EDGAR 10-K Filing

Company CIK: 1500375
Filing Year: 2022
Filename: 1500375_10-K_2022_0001140361-22-034709.json

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ITEM 1. BUSINESS
Item 1. Business
Home Federal Bancorp, Inc. of Louisiana, a Louisiana chartered corporation (“Home Federal Bancorp” or the “Company”), is the holding company for Home Federal Bank (“Home Federal Bank” or the “Bank”). Home Federal Bank is a federally chartered stock savings bank originally organized in 1924 as Home Building and Loan Association. The Bank reorganized into the mutual holding company structure in January 2005 and changed its name to “Home Federal Bank” in 2009 as part of its business strategy to be recognized as a community bank. Home Federal Bank’s home office and nine full service branch offices are located in Shreveport, Bossier City and Minden, Louisiana and serve the Shreveport-Bossier City-Minden combined statistical area. In September 2021, the Bank commenced operations at a loan production office in Minden, Louisiana, which converted to a full service branch in October 2021. In December 2021, the Bank opened its ninth full service branch office in southwest Shreveport. Home Federal Bank’s business primarily consists of attracting deposits from the general public and using those funds to originate loans.
As of June 30, 2022, Home Federal Bancorp’s only business activities are to hold all of the outstanding common stock of Home Federal Bank. Home Federal Bancorp is authorized to pursue other business activities permitted by applicable laws and regulations for savings and loan holding companies, which may include the issuance of additional shares of common stock to raise capital or to support mergers or acquisitions and borrowing funds for reinvestment in Home Federal Bank.
Home Federal Bancorp does not own or lease any property but instead uses the premises, equipment, and furniture of Home Federal Bank. At the present time, Home Federal Bancorp employs only persons who are officers of Home Federal Bank to serve as officers of Home Federal Bancorp and may also use the support staff of Home Federal Bank from time to time. These other persons are not separately compensated by Home Federal Bancorp.
Pursuant to the regulations under Sections 23A and 23B of the Federal Reserve Act, Home Federal Bank and Home Federal Bancorp have entered into an expense sharing agreement. Under this agreement, Home Federal Bancorp will reimburse Home Federal Bank for the time that employees of Home Federal Bank devote to activities of Home Federal Bancorp, the portion of the expense of the annual independent audit attributable to Home Federal Bancorp, and all expenses attributable to Home Federal Bancorp’s public filing obligations under the Securities Exchange Act of 1934.
Market Area
Our primary market area for loans and deposits is in northwest Louisiana, particularly Caddo Parish and neighboring communities in Bossier and Webster Parishes, which are located in the Shreveport-Bossier City-Minden combined statistical area.
Our primary market area in northern Louisiana has a diversified economy with employment in services, government, and wholesale/retail trade constituting the basis of the local economy, with service jobs being the largest component. The majority of the services are health care related as Shreveport has become a regional hub for health care. The casino gaming industry also supports a significant number of the service jobs. The energy sector has a prominent role in the regional economy, resulting from oil and gas exploration and drilling.
Competition. We face significant competition both in attracting deposits and in making loans. Our most direct competition for deposits has come historically from commercial banks, credit unions, and other savings institutions located in our primary market area, including many large financial institutions which have greater financial and marketing resources available to them. In addition, we face significant competition for investors’ funds from short-term money market securities, mutual funds, and other corporate and government securities. We do not rely upon any individual group or entity for a material portion of our deposits. Our ability to attract and retain deposits depends on our ability to generally provide a rate of return, liquidity, and risk comparable to that offered by competing investment opportunities.
Our competition for real estate loans comes principally from mortgage banking companies, commercial banks, other savings institutions, and credit unions. We compete for loan originations primarily through the interest rates and loan fees we charge and the efficiency and quality of services we provide borrowers. Factors which affect competition include general and local economic conditions, current interest rate levels, and volatility in the mortgage markets. Competition may increase as a result of the continuing reduction of restrictions on the interstate operations of financial institutions.
