Item 1A. Risk Factors
Not applicable.
Item 1B. Unresolved Staff Comments
Not applicable.
29
Item 2. Properties
We currently conduct business from five full-service banking offices located in Shreveport, Louisiana and two full-service banking offices located in Bossier City, Louisiana. The following table sets forth certain
information, as of June 30, 2021, relating to Home Federal Bank’s offices, one property acquired for a future branch office and one property acquired for potential future administrative offices which is presently vacant.
Description/Address Leased/Owned Net Book Value of Property Amount of Deposits
Building (Home Office) 222 Florida Street, Shreveport, LA Owned $ 1,516 $ --
Building (2) 614 Market Street, Shreveport, LA Owned 353 --
____________________
Item 3. Legal Proceedings
Home Federal Bancorp and Home Federal Bank are not involved in any pending legal proceedings other than nonmaterial legal proceedings occurring in the ordinary course of business.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a)Home Federal Bancorp’s common stock is traded on the Nasdaq Capital Market under the symbol
“HFBL.” At September 21, 2021, Home Federal Bancorp had 191 shareholders of record. The number of shareholders does not reflect the number of persons or entities who may hold stock in nominee or “street” name through brokerage firms or
others.
(b)Not applicable.
(c)Purchases of Equity Securities.
The Company’s repurchases of its common stock made during the quarter ended June 30, 2021 are set forth in the table below, including stock-for-stock option exercises:
____________________________
Notes to this table:
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Item 6. Selected Financial Data
Set forth below is selected consolidated financial and other data of Home Federal Bancorp. The information at or for the years ended June 30, 2021 and 2020 is derived in part from the audited financial statements
that appear in this Form 10-K. The information at or for the years ended June 30, 2019, 2018 and 2017 is also derived from audited financial statements that do not appear in this Form 10-K.
(In thousands)
Selected Financial and Other Data:
As of or for the Year Ended June 30,
(Dollars in thousands, except per share amounts)
Selected Operating Data:
Earnings per share of common stock:
Selected Operating Ratios(1):
(Footnotes on following page)
32
As of or for the Year Ended June 30,
Selected Quality Ratios(4):
Bank Capital Ratios(4):
Other Data:
Offices (branch and home) 8 8 8 7 7
__________________
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Our profitability depends primarily on our net interest income, which is the difference between interest and dividend income on interest-earning assets, principally loans, investment securities, and
interest-earning deposits in other institutions, and interest expense on interest-bearing deposits and borrowings from the Federal Home Loan Bank of Dallas. Net interest income is dependent upon the level of interest rates and the extent to
which such rates are changing. Our profitability also depends, to a lesser extent, on non-interest income, provision for loan losses, non-interest expenses, and federal income taxes. Home Federal Bancorp, Inc. of Louisiana had net income of
$5.4 million in fiscal 2021 compared to net income of $3.9 million in fiscal 2020.
Our business consists primarily of originating single-family real estate loans secured by property in our market area and to a lesser extent, commercial real estate loans, commercial business loans, and real estate
secured lines of credit which typically have higher rates and shorter terms than single-family loans. Although our loans are primarily funded by certificates of deposit, which typically have a higher interest rate than passbook accounts, it is
our policy to require commercial customers to have a deposit relationship with us, which primarily consist of NOW accounts. Due to the continued low interest rate environment, we have sold a substantial amount of our fixed rate single-family
residential loan originations in recent periods. We have also sold investment securities available-for-sale to realize gains in the portfolio. Because of an increase in our average cost of funds on our interest bearing liabilities, our net
interest margin decreased from 3.46% to 3.31% during fiscal 2021 compared to 2020, and our net interest income increased $1.8 million to $16.9 million for fiscal 2021 as compared to $15.2 million for fiscal 2020. We expect to continue to
emphasize consumer and commercial lending in the future in order to improve the yield on our portfolio.
Home Federal Bancorp’s operations and profitability are subject to changes in interest rates, applicable statutes and regulations, and general economic conditions, as well as other factors beyond our control.
33
Business Strategy
Our business strategy is focused on operating a growing and profitable community-oriented financial institution. Our current business strategy includes:
Critical Accounting Policies
In reviewing and understanding financial information for Home Federal Bancorp, you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements.
These policies are described in Note 1 of the notes to our consolidated financial statements included in Item 8 of this document. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United
States of America and to general practices within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information
available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting
policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or
may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
34
Allowance for Loan Losses. We have identified the evaluation of the allowance for loan losses as a critical accounting policy where amounts are sensitive to material
variation. The allowance for loan losses represents management’s estimate for probable losses that are inherent in our loan portfolio but which have not yet been realized as of the date of our consolidated balance sheet. It is established
through a provision for loan losses charged to earnings. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Subsequent recoveries are added to the allowance.
