Item 1A. Risk Factors
Not applicable.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
The Bank has implemented an information security program that encompasses the Bank’s cybersecurity efforts as part of its risk management process. Risk
assessments, including Information Technology and Cybersecurity Risk, are conducted annually by the Chief Risk Officer, Information Technology Officer and Information Security Officer to identify, assess and mitigate risks.
The Bank recognizes the need for sound physical and internal controls over its critical financial data, confidential information and digital assets to ensure the accuracy, integrity, and confidentiality of the processed information. As regulated
financial institutions, the Company and Bank are also subject to financial privacy laws and their cybersecurity practices are subject to oversight by the federal banking agencies.
The Boards of Directors of the Company and Bank and the Audit Committee of the Company are responsible for ultimate oversight of cybersecurity risks
managed daily by management pursuant to the Bank’s information security program. The Boards of Directors annually approve this information security program and regularly receive
reports from the Bank’s Information Security Officer and Information Technology Officer that outline the steps undertaken to protect the information and data assets of the Bank and Company. Additionally,
the Information Security Officer and Information Technology Officer update the Boards of Directors through supplementary reports on issues related to Cybersecurity readiness.
The Bank’s information security program is developed and implemented by the Bank’s Information Security Officer, Information Technology Officer and Chief Risk Officer. Together with the Bank’s Electronic Data
Processing (EDP) Committee, comprised of relevant information technology and business unit stakeholders within Bank management, the Information Security and Information Technology Officers of the Bank work to manage, control and mitigate
cybersecurity risks. The Bank’s employees are regularly trained on cybersecurity awareness, and testing is performed to monitor the success of the training. The Board of Directors
receives training annually.
The Bank engages a third party to audit and examine its processes, conduct vulnerability assessments, and review the security of its network infrastructure consistent with FFIEC (Federal Financial Institutions Examination Council) Information Technology Audit guidelines, regulatory requirements and federal banking agency expectations. Trusted third parties are engaged to assist the Bank in improving its cybersecurity readiness. The Bank engages third party vendors to monitor and assist in maintaining its network
infrastructure. These third-party vendors take an active role in ensuring that the Bank’s systems are protected by testing, reviewing and advising the Bank to strengthen cybersecurity controls when necessary.
The Bank has a vendor oversight risk management process that helps to validate the security and integrity of information collected and maintained by third party vendors that the Bank uses to provide banking services. A key goal of the Bank’s vendor management program includes
assessing risks, which include but are not limited to operational, strategic, reputational, cyber, and credit risks. These processes are supported by a specialized vendor that assists the Bank’s management and Board of Directors with properly
assessing these risks. Finally, the Bank also has an incident response and business continuity program that is intended to address operational concerns, including cybersecurity risks, during contingency scenarios that may create unknown
circumstances. This program is tested annually.
Although the Company and Bank have not, as of the date of this Annual Report on Form 10-K, experienced a cybersecurity threat or incident that materially affected their business strategy, results of operations or financial condition, there can be no guarantee that the Company or Bank will not experience such an incident in the future.
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Item 2. Properties
We currently conduct business from our home office located in Shreveport, Louisiana and six full-service banking offices located in Shreveport, Louisiana, two full-service banking offices located in
Bossier City, Louisiana, one full-service banking office located in Minden, Louisiana and one full-service banking office located in Benton, Louisiana. The following table sets forth certain information, as of June 30, 2025, relating to Home
Federal Bank’s offices, 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
(Dollars in thousands)
Building (Home Office) 222 Florida Street, Shreveport, LA Owned $ 1,592 $ -
Building (2) 614 Market Street, Shreveport, LA Owned (2 ) 313 -
Building/ATM (Minden Branch) 412 Homer Road, Minden, LA Owned 1,807 20,380
Building/ATM (Benton Branch) 104 Sibley Street, Benton, LA Owned $ 738 $ 79,039
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 22, 2025,
Home Federal Bancorp had 173 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 during the quarter ended June 30, 2025, including stock-for-stock option exercises are set forth in the table below:
Notes to this table:
Item 6. [Reserved]
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
$3.9 million in fiscal 2025 compared to net income of $3.6 million in fiscal 2024.
