| UNITED STATES | |
| SECURITIES AND EXCHANGE COMMISSION | |
| Washington, DC 20549 | |
| FORM 10-Q | |
| (Mark One) | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended: | September 30, 2020 |
| or | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from | to | ||
| Commission file number: | 001-35019 |
| HOME FEDERAL BANCORP, INC. OF LOUISIANA |
| (Exact name of registrant as specified in its charter) |
| Louisiana | 02-0815311 | |||
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||
| 624 Market Street, Shreveport, Louisiana | 71101 | |||
| (Address of principal executive offices) | (Zip Code) | |||
| (318) 222-1145 | ||||
(Registrant’s telephone number, including area code) | ||||
| N/A | ||||
| (Former name, former address and former fiscal year, if changed since last report) | ||||
Securities registered pursuant to Section 12(b) of the Act: | ||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock (par value $.01 per share) | HFBL | Nasdaq Stock Market, LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
☒ Yes ☐ No |
| Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). |
| ☒ Yes ☐ No |
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One): |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | ||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
| ☐ Yes ☒ No |
| Shares of common stock, par value $.01 per share, outstanding as of November 11, 2020: The registrant had 1,683,465 shares of common stock outstanding. |
INDEX
Page | ||
| PART I | FINANCIAL INFORMATION | |
| Item 1: | Financial Statements (Unaudited) | |
| Consolidated Statements of Financial Condition | 1 | |
| Consolidated Statements of Income | 2 | |
| Consolidated Statements of Comprehensive Income | 3 | |
| Consolidated Statements of Changes in Stockholders' Equity | 4 | |
| Consolidated Statements of Cash Flows | 5 | |
| Notes to Consolidated Financial Statements | 7 | |
| Item 2: | Management's Discussion and Analysis of Financial Condition and Results of Operations | 29 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 36 |
| Item 4: | Controls and Procedures | 36 |
| PART II | OTHER INFORMATION | |
| Item 1: | Legal Proceedings | 36 |
| Item 1A: | Risk Factors | 36 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
| Item 3: | Defaults Upon Senior Securities | 37 |
| Item 4: | Mine Safety Disclosures | 37 |
| Item 5: | Other Information | 37 |
| Item 6: | Exhibits | 37 |
| SIGNATURES |
| HOME FEDERAL BANCORP, INC. OF LOUISIANA |
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) |
| September 30, 2020 | June 30, 2020 | |||||||
| (In Thousands) | ||||||||
| ASSETS | ||||||||
Cash and Cash Equivalents (Includes Interest-Bearing Deposits with Other Banks of $69,505 and $50,417 September 30, 2020 and June 30, 2020, Respectively) | $ | 75,628 | $ | 54,871 | ||||
| Securities Available-for-Sale | 38,375 | 42,060 | ||||||
| Securities Held-to-Maturity (Fair Value of $19,261 and $21,879, Respectively) | 18,351 | 20,858 | ||||||
| Loans Held-for-Sale | 27,842 | 14,798 | ||||||
| Loans Receivable, Net of Allowance for Loan Losses of $4,553 and $4,081, Respectively | 354,793 | 359,927 | ||||||
| Accrued Interest Receivable | 1,622 | 1,860 | ||||||
| Premises and Equipment, Net | 13,918 | 13,235 | ||||||
| Bank Owned Life Insurance | 7,120 | 7,087 | ||||||
| Deferred Tax Asset | 945 | 757 | ||||||
| Foreclosed Assets | 950 | 950 | ||||||
| Other Assets | �� | 2,081 | 1,817 | |||||
| Total Assets | $ | 541,625 | $ | 518,220 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Deposits: | ||||||||
| Non-interest bearing | $ | 120,987 | $ | 103,422 | ||||
| Interest-bearing | 362,718 | 357,388 | ||||||
| Total Deposits | 483,705 | 460,810 | ||||||
| Advances from Borrowers for Taxes and Insurance | 926 | 522 | ||||||
| Short-term Federal Home Loan Bank Advances | 125 | 193 | ||||||
| Long-term Federal Home Loan Bank Advances | 858 | 867 | ||||||
| Other Borrowings | 1,500 | 2,300 | ||||||
| Other Accrued Expenses and Liabilities | 3,459 | 2,993 | ||||||
Total Liabilities | 490,573 | 467,685 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred Stock – $.01 Par Value; 10,000,000 Shares Authorized; None Issued and Outstanding | -- | -- | ||||||
Common Stock – $.01 Par Value; 40,000,000 Shares Authorized; 1,716,842 and 1,724,512 Shares Issued and Outstanding at September 30, 2020 and June 30, 2020, Respectively | 22 | 22 | ||||||
| Additional Paid-in Capital | 36,643 | 36,531 | ||||||
| Unearned ESOP Stock | (841 | ) | (870 | ) | ||||
| Retained Earnings | 14,515 | 13,937 | ||||||
| Accumulated Other Comprehensive Income | 713 | 915 | ||||||
| Total Stockholders’ Equity | 51,052 | 50,535 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 541,625 | $ | 518,220 | ||||
See accompanying notes to unaudited consolidated financial statements.
1
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
| (In Thousands, Except per Share Data) | ||||||||
| INTEREST INCOME | ||||||||
| Loans, Including Fees | $ | 4,647 | $ | 4,653 | ||||
| Investment Securities | 2 | 16 | ||||||
| Mortgage-Backed Securities | 317 | 390 | ||||||
| Other Interest-Earning Assets | 18 | 109 | ||||||
| Total Interest Income | 4,984 | 5,168 | ||||||
| INTEREST EXPENSE | ||||||||
| Deposits | 971 | 1,335 | ||||||
| Other Borrowings | 14 | 4 | ||||||
| Federal Home Loan Bank Borrowings | 12 | 15 | ||||||
| Total Interest Expense | 997 | 1,354 | ||||||
| Net Interest Income | 3,987 | 3,814 | ||||||
| PROVISION FOR LOAN LOSSES | 700 | 175 | ||||||
| Net Interest Income after Provision for Loan Losses | 3,287 | 3,639 | ||||||
| NON-INTEREST INCOME | ||||||||
| Gain on Sale of Real Estate | -- | 80 | ||||||
| Gain on Sale of Loans | 1,411 | 567 | ||||||
| Income on Bank Owned Life Insurance | 34 | 35 | ||||||
| Service Charges on Deposit Accounts | 248 | 272 | ||||||
| Other Income | 13 | 10 | ||||||
| Total Non-Interest Income | 1,706 | 964 | ||||||
| NON-INTEREST EXPENSE | ||||||||
| Compensation and Benefits | 2,214 | 1,806 | ||||||
| Occupancy and Equipment | 376 | 372 | ||||||
| Data Processing | 194 | 160 | ||||||
| Audit and Examination Fees | 66 | 56 | ||||||
| Franchise and Bank Shares Tax | 108 | �� | 115 | |||||
| Advertising | 26 | 147 | ||||||
| Legal Fees | 131 | 110 | ||||||
| Loan and Collection | 94 | 119 | ||||||
| Deposit Insurance Premium | 30 | -- | ||||||
| Other Expense | 184 | 192 | ||||||
| Total Non-Interest Expense | 3,423 | 3,077 | ||||||
| Income Before Income Taxes | 1,570 | 1,526 | ||||||
| PROVISION FOR INCOME TAX EXPENSE | 323 | 279 | ||||||
| Net Income | $ | 1,247 | $ | 1,247 | ||||
| EARNINGS PER COMMON SHARE: | ||||||||
| Basic | $ | 0.76 | $ | 0.73 | ||||
| Diluted | $ | 0.74 | $ | 0.68 | ||||
| DIVIDENDS DECLARED | $ | 0.165 | $ | 0.16 | ||||
See accompanying notes to unaudited consolidated financial statements.
2
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
| (In Thousands) | ||||||||
| Net Income | $ | 1,247 | $ | 1,247 | ||||
| Other Comprehensive (Loss) Income, Net of Tax | ||||||||
| Investment securities available-for-sale: | ||||||||
| Net unrealized (Losses)/Gains | (256 | ) | 83 | |||||
| Income Tax Effect | 54 | (17 | ) | |||||
| Reclassification adjustments for net (gains) losses realized in net income | -- | -- | ||||||
| Income tax effect | -- | -- | ||||||
| Other Comprehensive (Loss) Income | (202 | ) | 66 | |||||
| Total Comprehensive Income | $ | 1,045 | $ | 1,313 | ||||
See accompanying notes to unaudited consolidated financial statements.
3
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Unaudited)
Common Stock | Additional Paid-in Capital | Unearned ESOP Stock | Unearned RRP Trust Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | ||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
| BALANCE – June 30, 2019 | $ | 23 | $ | 35,914 | $ | (985 | ) | $ | -- | $ | 15,370 | $ | 20 | $ | 50,342 | |||||||||||||
| Net Income | -- | -- | -- | -- | 1,247 | -- | 1,247 | |||||||||||||||||||||
Changes in Unrealized Gain on Securities Available-for- Sale, Net of Tax Effects | -- | -- | -- | -- | -- | 66 | 66 | |||||||||||||||||||||
| RRP Shares Earned | -- | 24 | -- | -- | -- | -- | 24 | |||||||||||||||||||||
| Stock Options Vested | -- | 35 | -- | -- | -- | -- | 35 | |||||||||||||||||||||
| Common Stock Issuance for Stock Option Exercises | -- | 4 | -- | -- | -- | -- | 4 | |||||||||||||||||||||
| ESOP Compensation Earned | -- | 66 | 29 | -- | -- | -- | 95 | |||||||||||||||||||||
| Company Stock Purchased | -- | -- | -- | -- | (1,783 | ) | -- | (1,783 | ) | |||||||||||||||||||
| Dividends Declared | -- | -- | -- | -- | (293 | ) | -- | (293 | ) | |||||||||||||||||||
| BALANCE – September 30, 2019 | $ | 23 | $ | 36,043 | $ | (956 | ) | $ | -- | $ | 14,541 | $ | 86 | $ | 49,737 | |||||||||||||
| BALANCE – June 30, 2020 | $ | 22 | $ | 36,531 | $ | (870 | ) | $ | -- | $ | 13,937 | $ | 915 | $ | 50,535 | |||||||||||||
| Net Income | -- | -- | -- | -- | 1,247 | -- | 1,247 | |||||||||||||||||||||
Changes in Unrealized Gain on Securities Available- for-Sale, Net of Tax Effects | -- | -- | -- | -- | -- | (202 | ) | (202 | ) | |||||||||||||||||||
| RRP Shares Earned | -- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||
| Stock Options Vested | -- | 34 | -- | -- | -- | -- | 34 | |||||||||||||||||||||
| Common Stock Issuance for Stock Option Exercises | -- | 38 | -- | -- | -- | -- | 38 | |||||||||||||||||||||
| ESOP Compensation Earned | -- | 40 | 29 | -- | -- | -- | 69 | |||||||||||||||||||||
| Company Stock Purchased | -- | -- | -- | -- | (387 | ) | -- | (387 | ) | |||||||||||||||||||
| Dividends Declared | -- | -- | -- | -- | (282 | ) | -- | (282 | ) | |||||||||||||||||||
| BALANCE – September 30, 2020 | $ | 22 | $ | 36,643 | $ | (841 | ) | $ | -- | $ | 14,515 | $ | 713 | $ | 51,052 | |||||||||||||
See accompanying notes to unaudited consolidated financial statements.