The allowance is an amount that management believes will cover known and inherent losses in the loan portfolio based on evaluations of the collectibility of loans. The evaluations take into consideration such factors as changes in the types and
amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and
current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral,
estimated losses on our commercial and residential loan portfolios, and general amounts for historical loss experience. All of these estimates may be susceptible to significant changes as more information becomes available.
While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting
guidance. Historically, our estimates of the allowance for loan loss have not required significant adjustments from management’s initial estimates. In addition, the Office of the Comptroller of the Currency as an integral part of their
examination processes periodically reviews our allowance for loan losses. The Office of the Comptroller of the Currency may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available
to them at the time of their examinations. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.
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 bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. Realizing 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.
COVID-19
In light of the events surrounding the COVID-19 epidemic, the Company is continually assessing the effects of the pandemic on its employees, customers and communities. In March 2020, the Coronavirus Aid, Relief, and
Economic Security Act (the “CARES Act”) was enacted. The CARES Act contains many provisions related to banking, lending, mortgage forbearance and taxation. The Company has worked diligently to help support its customers through the SBA Paycheck
Protection Program (“SBA PPP”), loan modifications and loan deferrals. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) became law. The Economic Aid Act extended the
authority to make SBA PPP loans through May 31, 2021. As of June 30, 2021, Home Federal Bank has funded 597 SBA PPP loans totaling approximately $68.8 million to existing customers and key prospects located primarily in our trade area of NW
Louisiana. Our commercial lenders and operational support staff have worked diligently to accomplish what seemed to be an insurmountable task in providing a lifeline to our small community businesses. We believe the customer interaction during
this time provides a real opportunity to broaden and deepen our customer relationships while benefiting our community. We have had $38.6 million of SBA PPP loans that have been forgiven which represents 56.1% of the total amount of loans
funded. The provision for loan losses for the year ended June 30, 2021 was $1.8 million compared to $1.9 million for the year ended June 30, 2020.
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Changes in Financial Condition
At June 30, 2021, the Company reported total assets of $565.7 million, an increase of $47.5 million, or 9.2%, 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 $49.5 million, or 90.3%, from $54.9 million at June 30, 2020 to $104.4 million at June 30, 2021, investment securities of $21.3 million, or 33.9%, from $62.9 million at June 30, 2020 to $84.3
million at June 30, 2021, premises and equipment of $1.7 million, or 12.7%, from $13.2 million at June 30, 2020 to $14.9 million at June 30, 2021, and deferred tax assets of $62,000, or 8.2%, from $757,000 at June 30, 2020 to $819,000 at June 30,
2021. These increases were partially offset by decreases in loans receivable, net of $23.5 million, or 6.5%, from $359.9 million at June 30, 2020 to $336.4 million at June 30, 2021, accrued interest receivable of $697,000, or 37.5%, from $1.9
million at June 30, 2020 to $1.2 million at June 30, 2021, real estate owned of $567,000, or 59.7%, from $950,000 at June 30, 2020 to $383,000 at June 30, 2021, and loans held-for-sale of $371,000, or 2.5%, from $14.8 million at June 30, 2020 to
$14.4 million at June 30, 2021. The increase in investment securities was primarily due to security purchases of $52.9 million offset by principal repayments on mortgage backed securities of $28.2 million and a redemption of FHLB stock for $2.4
million.
Loans receivable, net decreased $23.5 million, or 6.5%, from $359.9 million at June 30, 2020 to $336.4 million at June 30, 2021. The decrease in loans receivable, net was attributable primarily to decreases in
multi-family residential loans of $16.4 million, commercial business loans of $12.0 million, one-to-four family residential loans of $10.5 million, land loans of $1.8 million, equity and second mortgage loans of $143,000, and consumer loans of
$64,000, partially offset by increases in commercial real estate loans of $9.1 million, construction loans of $7.2 million, and equity lines of credit of $536,000. With interest rates continuing at historical lows, management is reluctant to
invest in long-term, fixed rate mortgage loans for the portfolio and instead sells the majority of the long-term, fixed rate mortgage loan production.
In recent periods we diversified the loan products we offer and increased our efforts to originate higher yielding commercial real estate loans and lines of credit and commercial business loans which were deemed
attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans. As of June 30, 2021, Home Federal Bank had $96.2 million of commercial real estate loans, 28.2% of the total loan
portfolio, and $69.9 million of commercial business loans, 20.5% of the total loan portfolio. Although commercial loans are generally considered to have greater credit risk than other certain types of loans, we attempt to mitigate such risk by
originating such loans in our market area to known borrowers.
