Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: Three months ended September 30, 2020, the first quarter of fiscal 2021 (not calendar 2020 Q1). Comparisons are with the three months ended September 30, 2019, unless stated otherwise. Amounts are in U.S. dollars; financial statement amounts below are rounded to millions.
Business context and financial performance
The company is the holding company for Home Federal Bank, which operates seven full-service offices in the Shreveport-Bossier City area. Results depend principally on net interest income, loan-loss provisions, and loan-sale activity.
| Metric | Quarter ended Sep. 30, 2020 | Comparable period / change |
|---|---|---|
| Net interest income | $3.99 million | Up 4.5% year over year |
| Provision for loan losses | $0.70 million | $0.18 million in 2019 |
| Non-interest income | $1.71 million | Up 77.0%; loan-sale gains were $1.41 million |
| Non-interest expense | $3.42 million | Up 11.2% |
| Income before taxes | $1.57 million | $1.53 million in 2019 |
| Net income | $1.25 million | Unchanged year over year |
| Basic / diluted EPS | $0.76 / $0.74 | $0.73 / $0.68 in 2019 |
| Dividend declared per share | $0.165 | $0.16 in 2019 |
Net interest margin was 3.21%, down from 3.63%; the interest-rate spread was 2.92%, down from 3.30%. Management attributed margin pressure mainly to lower yields on interest-earning assets, including interest-earning deposits. Deposit interest expense fell, partially offsetting lower interest income. Higher loan-sale gains supported revenue, while the increased loan-loss provision and operating expenses absorbed that benefit.
Financial position, cash flow, and liquidity
- At September 30, 2020, total assets were $541.6 million, up 4.5% from June 30, 2020. Cash and cash equivalents were $75.6 million; net loans receivable were $354.8 million; loans held for sale were $27.8 million.
- Deposits were $483.7 million, up $22.9 million from June 30. Non-interest-bearing deposits increased to $121.0 million. Brokered deposits were $13.6 million, down from $16.1 million.
- Stockholders’ equity was $51.1 million. Borrowings included $0.983 million of FHLB advances and $1.5 million drawn on a credit line; total reported liabilities were $490.6 million.
- Cash increased $20.8 million during the quarter. Operating activities used $10.7 million, primarily reflecting mortgage-loan originations held for sale; investing activities provided $9.7 million and financing activities provided $21.8 million, principally from deposit growth.
- The Bank reported regulatory capital ratios of 9.73% tangible equity, 15.67% common equity Tier 1, 9.73% core capital, and 16.92% total risk-based capital, above applicable minimum requirements.
- Liquidity sources included $14.1 million in deposits at the FHLB, $181.6 million of additional FHLB borrowing capacity, and a $19.5 million federal-funds purchase agreement with no balance drawn. Outstanding loan commitments were $73.5 million, with $9.6 million in unused lines of credit. Certificates of deposit totaling $86.2 million were scheduled to mature within one year.
Material changes and credit quality
- Net loans receivable declined 1.4% from June 30, while loans held for sale rose 88.1% to $27.8 million as mortgage originations for sale increased. Available-for-sale and held-to-maturity securities totaled $56.7 million, down from $62.9 million at June 30.
- The allowance for loan losses rose to $4.55 million, or 1.26% of total loans, from $4.08 million at June 30. Quarterly charge-offs were $0.28 million and recoveries were $0.05 million.
- Non-performing assets were $6.2 million at September 30, down from $7.2 million at June 30 but up from $4.1 million a year earlier. They included $5.3 million of non-performing loans and $0.95 million of foreclosed assets. The sequential decline was primarily related to a write-down and collateral sale on a commercial real estate loan.
- COVID-19 payment deferrals had declined from 216 loans totaling $84.1 million at June 30 to 19 remaining loans totaling $6.2 million at September 30. The filing says it was too early to determine whether modified loans would perform to their revised terms.
- The company repurchased $0.387 million of its stock during the quarter. Its ninth repurchase program, for up to 90,000 shares, was completed July 24, 2020.
Outlook, risks, and unusual items
The filing provides no specific earnings or financial guidance. Management stated that quarterly results are not necessarily indicative of full-year results. It cited the COVID-19 recessionary environment in assessing credit losses and noted that the allowance depends on estimates and judgment. Other key exposures include loan performance, deposit retention and renewal costs, changing interest rates, economic conditions in the Bank’s market, and competition. The company said it had no material pending legal proceedings, no reportable off-balance-sheet arrangements, and no changes in internal control over financial reporting that materially affected or were reasonably likely to materially affect controls.
Most important facts for investors to verify
- Whether loan-sale gains remain elevated: they were $1.41 million this quarter versus $0.57 million a year earlier and materially supported non-interest income.
- Whether credit quality and the allowance adequately reflect risk, particularly in commercial real estate; review subsequent delinquencies, non-performing assets, charge-offs, and reserve changes.
- Whether the remaining COVID-19 deferrals perform as modified, and whether borrowers need further relief.
- Whether margin pressure persists: net interest margin fell to 3.21% from 3.63% year over year.
- Whether deposit growth and available borrowing capacity are sufficient to support $73.5 million of loan commitments and upcoming certificate maturities.