Home Federal Bancorp, Inc. of Louisiana — FY2014 Form 10-K
Reporting period: Fiscal year ended June 30, 2014, compared primarily with fiscal 2013. Although the request metadata says “2013 Q4,” this filing reports FY2014, not a standalone quarterly period. The company is a Louisiana bank holding company whose principal business is conducted through Home Federal Bank in northwest Louisiana.
Financial results and condition
| Metric | FY2014 / June 30, 2014 | FY2013 / June 30, 2013 |
|---|---|---|
| Total assets | $329.5 million | $277.2 million |
| Net interest income | $10.84 million | $10.58 million |
| Net income | $2.74 million | $3.13 million |
| Basic / diluted EPS | $1.33 / $1.29 | $1.34 / $1.31 |
| Net interest margin | 3.92% | 4.06% |
| Efficiency ratio | 67.8% | 62.0% |
| Net loans | $239.6 million | $206.1 million |
| Deposits | $272.3 million | $211.9 million |
| FHLB advances | $12.9 million | $21.7 million |
| Stockholders’ equity | $42.8 million | $42.0 million |
- Interest income was $13.17 million, nearly unchanged year over year; interest expense fell $243,000 to $2.34 million. Net interest income rose 2.5%, but the margin declined as asset yields fell.
- Net income decreased $386,000 (12.3%). The $1.08 million decline in non-interest income, mainly lower gains on loan sales, and $250,000 higher non-interest expense outweighed improved net interest income and a lower loan-loss provision.
- Cash and cash equivalents ended at $13.6 million, up from $3.7 million. Cash flow was $(2.4) million from operations, $(36.2) million from investing, and $48.6 million from financing; the overall increase in cash was $9.9 million. Operating cash flow was affected by mortgage loans originated for sale.
- Loan growth was 16.2%; total deposits grew 28.5%. Net loans were 72.7% of total assets. Residential one- to four-family loans were 37.0% of the loan portfolio, commercial real estate 23.2%, and commercial business 10.6%.
- Loan-loss allowance was $2.40 million, 0.99% of total loans; provision expense fell to $168,000 from $558,000. Nonperforming assets were $178,000, or 0.05% of assets, versus $649,000 and 0.23% a year earlier. There were no real-estate-owned assets or TDRs at year-end.
- Bank regulatory capital ratios were 12.74% tangible/core and 21.35% total risk-based; the Bank was categorized as well capitalized.
Material changes and management commentary
- Assets grew $52.4 million, driven principally by $33.5 million higher net loans, $9.9 million higher cash, and growth in loans held for sale. The loan book continued shifting toward commercial and business lending.
- Deposits rose $60.4 million, including a $32.8 million increase in money-market balances. A $30.6 million short-term deposit was included at June 30 and had been withdrawn by early August 2014. The filing gives slightly different withdrawal dates in separate passages.
- FHLB advances declined $8.8 million. About $10.5 million of the $12.9 million balance was due within one year.
- The Bank originated $247.0 million of loans and sold $83.6 million during FY2014, compared with $240.9 million originated and $110.4 million sold in FY2013. Gain on loan sales declined to $1.64 million from $2.67 million.
- Shareholders’ equity increased modestly despite $2.5 million of treasury-stock purchases and $551,000 of dividends. Quarterly dividends were $0.06 per share.
- Management intends to expand commercial lending and related services, manage expenses, preserve asset quality, and consider additional offices or acquisitions. It reported no current specific acquisition plans or agreements. A new Bossier City office opened in September 2014.
Outlook, risks, and unusual items
- No numerical earnings or revenue guidance is provided. Management expects to emphasize higher-yielding commercial and consumer lending while selling a substantial portion of fixed-rate residential mortgage production.
- Interest-rate risk is material: management reported that a 300-basis-point rate increase would raise modeled net portfolio value by 9.2%, while warning that higher funding costs could pressure the spread. The filing’s model is not a forecast of actual earnings.
- Liquidity was supported by $13.6 million in cash and cash equivalents, available-for-sale securities, and $111.0 million of additional FHLB borrowing capacity. Loan commitments were $34.9 million and unfunded credit lines $14.0 million. Certificates of deposit totaling $51.5 million matured within one year; renewal volumes and rates are uncertain.
- Credit risks include increasing commercial, construction, and land lending, which management acknowledges generally carries greater credit risk than some other loan types. The portfolio is concentrated in the Shreveport-Bossier area. A third-party review of lending and credit procedures was conducted during FY2014; management expects annual reviews.
- New regulatory capital rules were scheduled to begin phasing in January 2015, including higher capital thresholds and a conservation buffer. The company was also reviewing its investments for Volcker Rule compliance.
- Other contingencies include ordinary-course, nonmaterial legal proceedings; $1.53 million in future minimum employment-contract commitments; and a $3.3 million pre-1988 tax reserve that could become taxable if used for certain purposes. No material off-balance-sheet gains or losses were anticipated.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- How much of the June 30 deposit growth was recurring after the $30.6 million temporary deposit left, and how deposits subsequently developed.
- Whether commercial loan growth is maintaining underwriting quality, particularly in commercial real estate, construction, land, and business lending; monitor classified loans, delinquencies, and allowance adequacy.
- Whether lower residential loan-sale gains and the declining net interest margin continue to weigh on earnings, and how the balance between loan growth and loan sales evolves.
- The timing and cost of certificate renewals, the near-term FHLB maturity, and liquidity needs related to loan commitments and branch expansion.
- The impact of the 2015 capital-rule changes and interest-rate movements on capital, funding costs, margins, and the market value of securities.
- Resolve the filing’s inconsistent wording on the temporary deposit withdrawal date and confirm post-year-end developments, including the September 2014 branch opening.