Securities available-for-sale decreased $12.5 million, or 29.7%, from $42.1 million at June 30, 2020 to $29.6 million at June 30, 2021. This decrease resulted primarily from principal repayments of $21.7 million
and a decrease in market values of securities of $810,000, partially offset by purchases of $10.1 million in mortgage-backed securities.
Securities held-to-maturity increased $33.8 million, from $20.9 million at June 30, 2020 to $54.7 million at June 30, 2021. This increase was primarily due to purchases of $41.7 million of mortgage backed
securities and purchases of municipal securities of $1.1 million, partially offset by principal repayments of $6.4 million and a redemption of FHLB Stock of $2.4 million. We chose to place these securities in held-to-maturity as part of our
interest rate risk management strategy.
Cash and cash equivalents increased $49.5 million, or 90.3%, from $54.9 million at June 30, 2020 to $104.4 million at June 30, 2021. The net increase in cash and cash equivalents was primarily attributable to
increases in total deposits related to SBA PPP loans funded.
36
Total liabilities increased $45.3 million, or 9.7%, from $467.7 million at June 30, 2020 to $513.0 million at June 30, 2021 primarily due to increases in total deposits of $45.8 million, or 9.9%, to $506.6 million at
June 30, 2021 compared to $460.8 million at June 30, 2020, and in other borrowings of $100,000, or 4.3%, from $2.3 million at June 30, 2020 to $2.4 million at June 30, 2021, partially offset by a decrease of $276,000, or 9.2% in other liabilities
from $3.0 million at June 30, 2020 to $2.7 million at June 30, 2021, and a decrease of $193,000, or 18.2%, in advances from the Federal Home Loan Bank from $1.1 million at June 30, 2020 to $867,000 at June 30, 2021. The increase in deposits was
primarily due to a $45.3 million, or 54.1%, increase in savings deposits from $83.8 million at June 30, 2020 to $129.1 million at June 30, 2021, a $27.6 million, or 26.7%, increase in non-interest bearing deposits from $103.4 million at June 30,
2020 to $131.0 million at June 30, 2021, a $13.5 million, or 18.1%, increase in money market deposits from $74.6 million at June 30, 2020 to $88.2 million at June 30, 2021, and an increase in NOW accounts of $7.9 million, or 19.1%, from $41.4
million at June 30, 2020 to $49.3 million at June 30, 2021, partially offset by a decrease of $48.6 million, or 30.8%, in certificates of deposit from $157.6 million at June 30, 2020 to $109.0 million at June 30, 2021. The Company had $10.7
million in brokered deposits at June 30, 2021 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 increased $2.2 million, or 4.3%, to $52.7 million at June 30, 2021 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 $5.4 million, the vesting of restricted stock awards, stock options, and the release of employee stock ownership plan shares totaling $593,000, and proceeds from the issuance of common stock from the exercise of stock options of
$587,000, partially offset by the acquisition of Company stock of $2.6 million, dividends paid totaling $1.1 million, and a decrease in the Company’s accumulated other comprehensive income of $640,000.
37
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.
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
Interest-earning assets:
Interest-bearing liabilities:
Non-interest-bearing liabilities:
Net interest margin(4) 3.31 % 3.46 %
__________________
(1) Includes loans held for sale.
(2) Includes retained earnings and accumulated other comprehensive loss.
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Rate/Volume Analysis. The following table
describes the extent to which changes in interest rates and changes in volume of interest-related assets and liabilities have affected Home Federal Bancorp’s interest income and interest expense during the periods indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by current year
volume), and (iii) total change in rate and volume. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
Rate Volume (Decrease) Rate Volume (Decrease)
(In thousands)
Interest income:
Interest expense:
FHLB advances and other borrowings (22 ) 22 -- 33 (76 ) (43 )
Comparison of Operating Results for the Years Ended June 30, 2021 and 2020
General. The increase in net income for the year ended June 30, 2021 resulted primarily from a $1.8 million, or 11.6%, increase in net interest income, an increase of $1.6
million, or 39.8%, in non-interest income, a $91,000, or 4.8%, decrease in provision for loan losses, partially offset by an increase of $1.4 million, or 11.3%, in non-interest expense, and an increase of $488,000, or 51.0%, in provision for
income taxes. The increase in net interest income for the year was primarily due to a $1.9 million, or 35.9%, decrease in total interest expense, partially offset by $91,000, or 0.4%, decrease in total interest income. The Company’s average
interest rate spread was 3.07% for the year ended June 30, 2021 compared to 3.13% for the year ended June 30, 2020.
