Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: Three months ended September 30, 2019. This is the first quarter of fiscal 2020; the supplied request metadata says “2019 Q1.” Financial amounts below are in millions unless noted.
Business context
The company is the holding company for Home Federal Bank, a community bank operating seven full-service offices in the Shreveport-Bossier City area of Louisiana. Results depend primarily on net interest income, loan-sale activity, credit costs, and deposit funding costs.
Financial performance
| Metric | Quarter ended Sep. 30, 2019 | Prior-year quarter / comparison |
|---|---|---|
| Interest income | $5.168 | $4.886; up 5.8% |
| Interest expense | $1.354 | $0.998; up 35.7% |
| Net interest income | $3.814 | $3.888; down 1.9% |
| Net interest margin / rate spread | 3.63% / 3.30% | 3.86% / 3.60% |
| Provision for loan losses | $0.175 | $0.250 |
| Non-interest income | $0.964 | $0.670; up 43.9% |
| Non-interest expense | $3.077 | $2.776; up 10.8% |
| Pre-tax income / net income | $1.526 / $1.247 | $1.532 / $1.218 |
| Basic / diluted EPS | $0.73 / $0.68 | $0.68 / $0.63 |
| Dividend declared per share | $0.16 | $0.14 |
Higher loan-sale gains, a $0.080 million gain on real estate, and higher deposit service charges supported non-interest income. Increased compensation, advertising, and loan and collection costs contributed to higher expenses. The effective tax rate was 18.3%, versus 20.5%.
Financial condition, cash flow, and liquidity
- Total assets were $459.9 million, up 3.9% from June 30, 2019. Cash and cash equivalents rose to $33.1 million from $18.1 million; loans held for sale rose to $12.0 million from $8.6 million. Net loans were nearly flat at $323.7 million.
- Deposits increased 4.3% to $405.0 million. Non-interest-bearing deposits and savings grew, while certificates of deposit declined to $173.2 million from $183.3 million. Brokered deposits were $11.2 million, down from $19.2 million.
- Borrowings were modest: $1.3 million of FHLB advances and $1.0 million on a line of credit. The Bank reported $168.9 million of additional FHLB borrowing capacity and $15.5 million available under a federal funds purchase agreement, with none drawn under that agreement.
- Operating cash flow was negative $0.693 million, compared with positive $4.228 million a year earlier. Investing activities provided $0.243 million, versus $11.632 million used. Financing activities provided $15.482 million. Cash increased by $15.032 million to $33.140 million; the cash flow statement’s “net decrease” label conflicts with the reported beginning and ending balances.
- Stockholders’ equity was $49.7 million, down 1.2% from June 30, chiefly reflecting $1.8 million of share repurchases and $0.293 million of dividends, partly offset by quarterly net income.
- Regulatory capital ratios exceeded minimum requirements: tangible equity 11.26%, common equity Tier 1 16.10%, core capital 11.26%, and total risk-based capital 17.26%.
Material changes and credit quality
- Non-performing assets were $4.1 million at September 30, down from $5.1 million at June 30, but up from $2.7 million at September 30, 2018. They included $3.6 million of non-performing loans and $0.480 million of foreclosed assets.
- The allowance for loan losses was $3.584 million, or 1.09% of loans; the company reported 1.05% at September 30, 2018. Quarterly charge-offs were $0.045 million. Loans rated substandard totaled $7.161 million; no loans were rated doubtful.
- Loans more than 90 days past due totaled $3.936 million, including $2.981 million of land loans. The filing reported $0.616 million of loans more than 90 days past due still accruing interest.
- Three foreclosed residences were sold during the quarter. The company recorded an $0.080 million gain on sale of real estate.
- The company repurchased 55,002 shares during the quarter at an average $32.42 per share. It announced a ninth repurchase program for up to 90,000 shares; 84,779 remained available as of November 12, 2019.
Outlook, risks, and contingencies
The filing provides no quantified earnings or revenue guidance. Management said it intends to use available liquidity to support lending and may sell available-for-sale securities if needed. It noted that $95.0 million of certificates of deposit mature within one year; renewal costs could rise, and retention is not assured. Loan commitments were $37.9 million, with $9.4 million of commitments under unused lines of credit.
Management identifies the allowance for loan losses as a significant estimate subject to judgment and warns that it may not be sufficient to cover future losses. Results are also sensitive to interest rates, deposit competition and funding costs, economic conditions, and regulation. The company was assessing the impact of the expected-credit-loss standard (CECL); its effective date for the company was fiscal years beginning after December 15, 2019. No material pending legal proceedings or formal risk-factor disclosure was reported.
Important facts for investors to verify
- Reconcile the cash flow statement’s “net decrease” wording with the $15.032 million increase implied by beginning and ending cash.
- Monitor deposit pricing and the effect of higher deposit costs on net interest margin, which declined to 3.63% from 3.86% year over year.
- Review trends in non-performing assets, past-due land loans, substandard credits, and the adequacy of the loan-loss allowance.
- Track renewal rates and costs for the $95.0 million of certificates maturing within one year, alongside loan commitments and available borrowing capacity.
- Confirm the eventual CECL adoption impact and the effects of ongoing share repurchases on capital and per-share results.