Home Federal Bancorp, Inc. of Louisiana — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2020, compared primarily with the year ended June 30, 2019. Although the request labels the period “2019 Q4,” this filing covers fiscal 2020, not a standalone quarterly period.
Business context
Home Federal Bancorp is the holding company for Home Federal Bank, a community bank serving the Shreveport-Bossier City area of northwest Louisiana. Its principal activities are gathering deposits and originating loans. The Bank operates seven full-service branches.
Financial performance and condition
| Metric | FY2020 / June 30, 2020 | FY2019 / June 30, 2019 |
|---|---|---|
| Total assets | $518.2 million | $442.5 million |
| Net loans receivable | $359.9 million | $324.1 million |
| Deposits | $460.8 million | $388.2 million |
| Net interest income | $15.2 million | $15.3 million |
| Provision for loan losses | $1.9 million | $0.6 million |
| Non-interest income | $3.9 million | $2.4 million |
| Non-interest expense | $12.4 million | $11.1 million |
| Net income | $3.9 million | $4.7 million |
| Diluted EPS | $2.14 | $2.50 |
| Net interest margin | 3.46% | 3.78% |
| Return on average assets / equity | 0.83% / 7.74% | 1.10% / 9.82% |
Assets increased 17.1%, with growth in cash, loans and loans held for sale. Deposits rose 18.7%, including substantial PPP-related funding. Commercial business loans grew by $45.9 million, principally reflecting 374 SBA Paycheck Protection Program loans totaling $46.2 million. Net loans were 69.5% of assets; commercial real estate and commercial business loans represented 23.8% and 22.4% of gross loans, respectively.
Net income fell 18.8%. Higher provision expense and non-interest costs, alongside slightly lower net interest income, outweighed higher non-interest income. Loan-sale gains were $2.5 million, up from $1.6 million; the Company also recorded a $219,000 gain on securities sales. The efficiency ratio increased to 64.9% from 62.6%.
Cash flow: Operating cash flow was $0.2 million, investing cash flow was negative $32.5 million, and financing cash flow was positive $69.1 million. Cash and cash equivalents increased $36.8 million to $54.9 million. The large financing inflow was primarily associated with deposit growth.
Liquidity, debt and capital: Deposits were the primary funding source. The Bank reported a 24.97% average liquidity ratio for the quarter ended June 30, 2020, $19.1 million in deposits at the FHLB, and $161.7 million of additional FHLB borrowing capacity. It had $1.1 million of FHLB advances and a $2.3 million balance on a $5.0 million bank line of credit. Stockholders’ equity was $50.5 million. Regulatory capital ratios included 10.21% tangible/core, 16.37% common equity Tier 1 and 17.63% total risk-based capital; the Bank was categorized as well capitalized.
Material changes, risks and outlook
- Credit quality: Non-performing assets rose to $7.2 million, or 1.39% of assets, from $5.1 million, or 1.15%. Non-performing loans were 1.73% of net loans, versus 1.15%. The increase was primarily attributable to a $2.3 million relationship of six loans placed on non-accrual; the relationship had previously been classified as a troubled debt restructuring. The allowance was $4.1 million, or 1.12% of loans, and covered 65.42% of non-performing loans.
- COVID-19 exposure: By June 30, the Bank had granted payment deferrals on 216 loans totaling $84.1 million, equal to 23.0% of loans. Most were three-month principal-and-interest deferrals. Management said it was too early to assess how these loans would perform after deferral. The Company elected CARES Act relief that can suspend certain TDR accounting requirements for qualifying COVID-19 modifications.
- PPP and uncertainty: PPP lending supported small businesses and contributed to deposit and loan growth. Management said the pandemic’s effects on borrowers, credit quality, revenues and asset values were uncertain and warned of potential increases in delinquencies, classified loans, charge-offs and credit-loss provisions. It also expected pandemic effects could persist into 2020 or longer.
- Interest-rate and earnings pressure: Management attributed margin compression to lower asset yields and higher funding costs. It expects to emphasize commercial lending and continue selling a substantial portion of fixed-rate residential mortgage originations; no quantitative earnings or margin guidance was provided.
- Other items: The Company repurchased 14,922 shares during the June 2020 quarter at an average $24.33 per share; its ninth repurchase program was completed July 24, 2020. The auditor issued an unqualified opinion on the financial statements; management reported effective internal control over financial reporting, though the auditor did not provide an internal-control audit opinion.
Most important facts for investors to verify
- Subsequent performance, repayment status and any repeat deferrals for the $84.1 million of COVID-19-modified loans, particularly commercial and multifamily exposures.
- Credit developments in the six-loan, $2.3 million borrower relationship and the collateral, reserve adequacy and recovery outlook for non-performing assets.
- PPP loan forgiveness, repayment and fee-recognition developments, and whether PPP-related balances materially change after the reporting date.
- Whether deposit growth is durable and how the $88.0 million of certificates maturing within one year affects funding costs and liquidity.
- Trends in net interest margin, loan-sale gains, operating expenses and profitability as pandemic conditions and interest rates evolve.