Net Interest Income. Net interest income amounted to $16.9 million for fiscal year 2021, an increase of $1.8 million, or 11.6%, compared to $15.2 million for fiscal year
2020. The increase was due primarily to a decrease of $1.9 million in interest expense, partially offset by a $91,000 decrease in both total interest income and provision for loan losses.
The average interest rate spread decreased from 3.13% for fiscal 2020 to 3.07% for fiscal 2021, while the average balance of interest-earning assets increased from $438.7 million to $511.3million during the same periods. The percentage of average interest-earning assets to average interest-bearing liabilities increased to 137.46% for fiscal 2021 compared to 128.57% for fiscal 2020. The decrease in the average
interest rate spread and net interest margin was attributable primarily to a decrease of 68 basis points in average rate on interest earning assets for the year, from 4.64% at June 30, 2020 to 3.96% at June 30, 2021. The average rate paid on
certificates of deposit decreased from 2.05% for fiscal 2020 to 1.68% for fiscal 2021. Net interest margin decreased to 3.31% for fiscal 2021 compared to 3.46% for fiscal 2020.
Interest income decreased $91,000, or 0.4%, to $20.2million for fiscal 2021 compared to $20.3 million for fiscal 2020, primarily due to an aggregate decrease in interest income
from investment and mortgage-backed securities of $383,000 and a decrease in interest income on other earning assets of $186,000, partially offset by an increase in interest income from loans of $478,000 for fiscal 2021 compared to 2020. The
increase in the average balance of loans receivable was primarily due to new loans originated by our commercial lending division. The average yield of the loan portfolio decreased by 26 basis points during fiscal 2021 mainly due to a lower
interest rate environment.
39
Interest expense decreased $1.9 million, or 35.9%, to $3.3 million for fiscal 2021 compared to $5.2 million for fiscal 2020, primarily as a result of decreases in the average rate paid on interest-bearing deposits.
Provision for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to have occurred in
our loan portfolio. Loan losses are charged against the allowance when management believes the collectability 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.
A loan is considered impaired when, based on current information or events, it is probable that we 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, we will
recognize the impairment by creating a valuation allowance with a corresponding charge against earnings.
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 interest and principal payments is back to normal, the loan is returned to accrual status.
A provision of $1.8 million was made to the allowance during fiscal 2021, compared to a provision of $1.9 million in fiscal 2020. At June 30, 2021, the Company had $1.4 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, three single-family
residential loans, and one commercial real estate property and one single family residence in other real estate owned at June 30, 2021, compared to five single-family residential loans, five 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 $1.4 million at June 30, 2021 was primarily due to a payoff of
$2.0 million on one lot loan and one land loan to the same borrower, a write-down of $907,000 on a lot loan, a write-down of $1.0 million on a commercial real estate loan, and the paydown of a portion of the collateral on the same commercial real
estate loan totaling $449,000. At June 30, 2021, the Company had one single family residential loans and eight 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 June 30, 2021 or June 30, 2020.
Non-Interest Income. Non-interest income amounted to $5.5 million for the year ended June 30, 2021, an increase of $1.6 million, or 39.8%, compared to non-interest income of
$3.9 million for the year ended June 30, 2020. The $1.6 million increase in non-interest income for the year ended June 30, 2021 compared to the prior year was primarily due to an increase of $1.8 million in gain on sale of loans, and an
increase of $15,000 in other non-interest income, partially offset by a $219,000 decrease in gain on sale of securities, a $42,000 loss on sale of real estate, a $28,000 decrease in service charges on deposit accounts, and a $12,000 decrease in
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.
40
Non-Interest Expense. Non-interest expense increased $1.4 million, or 11.3%, in fiscal 2021 compared to the prior year period. The $1.4 million increase in non-interest
expense for the year ended June 30, 2021, compared to the prior year, is primarily attributable to increases of $978,000 in compensation and benefits expense, $200,000 in real estate owned valuation adjustment expense, $176,000 in data
processing expense, $88,000 in deposit insurance premium expense, $69,000 in other non-interest expenses, $49,000 in loan and collection expense, and $48,000 in audit and examination fees expense, partially offset by decreases of $100,000 in
advertising expense, $52,000 in franchise and bank shares tax expense, $43,000 in legal fees, and $13,000 in occupancy and equipment expense.
Provision for Income Tax Expense. The provision for income taxes amounted to $1.4 million and $957,000 for the fiscal years ended June 30, 2021 and 2020, respectively. Our
effective tax rate was 21.2% for fiscal 2021 and 19.9% for fiscal 2020.
Exposure to Changes in Interest Rates
Our ability to maintain net interest income depends upon our ability to earn a higher yield on interest-earning assets than the rates we pay on deposits and borrowings. Our interest-earning assets consist primarily
of securities available-for-sale and long-term residential and commercial mortgage loans, which have fixed rates of interest. Consequently, our ability to maintain a positive spread between the interest earned on assets and the interest paid on
deposits and borrowings can be adversely affected when market rates of interest rise.