Lending Activities
General. At June 30, 2022, our net loan portfolio amounted to $387.9 million, representing approximately 65.7% of total assets at that date. Historically, our principal lending activity was the origination of one-to-four family residential loans. At June 30, 2022, one-to-four family residential loans amounted to $120.0 million, or 30.6% of the total loan portfolio. In recent periods, we have sold a substantial amount of our fixed-rate conforming one-to-four family residential loans to correspondent banks. Commercial real estate loans amounted to $127.6 million, or 32.5% of the total loan portfolio, at June 30, 2022.
The types of loans that we may originate are subject to federal and state laws and regulations. Interest rates charged on loans are affected principally by the demand for such loans, the supply of money available for lending purposes, and the rates offered by our competitors. These factors are, in turn, affected by general and economic conditions, the monetary policy of the federal government, including the Federal Reserve Board, legislative and tax policies, and governmental budgetary matters.
A savings institution generally may not make loans to one borrower and related entities in an amount which exceeds 15% of its unimpaired capital and surplus, although loans in an amount equal to an additional 10% of unimpaired capital and surplus may be made to a borrower, if the loans are fully secured by readily marketable securities. In addition, upon application, the Office of the Comptroller of the Currency permits a savings institution to lend up to an additional 15% of unimpaired capital and surplus to one borrower to develop domestic residential housing units. At June 30, 2022, our regulatory limit on loans to one borrower was $7.8 million, and the five largest loans or groups of loans to one borrower, including related entities, aggregated $7.0 million, $4.9 million, $4.5 million, $4.4 million, and $4.2 million.
Each of our five largest loans or groups of loans was originated with strong guarantor support to known borrowers in our market area and was performing in accordance with its terms at June 30, 2022.
Loans to or guaranteed by general obligations of a state or political subdivision are not subject to the foregoing lending limits.
Loan Portfolio Composition. The following table shows the composition of our loan portfolio by type of loan at the dates indicated.
June 30,
Amount
Percent
of Total
Loans
Amount
Percent
of Total
Loans
Real estate loans:
One-to-four family residential(1)
$
120,014
30.57
%
$
97,607
28.60
%
Commercial - real estate secured:
Owner occupied
71,871
18.30
61,502
18.02
Non-owner occupied
55,718
14.19
34,678
10.16
Total commercial-real estate secured
127,589
32.49
96,180
28.18
Multi-family residential
30,411
7.75
31,015
9.09
Land
22,127
5.64
16,260
4.77
Construction
27,884
7.10
15,337
4.49
Home equity loans and second mortgage loans
1,587
0.40
1,267
0.37
Equity lines of credit
17,831
4.54
12,788
3.75
Total real estate loans
347,443
88.49
270,454
79.25
Commercial business
44,487
11.33
69,891
20.48
Consumer non-real estate loans:
Savings accounts
0.07
0.13
Consumer loans
0.11
0.14
Total non-real estate loans
45,192
11.51
70,806
20.75
Total loans
392,635
100.00
%
341,260
100.00
%
Less:
Allowance for loan losses
(4,451
)
(4,122
)
Deferred loan fees
(311
)
(744
)
Net loans receivable (1)
$
387,873
$
336,394
(1)
Does not include loans held-for-sale amounting to $4.0 million and $14.4 million at June 30, 2022 and 2021, respectively.
Origination of Loans. Our lending activities are subject to written underwriting standards and loan origination procedures established by the board of directors and management. When applicable, loans originated are also subject to the underwriting standards of Fannie Mae, Freddie Mac, HUD, VA, USDA, and correspondent banks that purchase loans we originate. Loan originations are obtained through a variety of sources, primarily from existing customers, local realtors, and builders. Written loan applications are taken by one of our loan officers. The loan officer also supervises the procurement of credit reports, income and asset documentation, and other documentation involved with a loan. All appraisals are ordered through an approved appraisal management company in compliance with the Dodd-Frank Consumer Protection Act. Under our lending policy, a title insurance policy is required on most mortgage loans, with the exception of certain smaller loan amounts where our policy requires a title opinion only. We also require fire and extended coverage casualty insurance in order to protect the properties securing the real estate loans. Borrowers must also obtain flood insurance policies when the property is in a flood hazard area.