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 the acquisition of deposits and it is our policy to require commercial customers to
have a deposit relationship with us, which primarily consists of NOW accounts or non-interest checking 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. Because of an increase in the weighted-average yield on our interest-earning assets, together with a decrease in our rate on total interest bearing liabilities, our average interest rate spread increased
from 2.38% to 2.55% during fiscal 2025 compared to 2024, and our net interest income decreased $280,000 to $18.8 million for fiscal 2025 as compared to $19.0 million for fiscal 2024, primarily due to a $37.1 million decrease in average balance
of interest earning assets. We expect to continue to emphasize commercial lending in the future in order to improve the yield on our portfolio.
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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.
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.
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Allowance for Credit Losses. We have identified the calculation of the allowance for credit losses as a critical accounting policy,
due to the higher degree of judgment and complexity than our other significant accounting policies.
Business Combinations. Acquisition Accounting. Acquisitions are accounted for under the acquisition method of accounting. The
acquisition method of accounting requires the Company as the acquirer to recognize the fair value of assets acquired and liabilities assumed at the acquisition date, as well as recognize goodwill. If the purchase price over the sum of the
estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed in an acquisition, goodwill is recognized. The Company records provisional amounts of fair value at the
time of acquisition. The provisional fair values are subject to modification for up to one year after the acquisition.
Acquired Loans. Subsequent to the adoption of ASU 2016-13, acquired loans are segregated between those purchased with credit
deterioration (“PCD”) and those that are not (“non-PCD”). Loans considered PCD include those individual loans (or groups of loans with similar risk characteristics) that as of the date of acquisition are assessed as having experienced a
more-than-insignificant deterioration in credit quality since origination. The assessment of what is more-than-insignificant credit deterioration since origination considers information including, but not limited to, financial assets that are
delinquent, on nonaccrual and/or otherwise adversely risk rated as of the acquisition date, those that have been downgraded since origination, and those for which, after origination, credit spreads have widened beyond the threshold specified in
policy. The Company bifurcates the fair value discount between the credit and noncredit components and records an allowance for credit losses for PCD loans by adding the credit portion of the fair value discount to the initial amortized cost
basis and increasing the allowance for credit losses at the date of acquisition. Any noncredit discount or premium resulting from acquiring loans with credit deterioration is allocated to each individual asset. All non-PCD loans acquired are
recorded at the estimated fair value of the loan at acquisition, with the estimated allowance for credit loss recorded as a provision for credit losses through earnings in the period in which the acquisition has occurred. The noncredit discount
or premium for PCD loans and full discount for non-PCD loans will be accreted to interest income using the interest method based on the effective interest rate at the acquisition date.
Under the transition provisions of ASU 2016-13, the Company classified all purchased credit impaired loans (“PCI”) previously accounted for under Financial Accounting Standard Subtopic
310-30 to be classified as PCD, without reassessing whether the financial assets meet the criteria of PCD as of the date of adoption. The application of these provisions resulted in an adjustment to the amortized cost basis of the financial
asset to reflect the addition of the allowance for credit losses at the date of adoption. The Company elected not to maintain pools of loans accounted for under Subtopic 310-30 at adoption. The Company was also not required to reassess whether
modifications to individual acquired financial assets accounted for in pools were troubled debt restructurings as of the date of adoption. The noncredit discount, after the adjustment for the allowance for credit losses, is accreted to
interest income using the interest method based on the effective interest rate determined at the adoption date.
Goodwill. Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired. Goodwill has an indefinite useful life and is
evaluated for impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired.
Core Deposit Intangible. Core deposit intangibles represent the estimated value of long-term deposit
relationships acquired in business combinations. The Company’s policy is to amortize these intangibles on an accelerated basis over their estimated useful life, which the estimated useful lives are periodically reviewed for reasonableness. Core
deposit intangibles are tested for impairment if events and circumstances indicate the carrying amount of the asset may not be recoverable from future cash flows.