Although long-term, fixed-rate mortgage loans made up a significant portion of our interest-earning assets at June 30, 2021, we sold a substantial amount of our one-to-four family residential loans we originated
and maintained a significant portfolio of available-for-sale securities during the past few years in order to better position the Company for a rising interest rate environment in the long term. At June 30, 2021 and 2020, securities
available-for-sale amounted to $29.6 million and $42.1 million, respectively, or 5.2% and 8.1%, respectively, of total assets at such dates.
Quantitative Analysis. The Office of the Comptroller of the Currency provides a quarterly report on the potential impact of interest rate changes upon the market value of
portfolio equity. Management reviews the quarterly reports from the Office of the Comptroller of the Currency, which show the impact of changing interest rates on net portfolio value. Net portfolio value is the difference between incoming and
outgoing discounted cash flows from assets, liabilities, and off-balance sheet contracts.
Net Portfolio Value. Our interest rate sensitivity is monitored by management through the use of a model which internally generates estimates of the change in our net
portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV
in that scenario divided by the market value of assets in the same scenario. The following table sets forth our NPV as of June 30, 2021:
Basis Points (Rate Shock) Amount $ Change % Change NPV Ratio Change
(Dollars in thousands)
Qualitative Analysis. Our ability to maintain a positive “spread” between the interest earned on assets and the interest paid on deposits and borrowings is affected by
changes in interest rates. Our fixed-rate loans generally are profitable, if interest rates are stable or declining since these loans have yields that exceed our cost of funds. If interest rates increase, however, we would have to pay more on
our deposits and new borrowings, which would adversely affect our interest rate spread. In order to counter the potential effects of dramatic increases in market rates of interest, we have underwritten our mortgage loans to allow for their sale
in the secondary market. Total loan originations amounted to $389.8 million for fiscal 2021 and $311.4 million for fiscal 2020, while loans sold amounted to $198.8 million and $111.8 million during the same respective periods. We have invested
excess funds from loan payments and prepayments and loan sales in investment securities classified as available-for-sale. As a result, Home Federal Bancorp is not as susceptible to rising interest rates as it would be if its interest-earning
assets were primarily comprised of long-term fixed rate mortgage loans. With respect to its floating or adjustable rate loans, Home Federal Bancorp writes interest rate floors and caps into such loan documents. Interest rate floors limit our
interest rate risk by limiting potential decreases in the interest yield on an adjustable rate loan to a certain level. As a result, we receive a minimum yield even if rates decline farther, and the interest rate on the particular loan would
otherwise adjust to a lower amount. Conversely, interest rate ceilings limit the amount by which the yield on an adjustable rate loan may increase to no more than six percentage points over the rate at the time of origination. Finally, we
intend to place a greater emphasis on shorter-term consumer loans and commercial business loans in the future.
41
Liquidity and Capital Resources
Home Federal Bancorp maintains levels of liquid assets deemed adequate by management. Our liquidity ratio averaged 38.83% for the quarter ended June 30, 2021. We adjust our liquidity levels to fund deposit
outflows, repay our borrowings, and to fund loan commitments. We also adjust liquidity, as appropriate, to meet asset and liability management objectives.
Our 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. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning accounts and other assets, which provide liquidity
to meet lending requirements. Our deposit accounts with the Federal Home Loan Bank of Dallas amounted to $42.0 million and $19.1 million at June 30, 2021 and 2020, respectively.
A significant portion of our liquidity consists of securities classified as available-for-sale and cash and cash equivalents. Our primary sources of cash are net income, principal repayments on loans and
mortgage-backed securities, and increases in deposit accounts. If we require funds beyond our ability to generate them internally, we have borrowing agreements with the Federal Home Loan Bank of Dallas, which provide an additional source of
funds. At June 30, 2021, we had $867,000 in advances from the Federal Home Loan Bank of Dallas and had $173.5 million in additional borrowing capacity. Additionally, at June 30, 2021, 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 $20.4 million. There were no amounts purchased under this agreement as of June 30,
2021. In addition, Home Federal Bancorp had available a $5.0million line of credit agreement at June 30, 2021 with First National Bankers Bank. At June 30, 2021 there was a $2.4 million balance in the
credit line.
At June 30, 2021, the Company had outstanding loan commitments of $59.1 million to originate loans and commitments under unused lines of credit of $9.7 million. At June 30, 2021, certificates of deposit scheduled
to mature in one year or less totaled $64.7 million, or 59.4% of total certificates of deposit. 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. We intend to utilize our high levels of liquidity to fund our lending activities. If additional
funds are required to fund lending activities, we intend to sell our securities classified as available-for-sale, as needed.
