Home Federal Bancorp, Inc. Of Louisiana annual report, FY2022

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Home Federal Bancorp, Inc. of Louisiana — FY2022 Form 10-K

Reporting period: Fiscal year ended June 30, 2022; comparisons are with the fiscal year ended June 30, 2021. This is an annual filing, not a calendar fourth-quarter report. The company is a Louisiana bank holding company whose subsidiary, Home Federal Bank, operates in northwest Louisiana.

Financial and operating performance

  • Income: Net interest income rose 2.5% to $17.36 million, while net income fell 9.2% to $4.87 million. Basic EPS was $1.50 versus $1.66; diluted EPS was $1.41 versus $1.57.
  • Revenue and margins: Interest income decreased 5.0% to $19.23 million, but interest expense fell 43.2% to $1.88 million. Net interest margin slipped to 3.27% from 3.31%; net interest spread increased to 3.11% from 3.07%. Non-interest income declined 36.2% to $3.48 million, chiefly as loan-sale gains decreased to $1.98 million from $4.32 million.
  • Credit costs and profitability: The provision for loan losses fell to $336,000 from $1.80 million. Non-interest expense rose 5.2% to $14.50 million. Return on average assets was 0.85% versus 0.98%, and return on average equity was 9.24% versus 10.45%. The efficiency ratio increased to 69.59% from 61.55%.
  • Balance sheet: Assets increased 4.4% to $590.48 million. Net loans grew 15.3% to $387.87 million; deposits rose 5.0% to $531.99 million. Commercial real estate loans were $127.59 million (32.5% of loans), while commercial business loans were $44.49 million (11.3%).
  • Funding and liquidity: Cash and cash equivalents declined to $64.08 million from $104.41 million, primarily as loan growth and securities purchases used excess liquidity. The company reported a 31.7% average liquidity ratio for the quarter ended June 30, 2022. It had $832,000 of FHLB advances and $2.35 million of other borrowings; available FHLB borrowing capacity was $176.7 million. Certificates of deposit totaling $51.04 million were scheduled to mature within one year.
  • Cash flow and capital: Operating cash flow was $17.06 million; investing activities used $78.79 million and financing activities provided $21.41 million. Bank regulatory capital ratios included a 9.65% leverage/core ratio and 15.62% total risk-based capital ratio; the bank was classified as well capitalized.
  • Shareholder returns: The company paid $1.35 million in dividends and repurchased $4.48 million of stock during the year. Stockholders’ equity was $52.35 million, down from $52.73 million.

Material changes versus FY2021

  • Loan growth shifted the portfolio further toward real estate lending: total loans increased to $392.64 million from $341.26 million, with commercial real estate loans rising to $127.59 million from $96.18 million. Commercial business loans decreased to $44.49 million from $69.89 million, primarily reflecting SBA Paycheck Protection Program loan repayments.
  • Residential loan originations fell to $148.08 million from $249.10 million; residential loan sales fell to $87.24 million from $198.80 million. Management cited lower refinance activity and continued sales of many long-term fixed-rate mortgages to manage interest-rate risk.
  • Non-performing loans increased to $2.18 million, or 0.62% of net loans, from $1.01 million, or 0.30%. Including $212,000 of TDRs not included in non-performing loans, non-performing assets and TDRs totaled $2.40 million, or 0.41% of assets. The filing also cites approximately $2.5 million/0.43% in a management discussion; these presentations differ and should be reconciled.
  • Available-for-sale securities had $2.15 million of gross unrealized losses at year-end, and held-to-maturity securities had $10.44 million of gross unrealized losses. The company attributed the declines to interest-rate changes, not credit quality, and said it intended and was able to hold the securities for recovery.
  • The company opened a ninth full-service branch in southwest Shreveport and converted its Minden loan production office to a full-service branch. Full-time employees increased to 70 from 61.

Outlook, risks, and unusual items

  • Management plans to emphasize commercial real estate and business lending, diversify products, expand in contiguous markets, control expenses, and continue selling a substantial portion of fixed-rate residential originations. No numerical earnings or growth guidance is provided.
  • Interest-rate risk is significant: management’s June 30, 2022 model showed net portfolio value declining 17.45% under a +300-basis-point rate shock. Higher rates could also increase deposit-renewal costs; management noted that $51.04 million of certificates matured within a year.
  • Credit risks include the growing commercial real estate, construction and development, and business loan exposures. Classified assets totaled $7.1 million; no loans were classified doubtful or loss. A $1.8 million relationship secured by multiple non-owner-occupied homes was restructured and on non-accrual at year-end.
  • Management’s loan-loss allowance is judgmental and was identified as a critical audit matter. The $4.45 million allowance was 1.13% of total loans, down from 1.21% a year earlier; future changes in estimates or economic conditions could affect earnings.
  • Other notable items: a $228,000 bank-owned life insurance claim contributed to other income; $68.4 million of $68.8 million in funded PPP loans had been forgiven. The company reported no material pending litigation, no SEC-defined off-balance-sheet arrangements, and no adverse subsequent events through the financial-statement date.
  • Auditors issued an unqualified opinion on the financial statements. Management concluded internal control over financial reporting was effective; the company was not required to have an auditor attestation of those controls.

Most important facts for investors to verify

  • Reconcile the filing’s differing year-end descriptions of non-performing assets, particularly the $2.18 million NPA figure, TDRs, and the $2.5 million/0.43% management figure.
  • Track delinquency, non-accrual status, collateral values, and loss exposure for the restructured $1.8 million residential loan relationship and the $7.1 million of classified assets.
  • Assess whether commercial loan growth and concentrations are producing adequate risk-adjusted yields and whether the allowance remains appropriate.
  • Monitor the impact of rising rates on net interest margin, deposit pricing and retention, securities values, and the large unrealized losses in the held-to-maturity portfolio.
  • Review liquidity needs against near-term certificate maturities, $60.5 million in loan commitments, $11.4 million in unused lines of credit, and available borrowing capacity.