Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: Three months ended September 30, 2013 (the first quarter of fiscal 2014). The unaudited consolidated filing covers the company and Home Federal Bank, which operates primarily in the Shreveport–Bossier City area.
Financial performance and position
| Metric | Quarter ended September 30, 2013 | Comparable period / prior date |
|---|---|---|
| Net interest income | $2.701 million | $2.647 million, up 2.0% year over year |
| Net income | $713,000 | $939,000, down 24.1% year over year |
| Basic / diluted EPS | $0.34 / $0.33 | $0.36 / $0.35 |
| Net interest margin | 3.91% | 4.08% |
| Average interest rate spread | 3.65% | 3.77% |
| Net cash from operating activities | $(1.122) million | $3.478 million |
| Total assets | $292.7 million | $277.2 million at June 30, 2013 |
| Net loans receivable | $206.9 million | $206.1 million at June 30, 2013 |
| Deposits | $232.5 million | $211.9 million at June 30, 2013 |
| FHLB advances | $15.5 million | $21.7 million at June 30, 2013 |
| Stockholders’ equity | $42.2 million | $42.0 million at June 30, 2013 |
All dollar amounts are in U.S. dollars. Interest income was $3.331 million and interest expense was $630,000. The loan-loss provision was $66,000; the allowance for loan losses was $2.306 million, or 1.10% of total loans. Non-interest income was $604,000 and non-interest expense was $2.182 million. The company declared dividends of $0.06 per share.
Cash and cash equivalents were $10.3 million at quarter-end, up from $3.7 million. Investing activities used $6.8 million; financing activities provided $14.5 million. The bank reported $120.6 million of additional FHLB borrowing capacity, $16.7 million available under a federal funds purchase agreement (unused at quarter-end), and $26.8 million in outstanding loan commitments. Certificates of deposit due within one year totaled $45.9 million.
Material changes and operating trends
- Quarterly net income fell $226,000 year over year. Management attributed the decrease mainly to lower non-interest income and higher non-interest expense, partly offset by lower loan-loss provision, increased net interest income, and lower income tax expense.
- Non-interest income declined 35.1% to $604,000, including lower loan-sale gains ($476,000 versus $682,000) and no investment-sale gain, compared with $95,000 in the prior-year quarter.
- Non-interest expense rose 5.9% to $2.182 million, mainly from compensation and benefits, data processing, and other expenses. Management cited normal compensation increases and the hiring of additional commercial and residential loan officers.
- Net interest income increased despite lower net interest margin and spread. Management cited a lower cost of funds; average yields on interest-earning assets also declined.
- Assets increased 5.6% from June 30, 2013. Deposits rose $20.6 million while FHLB advances declined $6.1 million. Net loans increased modestly, and available-for-sale securities increased to $52.9 million.
- Non-performing assets declined to $527,000 from $649,000 at June 30, 2013. The filing reports five non-performing loans and no troubled debt restructurings at September 30. Loans more than 90 days past due totaled $527,000; $166,000 was still accruing.
Outlook, risks and notable items
- The filing gives no quantified earnings or financial guidance. Management said results for the quarter are not necessarily indicative of results for fiscal 2014.
- A single, non-recurring deposit relationship materially contributed to the quarter-end cash increase; management said part of that deposit had been withdrawn after quarter-end. This makes the cash balance less indicative of recurring liquidity.
- Management intends to use liquidity to support lending and may sell available-for-sale securities if needed. The bank relies on deposit flows, loan and securities repayments, loan sales, and borrowing capacity; deposit behavior and loan prepayments are sensitive to interest rates, the economy, and competition.
- Management noted that renewal costs for deposits maturing within a year could rise in a higher-rate environment. Brokered deposits were $12.7 million at both reporting dates; these certificates mature after 12 months and are callable by the bank after 12 months.
- Credit-loss estimates are judgmental and particularly sensitive to borrower repayment capacity, collateral values, and economic conditions. Management considered the allowance adequate but cautioned it may not cover future losses. Non-accrual loans totaled $361,000; no interest income was recognized on them in the quarter.
- Available-for-sale securities had $1.121 million of gross unrealized losses at September 30, 2013, versus none at June 30, 2013; the quarter included a $262,000 after-tax other comprehensive loss related to securities valuation.
- The agency office relocation to 222 Florida Street was expected to be completed in the second quarter of fiscal 2014. Regulatory capital ratios exceeded minimums: tangible 14.62%, core 14.62%, and risk-based 25.29%.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. Legal proceedings were described as routine and immaterial; risk factors were listed as not applicable.
Important facts for investors to verify
- Whether the unusually large deposit was retained or withdrawn after quarter-end, and the resulting effect on liquidity and deposit concentration.
- Subsequent deposit trends and renewal pricing, particularly for the $45.9 million of certificates due within one year and the $12.7 million in brokered deposits.
- Loan performance, delinquency and non-accrual trends, and whether the $2.306 million allowance remains adequate as credit conditions change.
- Whether net interest margin stabilizes and whether loan-sale income and higher operating costs affect future profitability.
- The filing gives different share-count snapshots: 2,347,334 shares outstanding on the September 30 balance sheet and 2,354,500 outstanding on November 6. Verify the applicable count when assessing per-share measures.