At June 30, 2021, Home Federal Bank exceeded each of its capital requirements with tangible equity, common equity Tier 1, core, and total risk-based capital ratios of 9.57%, 16.63%, 9.57%, and 17.88%, respectively.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by Securities and Exchange Commission rules, and have not had any such arrangements during the two years ended June 30, 2021. See Notes9 and 14 to the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.
Impact of Inflation and Changing Prices
The consolidated financial statements and related financial data presented herein regarding Home Federal Bancorp have been prepared in accordance with accounting principles generally accepted in the United States
of America, which generally 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 our assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on Home Federal Bancorp’s performance than does the effect of inflation. Interest rates do not
necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.
Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward-looking statements (as defined in the Securities Exchange Act of 1934 and the regulations thereunder). Forward-looking statements are not historical facts but
instead represent only the beliefs, expectations or opinions of Home Federal Bancorp and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward-looking statements may be identified by the use of
such words as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of similar meaning, or future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly.” Forward-looking
statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements
regarding future performance. Such statements are subject to certain risks, uncertainties and assumption, many of which are difficult to predict and generally are beyond the control of Home Federal Bancorp and its management, that could cause
actual results to differ materially from those expressed in, or implied or projected by, forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements: (1) economic and competitive conditions which could affect the volume of loan originations, deposit flows and real estate values; (2) the levels of non-interest income and expense and the
amount of loan losses; (3) competitive pressure among depository institutions increasing significantly; (4) changes in the interest rate environment causing reduced interest margins; (5) general economic conditions, either nationally or in the
markets in which Home Federal Bancorp is or will be doing business, being less favorable than expected (6) political and social unrest including acts of war or terrorism; (7) the impact of the current outbreak of the novel coronavirus (COVID-19)
or (8) legislation or changes in regulatory requirements adversely affecting the business in which Home Federal Bancorp will be engaged. Home Federal Bancorp undertakes no obligation to update these forward-looking statements to reflect events
or circumstances that occur after the date on which such statements were made.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
43
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Home Federal Bancorp, Inc.
of Louisiana and Subsidiary
Shreveport, Louisiana
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Home Federal Bancorp, Inc. of Louisiana, and its subsidiary (the Company) as of June
30, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis of Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversite Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that : (1) related to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgement. The communication of
the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
44
Allowance for Loan Losses
Description of the Matter
The Company’s loan portfolio totaled $341.3 million as of June 30, 2021, and the associated allowance for loan losses (ALL) was $4.1 million. As
discussed in notes 1 and 3 to the consolidated financial statements, the ALL is established to absorb probable credit losses inherent to the Company’s loan portfolio. Management’s estimate for the probable credit losses is established through
quantitative, as well as qualitative, factors. The Company attributes portions of the allowance to loans that it evaluates individually and determines to be impaired. For non-impaired loans, the allowance for loan losses is estimated based on
historical default and/or loss information for pools of loans with similar risk characteristics and product types. The Company’s methodology for determining the appropriate ALL also considers the imprecision inherent in the estimation
process. As a result, management adjusts the ALL for consideration of the potential impact of qualitative factors, which include: 1) changes in lending policies, procedures, and practices; 2) changes in national and local economic trends and
conditions; 3) changes in the nature and volume of the portfolio; 4) changes in the experience, ability, and depth of lending management and staff; 5) changes in the volume and loss severity of past due loans, the volume of non-accrual loans,
and the volume and loss severity of adversely classified or graded loans; 6) changes in the quality of the Company’s loan review system; 7) changes in the value of underlying collateral for collateral-dependent loans; 8) the existence and
effect of any concentrations of credit, and changes in the level of such concentrations. In addition and as a response to the COVID-19 pandemic, the Company also applied a qualitative factor related to this event, which is designed to absorb
probable incurred loan losses that are negatively affected by the COVID-19 pandemic
Auditing management’s estimate of the ALL involved a high degree of subjectivity in evaluating the qualitative factors that management assessed and
the measurement of each qualitative factor. Management’s assessment and measurement of the qualitative factors is highly judgmental and has a significant effect on the ALL.
How We Addressed the Matter in Our Audit
Our audit procedures related to the qualitative factors of the ALL included the following procedures, among others. We gained an understanding of
the Company’s process for establishing the ALL, including the identification and measurement of qualitative factors. We evaluated the design and documented the controls in place that are relevant to that process.