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Selected Financial and Other 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, 2025 and 2024 is derived in part from the audited
financial statements that appear in this Form 10-K.
At June 30,
(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:
Provision for (recovery of) loan losses (126 ) 40
Net interest income after provision for loan losses 18,797 18,911
Income before income tax expense 4,654 4,069
Earnings per share of common stock:
As of or for the Year Ended June 30,
Selected Operating Ratios(1):
Average yield on interest-earning assets 5.28 % 5.19 %
Average rate on interest-bearing liabilities 2.73 2.81
Average interest rate spread(2) 2.55 2.38
Total non-interest expense to average assets 2.62 2.51
Return on average assets 0.63 0.55
Return on average equity 7.31 7.01
Average equity to average assets 8.62 7.83
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Selected Quality Ratios(5):
Non-performing loans as a percent of loans receivable, net 0.51 % 0.32 %
Non-performing assets as a percent of total assets 0.54 0.30
Allowance for credit losses as a percent of total loans receivable 0.96 0.96
Net charge-offs to average loans receivable (0.01 ) 0.20
Allowance for credit losses as a percent of non-performing loans 191.99 300.72
Bank Capital Ratios(5):
Other Data:
Offices (branch and home) 11 11
Employees (full-time) 67 78
(4) Reflects dividends paid during the fiscal year divided by net income.
Changes in Financial Condition
Total assets decreased $28.0 million, or 4.4%, from $637.5 million at June 30, 2024 to $609.5 million at June 30, 2025. The decrease in assets was comprised of decreases in cash and cash equivalents of $17.6
million, or 50.4%, from $34.9 million at June 30, 2024 to $17.3 million at June 30, 2025, net loans receivable of $9.9 million, or 2.1%, from $470.9 million at June 30, 2024 to $461.0 million at June 30, 2025, premises and equipment of $1.0
million, or 5.7%, from $18.3 million at June 30, 2024 to $17.3 million at June 30, 2025, core deposit intangible of $284,000, or 23.7%, from $1.2 million at June 30, 2024 to $915,000 at June 30, 2025, loans-held-for-sale of $193,000, or 11.1%,
from $1.7 million at June 30, 2024 to $1.5 at June 30, 2025, other assets of $45,000, or 3.3%, from $1.35 million at June 30, 2024 to $1.31 million at June 30, 2025, and deferred tax asset of $18,000, or 1.5%, from $1.18 million at June 30,
2024 to $1.16 million at June 30, 2025, partially offset by increases in real estate owned of $552,000, or 132.1% from $418,000 at June 30, 2024 to $970,000 at June 30, 2025, investment securities of $277,000, or 0.3%, from $96.0 million at
June 30, 2024 to $96.2 million at June 30, 2025, bank owned life insurance of $116,000, or 1.7%, from $6.8 million at June 30, 2024 to $6.9 million at June 30, 2025, and accrued interest receivable of $61,000, or 3.4%, from $1.78 million at
June 30, 2024 to $1.84 million at June 30, 2025.
Loans receivable, net decreased $9.9 million, or 2.1%, from $470.9 million at June 30, 2024 to $461.0 million at June 30, 2025. 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, 2025, Home Federal Bank had $138.9 million of commercial real estate loans, 29.8% of the total loan portfolio, and $54.1 million of commercial business loans, 11.6% 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.
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Securities available-for-sale increased $7.2 million, or 26.7%, from $27.0 million at June 30, 2024 to $34.2 million at June 30, 2025. This increase resulted primarily from purchases of $12.7
million in securities, partially offset by principal repayments of $5.9 million. Securities held-to-maturity decreased $6.0 million, or 8.9%, from $67.3 million at June 30, 2024 to $61.3 million at June 30, 2025. This decrease was primarily
due to principal repayments of $6.0 million.