4
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | ||||||||
September 30, | ||||||||
2020 | 2019 | |||||||
| (In Thousands) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | 1,247 | $ | 1,247 | ||||
| Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities | ||||||||
| Bad Debt Recovery | 52 | 2 | ||||||
| Federal Home Loan Bank stock certificate | (2 | ) | 16 | |||||
| Net Amortization and Accretion on Securities | 44 | 32 | ||||||
| Gain on Sale of Loans | (1,411 | ) | (567 | ) | ||||
| Gain on Sale of Real Estate | -- | (80 | ) | |||||
| Amortization of Deferred Loan Fees | (216 | ) | (38 | ) | ||||
| Depreciation of Premises and Equipment | 168 | 161 | ||||||
| ESOP Expense | 69 | 95 | ||||||
| Stock Option Expense | 34 | 35 | ||||||
| Recognition and Retention Plan Expense | -- | 2 | ||||||
| Deferred Income Tax | (188 | ) | (17 | ) | ||||
| Provision for Loan Losses | 700 | 175 | ||||||
| Increase in Cash Surrender Value on Bank Owned Life Insurance | (34 | ) | (35 | ) | ||||
| Share Awards Expense | 37 | 4 | ||||||
| Changes in Assets and Liabilities: | ||||||||
| Loans Held-for-Sale – Originations and Purchases | (60,258 | ) | (24,441 | ) | ||||
| Loans Held-for-Sale – Sale and Principal Repayments | 48,625 | 21,573 | ||||||
| Accrued Interest Receivable | 238 | 70 | ||||||
| Other Operating Assets | (264 | ) | (212 | ) | ||||
| Other Operating Liabilities | 429 | 489 | ||||||
| Net Cash Used in Operating Activities | (10,730 | ) | (1,489 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Loan Originations and Purchases, Net of Principal Collections | 4,586 | 1,027 | ||||||
| Deferred Loan Fees Collected | 67 | 2 | ||||||
| Acquisition of Premises and Equipment | (851 | ) | (357 | ) | ||||
| Proceeds Sale of Land | -- | 796 | ||||||
| Activity in Available-for-Sale Securities: | ||||||||
| Principal Payments on Mortgage-Backed Securities | 8,488 | 3,216 | ||||||
| Purchases of Securities | (5,090 | ) | (4,975 | ) | ||||
| Activity in Held-to-Maturity Securities: | ||||||||
| Principal Payments on Mortgage-Backed Securities | 2,496 | 1,330 | ||||||
| Net Cash Provided by Investing Activities | 9,696 | 1,039 | ||||||
See accompanying notes to unaudited consolidated financial statements.
5
| HOME FEDERAL BANCORP, INC. OF LOUISIANA | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) | ||||||||
| (Unaudited) | ||||||||
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2020 | 2019 | |||||||
| (In Thousands) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net Increase in Deposits | $ | 22,895 | $ | 16,851 | ||||
| Repayments of Advances from Federal Home Loan Bank | (77 | ) | (73 | ) | ||||
| Proceeds from Other Borrowings | 700 | 1,000 | ||||||
| Repayments of Other Borrowings | (1,500 | ) | (450 | ) | ||||
| Net Increase in Advances from Borrowers for Taxes and Insurance | 404 | 226 | ||||||
| Dividends Paid | (282 | ) | (293 | ) | ||||
| Company Stock Purchased | (387 | ) | (1,783 | ) | ||||
| Proceeds from Stock Options Exercised | 38 | 4 | ||||||
| Net Cash Provided by Financing Activities | 21,791 | 15,482 | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 20,757 | 15,032 | ||||||
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | $ | 54,871 | $ | 18,108 | ||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 75,628 | $ | 33,140 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Interest Paid on Deposits and Borrowed Funds | $ | 1,008 | $ | 1,361 | ||||
| Income Taxes Paid | 275 | 150 | ||||||
| Market Value Adjustment for Unrealized Gain (Loss) on Debt Securities Available-for-Sale | (256 | ) | 83 | |||||
See accompanying notes to unaudited consolidated financial statements.
6
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Home Federal Bancorp, Inc. of Louisiana (the “Company”) and its subsidiary, Home Federal Bank (“Home Federal Bank” or the “Bank”). These consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three month period ended September 30, 2020 are not necessarily indicative of the results which may be expected for the fiscal year ending June 30, 2021.
The Company follows accounting standards set by the Financial Accounting Standards Board (the “FASB”). The FASB sets generally accepted accounting principles (“GAAP”) that we follow to ensure we consistently report our financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification (the “Codification” or the “ASC”).
In accordance with the subsequent events topic of the ASC, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements. The effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of September 30, 2020. In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued.
Use of Estimates
In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statements of Financial Condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the allowance for loan losses.
Nature of Operations
Home Federal Bancorp, Inc. of Louisiana, a Louisiana corporation, is the fully public stock holding company for Home Federal Bank located in Shreveport, Louisiana. The Bank is a federally chartered stock savings and loan association and is subject to federal regulation by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. Services are provided to the Bank’s customers by seven full-service banking offices and home office, located in Caddo and Bossier Parishes, Louisiana. The area served by the Bank is primarily the Shreveport-Bossier City metropolitan area; however, loan and deposit customers are found dispersed in a wider geographical area covering much of northwest Louisiana. As of September 30, 2020, the Bank had one wholly-owned subsidiary, Metro Financial Services, Inc., which previously engaged in the sale of annuity contracts and does not currently engage in a meaningful amount of business.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, balances due from banks, and federal funds sold, all of which mature within ninety days.
7
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Accounting Policies (continued)
Securities
Securities are being accounted for in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320’s, Investments which requires the classification of securities into one of three categories: Trading, Available-for-Sale, or Held-to-Maturity. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates this classification periodically.
Investments in non-marketable equity securities and debt securities, in which the Company has the positive intent and ability to hold to maturity, are classified as held-to-maturity and carried at cost, adjusted for amortization of the related premiums, and accretion of discounts, using the interest method. Investments in debt securities that are not classified as held-to-maturity and marketable equity securities that have readily determinable fair values are classified as either trading or available-for-sale securities.
Securities that are acquired and held principally for the purpose of selling in the near term are classified as trading securities. Investments in securities not classified as trading or held-to-maturity are classified as available-for-sale. Trading account and available-for-sale securities are carried at fair value. Unrealized holding gains and losses on trading securities are included in earnings, while net unrealized holding gains and losses on available-for-sale debt securities are excluded from earnings and reported in other comprehensive income.
The Company held no trading securities as of September 30, 2020 and June 30, 2020.
Purchase premiums and discounts are recognized in interest income using the interest method over the term of the securities. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
Loans Held-for-Sale
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Loans
Loans receivable are stated as unpaid principal balances less allowances for loan losses and unamortized deferred loan fees. Net nonrefundable fees (loan origination fees, commitment fees, discount points) and costs associated with lending activities are being deferred and subsequently amortized into income as an adjustment of yield on the related interest earning assets using the interest method. Interest income on contractual loans receivable is recognized on the accrual method. Unearned discount on property improvement and automobile loans is deferred and amortized on the interest method over the life of the loan.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, and prevailing economic conditions. The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
8
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Accounting Policies (continued)
Allowance for Loan Losses (continued)
A loan is considered impaired when, based on current information or events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. When a loan is impaired, the measurement of such impairment is based upon the fair value of the collateral of the loan. If the fair value of the collateral is less than the recorded investment in the loan, the Bank will recognize the impairment by creating a valuation allowance with a corresponding charge against earnings. A loan is considered a troubled debt restructuring (“TDR”) if the Company, for economic or legal reasons related to a debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Concessions granted under a TDR typically involve a temporary or permanent reduction in payments or interest rate or an extension of a loan’s stated maturity date at less than a current market rate of interest. Loans identified as TDRs are designated as impaired.
An allowance is also established for uncollectible interest on loans classified as substandard. The allowance is established by a charge to interest income equal to all interest previously accrued and income is subsequently recognized only to the extent that cash payments are received. When, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is back to normal, the loan is returned to accrual status.
It should be understood that estimates of future loan losses involve an exercise of judgment. While it is possible that in particular periods the Company may sustain losses which are substantial relative to the allowance for loan losses, it is the judgment of management that the allowance for loan losses reflected in the accompanying statements of condition is adequate to absorb known and inherent losses in the existing loan portfolio both probable and reasonable to estimate.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Bank has entered into commitments to extend credit. Such financial instruments are recorded when they are funded.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held-for-sale and are transferred to other real estate owned at the lower of cost or current fair value minus estimated cost to sell as of the date of foreclosure. Cost is defined as the lower of the fair value of the property or the recorded investment in the loan. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.
Premises and Equipment
Land is carried at cost. Buildings and equipment are carried at cost less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows:
Buildings and Improvements 10 - 40 Years
Furniture and Equipment 3 - 10 Years
Bank-Owned Life Insurance
The Company has purchased life insurance contracts on the lives of certain key employees. The Bank is the beneficiary of these policies. These contracts are reported at their cash surrender value, and changes in the cash surrender value are included in non-interest income.
9
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Accounting Policies (continued)
Allowance for Loan Losses (continued)
Income Taxes
The Company and its wholly-owned subsidiary file a consolidated Federal income tax return on a fiscal year basis. Each entity pays its pro-rata share of income taxes in accordance with a written tax-sharing agreement.
The Company accounts for income taxes on the asset and liability method. Deferred tax assets and liabilities are recorded based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. Current taxes are measured by applying the provisions of enacted tax laws to taxable income to determine the amount of taxes receivable or payable.
The Company follows the provisions of the Income Taxes Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740. ASC 740 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest, penalties, and disclosures required. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
While the Bank is exempt from Louisiana income tax, it is subject to the Louisiana Ad Valorem Tax, commonly referred to as the Louisiana Shares Tax, which is based on stockholders’ equity and net income.
Earnings per Share
Earnings per share are computed based upon the weighted average number of common shares outstanding during the period.
Non-Direct Response Advertising
The Company expenses all advertising costs, except for direct-response advertising, as incurred. Non-direct response advertising costs were $26,000 and $147,000 for the three months ended September 30, 2020 and 2019, respectively.
In the event the Company incurs expense for material direct-response advertising, it will be amortized over the estimated benefit period. Direct-response advertising consists of advertising whose primary purpose is to elicit sales to customers who could be shown to have responded specifically to the advertising and results in probable future benefits. For the three months ended September 30, 2020 and 2019, the Company did not incur any amount of direct-response advertising.