We evaluated the accuracy of management's inputs into the qualitative factor adjustments by comparing the inputs to the Company's historical loan
performance data, third-party macroeconomic data and peer bank data
With respect to the identification of qualitative factors, we evaluated 1) changes, assumptions and adjustments to the models; 2) sufficiency,
availability and relevance of historical loss data used in the models; and 3) the risk factors used in the models. Further, we assessed whether the total amount of the qualitative estimate was consistent with the Bank's historical loss
information, credit quality statistics, and publicly observable indicators of macoreconomic financial conditions and whether the total ALL amount was reflective of losses incurred in the loan portfolio as of the consolidated balance sheet date
A Professional Accounting Corporation
We have served as the Company’s auditor since 2004
Covington, Louisiana
September 28, 2021
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2021 and 2020
(In Thousands)
ASSETS
Other Real Estate Owned 383 950
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Advances from Borrowers for Taxes and Insurance 426 522
Short-term Federal Home Loan Bank Advances 35 193
Long-term Federal Home Loan Bank Advances 832 867
Other Accrued Expenses and Liabilities 2,717 2,993
STOCKHOLDERS’ EQUITY
Unearned ESOP Stock (754 ) (870 )
Accumulated Other Comprehensive Income 275 915
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 565,731 $ 518,220
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended June 30, 2021 and 2020
For the Years Ended June 30,
(In Thousands, Except Per Share Data)
INTEREST INCOME
Investment Securities 5 52
Other Interest-Earning Assets 104 290
INTEREST EXPENSE
Federal Home Loan Bank Borrowings 45 57
Other Bank Borrowings 64 52
Net Interest Income after Provision for Loan Losses 15,141 13,291
NON-INTEREST INCOME
Loss on Sale of Real Estate and Fixed Assets (42 ) --
Realized Gain on Sale of Securities -- 219
Income on Bank Owned Life Insurance 127 139
Service Charges on Deposit Accounts 991 1,019
NON-INTEREST EXPENSE
Audit and Examination Fees 233 185
Franchise and Bank Shares Tax 407 459
Loan and Collection Expense 366 317
Real Estate Owned Valuation Adjustment 200 --
Deposit Insurance Premiums 137 49
PROVISION FOR INCOME TAX EXPENSE 1,445 957
EARNINGS PER SHARE:
*All per share amounts have been restated to reflect the effect of the 2-for-1 stock split during March 2021.
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Years Ended June 30, 2021 and 2020
For the Years Ended June 30,
(In Thousands)
Other Comprehensive (Loss) Income, Net of Tax
Investment securities available-for-sale:
Net unrealized (losses) gains (810 ) 1,352
Income tax effect -- 46
Other Comprehensive (Loss) Income (640 ) 895
Total Comprehensive Income $ 4,725 $ 4,745
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended June 30, 2021 and 2020
(In Thousands)
Share Awards Earned -- 153 -- -- -- 153
Stock Options Exercised -- 65 -- -- -- 65
Distribution of RRP Trust Stock -- 24 -- -- -- 24
Dividends Paid -- -- -- (1,142 ) -- (1,142 )
Stock Options Vested -- 137 -- -- -- 137
Company Stock Purchased (1 ) -- -- (4,141 ) -- (4,142 )
Share Awards Earned -- 153 -- -- -- 153
Stock Options Exercised -- 587 -- -- -- 587
Distribution of RRP Trust Stock -- -- -- -- -- --
Dividends Paid -- -- -- (1,122 ) -- (1,122 )
Stock Split 12 (12 ) -- -- -- --
Stock Options Vested -- 107 -- -- -- 107
Company Stock Purchased -- -- -- (2,593 ) -- (2,593 )
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2021 and 2020
For the Years Ended June 30,
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities
Realized Gain on Sale of Securities -- (219 )
Net Amortization and Accretion on Securities 157 89
Amortization of Deferred Loan Fees (1,326 ) (175 )
Real Estate Owned Valuation Adjustment 200 --
Depreciation of Premises and Equipment 665 653
Net Loss on Sale of Real Estate 42 --
ESOP Compensation Expense 333 353
Deferred Income Tax (Benefit) Expense (61 ) 92
Federal Home Loan Bank Stock Certificate (5 ) (53 )
Recognition and Retention Plan and Share Awards Expense 126 151
Increase in Cash Surrender Value on Bank Owned Life Insurance (127 ) (139 )
Changes in Assets and Liabilities:
Origination and Purchase of Loans Held-for-Sale (194,574 ) (111,824 )
Sale and Principal Repayments on Loans Held-for-Sale 199,264 108,114
Accrued Interest Receivable 697 (688 )
Other Operating Assets 62 (1,107 )
Other Operating Liabilities (276 ) 1,435
Net Cash Provided By Operating Activities 8,332 200
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations and Principal Collections, Net 21,841 (40,813 )
Deferred Loan Fees Collected 634 1,438
Acquisition of Premises and Equipment (2,354 ) (970 )
Proceeds from Sale of Real Estate 883 2,470
Improvements to Real Estate Owned Prior to Disposition (124 ) (36 )
Activity in Available-for-Sale Securities:
Principal Payments on Mortgage-Backed Securities 21,712 12,269
Sale of Securities -- 9,856
Activity in Held-to-Maturity Securities:
Purchases of Municipal Bonds (1,130 ) (245 )
Principal Payments on Mortgage-Backed Securities 6,445 4,771
Sale/Redemptions of Securities 2,437 --
Purchases of Securities (41,678 ) --
Net Cash Used in Investing Activities (1,420 ) (32,510 )
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended June 30, 2021 and 2020
For the Years Ended June 30,
(In Thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of Advances from Federal Home Loan Bank (193 ) (295 )