Total liabilities decreased $30.4 million, or 5.2%, from $584.7 million at June 30, 2024 to $554.3 million at June 30, 2025. The decrease in liabilities was comprised of decreases in total deposits of $27.7 million,
or 4.8%, from $574.0 million at June 30, 2024 to $546.3 million at June 30, 2025, and other borrowings of $3.0 million, or 42.9%, from $7.0 million at June 30, 2024 to $4.0 million at June 30, 2025, partially offset by an increase in other
accrued expenses and liabilities of $273,000, or 8.6%, from $3.2 million at June 30, 2024 to $3.5 million at June 30, 2025, and advances from borrowers for taxes and insurance of $22,000, or 4.2%, from $521,000 at June 30, 2024 to $543,000 at
June 30, 2025. The decrease in deposits resulted from decreases in certificates of deposit of $27.5 million, or 12.8%, from $214.9 million at June 30, 2024 to $187.4 million at June 30, 2025, money market deposits of $11.7 million, or 13.7%, from
$85.5 million at June 30, 2024 to $73.8 million at June 30, 2025, and non-interest deposits of $7.9 million, or 6.1%, from $130.3 million at June 30, 2024 to $122.4 million at June 30, 2025, partially offset by increases in savings deposits of
$19.0 million, or 24.8%, from $76.6 million at June 30, 2024 to $95.6 million at June 30, 2025, and NOW accounts of $506,000, or 0.8%, from $66.6 million at June 30, 2024 to $67.1 million at June 30, 2025. The Company had no balances in brokered
deposits at June 30, 2025 or June 30, 2024.
Stockholders’ equity increased $2.4 million, or 4.5%, from $52.8 million at June 30, 2024 to $55.2 million at June 30, 2025. The increase in stockholders’ equity was comprised of net income for the year ended June
30, 2025 of $3.9 million, a decrease in the Company’s accumulated other comprehensive loss of $681,000, the vesting of restricted stock awards, stock options, and the release of employee stock ownership plan shares totaling $424,000, and proceeds
from the issuance of common stock from the exercise of stock options of $111,000, partially offset by dividends paid totaling $1.6 million, and stock repurchases of $1.1 million.
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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) 3.23 % 3.08 %
(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:
Comparison of Operating Results for the Years Ended June 30, 2025 and 2024
General. The increase in net income for the year ended June 30, 2025, as compared to the year ended June 30, 2024, resulted primarily from an increase of $421,000, or 26.6%, in
non-interest income, a decrease of $278,000, or 1.7%, in non-interest expense, and an increase of $166,000 in the recovery of credit losses, partially offset by an increase of $290,000, or 60.9%, in the provision for income taxes and a decrease
of $280,000, or 1.5%, in net interest income. The decrease in net interest income for the year ended June 30, 2025, as compared to the year ended June 30, 2024, was primarily due to a decrease of $1.4 million, or 4.4%, in total interest income,
partially offset by a decrease of $1.1 million, or 8.7%, in total interest expense. The Company’s average interest rate spread was 2.55% for the year ended June 30, 2025, compared to 2.38% for the year ended June 30, 2024. The Company’s net
interest margin was 3.23% for the year ended June 30, 2025, compared to 3.08% for the year ended June 30, 2024.
Net Interest Income. Net interest income amounted to $18.7 million for fiscal year 2025, a decrease of $280,000, or 1.5%,
compared to $19.0 million for fiscal year 2024. The decrease primarily resulted from a decrease in total interest income of $1.4 million, partially offset by a decrease in total interest expense of $1.1 million.
The average interest rate spread increased from 2.38% for fiscal 2024 to 2.55% for fiscal 2025, while the average balance of interest-earning assets decreased from $614.3 million to
$577.2 million during the same periods. The percentage of average interest-earning assets to average interest-bearing liabilities increased to 133.86% for fiscal 2025 compared to 133.54% for fiscal 2024.The average rate paid on certificates of deposit decreased from 4.15% for fiscal 2024 to 3.92% for fiscal 2025. Net interest margin increased to 3.23% for fiscal 2025 compared to 3.08% for fiscal 2024.
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Interest income decreased $1.4 million, or 4.4%, to $30.5million for fiscal 2025 compared to $31.9 million for fiscal 2024, primarily due to a
decrease in interest income from loans of $1.7 million, and a decrease of $326,000 in interest income from investment securities. The average yield of the loan portfolio increased by 13 basis points during fiscal 2025 mainly due to a higher
interest rate environment.