Stock-Based Compensation
GAAP requires all share-based payments to employees, including grants of employee stock options and recognition and retention share awards, to be recognized as expense in the statement of operations based on their fair values. The amount of compensation is measured at the fair value of the options or recognition and retention share awards when granted, and this cost is expensed over the required service period, which is normally the vesting period of the options or recognition and retention awards.
10
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Accounting Policies (continued)
Reclassification
Certain financial statement balances included in the prior year consolidated financial statements have been reclassified to conform to the current period presentation.
Comprehensive Income
Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains, and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale debt securities, are reported as a separate component of the equity section of the consolidated balance sheets along with net income, they are components of comprehensive income (loss).
Recent Accounting Pronouncements
In January 2016, the FASB issued ASU 2016-01, Financial Instruments. The amendments in this Update supersede the guidance to classify equity securities with readily determinable fair values into different categories and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The amendments in this Update also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. In addition, the amendments in this Update exempt all entities that are not public business entities from disclosing fair value information for financial instruments measured at amortized cost. In addition, for public business entities, the amendments supersede the requirement to disclose the methods and significant assumptions used in calculating the fair value of financial instruments required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The amendments in this Update require public business entities that are required to disclose fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion consistent with Topic 820, Fair Value Measurement. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update include items brought to the FASB Board’s attention regarding ASU 2016-01.
The provisions within this Update require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. This amendment excludes from net income gains or losses that the entity may not realize because those financial liabilities are not usually transferred or settled at their fair values before maturity. The amendments in this Update require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or in the accompanying notes to the financial statements.
For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. From the lessee’s perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting pattern of expense recognition in the income statement for a lessee.
The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.
11
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For public business entities that are SEC filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods with those fiscal years. The extent of the impact upon adoption is not known and will depend on the characteristics of the Company’s loan portfolio and economic conditions on that date as well as forecasted conditions thereafter.
In December 2019, the FASB issued ASU No. 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)." The amendments in this ASU simplified the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improved the consistent application of and simplified GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in the ASU are effective for fiscal years and interim periods beginning after December 15, 2020. The Company does not expect the adoption of this ASU to impact the consolidated financial statements.
12
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued)
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On July 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches with terms extending through 2058. Substantially all of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated statements of condition. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated statements of condition as right-of-use (“ROU”) assets and corresponding lease liabilities.
| (In Thousands) | September 30, 2020 | June 30, 2020 | |
| Lease Right-of-Use Assets | Classification | ||
| Operating lease right-of-use assets | Other Assets | $ 869 | $ 877 |
| Total Lease Right-of-Use Assets | $ 869 | $ 877 | |
| Lease Liabilities | |||
| Operating lease liabilities | Other Accrued Expenses and Liabilities | $ 879 | $ 887 |
| Total Lease Liabilities | $ 879 | $ 887 | |
The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to July 1, 2019, the rate for the remaining lease term as of July 1, 2019, was the Company’s only finance lease, the Company utilized its incremental borrowing rate at lease inception.
| September 30, 2020 | June 30, 2020 | |
| Weighted-average remaining lease term | ||
| Operating leases | 38.1 years | 38.4 years |
| Weighted-average discount rate | ||
Operating leases | 3.00% | 3.00% |
13
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The amortized cost and fair value of securities with gross unrealized gains and losses follows:
| September 30, 2020 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Securities Available-for-Sale | ||||||||||||||||
| Debt Securities | ||||||||||||||||
| FHLMC Mortgage-Backed Certificates | $ | 4,197 | $ | 115 | $ | -- | $ | 4,312 | ||||||||
| FNMA Mortgage-Backed Certificates | 24,623 | 818 | -- | 25,441 | ||||||||||||
| GNMA Mortgage-Backed Certificates | 8,653 | 9 | 40 | 8,622 | ||||||||||||
| Debt Securities | ||||||||||||||||
| Total Debt Securities | 37,473 | 942 | 40 | 38,375 | ||||||||||||
| Total Securities Available-for-Sale | $ | 37,473 | $ | 942 | $ | 40 | $ | 38,375 | ||||||||
| Securities Held-to-Maturity | ||||||||||||||||
| Debt Securities | ||||||||||||||||
GNMA Mortgage-Backed Certificates | $ | 949 | $ | 15 | $ | -- | $ | 964 | ||||||||
FNMA Mortgage-Backed Certificates | 14,199 | 888 | -- | 15,087 | ||||||||||||
| Total Debt Securities | 15,148 | 903 | -- | 16,051 | ||||||||||||
| Municipals | 241 | 7 | -- | 248 | ||||||||||||
| Equity Securities (Non-Marketable) | ||||||||||||||||
27,118 Shares – Federal Home Loan Bank | 2,712 | -- | -- | 2,712 | ||||||||||||
| 630 Shares – First National Bankers Bankshares, Inc. | 250 | -- | -- | 250 | ||||||||||||
| Total Equity Securities | 2,962 | -- | -- | 2,962 | ||||||||||||
| Total Securities Held-to-Maturity | $ | 18,351 | $ | 910 | $ | -- | $ | 19,261 | ||||||||
14
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Securities (continued)
| June 30, 2020 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Securities Available-for-Sale | ||||||||||||||||
| Debt Securities | ||||||||||||||||
| FHLMC Mortgage-Backed Certificates | $ | 5,018 | $ | 141 | $ | -- | $ | 5,159 | ||||||||
| FNMA Mortgage-Backed Certificates | 30,820 | 1,032 | -- | 31,852 | ||||||||||||
| GNMA Mortgage-Backed Certificates | 5,064 | 23 | 38 | 5,049 | ||||||||||||
| Total Debt Securities | 40,902 | 1,196 | 38 | 42,060 | ||||||||||||
| Total Securities Available-for-Sale | $ | 40,902 | $ | 1,196 | $ | 38 | $ | 42,060 | ||||||||
| Securities Held-to-Maturity | ||||||||||||||||
| Debt Securities | ||||||||||||||||
GNMA Mortgage-Backed Securities | $ | 1,109 | $ | 20 | $ | -- | $ | 1,129 | ||||||||
FNMA Mortgage-Backed Securities | 16,546 | 997 | -- | 17,543 | ||||||||||||
| Total Debt Securities | 17,655 | 1,017 | -- | 18,672 | ||||||||||||
| Municipals | 243 | 4 | -- | 247 | ||||||||||||
| Equity Securities (Non-Marketable) | ||||||||||||||||
| 27,094 Shares – Federal Home Loan Bank | 2,710 | -- | -- | 2,710 | ||||||||||||
| 630 Shares – First National Bankers Bankshares, Inc. | 250 | -- | -- | 250 | ||||||||||||
| Total Equity Securities | 2,960 | -- | -- | 2,960 | ||||||||||||
| Total Securities Held-to-Maturity | $ | 20,858 | $ | 1,021 | $ | -- | $ | 21,879 | ||||||||
The amortized cost and fair value of securities by contractual maturity at September 30, 2020 follows:
| Available-for-Sale | Held-to-Maturity | |||||||||||||||
| Amortized | Fair | Amortized | Fair | |||||||||||||
| Cost | Value | Cost | Value | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Debt Securities | ||||||||||||||||
| Within One Year or Less | $ | 11 | $ | 12 | $ | -- | $ | -- | ||||||||
| One through Five Years | 10,002 | 10,248 | -- | -- | ||||||||||||
| After Five through Ten Years | 22,383 | 23,038 | -- | -- | ||||||||||||
| Over Ten Years | 5,077 | 5,077 | 15,148 | 16,051 | ||||||||||||
| 37,473 | 38,375 | 15,148 | 16,051 | |||||||||||||
| Municipals | -- | -- | 241 | 248 | ||||||||||||
| Other Equity Securities | -- | -- | 2,962 | 2,962 | ||||||||||||
| Total | $ | 37,473 | $ | 38,375 | $ | 18,351 | $ | 19,261 | ||||||||
15
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Securities (continued)
Securities available-for-sale totaling $5.1 million were purchased during the three months ending September 30, 2020.
The following tables show information pertaining to gross unrealized losses on securities available-for-sale at September 30, 2020 and June 30, 2020 aggregated by investment category and length of time that individual securities have been in a continuous loss position.
| September 30, 2020 | ||||||||||||||||
| Less Than Twelve Months | Over Twelve Months | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Unrealized | Fair | Unrealized | Fair | |||||||||||||
| Losses | Value | Losses | Value | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Securities Available-for-Sale | ||||||||||||||||
| Mortgage-Backed Securities | $ | -- | $ | -- | $ | 40 | $ | 2,227 | ||||||||
Total Securities Available-for-Sale | $ | -- | $ | -- | $ | 40 | $ | 2,227 | ||||||||
| June 30, 2020 | ||||||||||||||||
| Less Than Twelve Months | Over Twelve Months | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Unrealized | Fair | Unrealized | Fair | |||||||||||||
| Losses | Value | Losses | Value | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Securities Available-for-Sale | ||||||||||||||||
| Mortgage-Backed Securities | $ | -- | $ | -- | $ | 38 | $ | 2,816 | ||||||||
Total Securities Available-for-Sale | $ | -- | $ | -- | $ | 38 | $ | 2,816 | ||||||||
The unrealized losses on the Company’s investment in mortgage-backed securities at September 30, 2020 and June 30, 2020 were caused by interest rate changes. The contractual cash flows of these investments are guaranteed by agencies of the U.S. Government. Accordingly, it is expected that these securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2020.
The Company’s investment in equity securities consists primarily of FHLB stock and shares of First National Bankers Bankshares, Inc. (“FNBB”). Management monitors its investment portfolio to determine whether any investment securities which have unrealized losses should be considered other than temporarily impaired.
At September 30, 2020, securities with a carrying value of $1.6 million were pledged to secure public deposits, and securities and mortgage loans with a carrying value of $181.6 million were pledged to secure FHLB advances.
16
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Loans Receivable
Loans receivable are summarized as follows:
| September 30, 2020 | June 30, 2020 | |||||||
| (In Thousands) | ||||||||
| Loans Secured by Mortgages on Real Estate | ||||||||
| One-to-Four Family Residential | $ | 103,667 | $ | 108,146 | ||||
| Commercial | 89,171 | 87,088 | ||||||
| Multi-Family Residential | 46,482 | 47,432 | ||||||
| Land | 17,829 | 18,068 | ||||||
| Construction | 9,518 | 8,159 | ||||||
| Equity and Second Mortgage | 1,464 | 1,410 | ||||||
| Equity Lines of Credit | 11,532 | 12,252 | ||||||
| Total Mortgage Loans | 279,663 | 282,555 | ||||||
| Commercial Loans | 80,070 | 81,909 | ||||||
| Consumer Loans | ||||||||
| Loans on Savings Accounts | 342 | 364 | ||||||
| Other Consumer Loans | 558 | 615 | ||||||
| Total Consumer Other Loans | 900 | 979 | ||||||
| Total Loans | 360,633 | 365,443 | ||||||
| Less: Allowance for Loan Losses | (4,553 | ) | (4,081 | ) | ||||
| Unamortized Loan Fees | (1,287 | ) | (1,435 | ) | ||||
| Net Loans Receivable | $ | 354,793 | $ | 359,927 | ||||
Following is a summary of changes in the allowance for loan losses:
| Three Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| (In Thousands) | ||||||||
| Balance - Beginning of Period | $ | 4,081 | $ | 3,452 | ||||
| Provision for Loan Losses | 700 | 175 | ||||||
| Loan Charge-Offs | (280 | ) | (45 | ) | ||||
| Recoveries | 52 | 2 | ||||||
| Balance - End of Period | $ | 4,553 | $ | 3,584 | ||||
Credit Quality Indicators
The Company segregates loans into risk categories based on the pertinent information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans according to credit risk. Loans classified as substandard or identified as special mention are reviewed quarterly by management to evaluate the level of deterioration, improvement, and impairment, if any, as well as assign the appropriate risk category.
