Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: Quarter and six months ended December 31, 2021 (fiscal 2022 second quarter). Financial statements are unaudited. The company is a Louisiana savings-and-loan holding company serving northwest Louisiana, primarily through Home Federal Bank’s nine full-service branches.
Financial performance and condition
| Metric | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 | Comparison |
|---|---|---|---|
| Net interest income | $4.185 million | $8.409 million | Down 6.5% and 0.6%, respectively |
| Net interest margin | 3.15% | 3.15% | 3.50% and 3.34% in the prior-year periods |
| Provision for loan losses | $61,000 | $61,000 | Prior year: $600,000 and $1.300 million |
| Net income | $1.176 million | $2.528 million | Down from $1.403 million and $2.650 million |
| Diluted earnings per share | $0.34 | $0.73 | Prior year: $0.42 and $0.79 |
| Dividends declared per share | $0.10 | $0.20 | Prior year: $0.08 and $0.17 |
For the quarter, total interest income declined to $4.686 million from $5.380 million; lower interest expense partly offset the decline. Non-interest income fell to $1.036 million from $1.508 million, principally because loan-sale gains decreased to $710,000 from $1.207 million as mortgage refinance activity eased. Non-interest expense rose to $3.684 million from $3.590 million. For the six-month period, loan-sale gains were $1.420 million versus $2.618 million.
At December 31, total assets were $571.3 million, up 1.0% from June 30, 2021. Net loans were $361.3 million, up 7.4%; deposits were $512.2 million, up 1.1%; and shareholders’ equity was $53.4 million. Cash and cash equivalents declined 28.7% to $74.4 million, primarily as excess liquidity funded loan growth. Total investment securities were $98.5 million, including $74.3 million held to maturity.
Six-month operating cash flow was $7.0 million, compared with cash used of $9.6 million in the prior-year period. Investing activities used $40.5 million, including $24.8 million of held-to-maturity security purchases and net loan growth. Financing activities provided $3.5 million. Cash and cash equivalents decreased $30.0 million over the six months.
Borrowings were modest: $850,000 in FHLB advances and $2.5 million in other borrowings at period-end. The Bank reported $174.5 million of additional FHLB borrowing capacity; a separate $20.4 million federal-funds purchase facility was unused. The company reported regulatory capital ratios of 9.80% tangible equity, 15.40% common equity Tier 1, 9.80% core, and 16.56% total risk-based capital, each above applicable minimum requirements.
Material changes and credit quality
- Net loans increased $24.9 million, led by $24.4 million growth in commercial real estate loans. Commercial real estate and one-to-four-family residential balances were the largest loan categories.
- Deposits increased $5.6 million. Growth in non-interest-bearing, savings, NOW, and money-market deposits was partly offset by a $24.6 million decline in certificates of deposit. Brokered deposits fell to $6.0 million from $10.7 million.
- The allowance for loan losses was $4.184 million, or 1.14% of loans, compared with $4.122 million at June 30. Six-month net charge-offs were negative $1,000 (recoveries exceeded charge-offs by $1,000).
- Non-performing assets were $1.6 million at December 31, versus $1.4 million at June 30. They included $1.2 million of non-performing loans and $375,000 of other real estate owned. Past-due loans totaled $1.540 million; $225,000 was more than 90 days past due and accruing.
- Available-for-sale securities had $213,000 of after-tax unrealized loss recorded in other comprehensive income for the six months. Management attributed securities’ unrealized losses to interest-rate changes, not credit deterioration, and stated it could and intended to hold the securities until recovery.
- Shareholders’ equity increased $683,000. Net income and stock-option exercise proceeds were partly offset by $2.6 million of company stock purchases, $671,000 of dividends, and lower accumulated other comprehensive income. The company repurchased 114,833 shares during the quarter at an average $19.21 per share.
Outlook, risks, and other notable items
The filing provides no quantified earnings or operating guidance. Management said it intends to use liquidity to support lending and, if necessary, sell available-for-sale securities. Management attributed the lower loan-loss provision to improved economic and credit-quality factors, while noting the allowance remains a judgment-sensitive estimate. Management also cautioned that the cost of renewing certificates of deposit could rise in a higher-rate environment.
Key risks identified include interest-rate changes and effects on margins, deposit flows and funding costs; local economic and real-estate conditions; loan quality and reserve adequacy; COVID-19 effects; competition; and regulatory, tax, and accounting changes. The company reported $43.4 million of loan-origination commitments and $10.6 million of unused credit lines; certificates of deposit totaling $49.8 million were scheduled to mature within one year. These are funding and liquidity considerations, not reported debt balances.
The company is preparing for adoption of the expected-credit-loss standard (CECL); it said the eventual impact could be material but was not yet known. It planned to replace LIBOR with the one-year Treasury-bill rate for affected customers. Management reported effective disclosure controls, no material change in internal control over financial reporting, no material pending litigation, and no subsequent event requiring disclosure. Lease obligations include operating leases with a 36.9-year weighted-average remaining term.
Important facts for investors to verify
- Whether loan growth—particularly commercial real estate growth—and the reported past-due and non-performing balances develop without deterioration in credit quality or reserve adequacy.
- Whether declining mortgage refinance activity and loan-sale gains continue to pressure non-interest income.
- How net interest margin responds to rate changes, including deposit repricing and the $49.8 million of certificates maturing within one year.
- Whether liquidity remains sufficient to fund commitments and lending while cash balances have declined; confirm the availability and terms of reported borrowing facilities.
- The eventual CECL adoption impact and progress on the stated LIBOR transition.