Our loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan, and the value of the property that will secure the loan. All residential loans originated for sale to FNMA or other investor banks that receive an Approve-Eligible recommendation on the automated underwriting feedback certificate that is applicable for each loan type must be approved by a Bank mortgage underwriter. Loans that do not receive an Approve-Eligible recommendation must be approved by a Bank mortgage underwriter and the Senior Vice President of Mortgage. In addition, all loans originated to be held on the Bank’s portfolio must be approved by a Bank mortgage underwriter and the Senior Vice President of Mortgage for loans up to $500,000, and for loans up to $1.0 million by the Senior Credit Officer. Commercial real estate secured loans and lines of credit and commercial business loans up to $1.0 million must be approved by the Senior Credit Officer or the Chairman of the Board, President and Chief Executive Officer, up to $2.0 million by the Senior Credit Officer and the Chairman of the Board, President and Chief Executive Officer, and in excess of $2.0 million by the Executive Committee. In accordance with past practice, all loans are ratified by our board of directors.
In recent periods, we have originated and sold a substantial amount of our fixed-rate conforming mortgages to correspondent banks. For the year ended June 30, 2022, we originated $148.1 million of one-to-four family residential loans and sold $87.2 million of such loans. Our residential loan originations primarily consist of conventional, rural development, FHA, and VA loans.
The following table shows total loans originated, sold, and repaid during the periods indicated.
Year Ended June 30,
(In thousands)
Loan originations:
One-to-four family residential
$
148,081
$
249,095
Commercial - real estate secured:
Owner occupied
31,649
17,180
Non-owner occupied
33,216
16,350
Multi-family residential
4,951
26,391
Commercial business
48,253
33,707
Land
21,793
17,750
Construction
35,916
16,976
Home equity loans and lines of credit and other consumer
15,750
12,327
Total loan originations
339,609
389,776
Loans purchased
--
--
Total loan originations and loans purchased
339,609
389,776
Loans Sold
(87,238
)
(198,797
)
Loan principal repayments
(199,431
)
(212,577
)
Total loans sold and principal repayments
52,940
(411,374
)
Increase (decrease) due to other items, net(1)
$
(11,910
)
(1,935
)
Net (decrease) increase in loan portfolio
$
41,030
$
(23,533
)
(1) Other items consist of deferred loan fees, the allowance for loan losses, and loans held-for-sale at year end.
Although federal laws and regulations permit savings institutions to originate and purchase loans secured by real estate located throughout the United States, we concentrate our lending activity in our primary market area in Caddo, Bossier and Webster Parishes, Louisiana and the surrounding area. Subject to our loans-to-one borrower limitation, we are permitted to invest without limitation in residential mortgage loans and up to 400% of our capital in loans secured by non-residential or commercial real estate. We also may invest in secured and unsecured consumer loans in an amount not exceeding 35% of total assets. This 35% limitation may be exceeded for certain types of consumer loans, such as home equity and property improvement loans secured by residential real property. In addition, we may invest up to 10% of our total assets in secured and unsecured loans for commercial, corporate, business, or agricultural purposes. At June 30, 2022, we were within each of the above lending limits.
During fiscal 2022 and 2021, we sold $87.2 million and $198.8 million of loans, respectively. We recognized gain on sale of loans of $2.0 million and $4.3 million during fiscal 2022 and 2021, respectively. Loans were sold during these periods primarily to other financial institutions. Such loans were sold against forward sales commitments with servicing released and without recourse after a certain period of time, typically 90 days. The loans sold primarily consisted of long-term, fixed rate residential real estate loans. These loans were originated during this period of historically low interest rates and were sold to reduce our interest rate risk. We will continue to sell loans in the future to the extent we believe the interest rate environment is unfavorable and interest rate risk is unacceptable.