Loans excluded from the scope of the quarterly review process above are generally identified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification and the need to allocate reserves or charge-off. The Company uses the following definitions for risk ratings:
17
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Loans Receivable (continued)
Credit Quality Indicators (continued)
Pass - Loans classified as pass are well protected by the current net worth or paying capacity of the obligor or by the fair value, less cost to acquire and sell the underlying collateral in a timely manner.
Pass Watch - Loans are considered marginal, meaning some weakness has been identified which could cause future impairment of repayment. However, these relationships are currently protected from any apparent loss by collateral.
Special Mention - Loans identified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss - This classification includes those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted. Even though partial recovery may be possible in the future, it is not practical or desirable to defer writing off these basically worthless loans. Accordingly, these loans are charged-off before period end.
The following tables present the grading of loans, segregated by class of loans, as of September 30, 2020 and June 30, 2020:
| September 30, 2020 | Pass and Pass Watch | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| Real Estate Loans: | ||||||||||||||||||||
| One-to-Four Family Residential | $ | 102,528 | $ | 472 | $ | 667 | $ | -- | $ | 103,667 | ||||||||||
| Commercial | 85,616 | -- | 3,555 | -- | 89,171 | |||||||||||||||
| Multi-Family Residential | 46,482 | -- | -- | -- | 46,482 | |||||||||||||||
| Land | 14,848 | -- | 2,981 | -- | 17,829 | |||||||||||||||
| Construction | 9,518 | -- | -- | -- | 9,518 | |||||||||||||||
| Equity and Second Mortgage | 1,464 | -- | -- | -- | 1,464 | |||||||||||||||
| Equity Lines of Credit | 11,515 | 17 | -- | -- | 11,532 | |||||||||||||||
| Commercial Loans | 80,070 | -- | -- | -- | 80,070 | |||||||||||||||
| Consumer Loans | 900 | -- | -- | -- | 900 | |||||||||||||||
| Totals | $ | 352,941 | $ | 489 | $ | 7,203 | $ | -- | $ | 360,633 | ||||||||||
18
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Loans Receivable (continued)
Credit Quality Indicators (continued)
| June 30, 2020 | Pass and Pass Watch | Special Mention | Substandard | Doubtful | Total | ||||||||||||||||
| (In Thousands) | |||||||||||||||||||||
| Real Estate Loans: | |||||||||||||||||||||
| One-to-Four Family Residential | $ | 106,886 | $ | 475 | $ | 785 | $ | -- | $ | 108,146 | |||||||||||
| Commercial | 83,376 | 1,915 | 1,797 | -- | 87,088 | ||||||||||||||||
| Multi-Family Residential | 47,432 | -- | -- | -- | 47,432 | ||||||||||||||||
| Land | 15,087 | -- | 2,981 | -- | 18,068 | ||||||||||||||||
| Construction | 8,159 | -- | -- | -- | 8,159 | ||||||||||||||||
| Equity and Second Mortgage | 1,410 | -- | -- | -- | 1,410 | ||||||||||||||||
| Equity Lines of Credit | 12,235 | 17 | -- | -- | 12,252 | ||||||||||||||||
| Commercial Loans | 81,452 | -- | 457 | -- | 81,909 | ||||||||||||||||
| Consumer Loans | 979 | -- | -- | -- | 979 | ||||||||||||||||
| Total | $ | 357,016 | $ | 2,407 | $ | 6,020 | $ | -- | $ | 365,443 | |||||||||||
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when contractually due. Loans that experience insignificant payment delays or payment shortfalls are generally not classified as impaired. On a case-by-case basis, management determines the significance of payment delays and payment shortfalls, taking into consideration all of the circumstances related to the loan, including the length of the payment delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
The following tables present an aging analysis of past due loans, segregated by class of loans, as of September 30, 2020 and June 30, 2020:
| Recorded | ||||||||||||||||||||||||||||
| Investment | ||||||||||||||||||||||||||||
| >90 Days | ||||||||||||||||||||||||||||
| 30-59 Days | 60-89 Days | 90 Days or | Total | Total Loans | and | |||||||||||||||||||||||
| September 30, 2020 | Past Due | Past Due | More | Past Due | Current | Receivable | Accruing | |||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||
| Real Estate Loans: | ||||||||||||||||||||||||||||
| One-to-Four Family Residential | $ | 800 | $ | 240 | $ | -- | $ | 1,040 | $ | 102,627 | $ | 103,667 | $ | -- | ||||||||||||||
| Commercial | -- | -- | 1,641 | 1,641 | 87,530 | 89,171 | -- | |||||||||||||||||||||
| Multi-Family Residential | -- | -- | -- | -- | 46,482 | 46,482 | -- | |||||||||||||||||||||
| Land | -- | -- | 2,981 | 2,981 | 14,848 | 17,829 | -- | |||||||||||||||||||||
| Construction | -- | -- | -- | -- | 9,518 | 9,518 | -- | |||||||||||||||||||||
| Equity and Second Mortgage | -- | -- | -- | -- | 1,464 | 1,464 | -- | |||||||||||||||||||||
| Equity Lines of Credit | 17 | -- | -- | 17 | 11,515 | 11,532 | -- | |||||||||||||||||||||
| Commercial Loans | -- | -- | -- | -- | 80,070 | 80,070 | -- | |||||||||||||||||||||
| Consumer Loans | -- | -- | -- | -- | 900 | 900 | -- | |||||||||||||||||||||
| Total | $ | 817 | $ | 240 | $ | 4,622 | $ | 5,679 | $ | 354,954 | $ | 360,633 | $ | -- | ||||||||||||||
19
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Loans Receivable (continued)
Credit Quality Indicators (continued)
June 30, 2020 | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More | Total Past Due | Current | Total Loans Receivable | Recorded Investment > 90 Days and Accruing | |||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||
| Real Estate Loans: | ||||||||||||||||||||||||||||
One-to-Four Family Residential | $ | 1,312 | $ | 557 | $ | 1,003 | $ | 2,872 | $ | 105,274 | $ | 108,146 | $ | 319 | ||||||||||||||
| Commercial | -- | -- | 1,797 | 1,797 | 85,291 | 87,088 | -- | |||||||||||||||||||||
| Multi-Family Residential | -- | -- | -- | -- | 47,432 | 47,432 | -- | |||||||||||||||||||||
| Land | -- | -- | 2,981 | 2,981 | 15,087 | 18,068 | -- | |||||||||||||||||||||
| Construction | -- | -- | -- | -- | 8,159 | 8,159 | -- | |||||||||||||||||||||
| Equity and Second Mortgage | -- | -- | -- | -- | 1,410 | 1,410 | -- | |||||||||||||||||||||
| Equity Lines of Credit | -- | -- | -- | -- | 12,252 | 12,252 | -- | |||||||||||||||||||||
| Commercial Loans | -- | -- | 457 | 457 | 81,452 | 81,909 | -- | |||||||||||||||||||||
| Consumer Loans | -- | -- | -- | -- | 979 | 979 | -- | |||||||||||||||||||||
| Total | $ | 1,312 | $ | 557 | $ | 6,238 | $ | 8,107 | $ | 357,336 | $ | 365,443 | $ | 319 | ||||||||||||||
There was no interest income recognized on non-accrual loans during the three months ended September 30, 2020 or year ended June 30, 2020. If the non-accrual loans had been accruing interest at their original contracted rates, gross interest income that would have been recorded for the three months ended September 30, 2020 and the year ended June 30, 2020 was approximately $418,000 and $464,000, respectively.
