Business context and reporting period
Home Federal Bancorp, Inc. of Louisiana is the holding company for Home Federal Bank, a community bank serving the Shreveport-Bossier City area. This Form 10-Q covers the fiscal third quarter ended March 31, 2016, and the nine months then ended; it does not cover calendar-year 2015 Q3. Financial statement amounts below are in thousands of dollars unless noted.
Financial performance and position
- Quarterly earnings: Net income was $774, down 8.2% from $843 a year earlier. Basic/diluted EPS was $0.42/$0.40, versus $0.43/$0.42. Total interest income was $3,862; net interest income was $3,217, up 4.5%. Non-interest income was $775, down 18.1%, while non-interest expense rose 2.7% to $2,750.
- Nine-month earnings: Net income was $2,396, down 4.2% from $2,501. Basic/diluted EPS was $1.27/$1.22, compared with $1.26/$1.22. Net interest income rose 3.5% to $9,478; non-interest income rose 6.4% to $2,308; non-interest expense increased 8.9% to $8,051.
- Margins: For the nine months, net interest margin declined to 3.66% from 3.79%, and the average interest-rate spread fell to 3.47% from 3.61%. For the quarter, reported net interest margin was 3.75% versus 3.73% and spread was 3.57% versus 3.55%.
- Assets and lending: Total assets were $362.6 million, down 2.0% from June 30, 2015. Net loans were $282.4 million, up 5.2%; gross loans were $285.3 million. Loans held for sale fell to $7.3 million from $14.2 million.
- Credit quality: The allowance for loan losses was $2.749 million, or 0.96% of total loans, versus $2.515 million, or 0.92%, at June 30, 2015. The quarter-end allowance ratio is stated in MD&A; the comparative ratio is as of March 31, 2015. Non-performing loans/assets were $218,000, versus $80,000 at June 30, 2015. The filing reports no troubled debt restructurings and no loan charge-offs in the nine-month period.
- Funding, debt and liquidity: Deposits were $290.7 million, up 1.5% from June 30, 2015; FHLB advances were $27.2 million, down from $38.4 million. Cash and cash equivalents fell 64.3% to $7.5 million. The Bank reported $117.6 million of additional FHLB borrowing capacity and an unused $15.1 million federal-funds purchase facility. Certificates of deposit totaling $62.2 million mature within one year.
- Cash flow: Nine-month operating cash flow was $10.264 million, versus $1.835 million a year earlier; investing activities used $13.918 million and financing activities used $9.965 million. Cash decreased $13.619 million during the period to $7.547 million.
- Capital and shareholder returns: Stockholders’ equity was $42.9 million, down 1.2% from June 30, 2015; book value per share was $21.47. The Bank reported regulatory capital ratios of 11.64% tangible, 16.78% common equity tier 1, 11.64% core and 17.88% risk-based, all above minimum requirements. Nine-month dividends declared were $0.24 per share. The Company repurchased 41,132 shares in the quarter at an average $22.39 per share.
Material changes versus comparable periods
- Quarterly profit declined despite higher net interest income, primarily as loan-sale gains decreased by $191 and total non-interest income fell by $171; non-interest expenses rose by $73.
- For the nine months, higher net interest and non-interest income were more than offset by a $661 increase in non-interest expense, including higher compensation, taxes, legal costs and deposit insurance premiums.
- Loan growth and higher premises-and-equipment spending—associated with branch construction—were offset by reductions in cash, securities and loans held for sale, contributing to the decline in total assets.
- Deposits shifted toward savings, NOW and money-market accounts, while certificates of deposit and brokered deposits declined. Management described reducing reliance on brokered certificates as an ongoing strategy.
Outlook, risks and notable items
- No earnings or financial guidance is provided. Management said it intended to use liquidity to fund lending and expected a new North Shreveport branch to open in May 2016.
- Management identifies the allowance for loan losses as a critical estimate subject to judgment and change. It cautions that the allowance may not cover future losses. Deposit retention and renewal costs are uncertain, particularly if interest rates rise; management also cites interest-rate, economic, competitive and regulatory risks.
- The Bank had $24.7 million of outstanding loan commitments. Securities and mortgage loans totaling $166.3 million were pledged to secure FHLB advances. Management reported no material off-balance-sheet arrangements and no material pending legal proceedings beyond routine matters.
- The filing reports no material effect from recently adopted accounting guidance; management was assessing the effect of the forthcoming revenue-recognition standard. Disclosure controls were deemed effective, with no material change in internal control reported.
Important facts for investors to verify
- Confirm the period: the filing is for the quarter ended March 31, 2016 (fiscal Q3), despite the request metadata stating “2015 Q3.”
- Track whether loan and deposit growth can sustain earnings as nine-month net interest margin and spread have contracted, while non-interest costs have increased.
- Review the rise in non-performing loans and substandard credits, the adequacy of the allowance, and the filing’s unusually large disclosed foregone interest on non-accrual loans: $776 for the nine months versus $2,700 a year earlier.
- Monitor liquidity after the cash decline, upcoming certificate maturities, loan commitments, and the extent to which replacement deposits remain stable and affordable.
- Assess branch investment, share repurchases and dividends against earnings, capital and available funding.