Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: Fiscal quarter and nine months ended March 31, 2013, compared with the periods ended March 31, 2012. The filing date is May 10, 2013. Although the request metadata says “2012 Q3,” the filing itself covers fiscal 2013 Q3.
Business context and financial performance
The company is the holding company for Home Federal Bank, a Louisiana savings and loan operating primarily in the Shreveport–Bossier City area. It reported four full-service banking offices and one agency office.
- Quarterly results: Net income was $676,000, up 15.2% from $587,000. Diluted EPS was $0.30 versus $0.21. Net interest income was $2.65 million, up 5.0%; interest income was $3.27 million, unchanged, while interest expense fell to $620,000 from $746,000. Provision for loan losses was $214,000.
- Nine-month results: Net income was $2.495 million, up 20.6% from $2.069 million. Diluted EPS was $1.01 versus $0.73. Net interest income rose 12.9% to $7.948 million; non-interest income was $2.621 million, up 6.1%; non-interest expense increased 5.1% to $6.402 million. Provision for loan losses was $441,000.
- Margins: Net interest margin was 4.03% for the quarter and 4.08% for the nine months, compared with 4.11% and 3.97%, respectively, in 2012. Average interest-rate spread was 3.80% for both 2013 periods, versus 3.75% for the quarter and 3.57% for nine months in 2012.
- Balance sheet at March 31: Total assets were $276.2 million, down 6.7% from June 30, 2012. Net loans were $196.4 million, up 16.7%; deposits were $203.1 million, down 8.3%; and stockholders’ equity was $42.3 million, down 15.2%.
- Cash flow, nine months: Operating activities provided $9.730 million; investing activities used $15.944 million; financing activities used $21.625 million. Cash and cash equivalents declined $27.839 million to $7.024 million.
- Borrowings and liquidity: FHLB advances were reported as $29.745 million on the balance sheet, up from $23.469 million. Management reported $107.3 million of additional FHLB borrowing capacity and a separate federal-funds purchase facility capped at $17.4 million, with no balance drawn. Loan commitments were $30.9 million; $47.0 million of certificates of deposit were due within one year.
- Capital: The Bank’s regulatory capital ratios were 15.04% tangible, 15.04% core, and 25.90% risk-based, above stated minimums of 1.5%, 3.0%, and 8.0%. Management described the Bank as well in excess of minimum requirements.
Material changes and credit quality
- Management attributed the decline in cash and deposits largely to withdrawal of a nonrecurring $31.7 million deposit, received near June 30, 2012 and fully withdrawn in the quarter ended September 30, 2012. Loans increased, while securities declined primarily through normal principal repayments.
- The allowance for loan losses was $2.124 million, or 1.1% of total loans, versus $1.698 million at June 30, 2012. Nine-month charge-offs were $15,000. The filing reported $768,000 of non-performing assets/loans at March 31, compared with $14,000 at June 30, 2012; it reported no troubled debt restructurings.
- Commercial real estate, residential, multifamily, land, and commercial business lending grew; construction loans declined. The filing identifies the allowance estimate as a critical accounting policy and notes that actual losses may differ from estimates.
- Stockholders’ equity fell primarily due to $10.2 million of treasury-stock purchases, dividends, and a $600,000 decline in accumulated other comprehensive income, partly offset by earnings. The company declared dividends of $0.06 per share for the quarter and $0.18 for nine months.
Outlook, risks, and unusual items
- No specific earnings or financial guidance was provided. Management said it intended to use liquidity to support lending and could sell available-for-sale securities if additional funding were needed. It expected to relocate its agency office to a building it owned, with completion expected in July 2013.
- Management noted that deposit flows and loan prepayments are sensitive to interest rates, economic conditions, and competition. It also cautioned that renewing maturing certificates could cost more in a rising-rate environment and that there is no assurance the allowance will cover future losses.
- Forward-looking statements are subject to risks and assumptions; the company said it did not intend to update them. Legal proceedings were described as routine and immaterial in aggregate; the filing marked risk factors “not applicable.”
- Share repurchases were significant: the company acquired $10.085 million of treasury stock during the nine months. During the quarter it purchased 206,891 shares at an average $17.74 per share, of which 19,391 were under publicly announced programs.
Important facts for investors to verify
- Reconcile the reported share counts: the balance sheet shows 2,361,879 shares outstanding at March 31, while the cover page reports 2,351,950 as of May 10; the MD&A also cites 2,361,879 for March 31.
- Check the FHLB advance balance discrepancy: the balance sheet states $29.745 million, while the fair-value table states $29.475 million.
- Review the composition and subsequent performance of the $768,000 of non-performing loans, the increase in nonaccrual loans, and the adequacy of the allowance as the loan portfolio grows.
- Monitor liquidity after the large deposit runoff, including deposit concentrations, the $47.0 million of certificates maturing within a year, borrowing availability, and funding of $30.9 million in commitments.
- Assess the effect of the substantial share repurchases on capital and per-share results, and compare future net interest margin and credit costs with this period’s levels.