The change in the allowance for loan losses by loan portfolio class and recorded investment in loans for the three months ended September 30, 2020 and year ended June 30, 2020 was as follows:
Real Estate Loans | ||||||||||||||||||||||||||||||||||||
September 30, 2020 | 1-4 Family Residential | Commercial | Multi- Family | Land | Construction | Home Equity Loans and Lines of Credit | Commercial Loans | Consumer Loans | Total | |||||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
| Beginning Balances | $ | 966 | $ | 568 | $ | 364 | $ | 1,024 | $ | 80 | $ | 126 | $ | 949 | $ | 4 | $ | 4,081 | ||||||||||||||||||
| Charge-Offs | (40 | ) | (240 | ) | -- | -- | -- | -- | -- | -- | (280 | ) | ||||||||||||||||||||||||
| Recoveries | -- | -- | -- | -- | -- | 3 | 49 | -- | 52 | |||||||||||||||||||||||||||
| Current Provision | (53 | ) | 728 | (7 | ) | (4 | ) | 14 | (10 | ) | 33 | (1 | ) | 700 | ||||||||||||||||||||||
| Ending Balances | $ | 873 | $ | 1,056 | $ | 357 | $ | 1,020 | $ | 94 | $ | 119 | $ | 1,031 | $ | 3 | $ | 4,553 | ||||||||||||||||||
| Evaluated for Impairment: | ||||||||||||||||||||||||||||||||||||
| Individually | 14 | 458 | -- | 907 | -- | -- | -- | -- | 1,379 | |||||||||||||||||||||||||||
| Collectively | 859 | 598 | 357 | 113 | 94 | 119 | 1,031 | 3 | 3,174 | |||||||||||||||||||||||||||
| Loans Receivable: | ||||||||||||||||||||||||||||||||||||
| Ending Balances – Total | $ | 103,667 | $ | 89,171 | $ | 46,482 | $ | 17,829 | $ | 9,518 | $ | 12,996 | $ | 80,070 | $ | 900 | $ | 360,633 | ||||||||||||||||||
| Ending Balances: | ||||||||||||||||||||||||||||||||||||
| Evaluated for Impairment: | ||||||||||||||||||||||||||||||||||||
| Individually | 1,140 | 3,555 | -- | 2,981 | -- | 16 | -- | -- | 7,692 | |||||||||||||||||||||||||||
| Collectively | $ | 102,527 | $ | 85,616 | $ | 46,482 | $ | 14,848 | $ | 9,518 | $ | 12,980 | $ | 80,070 | $ | 900 | $ | 352,941 | ||||||||||||||||||
20
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Loans Receivable (continued)
Credit Quality Indicators (continued)
Real Estate Loans | ||||||||||||||||||||||||||||||||||||
June 30, 2020 | 1-4 Family Residential | Commercial | Multi- Family | Land | Construction | Home Equity Loans And Lines of Credit | Commercial Loans | Consumer Loans | Total | |||||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
| Beginning Balances | $ | 1,017 | $ | 508 | $ | 338 | $ | 100 | $ | 115 | $ | 144 | $ | 1,227 | $ | 3 | $ | 3,452 | ||||||||||||||||||
| Charge-Offs | (40 | ) | (100 | ) | -- | -- | -- | (107 | ) | (1,135 | ) | -- | (1,382 | ) | ||||||||||||||||||||||
| Recoveries | 2 | -- | -- | -- | -- | 9 | 109 | -- | 120 | |||||||||||||||||||||||||||
| Current Provision | (13 | ) | 160 | 26 | 924 | (35 | ) | 80 | 748 | 1 | 1,891 | |||||||||||||||||||||||||
| Ending Balances | $ | 966 | $ | 568 | $ | 364 | $ | 1,024 | $ | 80 | $ | 126 | $ | 949 | $ | 4 | $ | 4,081 | ||||||||||||||||||
| Evaluated for Impairment: | ||||||||||||||||||||||||||||||||||||
| Individually | 34 | 23 | -- | 907 | -- | -- | -- | -- | 964 | |||||||||||||||||||||||||||
| Collectively | 932 | 545 | 364 | 117 | 80 | 126 | 949 | 4 | 3,117 | |||||||||||||||||||||||||||
| Loans Receivable: | ||||||||||||||||||||||||||||||||||||
| Ending Balances – Total | $ | 108,146 | $ | 87,088 | $ | 47,432 | $ | 18,068 | $ | 8,159 | $ | 13,662 | $ | 81,909 | $ | 979 | $ | 365,443 | ||||||||||||||||||
| Ending Balances: | ||||||||||||||||||||||||||||||||||||
| Evaluated for Impairment: | ||||||||||||||||||||||||||||||||||||
| Individually | 1,260 | 3,712 | -- | 2,981 | -- | 17 | 457 | -- | 8,427 | |||||||||||||||||||||||||||
| Collectively | $ | 106,886 | $ | 83,376 | $ | 47,432 | $ | 15,087 | $ | 8,159 | $ | 13,645 | $ | 81,452 | $ | 979 | $ | 357,016 | ||||||||||||||||||
The following table’s present loans individually evaluated for impairment, segregated by class of loans, as of September 30, 2020 and June 30, 2020:
| September 30, 2020 | Unpaid Principal Balance | Recorded Investment With No Allowance | Recorded Investment With Allowance | Total Recorded Investment | Related Allowance | Average Recorded Investment | ||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
| Real Estate Loans: | ||||||||||||||||||||||||
| One-to-Four Family Residential | $ | 1,139 | $ | 1,139 | $ | -- | $ | 1,139 | $ | -- | $ | 1,179 | ||||||||||||
| Commercial | 3,555 | 1,915 | 1,640 | 3,555 | 458 | 3,939 | ||||||||||||||||||
| Multi-Family Residential | -- | -- | -- | -- | -- | -- | ||||||||||||||||||
| Land | 2,981 | -- | 2,981 | 2,981 | 907 | 2,981 | ||||||||||||||||||
| Construction | -- | -- | -- | -- | -- | -- | ||||||||||||||||||
| Equity and Second Mortgage | -- | -- | -- | -- | -- | -- | ||||||||||||||||||
| Equity Lines of Credit | 17 | 17 | -- | 17 | -- | 17 | ||||||||||||||||||
| Commercial Loans | -- | -- | -- | -- | -- | -- | ||||||||||||||||||
| Consumer Loans | -- | -- | -- | -- | -- | -- | ||||||||||||||||||
| Total | $ | 7,692 | $ | 2,351 | $ | 5,341 | $ | 7,692 | $ | 1,365 | $ | 8,116 | ||||||||||||
| June 30, 2020 | Unpaid Principal Balance | Recorded Investment With No Allowance | Recorded Investment With Allowance | Total Recorded Investment | Related Allowance | Average Recorded Investment | ||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
| Real Estate Loans: | ||||||||||||||||||||||||
| One-to-Four Family Residential | $ | 1,260 | $ | 1,260 | $ | -- | $ | 1,260 | $ | -- | $ | 1,271 | ||||||||||||
| Commercial | 3,712 | 3,712 | -- | 3,712 | -- | 5,108 | ||||||||||||||||||
| Multi-Family Residential | -- | -- | -- | -- | -- | -- | ||||||||||||||||||
| Land | 2,981 | -- | 2,981 | 2,981 | 907 | 2,981 | ||||||||||||||||||
| Construction | -- | -- | -- | -- | -- | -- | ||||||||||||||||||
| Equity and Second Mortgage | -- | -- | -- | -- | -- | -- | ||||||||||||||||||
| Equity Lines of Credit | 17 | 17 | -- | 17 | -- | 17 | ||||||||||||||||||
| Commercial Loans | 457 | 457 | -- | 457 | -- | 457 | ||||||||||||||||||
| Consumer Loans | -- | -- | -- | -- | -- | -- | ||||||||||||||||||
| Total | $ | 8,427 | $ | 5,446 | $ | 2,981 | $ | 8,427 | $ | 907 | $ | 9,834 | ||||||||||||
21
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Loans Receivable (continued)
Credit Quality Indicators (continued)
The Bank has no commitments to loan additional funds to borrowers whose loans were previously in non-accrual status.
A troubled debt restructuring (“TDR”) is a restructuring of a debt made by the Company to a debtor for economic or legal reasons related to the debtor’s financial difficulties that it would not otherwise consider. The Company grants the concession in an attempt to protect as much of its investment as possible.
Information about the Company’s TDRs is as follows (in thousands):
| September 30, 2020 | ||||||||||||||||
| Current | Past Due Greater Than 30 Days | Nonaccrual TDRs | Total TDRs | |||||||||||||
| Commercial business | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||
| 1-4 Family Residential | -- | -- | -- | -- | ||||||||||||
| Commercial real estate | -- | 1,641 | 1,641 | 1,641 | ||||||||||||
| June 30, 2020 | ||||||||||||||||
| Current | Past Due Greater Than 30 Days | Nonaccrual TDRs | Total TDRs | |||||||||||||
| Commercial business | $ | -- | $ | 457 | $ | 457 | $ | 457 | ||||||||
| 1-4 Family Residential | -- | 76 | 76 | 76 | ||||||||||||
| Commercial real estate | -- | 1,797 | 1,797 | 1,797 | ||||||||||||
For purposes of the determination of an allowance for loan losses on these TDRs, as an identified TDR, the Company considers a loss probable on the loan and, as a result, the loan is reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology. If it is determined losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans. As of September 30, 2020, there were no commitments to lend additional funds to debtors owing sums to the Company whose terms have been modified in TDRs.
Loan Modifications/Troubled Debt Restructurings. Under the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring (“TDR”), and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Home Federal Bank has made that election. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief will not be considered TDRs.
Prior to the enactment of the CARES Act, the banking regulatory agencies provided guidance as to how certain short-term modifications would not be considered TDRs, and have subsequently confirmed that such guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act.
The Bank handles loan payment modification requests on a case-by-case basis considering the effects of the COVID-19 pandemic, related economic slow-down and stay-at-home orders on our customer and their current and projected cash flows through the term of the loan. Through June 30, 2020, we modified 216 loans with principal balances totaling $84.1 million representing 23.0% of our loans outstanding as of June 30, 2020. A majority of deferrals are three-month payment deferrals of principal and interest, with payments after deferral
Credit Quality Indicators (continued)
increased to collect amounts deferred. It is too early to determine if these modified loans will perform in accordance with their modified terms.
Details with respect to actual loan modifications are as follows:
Number of Covid-19 Deferments Year Ended June 30, 2020 | Balance (in thousands) | Percent of Total Loans at at June 30, 2020 | ||||||||||
| One-to-Four family residential | 101 | $ | 27,705 | 25.6 | % | |||||||
| Commercial real estate | 40 | 28,278 | 32.5 | |||||||||
| Multi-family residential | 9 | 18,046 | 38.0 | |||||||||
| Land | 7 | 1,190 | 6.6 | |||||||||
| Construction | 1 | 680 | 8.3 | |||||||||
| Equity and second mortgage | -- | -- | -- | |||||||||
| Equity lines of credit | 19 | 1,586 | 12.9 | |||||||||
| Commercial business | 39 | 6,609 | 8.1 | |||||||||
| Consumer | -- | -- | -- | |||||||||
| Total | 216 | $ | 84,094 | 23.0 | % | |||||||
Number of Covid-19 Remaining Deferments at September 30, 2020 | Balance (in thousands) | Percent of Total Loans at September 30, 2020 | ||||||||||
| One-to-Four family residential | 7 | $ | 1,115 | 1.1 | % | |||||||
| Commercial real estate | 2 | 2,937 | 3.3 | |||||||||
| Multi-family residential | -- | -- | -- | |||||||||
| Land | 1 | 1,224 | 6.9 | |||||||||
| Construction | -- | -- | -- | |||||||||
| Equity and second mortgage | -- | -- | -- | |||||||||
| Equity lines of credit | 3 | 148 | 1.3 | |||||||||
| Commercial business | 6 | 752 | 0.9 | |||||||||
| Consumer | -- | -- | -- | |||||||||
| Total | 19 | $ | 6,176 | 1.7 | % | |||||||
22
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Deposits
5. Earnings Per Share
Deposits at September 30, 2020 and June 30, 2020 consist of the following classifications:
September 30, 2020 | June 30, 2020 | |||||||
| (In Thousands) | ||||||||
| Non-Interest Bearing | $ | 120,987 | $ | 103,422 | ||||
| NOW Accounts | 43,236 | 41,365 | ||||||
| Money Markets | 72,666 | 74,637 | ||||||
| Passbook Savings | 95,233 | 83,797 | ||||||
| 332,122 | 303,221 | |||||||
| Certificates of Deposit | 151,583 | 157,589 | ||||||
| Total Deposits | $ | 483,705 | $ | 460,810 | ||||
Basic earnings per common share are computed based on the weighted average number of shares outstanding. Diluted earnings per share is computed based on the weighted average number of shares outstanding and common share equivalents that would arise from the exercise of dilutive securities. Earnings per share for the three months ended September 30, 2020 and 2019 were calculated as follows:
Three Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
| (In Thousands, Except Per Share Data) | ||||||||
| Net income | $ | 1,247 | $ | 1,247 | ||||
| Weighted average shares outstanding - basic | 1,631 | 1,717 | ||||||
| Effect of dilutive common stock equivalents | 64 | 125 | ||||||
| Adjusted weighted average shares outstanding – diluted | 1,695 | 1,842 | ||||||
| Basic earnings per share | $ | 0.76 | $ | 0.73 | ||||
| Diluted earnings per share | $ | 0.74 | $ | 0.68 | ||||
For the three months ended September 30, 2020 and 2019, there were outstanding options to purchase 260,161 and 275,633 shares, respectively, at a weighted average exercise price of $18.36 and $18.07 per share, respectively. For the quarter ended September 30, 2020, 63,881 options were included in the computation of diluted earnings per share.