Interest expense decreased $1.1 million, or 8.7%, to $11.8 million for fiscal 2025 compared to $12.9 million for fiscal 2024, primarily as a result of decreases in the average rate paid on
money market accounts and certificates of deposit.
Provision for Credit Losses. As of June 30, 2025, the allowance for credit losses was $4.5 million, and the ratio of allowance for credit losses to gross
loans was 0.96%. As of June 30, 2024, the allowance for credit losses was $4.6 million, and the ratio of allowance for credit losses to gross loans was 0.96%.
At June 30, 2025, the Company had $3.3 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 $1.9 million of non-performing assets at June 30, 2024, consisting of six one-to-four family residential loans, two home equity loans, three commercial non-real estate loans, two commercial real-estate loans, and one single-family
residence in other real estate owned at June 30, 2025, compared to five one-to-four family residential loans, four home equity loans, three commercial non-real estate loans, and three single-family residences in other real estate owned at June
30, 2024. At June 30, 2025 the Company had eight one-to-four family residential loans, two home equity loans, five commercial non-real-estate loans, two commercial real-estate loans, and one consumer loan classified as substandard, compared to
six one-to-four family residential loans, five commercial non-real-estate loans, four home equity loans and one consumer loan classified as substandard at June 30, 2024. There were no loans classified as doubtful at June 30, 2025 or June 30,
2024.
Non-Interest Income. The $421,000 increase in non-interest income for the year ended June 30, 2025 compared to the prior year was primarily due to a decrease
of $150,000 in loss on sale of real estate, an increase of $134,000 in other non-interest income, an increase of $119,000 in gain on sale of loans, an increase of $44,000 in service charges on deposit accounts, and an increase of $6,000 in income
from bank owned life insurance, partially offset by an increase of $32,000 in loss on sale of securities.
Non-Interest Expense. The $278,000 decrease in non-interest expense for the year ended June 30, 2025, compared to the year ended June 30, 2024, is primarily
attributable to decreases of $584,000 in compensation and benefits expense, $217,000 in franchise and bank shares tax expense, $215,000 in advertising expense, $68,000 in other non-interest expense, $62,000 in professional fees, $49,000 in
amortization of core deposit intangible expense, $46,000 in deposit insurance premium expense, and $21,000 in loan and collection expense. The decreases were partially offset by increases of $784,000 in data processing expense, $152,000 in
occupancy and equipment expense, and $48,000 in audit and examination fees. The increase in data processing expense resulted from a billing discrepancy with our core processor, which had failed to issue invoices for certain services dating back
to December 2022. Upon discovery of the issue, we negotiated a discounted settlement to resolve the outstanding invoices, which resulted in the increase for the year ended June 30, 2025.
Provision for Income Tax Expense. The provision for income taxes amounted to $766,000 and $476,000 for the fiscal years ended June 30, 2025 and 2024,
respectively. Our effective tax rate was 16.5% for fiscal 2025 and 11.7% for fiscal 2024.
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.
We have 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, 2025 and 2024, securities available-for-sale amounted to $34.2 million and $27.0 million, respectively, or 5.62% and 4.24%, respectively, of total assets at such dates.
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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, 2025:
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 $156.4 million for fiscal 2025 and $210.0 million for fiscal 2024, while loans sold amounted to $18.3 million and $16.0 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.
Liquidity and Capital Resources
Home Federal Bancorp maintains levels of liquid assets deemed adequate by management. Our liquidity ratio averaged 19.6% for the quarter ended June 30, 2025. 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 $9.1 million and $185,000 at June 30, 2025 and 2024, respectively.
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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, 2025, we had no advances from the Federal Home Loan Bank of Dallas and had $56.4 million in additional borrowing capacity. Additionally, at June 30, 2025, 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, 2025. At June 30, 2025, Home Federal Bancorp had a $4.0 million outstanding loan with First National Bankers Bank, which matures on February 5, 2034.