Company Stock Purchased (2,593 ) (4,142 )
Net Decrease in Advances from Borrowers for Taxes and Insurance (96 ) (62 )
Proceeds from Other Bank Borrowings 2,400 2,300
Repayment of Other Bank Borrowings (2,300 ) (450 )
Proceeds from Stock Options Exercised 587 65
Recognition and Retention Plan Share Distributions 153 153
Net Cash Provided by Financing Activities 42,622 69,073
NET INCREASE IN CASH AND CASH EQUIVALENTS 49,534 36,763
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 54,871 18,108
CASH AND CASH EQUIVALENTS, END OF YEAR $ 104,405 $ 54,871
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid on Deposits and Borrowed Funds 3,331 5,161
Transfer from Loans to Other Real Estate 434 950
Initial recognition of operating leases right of use assets -- 877
Initial recognition of operating leases right of use liabilities -- 887
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial
Note 1.Summary of Significant Accounting Policies
Nature of Operations
The consolidated financial statements include the accounts of Home Federal Bancorp, Inc. of Louisiana, a Louisiana chartered corporation (the “Company” or “Home Federal
Bancorp”) and its wholly owned subsidiary, Home Federal Bank, a federally chartered stock savings bank (the “Bank”), along with its wholly owned subsidiary, Metro Financial Services, Inc.
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 OCC). The Bank provides financial services to individuals, corporate entities, and other organizations through the origination of loans and the acceptance of deposits in the form of passbook savings, certificates of deposit, and
demand deposit accounts. Services are provided by seven branch offices, five of which are located in Shreveport, Louisiana and two in Bossier City, Louisiana. The Bank’s home office is located in Shreveport, Louisiana.
The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes periodic examinations by those
regulatory authorities.
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Home Federal Bank. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP), management is required to
make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and reported amounts of revenues and expenses during the reporting periods. 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 and deferred taxes.
Significant Group Concentrations of Credit Risk
Most of the Company’s activities are provided to customers of the Bank by seven branch offices, five of which are located in the city of Shreveport, Louisiana and two in
Bossier City, 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.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial
Note 1.Summary of Significant Accounting Policies
(Continued)
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 have
an original maturity date of ninety days or less.
At June 30, 2021 and 2020, cash and cash equivalents consisted of the following:
(In Thousands)
Demand Deposits at Other Institutions 59,591 35,591
Securities
Securities are being accounted for in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320’s, Investments whichrequires 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 June 30, 2021 and 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.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial
Note 1.Summary of Significant Accounting Policies
(Continued)
Loans Receivable
Loans receivable are stated at unpaid principal balances, less allowances for loan losses and unamortized deferred loan fees. Net non-refundable 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 discounts are 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 uncollectibility 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.
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.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial
Note 1. Summary of Significant Accounting Policies (Continued)
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held-for-sale and are carried 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.
Income Taxes
The Company and its wholly-owned subsidiary file a consolidated federal income tax return on a fiscal year basis. Each entity will pay 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 bases 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. 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 year.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial
Note 1. Summary of Significant Accounting Policies (Continued)
Non-Direct Response Advertising
The Company expenses all advertising costs, except for direct-response advertising, as incurred. Non-direct response advertising costs were $190,000 and $290,000 for the
years ended June 30, 2021 and 2020, 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 years ended June 30, 2021 and 2020, 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. This guidance applies to awards granted or modified after January 1, 2006, or any unvested awards outstanding prior to that date.
Reclassification
Certain financial statement balances included in the prior year consolidated financial statements have been reclassified to conform to the current year presentation.
Comprehensive Income
Accounting principles generally 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, such items, along with net income, are components of comprehensive income
(loss).
The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:
(In Thousands)
Net Unrealized Gain on Debt Securities Available-for-Sale $ 348 $ 1,158
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial
Note 1.Summary of