The following table presents the components of weighted average outstanding shares for purposes of calculating earnings per share:
Three Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
| (In Thousands) | ||||||||
| Average common shares issued | 1,717 | 1,815 | ||||||
| Average unearned ESOP shares | (86 | ) | (97 | ) | ||||
| Average unearned RRP shares | -- | (1 | ) | |||||
| Weighted average shares outstanding | 1,631 | 1,717 | ||||||
6. Stock-Based Compensation
Recognition and Retention Plan
On December 23, 2011, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2011 Recognition and Retention Plan and Trust Agreement (the “Recognition Plan”) as an incentive to retain personnel of experience and ability in key positions. The aggregate number of shares of the Company’s common stock available for award under the Recognition Plan totaled 77,808 shares, all of which were vested as of July 31, 2019 such that there are no shares remaining in the Recognition Plan.
The cost associated with the Recognition Plan is based on the share price of $18.92 on July 31, 2014, which represents the fair market price of the Company’s stock on the date on which the Recognition Plan shares were granted. The cost of the Recognition Plan was recognized over the five year vesting period.
23
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Stock-Based Compensation (continued)
Stock Option Plan
On August 10, 2005, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2005 Stock Option Plan (the “2005 Option Plan”) for the benefit of directors, officers, and other key employees. The aggregate number of shares of common stock reserved for issuance under the 2005 Option Plan totaled 158,868 (as adjusted). Both incentive stock options and non-qualified stock options may be granted under the 2005 Option Plan. The 2005 Stock Option Plan terminated on June 8, 2015, however, the 433 outstanding options as of September 30, 2020 will remain in effect for the remainder of their original ten year terms.
On December 23, 2011, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2011 Stock Option Plan (the “2011 Option Plan”, together with the 2005 Option Plan, the “Option Plans”) for the benefit of directors, officers, and other key employees. The aggregate number of shares of common stock reserved for issuance under the 2011 Option Plan totaled 194,522. Both incentive stock options and non-qualified stock options may be granted under the 2011 Option Plan.
On August 19, 2010 and July 31, 2014, the Company granted 21,616 options and 2,133 options, respectively, under the 2005 Option Plan that were previously forfeited (as adjusted for the conversion) at an exercise price of $10.93 and $18.92 per share, respectively. On January 31, 2012 and July 31, 2014, 165,344 options and 29,178 options, respectively, were granted to directors and employees at an exercise price of $14.70 and $18.92 per share, respectively, under the 2011 Option Plan. As of September 30, 2020, there were 389 stock options available for future grant under the 2011 Option Plan.
Incentive stock options and non-qualified stock options granted under the Option Plan become vested and exercisable at a rate of 20% per year over five years, commencing one year from the date of the grant, with an additional 20% vesting on each successive anniversary of the date the option was granted. No vesting shall occur after an employee’s employment or service as a director is terminated. In the event of death or disability of an employee or director or change in control of the Company, the unvested options shall become vested and exercisable. The Company recognizes compensation expense during the vesting period based on the fair value of the option on the date of the grant.
Stock Incentive Plan
On November 12, 2014, the shareholders of the Company approved the adoption of the Company’s 2014 Stock Incentive Plan (the “Stock Incentive Plan”) for the benefit of employees and non-employee directors as an incentive to contribute to the success of the Company and reward employees for outstanding performance and the attainment of targeted goals. The Stock Incentive Plan covers a total of 150,000 shares, of which no more than 37,500 shares, or 25% of the plan, may be share rewards. The balance of the plan is reserved for stock option awards which would total 112,500 stock options, assuming all the share awards are issued. All incentive stock options granted under the Stock Incentive Plan are intended to comply with the requirements of Section 422 of the Internal Revenue Code. On October 26, 2015, the Company granted a total of 34,500 plan share awards and 103,500 stock options to directors, officers, and other key employees vesting ratably over five years. On February 5, 2019, the Company granted a total of 3,000 plan share awards and 13,500 stock options to key employees vesting ratably over five years. The Stock Incentive Plan cost is recognized over the five year vesting period.
24
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Stock-Based Compensation (continued)
Stock Incentive Plan (continued)
On November 13, 2019, the shareholders of the Company approved the adoption of the Company’s 2019 Stock Incentive Plan which provides for a total of 125,000 shares reserved for future issuance as stock awards or stock options. No more than 31,250 shares, or 25%, may be granted as stock awards. The balance of the plan is reserved for stock option awards. As of September 30, 2020, no plan share awards or stock options were granted under the 2019 Stock Incentive Plan.
Compensation expense pertaining to the 2011 Recognition Plan and the share awards under the Stock Incentive Plan was approximately $106,000 and $72,000 for the three months ended September 30, 2020 and 2019, respectively. For the three months ended September 30, 2020 and 2019, compensation expense charged to operations for stock options granted under the Option Plan and the Stock Incentive Plan was $34,000 and $35,000, respectively.
7. Related Party Transactions
Certain directors and executive officers were indebted to the Bank in the approximate aggregate amounts of $3.9 million and $3.8 million at September 30, 2020 and June 30, 2020, respectively.
8. Fair Value Disclosures
The following disclosure is made in accordance with the requirements of ASC 825, Financial Instruments. Financial instruments are defined as cash and contractual rights and obligations that require settlement, directly or indirectly, in cash. In cases where quoted market prices are not available, fair values have been estimated using the present value of future cash flows or other valuation techniques. The results of these techniques are highly sensitive to the assumptions used, such as those concerning appropriate discount rates and estimates of future cash flows, which require considerable judgment. Accordingly, estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current settlement of the underlying financial instruments.
ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. These disclosures should not be interpreted as representing an aggregate measure of the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating fair values of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates the fair value of cash and cash equivalents.
Investment Securities
Fair values for investment securities, including mortgage-backed securities, are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying values of restricted or non-marketable equity securities approximate their fair values. The carrying amount of accrued investment income approximates its fair value.
Mortgage Loans Held-for-Sale
Because these loans are normally disposed of within ninety days of origination, their carrying value closely approximates the fair value of such loans.
Loans Receivable
For variable-rate loans that re-price frequently and with no significant changes in credit risk, fair value approximates the carrying value. Fair values for other loans are estimated using the discounted value of expected future cash flows. Interest rates used are those being offered currently for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest receivable approximates its fair value.
25
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Fair Value Disclosures (continued)
Deposit Liabilities
The fair values for demand deposit accounts are, by definition, equal to the amount payable on demand at the reporting date, that is, their carrying amounts. Fair values for other deposit accounts are estimated using the discounted value of expected future cash flows. The discount rate is estimated using the rates currently offered for deposits of similar maturities.
Advances from Federal Home Loan Bank
The carrying amount of short-term borrowings approximates their fair value. The fair value of long-term debt is estimated using discounted cash flow analyses based on current incremental borrowing rates for similar borrowing arrangements.
Off-Balance Sheet Credit-Related Instruments
Fair values for outstanding mortgage loan commitments to lend are based on fees currently charged to enter into similar agreements, taking into account the remaining term of the agreements, customer credit quality, and changes in lending rates.
The fair value of interest rate floors and caps contained in some loan servicing agreements and variable rate mortgage loan contracts are considered immaterial within the context of fair value disclosure requirements. Accordingly, no fair value estimate is provided for these instruments.
At September 30, 2020 and June 30, 2020, the carrying amount and estimated fair values of the Company’s financial instruments were as follows:
| September 30, 2020 | June 30, 2020 | |||||||||||||||
| Carrying | Estimated | Carrying | Estimated | |||||||||||||
| Value | Fair Value | Value | Fair Value | |||||||||||||
| (In Thousands) | ||||||||||||||||
| Financial Assets | ||||||||||||||||
| Cash and Cash Equivalents | $ | 75,628 | $ | 75,628 | $ | 54,871 | $ | 54,871 | ||||||||
| Securities Available-for-Sale | 38,375 | 38,375 | 42,060 | 42,060 | ||||||||||||
| Securities to be Held-to-Maturity | 18,351 | 19,261 | 20,858 | 21,879 | ||||||||||||
| Loans Held-for-Sale | 27,842 | 27,842 | 14,798 | 14,798 | ||||||||||||
| Loans Receivable | 354,793 | $ | 355,390 | 359,927 | $ | 359,581 | ||||||||||
| Financial Liabilities | ||||||||||||||||
| Deposits | $ | 483,705 | $ | 479,842 | $ | 460,810 | $ | 458,994 | ||||||||
| Advances from FHLB | 984 | 1,066 | 1,060 | 1,150 | ||||||||||||
| Off-Balance Sheet Items | ||||||||||||||||
| Mortgage Loan Commitments | $ | 9,560 | $ | 9,560 | $ | 8,536 | $ | 8,536 | ||||||||
The estimated fair values presented above could be materially different than net realizable value and are only indicative of the individual financial instrument’s fair value. Accordingly, these estimates should not be considered an indication of the fair value of the Company taken as a whole.
The Company follows the guidance of FASB ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 affirms a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 was issued to establish a uniform definition of fair value. The definition of fair value is market-based as opposed to company-specific and includes the following:
| • | Defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in either case, through an orderly transaction between market participants at a measurement date and establishes a framework for measuring fair value; |
26
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Fair Value Disclosures (continued)
| • | Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date; |
| • | Nullifies the guidance in EITF 02-3, which required the deferral of profit at inception of a transaction involving a derivative financial instrument in the absence of observable data supporting the valuation technique; |
| • | Eliminates large position discounts for financial instruments quoted in active markets and requires consideration of the company’s creditworthiness when valuing liabilities; and |
| • | Expands disclosures about instruments that are measured at fair value. |
The standard establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy favors the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
| • | Level 1 – Fair value is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets in which the Company can participate. |
| • | Level 2 – Fair value is based upon (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly; (c) inputs other than quoted prices that are observable for the asset or liability; or (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| • | Level 3 – Fair value is based upon inputs that are unobservable for the asset or liability. These inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available in the circumstances, which include the Company’s own data. The Company’s own data used to develop unobservable inputs are adjusted if information indicates that market participants would use different assumptions. |
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The preceding methods described may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used during the three months ended September 30, 2020.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Fair Value Disclosures (continued)
Fair values of assets and liabilities measured on a recurring basis at September 30, 2020 and June 30, 2020 are as follows:
Fair Value Measurements Using: | ||||||||||||||||
| September 30, 2020 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Total | ||||||||||||
| (In Thousands) | ||||||||||||||||
| Available-for-Sale | ||||||||||||||||
Debt Securities | ||||||||||||||||
| FHLMC | $ | -- | $ | 4,312 | $ | -- | $ | 4,312 | ||||||||
| FNMA | -- | 25,441 | -- | 25,441 | ||||||||||||
| GNMA | -- | 8,622 | -- | 8,622 | ||||||||||||
| Total | $ | -- | $ | 38,375 | $ | -- | $ | 38,375 | ||||||||
Fair Value Measurements Using: | ||||||||||||||||
| June 30, 2020 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Total | ||||||||||||
| (In Thousands) | ||||||||||||||||
| Available-for-Sale | ||||||||||||||||
| Debt Securities | ||||||||||||||||
| FHLMC | $ | -- | $ | 5,159 | $ | -- | $ | 5,159 | ||||||||
| FNMA | -- | 31,852 | -- | 31,852 | ||||||||||||
| GNMA | -- | 5,059 | -- | 5,049 | ||||||||||||
| Total | $ | -- | $ | 42,060 | $ | -- | $ | 42,060 | ||||||||
9. Subsequent Events
In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events through the date that the financial statements were available to be issued.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
General
The Company’s results of operations are primarily dependent on the results of Home Federal Bank (the “Bank”), its wholly owned subsidiary. The Bank’s results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by provisions for loan losses and loan sale activities. Non-interest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing, and other expenses. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies, and actions of regulatory authorities. Future changes in applicable law, regulations, or government policies may materially impact our financial conditions and results of operations.