At June 30, 2025, the Company had outstanding loan commitments of $50.5 million to originate loans and commitments under unused lines of credit of $13.1 million. At June 30, 2025, certificates of
deposit scheduled to mature in one year or less totaled $172.6 million, or 92.14% 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, 2025, Home Federal Bank exceeded each of its capital requirements with common equity tier 1, tier 1 capital, total capital, leverage, and tangible capital ratios of 13.59%, 13.59%,
14.67%, 9.40%, and 9.40%, respectively.
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, 2025. See
Notes 9 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.
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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; or (7) 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.
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Item 8. Financial Statements and
Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Home Federal Bancorp, Inc. of Louisiana
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Home Federal Bancorp, Inc. of Louisiana (the
“Company”) as of June 30, 2025 and 2024, and the related statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2025, and the related notes
(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, 2025 and 2024, and the results of its operations
and its cash flows for each of the two years in the period ended June 30, 2025, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for credit losses effective July 1, 2023, due to the adoption of Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments – Credit
Losses.
Basis for 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 Oversight 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) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a
separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Allowance for Credit Losses on Loans
As described in Notes 1 and 3 to the financial statements, the Company’s allowance for credit losses on loans
(“allowance”) was $4.5 million on loans of $465.6 million as of June 30, 2025. As described in Note 1, the Company adopted ASC Topic 326, Financial Instruments – Credit Losses, effective July 1,
2023. The Company’s method of estimating the allowance includes the use of historic loss rates that are adjusted for reasonable and supportable forecasts, as well as other qualitative adjustments.
The Company measures the allowance on a pool basis when the loans share similar risk characteristics. Loans
that do not share risk characteristics are evaluated on an individual basis. For loans evaluated on a pool basis, the allowance for credit loss consists of both quantitative and qualitative components. The quantitative component consists of
calculating a historical loss rate on each loan pool using internal historical data and applying the loss rates for each respective pool over the expected remaining life of the pooled loans. In addition to the quantitative component, each
loan pool includes a qualitative component which aggregates management’s assessment of available information relevant to collectability that is not captured in the quantitative loss estimation process based on the current and expected
environment, using reasonable forecasted data. Factors considered by management in developing its qualitative estimates include changes in policies and procedures, the portfolio mix, lending management, problem loan trends, loan review
system, changes in economic conditions and collateral values. These estimates involve large amounts of data in tabulating loss and prepayment rates and require complex calculations as well as management judgment in the selection of
appropriate inputs.
We have determined that the allowance is a critical audit matter. Auditing the allowance involved significant
judgment and complex review in evaluating management’s estimates, such as the segmentation of loan pools, the remaining life of loans in a pool, and evaluating the qualitative factors applied to each pool. The use of different assumptions in
developing and applying these estimates could result in a materially different amount for the allowance.
The primary procedures we performed to address this critical audit matter
included substantively testing management’s process, which included:
/s/ Carr, Riggs, & Ingram, LLC
We have served as the Company’s auditor since 2024.
