Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: Three months ended September 30, 2018 (the first quarter of fiscal 2019; unaudited). The filing covers the company and its bank subsidiary, operating primarily in the Shreveport-Bossier City area. Financial statement amounts below are in millions unless stated otherwise.
Financial performance and condition
| Metric | Quarter ended Sep. 30, 2018 | Comparable 2017 period or prior quarter-end |
|---|---|---|
| Total interest income | $4.886 | $4.593 in 2017 |
| Net interest income | $3.888 | $3.742 in 2017 |
| Net interest margin | 3.86% | 3.69% in 2017 |
| Net income | $1.218 | $1.008 in 2017 |
| Diluted EPS | $0.63 | $0.53 in 2017 |
| Cash provided by operating activities | $4.214 | $7.715 in 2017 |
| Total assets | $428.328 | $421.650 at June 30, 2018 |
| Net loans receivable | $326.621 | $317.493 at June 30, 2018 |
| Deposits | $370.745 | $360.260 at June 30, 2018 |
| FHLB advances | $6.568 | $11.637 at June 30, 2018 |
| Stockholders’ equity | $47.959 | $47.037 at June 30, 2018 |
The allowance for loan losses was $3.497 million, or 1.06% of loans. Non-performing assets were $2.7 million, including $922,000 in non-performing loans and $1.8 million in foreclosed assets. Cash and cash equivalents ended the quarter at $13.340 million, down $2.527 million from June 30. Investing activities used $11.618 million; financing activities provided $4.877 million. The company declared dividends of $0.14 per share.
Material changes versus comparable periods
- Net income increased 20.8% year over year. Net interest income rose 3.9%, while the provision for loan losses declined to $250,000 from $300,000.
- Non-interest income fell 30.8% to $670,000, mainly reflecting lower gains on loan sales ($392,000 versus $605,000) and no securities-sale gain (versus $94,000 in 2017). Management linked lower loan-sale gains to reduced emphasis on mortgage banking.
- Non-interest expense declined 1.9% to $2.776 million. Lower compensation and other costs were partly offset by a $75,000 write-down on real estate owned, acquired for a future branch site.
- The income tax provision fell to $314,000 from $571,000; the effective tax rate was 20.5% versus 36.2%, primarily due to the Tax Cuts and Jobs Act.
- Quarter-end loans increased 2.9% from June 30, led by multifamily residential and commercial real estate lending. Deposits rose 2.9%, principally from certificates of deposit; FHLB advances declined as deposits replaced borrowings.
- Foreclosed assets increased by $649,000 from June 30, with ten one-to-four-family residences acquired during the quarter. Non-performing assets were lower than both June 30, 2018 ($3.0 million) and September 30, 2017 ($3.3 million).
Outlook, risks and other notable items
- No specific earnings or financial guidance is provided. Management said it intended to use liquidity to support lending and could sell available-for-sale securities if additional funding were needed.
- At September 30, the Bank reported $36.2 million of loan origination commitments and $10.7 million of unused credit lines. Certificates of deposit totaling $86.2 million mature within one year; management expects a significant portion to remain, but warns renewal costs could be higher in a rising-rate environment.
- Available liquidity included $147.8 million of additional FHLB borrowing capacity and a $15.5 million federal-funds purchase facility, unused at quarter-end. Regulatory capital ratios exceeded minimum requirements; the Bank reported tangible and core ratios of 11.26%, CET1 of 16.19%, and risk-based capital of 17.36%.
- Management identifies the loan-loss allowance as a significant estimate subject to judgment and change, and says there is no assurance it will cover future losses. Interest rates, economic conditions, deposit competition, loan performance, and future funding costs are cited as factors that may affect results.
- Available-for-sale securities had $1.423 million of gross unrealized losses at quarter-end, attributed by management to interest-rate movements rather than credit quality; management did not consider them other-than-temporarily impaired. Securities and mortgage loans with a carrying value of $147.8 million were pledged to secure FHLB advances.
- The company repurchased 5,812 shares during the quarter for approximately $198,000. Management reported effective disclosure controls and no material change in internal control over financial reporting. No material legal proceedings or applicable risk-factor disclosures were reported.
Key facts for investors to verify
- Whether loan growth, especially in commercial real estate and multifamily lending, changes portfolio concentration or credit risk.
- Trends in past-due and non-performing loans, troubled debt restructurings, foreclosed assets, and the adequacy of the allowance.
- Deposit pricing and retention, including the cost and renewal behavior of the $86.2 million of certificates maturing within one year.
- Whether lower mortgage-banking activity and loan-sale gains persist, and how interest-rate changes affect net interest margin and securities values.
- The recurring impact of the real-estate write-down and the planned branch-site property on future expenses and capital deployment.