The Bank operates from its main office in Shreveport, Louisiana and seven full service branch offices located in Shreveport and Bossier City, Louisiana. The Company’s primary market area is the Shreveport-Bossier City metropolitan area.
Critical Accounting Policies
Allowance for Loan Losses. The Company has identified the calculation of the allowance for loan losses as a critical accounting policy, due to the higher degree of judgment and complexity than its other significant accounting policies. Provisions for loan losses are based upon management’s periodic valuation and assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current economic conditions, and other relevant factors in order to maintain the allowance for loan losses at a level believed by management to represent all known and inherent losses in the portfolio that are both probable and reasonably estimable. Although management uses the best information available, the level of the allowance for loan losses remains an estimate which is subject to significant judgment and short-term change.
Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various assets and liabilities and gives current recognition to changes in tax rates and laws. The realization of our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances, if our judgments change.
Discussion of Financial Condition Changes from June 30, 2020 to September 30, 2020
General
At September 30, 2020, the Company reported total assets of $541.6 million, an increase of $23.4 million, or 4.5%, compared to total assets of $518.2 million at June 30, 2020. The increase in assets was comprised primarily of increases in cash and cash equivalents of $20.7 million, or 37.8%, from $54.9 million at June 30, 2020 to $75.6 million at September 30, 2020, loans held-for-sale of $13.0 million, or 88.1%, from $14.8 million at June 30, 2020 to $27.8 million at September 30, 2020, premises and equipment of $683,000, or 5.2%, from $13.2 million at June 30, 2020 to $13.9 million at September 30, 2020, deferred tax assets of $188,000, or 24.8%, from $757,000 at June 30, 2020 to $945,000 at September 30, 2020, bank owned life insurance of $33,000, or 0.5%, from $7.09 million at June 30, 2020 to $7.1 million at September 30, 2020, and other assets of $264,000, or 14.5%, from $1.8 million at June 30, 2020 to $2.1 million at September 30, 2020. These increases were partially offset by decreases in investment securities of $6.2 million, or 9.8%, from $62.9 million at June 30, 2020 to $56.7 million at September 30, 2020, and loans receivable net of $5.1 million, or 1.4%, from $359.9 million at June 30, 2020 to $354.8 million at September 30, 2020. The decrease in investment securities was primarily due to $11.0 million of principal repayments on mortgage backed securities, partially offset by purchases of $5.1 million in mortgage-backed securities. The increase in loans held-for-sale resulted primarily from an increase in loans originated for sale during the three months ended September 30, 2020.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
Discussion of Financial Condition Changes from June 30, 2020 to September 30, 2020 (continued)
Cash and Cash Equivalents
Cash and cash equivalents increased $20.7 million, or 37.8%, from $54.9 million at June 30, 2020 to $75.6 million at September 30, 2020. The $20.7 million increase in cash and cash equivalents was primarily due to deposit growth.
Loans Receivable, Net
Loans receivable, net, decreased by $5.1 million, or 1.4%, to $354.8 million at September 30, 2020 compared to $359.9 million at June 30, 2020. The decrease in loans receivable, net was primarily due to decreases in one-to-four-family residential loans of $4.5 million, commercial non-real estate loans of $1.8 million, multi-family residential loans of $950,000, equity line-of-credit loans of $720,000, land loans of $239,000, and consumer loans of $79,000, partially offset by increases in commercial real estate loans of $2.1 million, construction loans of $1.4 million, and equity and second mortgage loans of $54,000.
Loans Held-for-Sale
Loans held-for-sale increased $13.0 million, or 88.1%, from $14.8 million at June 30, 2020 to $27.8 million at September 30, 2020. The increase in loans held-for-sale results primarily from an increase in the origination volume during the first quarter of fiscal 2021.
Investment Securities
Investment securities amounted to $56.7 million at September 30, 2020 compared to $62.9 million at June 30, 2020, a decrease of $6.2 million, or 9.8%. The decrease in investment securities was primarily due to $11.0 million of principal repayments on mortgage backed securities offset by purchases of $5.1 million in mortgage backed securities.
Premises and Equipment, Net
Premises and equipment, net increased $683,000, or 5.2%, to $13.9 million at September 30, 2020 compared to $13.2 million at June 30, 2020.
Asset Quality
At September 30, 2020, the Company had $6.2 million of non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due, and other real estate owned) compared to $7.2 million of non-performing assets at June 30, 2020, consisting of six commercial real estate loans to one borrower, four single-family residential loans, one lot loan, one land loan, and two commercial real estate properties in other real estate owned at September 30, 2020, compared to five single-family residential loans, six commercial real estate loans to one borrower, one lot loan, one land loan and two commercial real estate properties in other real estate owned at June 30, 2020. The decrease in non-performing assets from $7.2 million at June 30, 2020 to $6.2 million at September 30, 2020 was primarily due to a write-down on a commercial real estate loan and the sale of a portion of the collateral on the same commercial real estate loan totaling $690,000. At September 30, 2020, the Company had four single family residential loans, two commercial land and lot development loans to one borrower, six commercial real estate loans to one borrower, and two commercial real estate loans to one borrower classified as substandard compared to four single family residential loans, two commercial land and lot development loans, and six commercial real estate loans to one borrower classified as substandard at June 30, 2020. There were no loans classified as doubtful at September 30, 2020 or June 30, 2020.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
Discussion of Financial Condition Changes from June 30, 2020 to September 30, 2020 (continued)
Total Liabilities
Total liabilities increased $22.9 million, or 4.9%, from $467.7 million at June 30, 2020 to $490.6 million at September 30, 2020 primarily due to an increase in total deposits of $22.9 million, or 5.0%, to $483.7 million at September 30, 2020 compared to $460.8 million at June 30, 2020, an increase of $403,000, or 77.2%, in advances from borrowers for taxes and insurance from $522,000 at June 30, 2020 to $925,000 at September 30, 2020 and an increase of $466,000, or 15.6%, in other liabilities from $3.0 million at June 30, 2020 to $3.5 million at September 30, 2020, partially offset by a decrease in other borrowings of $800,000 that was paid down from dividend proceeds, or 34.8%, from $2.3 million at June 30, 2020 to $1.5 million at September 30, 2020, and a decrease of $77,000, or 7.3%, in advances from the Federal Home Loan Bank from $1.1 million at June 30, 2020 to $983,000 at September 30, 2020. The increase in deposits was primarily due to a $17.6 million, or 17.0%, increase in non-interest bearing deposits from $103.4 million at June 30, 2020 to $121.0 million at September 30, 2020, an $11.4 million, or 13.6%, increase in savings deposits from $83.8 million at June 30, 2020 to $95.2 million at September 30, 2020, and a $1.9 million, or 4.5%, increase in NOW accounts from $41.4 million at June 30, 2020 to $43.2 million at September 30, 2020, partially offset by a decrease of $6.0 million, or 3.8%, in certificates of deposit from $157.6 million at June 30, 2020 to $151.6 million at September 30, 2020, and a decrease in money market deposits of $2.0 million, or 2.6%, from $74.6 million at June 30, 2020 to $72.7 million at September 30, 2020. The Company had $13.6 million in brokered deposits at September 30, 2020 compared to $16.1 million at June 30, 2020. The decrease in advances from the Federal Home Loan Bank was primarily due to principal paydowns on amortizing advances.
Shareholders’ Equity
Shareholders’ equity increased $517,000, or 1.0%, to $51.0 million at September 30, 2020 from $50.5 million at June 30, 2020. The primary reasons for the changes in shareholders’ equity from June 30, 2020 were net income of $1.2 million, the vesting of restricted stock awards, stock options, and the release of employee stock ownership plan shares totaling $103,000, and proceeds from the issuance of common stock from the exercise of stock options of $38,000, partially offset by the acquisition of Company stock of $387,000, dividends paid totaling $282,000, and a decrease in the Company’s accumulated other comprehensive income of $203,000.
Regulatory Capital
The Bank is required to meet minimum capital standards promulgated by the Office of the Comptroller of the Currency (“OCC”). At September 30, 2020, Home Federal Bank’s regulatory capital was well in excess of the minimum capital requirements.
Comparison of Operating Results for the Three Month Periods Ended September 30, 2020 and 2019
General
Net income for the three months ended September 30, 2020 was $1.2 million, consistent with $1.2 million for the three months ended September 30, 2019. Non-interest income increased $742,000, or 77.0%, and net interest income increased $173,000, or 4.5%. Provision for loan losses increased $525,000, or 300%, non-interest expense increased $346,000, or 11.2%, and provision for income taxes increased $44,000, or 15.8%.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
Comparison of Operating Results for the Three Month Periods Ended September 30, 2020 and 2019 (continued)
Net Interest Income
Net interest income increased $173,000 for the three months ended September 30, 2020 compared to the prior year three month period due to a $357,000, or 26.4%, decrease in total interest expense, partially offset by a decrease of $184,000, or 3.6%, in total interest income, primarily due to a 53 basis point reduction in the average rate on interest bearing liabilities. The Company’s average interest rate spread was 2.92% for the three months ended September 30, 2020 compared to 3.30% for the three months ended September 30, 2019. The Company’s net interest margin was 3.21% for the three months ended September 30, 2020 compared to 3.63% for the three months ended September 30, 2019. The decrease in net interest margin on a comparative quarterly basis was primarily the result of a decrease of 91 basis points in the average yield on average balances of interest-earning assets. This decrease in average yield was mainly due to an increase in interest-earning deposits earning only 12 basis points for the three months ended September 30, 2020 compared to 220 basis points for the prior year due to the substantial rate decrease in overnight rates at the Federal Home Loan Bank, First National Bankers Bank, and Texas Independent Bank.