Birmingham, Alabama
September 25, 2025
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2025 and 2024
(In thousands except share and per share data)
ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Advances from Borrowers for Taxes and Insurance 543 521
Other Accrued Expenses and Liabilities 3,454 3,181
STOCKHOLDERS’ EQUITY
Unearned ESOP Stock (321 ) (408 )
Accumulated Other Comprehensive Loss (1,934 ) (2,615 )
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 609,492 $ 637,512
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, 2025 and 2024
For the Years Ended June 30,
(In thousands, except per share data)
INTEREST INCOME
Other interest-earning assets 850 371
INTEREST EXPENSE
Federal Home Loan Bank borrowings - 180
PROVISION FOR (RECOVERY OF) CREDIT LOSSES (126 ) 40
Net interest income after provision for credit losses 18,797 18,911
NON-INTEREST INCOME
Loss on sale of real estate (265 ) (415 )
(Loss) Gain on sale of securities (6 ) 26
Income on bank owned life insurance 116 110
Service charges on deposit accounts 1,568 1,524
NON-INTEREST EXPENSE
Audit and examination fees 597 549
Franchise and bank shares tax 439 656
Amortization core deposit intangible 284 334
Deposit insurance premium 347 393
PROVISION FOR INCOME TAX EXPENSE 766 476
EARNINGS PER SHARE
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, 2025 and 2024
For the Years Ended June 30,
(In Thousands)
Other Comprehensive Income, Net of Tax
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period 856 75
Income Tax Effect (181 ) (10 )
Total Other Comprehensive Income, Net of Tax 681 39
Total Comprehensive Income $ 4,569 $ 3,632
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, 2025 and 2024
(In Thousands)
Stock Options Vested - 69 - - - 69
Stock Options Exercised - 373 - - - 373
Company Stock Purchased - - - (487 ) - (487 )
Share Awards Earned - 118 - - - 118
Common Stock Issuance for Stock Option Exercises 1 - - - - 1
ESOP Compensation Earned - 131 87 - - 218
Stock Options Vested - 94 - - - 94
Company Stock Purchased - - - (1,073 ) - (1,073 )
Share Awards Earned - 112 - - - 112
Common Stock Issuance for Stock Option Exercises - 111 - - - 111
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, 2025 and 2024
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
Loss on Sale of Loans (384 ) (265 )
Gain on Sale of Investments 6 (26 )
Net Amortization and Accretion on Securities (189 ) (258 )
Amortization of Deferred Loan Fees (71 ) (113 )
Amortization of Purchased Loans (263 ) (756 )
Provision (Recovery) for Credit Loss (126 ) 40
Depreciation of Premises and Equipment 1,083 944
Loss on Sale of Real Estate and Fixed Assets 265 415
ESOP Compensation Expense 218 313
Stock Option Expense 94 69
Deferred Income Tax (Benefit) Expense (163 ) 122
Increase in Cash Surrender Value on Bank Owned Life Insurance (116 ) (110 )
Amortization Core Deposit Intangible 284 334
Changes in Assets and Liabilities:
Origination of Loans Held-for-Sale (18,119 ) (17,712 )
Sale and Principal Repayments on Loans Held-for-Sale 18,696 16,248
Accrued Interest Receivable (61 ) 15
Other Operating Assets 45 74
Other Operating Liabilities 273 (727 )
Net Cash Provided by Operating Activities 5,472 2,318
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations and Purchases, Net 9,268 18,350
Deferred Loan Fees Collected 78 48
Acquisition of Premises and Equipment (46 ) (2,686 )
Proceeds from Sale of Real Estate 262 456
Improvements to Real Estate Owned Prior to Disposition (117 ) (38 )
Changes in FHLB Stock 964 (70 )
Activity in Available-for-Sale Securities:
Purchase of Mortgage-Backed Securities (12,695 ) (2,667 )
Proceeds from Sales of Mortgage-Backed Securities 157 3,389
Proceeds from Sales of US Treasury Notes 494 -
Activity in Held-to-Maturity Securities:
Principal Payments on Mortgage-Backed Securities 5,948 5,554
Net Cash Provided by Investing Activities 10,213 34,484
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, 2025 and 2024
For the Years Ended June 30,
(In Thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Advances from Federal Home Loan Bank - 792,701
Repayments of Advances from Federal Home Loan Bank - (792,701 )
Company Stock Purchased (1,073 ) (487 )
Proceeds from Other Bank Borrowings - 2,700
Repayment of Other Bank Borrowings (3,000 ) (4,250 )
Proceeds from Stock Options Exercised 111 374
Net Cash Used in Financing Activities (33,286 ) (26,619 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (17,601 ) 10,183
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 34,948 24,765
CASH AND CASH EQUIVALENTS, END OF YEAR $ 17,347 $ 34,948
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid on Deposits and Borrowed Funds 11,752 12,913
Transfer from Loans to Other Real Estate 961 883
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
Notes to Consolidated Financial Statements
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 savings, certificates of deposit, and demand deposit accounts. Services are provided by ten branch offices, six of which are located in Shreveport, Louisiana, two
in Bossier City, one in Minden, Louisiana and one in Benton, 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.
