $336.4 million. Management attributed much of the decline to $20.2 million of SBA PPP loans being forgiven and paid off. Loans held for sale rose 88.6% to $27.9 million. Available-for-sale and held-to-maturity securities totaled $64.4 million.
- Cash and cash flow: Cash and cash equivalents increased to $79.8 million from $54.9 million. For the six months, operating cash flow was negative $9.6 million, investing cash flow positive $19.3 million, and financing cash flow positive $15.2 million; cash increased $24.9 million. Operating cash use included high mortgage originations for sale.
- Debt and liquidity: At December 31, FHLB advances were $0.9 million and other borrowings were $2.5 million. The bank reported $189.8 million of additional FHLB borrowing capacity, a $19.5 million federal-funds purchase facility with no amount drawn, and a $5.0 million line of credit with $2.5 million outstanding. It also had $13.0 million in deposits with the FHLB.
- Capital: Stockholders’ equity was $51.5 million, up 1.8%. Bank regulatory ratios were 9.83% tangible equity, 16.23% common equity Tier 1, 9.83% core, and 17.4% total risk-based capital; management stated capital exceeded minimum requirements.
Material changes, outlook, and risks
- Non-performing assets were $4.8 million versus $7.2 million at June 30, 2020. The decrease reflected $0.907 million of write-downs on a lot loan, $0.698 million on a commercial real estate loan, and a $0.449 million collateral paydown on that commercial loan. The allowance for loan losses was $3.790 million; six-month charge-offs were $1.646 million, partly offset by $0.055 million of recoveries.
- Ten COVID-related loan modifications, totaling $5.944 million, remained in deferral at December 31, equal to 1.7% of loans. This compared with 216 modifications totaling $84.094 million at June 30. Management said it was too early to determine whether modified loans would perform as agreed. The bank elected applicable CARES Act relief from TDR treatment for qualifying COVID-related modifications.
- Non-interest expense included a $0.200 million real-estate-owned valuation adjustment during the six-month period. Compensation and benefits also increased. Premises and equipment rose partly because of relocation of the Mansfield Road branch.
- No specific earnings or financial guidance is provided. Management intends to use liquidity to support lending and may sell available-for-sale securities if needed. It cautions that deposit flows, loan prepayments, interest rates, economic conditions, competition, and borrower repayment capacity can affect results; $86.3 million of certificates of deposit were scheduled to mature within one year.
- The filing reports no material legal proceedings, no material change in internal controls, and no risk factors listed under Item 1A. Management identifies the allowance for loan losses as a significant estimate subject to judgment and possible revision. It also notes expected-credit-loss accounting adoption is scheduled for fiscal years beginning after December 15, 2022; the impact was not yet known.
Most important facts for investors to verify
- Whether elevated loan-sale gains and current mortgage origination volumes are sustainable, and how they affect reported earnings and cash flows.
- Performance of the $5.944 million in remaining COVID-related loan deferrals, alongside delinquency, non-performing asset, and charge-off trends.
- The loan-loss allowance’s adequacy, especially given charge-offs and the reported collateral-related write-downs.
- Whether deposit growth persists and how upcoming certificate maturities, deposit pricing, and liquidity needs affect funding costs and margins.
- Capital and shareholder returns: the company repurchased 41,870 shares during the quarter and announced a program authorizing repurchases of up to 85,000 shares.