Provision for Losses on Loans
Based on an analysis of historical experience, the volume and type of lending conducted by Home Federal Bank, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to our market area and the current COVID-19 recessionary environment, and other factors related to the collectability of Home Federal Bank’s loan portfolio, a provision for loan losses of $700,000 was made during the three months ended September 30, 2020 compared to a $175,000 provision made during the three months ended September 30, 2019. The allowance for loan losses was $4.5 million, or 1.26% of total loans receivable, at September 30, 2020 compared to $3.6 million, or 1.09% of total loans receivable, at September 30, 2019. At September 30, 2020, Home Federal Bank had $5.3 million in non-performing loans and $950,000 in foreclosed assets which totaled $6.2 million in non-performing assets. At September 30, 2019, Home Federal Bank had $3.6 million in non-performing loans and $480,000 in foreclosed assets which totaled $4.1 million in non-performing assets. At September 30, 2020, the Bank had troubled debt restructurings involving six commercial real estate loans to one borrower totaling $1.6 million that are current on all interest payments due with no expected losses at this time. At September 30, 2019, the Bank had troubled debt restructurings involving one commercial loan with a balance of $122,000, and six commercial real estate loans totaling $3.6 million to one borrower that are current on all interest payments due. There can be no assurance that the loan loss allowance will be sufficient to cover losses on non-performing assets in the future.
Non-interest Income
The $742,000 increase in non-interest income for the three months ended September 30, 2020 compared to the prior year quarterly period was primarily due to increases of $844,000 in gain on sale of loans, and $3,000 in other income, partially offset by decreases of $80,000 in gain on sale of real estate, $24,000 in service charges on deposit accounts, and $1,000 on income from bank owned life insurance. The Company sells most of its long term fixed rate residential mortgage loan originations primarily in order to manage interest rate risk. The increase in gain on sale of loans for the three months ended September 30, 2020 over the prior year three month period reflects an increase in the amount of loans sold primarily due to the low interest rate environment.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
Comparison of Operating Results for the Three Month Periods Ended September 30, 2020 and 2019 (continued)
Non-interest Expense
The $346,000 increase in non-interest expense for the three months ended September 30, 2020, compared to the same period in 2019, is primarily attributable to increases of $408,000 in compensation and benefits expense, $34,000 in data processing, $30,000 in deposit insurance premiums, $21,000 in legal fees, $10,000 in audit and examination fees, and $4,000 in occupancy and equipment expense. The increases were partially offset by decreases of $121,000 in advertising expense, $25,000 in loan and collection expense, $8,000 in other non-interest expense, and $7,000 in franchise and bank shares tax expense. The increase in compensation and benefits expense for the three months ended September 30, 2020 was primarily due to increased payroll costs in our mortgage division due to the high volume of mortgage loan sales, along with additional hires in our commercial department, and normal annual payroll increases.
The aggregate compensation expense recognized by the Company for its Stock Option, Share Award, ESOP, and Recognition and Retention Plans amounted to $140,000 and $154,000 for the three months ended September 30, 2020 and September 30, 2019, respectively.
The Louisiana bank shares tax is assessed on the Bank’s equity and earnings. For the three months ended September 30, 2020, the Company recognized franchise and bank shares tax expense of $108,000 compared to $115,000 for the same period in 2019.
Income Taxes
Income taxes amounted to $323,000 for the three months ended September 30, 2020 resulting in an effective tax rate of 20.6%. Income taxes amounted to $279,000 for the three months ended September 30, 2019 resulting in an effective tax rate of 18.3%.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
Average Balances, Net Interest Income, Yields Earned, and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.
Three Months Ended September 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Average Balance | Interest | Average Yield/ Rate | Average Balance | Interest | Average Yield/ Rate | |||||||||||||||||||
| (Dollars In Thousands) | ||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
Investment securities | $ | 58,881 | $ | 319 | 2.15 | % | $ | 65,520 | $ | 406 | 2.46 | % | ||||||||||||
Loans receivable | 373,311 | 4,647 | 4.94 | 331,368 | 4,653 | 5.57 | ||||||||||||||||||
Interest-earning deposits | 60,651 | 18 | 0.12 | 19,659 | 109 | 2.20 | ||||||||||||||||||
| Total interest-earning assets | 492,843 | 4,984 | 4.01 | % | 416,547 | 5,168 | 4.92 | % | ||||||||||||||||
Non-interest-earning assets | 35,121 | 27,491 | ||||||||||||||||||||||
Total assets | $ | 527,964 | $ | 444,038 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
Savings accounts | $ | 90,621 | 158 | 0.69 | % | $ | 46,630 | 121 | 1.03 | % | ||||||||||||||
NOW accounts | 40,611 | 32 | 0.31 | 31,254 | 49 | 0.62 | ||||||||||||||||||
Money market accounts | 73,180 | 75 | 0.41 | 74,407 | 229 | 1.22 | ||||||||||||||||||
Certificate accounts | 156,320 | 706 | 1.79 | 176,897 | 936 | 2.10 | ||||||||||||||||||
Total deposits | 360,732 | 971 | 1.07 | 329,188 | 1,335 | 1.61 | ||||||||||||||||||
Other Borrowings | 1,752 | 14 | 3.17 | 343 | 4 | 4.63 | ||||||||||||||||||
FHLB advances | 1,010 | 12 | 4.71 | 1,307 | 15 | 4.55 | ||||||||||||||||||
| Total interest-bearing liabilities | $ | 363,494 | 997 | 1.09 | % | $ | 330,838 | 1,354 | 1.62 | % | ||||||||||||||
| Non-interest-bearing liabilities: | ||||||||||||||||||||||||
| Non-interest bearing demand accounts | 111,352 | 62,167 | ||||||||||||||||||||||
Other liabilities | 3,498 | 2,168 | ||||||||||||||||||||||
Total liabilities | 478,344 | 395,173 | ||||||||||||||||||||||
Total Stockholders’ Equity(1) | 49,620 | 48,865 | ||||||||||||||||||||||
Total liabilities and equity | $ | 527,964 | $ | 444,038 | ||||||||||||||||||||
Net interest-earning assets | $ | 129,349 | $ | 85,709 | ||||||||||||||||||||
| Net interest income; average interest rate spread(2) | $ | 3,987 | 2.92 | % | $ | 3,814 | 3.30 | % | ||||||||||||||||
Net interest margin(3) | 3.21 | % | 3.63 | % | ||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 135.58 | % | 125.91 | % | ||||||||||||||||||||
__________________
(1) Includes retained earnings and accumulated other comprehensive income.
(2) Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities.
(3) Net interest margin is net interest income divided by net average interest-earning assets.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
Comparison of Operating Results for the Three Month Periods Ended September 30, 2020 and 2019 (continued)
Liquidity and Capital Resources
Home Federal Bank maintains levels of liquid assets deemed adequate by management. The Bank adjusts its liquidity levels to fund deposit outflows, repay its borrowings, and to fund loan commitments. Home Federal Bank also adjusts liquidity as appropriate to meet asset and liability management objectives.
Home Federal Bank’s primary sources of funds are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, loan sales, and earnings and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. The Bank sets the interest rates on its deposits to maintain a desired level of total deposits. In addition, Home Federal Bank invests excess funds in short-term interest-earning accounts and other assets which provide liquidity to meet lending requirements. Home Federal Bank’s deposit accounts with the Federal Home Loan Bank of Dallas amounted to $14.1 million at September 30, 2020.
A significant portion of Home Federal Bank’s liquidity consists of securities classified as available-for-sale and cash and cash equivalents. Home Federal Bank’s primary sources of cash are net income, principal repayments on loans and mortgage-backed securities, and increases in deposit accounts. If Home Federal Bank requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas which provides an additional source of funds. At September 30, 2020, Home Federal Bank had $983,000 in advances from the Federal Home Loan Bank of Dallas and had $181.6 million in additional borrowing capacity. Additionally, at September 30, 2020, Home Federal Bank was a party to a Master Purchase Agreement with First National Bankers Bank whereby Home Federal Bank may purchase Federal Funds from First National Bankers Bank in an amount not to exceed $19.5 million. There were no amounts purchased under this agreement as of September 30, 2020. In addition, the Company had available a $5.0 million line of credit agreement at September 30, 2020 with First National Bankers Bank. At September 30, 2020 there was a $1.5 million balance in the credit line.
At September 30, 2020, Home Federal Bank had outstanding loan commitments of $73.5 million to originate loans and commitments under unused lines of credit of $9.6 million. At September 30, 2020, certificates of deposit scheduled to mature in less than one year totaled $86.2 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, the cost of such deposits could be significantly higher upon renewal in a rising interest rate environment. Home Federal Bank intends to utilize its high levels of liquidity to fund its lending activities. If additional funds are required to fund lending activities, Home Federal Bank intends to sell its securities classified as available-for-sale, as needed.
At September 30, 2020, Home Federal Bank exceeded each of its regulatory capital requirements with tangible equity, common equity Tier 1, core, and total risk-based capital ratios of 9.73%, 15.67%, 9.73%, and 16.92%, respectively.
Off-Balance Sheet Arrangements
At September 30, 2020, the Company did not have any off-balance sheet arrangements as defined by Securities and Exchange Commission rules.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein have been prepared in accordance with instructions to Form 10-Q which require the measurement of financial position and operating results in terms of historical dollars without considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the Company’s assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than does the effect of inflation.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management, as well as assumptions made by and information currently available to management. In addition, in those and other portions of this document the words “anticipate”, “believe”, “estimate”, “except”, “intend”, “should”, and similar expressions, or the negative thereof, as they relate to the Company or the Company’s management are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future looking events and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary from those described herein as anticipated, believed, estimated, expected, or intended. The Company does not intend to update these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosures Controls and Procedures. Under the supervision and with the participation of our management including our President and Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the applicable time periods specified by the Securities and Exchange Commission’s rules and forms.
Changes in Internal Control over Financial Reporting. There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which involve amounts in the aggregate believed by management to be immaterial to the financial condition of the Company.
ITEM 1A. RISK FACTORS
Not applicable.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| (a) | Not applicable. |
| (b) | Not applicable. |
| (c) | Purchases of Equity Securities |
The Company’s repurchases of its common stock made during the quarter ended September 30, 2020 are set forth in the table below, including stock-for-stock option exercises:
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (a) | ||||||||||||
| July 1, 2020 – July 31, 2020 | 15,471 | $ | 25.00 | 13,928 | -- | |||||||||||
| August 1, 2020 – August 31, 2020 | 4,471 | 23.50 | -- | -- | ||||||||||||
| September 1, 2020–September 30, 2020 | -- | -- | -- | -- | ||||||||||||
| Total | 19,942 | $ | 24.66 | 13,928 | ||||||||||||
______________
Notes to this table:
| (a) | On September 11, 2019 the Company announced that its Board of Directors approved a ninth stock repurchase program for the repurchase of up to 90,000 shares, or approximately 5.0% of its outstanding shares of common stock. The repurchase program was completed on July 24, 2020. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
No. | Description | |||
31.1 | ||||
31.2 | ||||
32.0 | ||||
101.INS | XBRL Instance Document | |||
101.SCH | XBRL Taxonomy Extension Schema Document | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||
101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document | |||
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HOME FEDERAL BANCORP, INC. OF LOUISIANA | ||
Date: November 12, 2020 | By: | /s/Glen W. Brown |
Glen W. Brown | ||
Senior Vice President and Chief Financial Officer (Duly authorized officer and principal financial and accounting officer) | ||