Segment
Reporting
The Company determined that all of
its banking operations serve a similar customer base, offer similar products and services, and are managed through similar processes. Therefore, the Company’s banking operations are aggregated into one reportable operating segment, which generates income principally from interest on loans and, to a lesser extent, securities investments,
as well as from fees charged in connection with various loan and deposit services. The Chief Operating Decision Maker (“CODM”), is the President and Chief Executive Officer, who for the purposes of assessing performance, making
operating decisions, and allocating Company resources, regularly reviews net income as reported in the accompanying consolidated statements of income. The level of disaggregation and amounts of significant segment income and expenses
that are regularly provided to the CODM are the same as those presented in the accompanying consolidated statements of income. Likewise, the measure of segment assets is reported on the accompanying consolidated balance sheets as total
assets.
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 credit losses, deferred taxes, and those
related to acquisition accounting.
Significant Group Concentrations of Credit Risk
Most of the Company’s activities are provided to customers of the Bank by ten branch offices, six of which are located in the city
of Shreveport, Louisiana, two in Bossier City, Louisiana, one in Minden, Louisiana and one in Benton, Louisiana. The area served
by the Bank is primarily the Shreveport-Bossier City-Minden combined statistical 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
Notes to Consolidated Financial Statements
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, 2025 and 2024, cash and cash equivalents consisted of the following:
(In Thousands)
Demand Deposits at Other Institutions 14,127 13,328
Securities
Securities are being accounted for in accordance with FASB ASC 320, 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 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, 2025 and 2024.
Purchase premiums and discounts are recognized in interest income using the interest method over the term of the securities. Securities are
periodically reviewed for impairment. For debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below amortized cost basis (impairment) is due to credit or
non-credit related factors. Any impairment of available for sale investments that is not credit related is recognized in other comprehensive income, net of applicable taxes. For available for sale investments, credit related impairment is
recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. For held to maturity investments, credit related impairment is recognized
as an ACL on the balance sheet, for the entire amount of credit loss, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell
an impaired available for sale security, or more likely than not will be required to sell such security before recovering the amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to
the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in such situation. Accrued interest receivable is excluded from the estimate of credit losses.
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Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (Continued)
Securities (Continued)
In evaluating securities in unrealized loss positions for impairment, and the criteria regarding intent or requirement to sell such
securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by federal governments or its agencies, whether downgrades by bond rating agencies have occurred, and the results
of reviews of the issuer’s financial conditions, among other factors.
The Bank has invested in Federal Home Loan Bank (“FHLB”) stock, and other similar correspondent banks, which are reflected as other securities
at cost in these consolidated financial statements. As a member of the FHLB System, the Bank is required to purchase and maintain stock in an amount determined by the FHLB. The FHLB stock is redeemable at par value at the discretion of the
FHLB. These securities are periodically evaluated for impairment based on the ultimate recoverability of par value.
Acquisition Accounting
Acquisitions are accounted for
under the purchase method of accounting. The acquisition method of accounting requires the Company as the acquirer to recognize the fair value of assets acquired and liabilities assumed at the acquisition date, as well as recognize
goodwill. If the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed in an acquisition, goodwill is recognized.
The Company records provisional amounts of fair value at the time of acquisition. The provisional fair values are subject to modification for up to one year after the acquisition.
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.
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 Credit Losses
The Company has elected to exclude accrued
interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.
The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses
and 2) loans evaluated individually for expected credit losses. The ACL also includes certain qualitative adjustments to the ASU 2016-13 model.
Loans Evaluated Collectively. Homogeneous loans are evaluated collectively for expected credit losses. The loan pools/segments with similar risk characteristics were determined by Call Report
codes.
Loans Evaluated Individually. Loans evaluated individually for expected credit losses include loans on non-accrual status.
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Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (Continued)
Allowance for Credit Losses (Continued)
Management
estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Adjustments to historical loss information
are made to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments, including, but not limited to, changes in current and expected future
economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets, changes in lending policies and personnel and changes in the competitive and
regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.