Contractual Terms to Final Maturities. The following table shows the scheduled contractual maturities of our loans as of June 30, 2022, before giving effect to net items. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account loan prepayments.
One-to-
Four
Family
Residential
Commercial
Real Estate
Secured
Multi
Family
Residential
Commercial
Business
Land
Construction
Home
Equity Loans
and Lines
of Credit
and Other
Consumer
Total
(In thousands)
Amounts due after June 30, 2022 in:
One year or less
$
7,005
$
13,236
$
8,482
$
9,503
$
5,134
$
26,427
$
5,220
$
75,007
After one year through two years
5,219
15,060
--
6,396
5,945
1,768
34,892
After two years through three years
7,267
5,571
1,680
4,471
3,051
--
22,871
After three years through five years
34,328
33,379
7,600
10,239
5,290
--
5,147
95,983
After five years through ten years
18,984
57,586
3,572
9,301
2,510
--
1,982
93,935
After ten years through fifteen years
9,396
2,257
6,152
4,577
4,893
28,425
After fifteen years
37,815
2,925
--
--
--
41,522
Total
$
120,014
$
127,589
$
30,411
$
44,487
$
22,127
$
27,884
$
20,123
$
392,635
The following table sets forth the dollar amount of all loans at June 30, 2022, before net items, due after June 30, 2023, which have fixed interest rates or which have floating or adjustable interest rates.
Fixed-Rate
Floating or
Adjustable-Rate
Total
(In thousands)
One-to-four family residential
$
91,585
$
21,424
$
113,009
Commercial - real estate secured
109,396
4,957
114,353
Multi-family residential
21,929
--
21,929
Commercial business
29,722
5,261
34,983
Land
14,986
2,007
16,993
Construction
1,057
1,457
Home equity loans and lines of credit and other consumer
7,098
7,805
14,903
Total
$
275,773
$
41,854
$
317,627
Scheduled contractual maturities of loans do not necessarily reflect the actual expected term of the loan portfolio. The average life of mortgage loans is substantially less than their average contractual terms because of prepayments. The average life of mortgage loans tends to increase when current mortgage loan rates are higher than rates on existing mortgage loans and, conversely, decrease when rates on current mortgage loans are lower than existing mortgage loan rates (due to refinancing of adjustable-rate and fixed-rate loans at lower rates). Under the latter circumstance, the weighted average yield on loans decreases as higher yielding loans are repaid or refinanced at lower rates.
One-to-Four Family Residential Real Estate Loans. At June 30, 2022, $120.0 million,
or 30.6%, of the total loan portfolio, before net items, consisted of one-to-four family residential loans.
The loan-to-value ratios, maturities, and other provisions of the loans made by us generally have reflected the policy of making less than the maximum loan permissible under applicable regulations, in accordance with sound lending practices, market conditions, and underwriting standards established by us. Our current lending policy on one-to-four family residential loans generally limits the maximum loan-to-value ratio to 90% or less of the appraised value of the property, although we will lend up to a 100% loan-to-value ratio with private mortgage insurance. These loans are amortized on a monthly basis with principal and interest due each month, terms not in excess of 30 years, and generally include “due-on-sale” clauses.
At June 30, 2022, $98.2 million, or 81.8%, of our one-to-four family residential mortgage loans were fixed-rate loans. Fixed-rate loans generally have maturities ranging from 15 to 30 years and are fully amortizing with monthly loan payments sufficient to repay the total amount of the loan with interest by the end of the loan term. Our fixed-rate loans generally are originated under terms, conditions, and documentation which permit them to be sold to U.S. Government-sponsored agencies, such as the Federal Home Loan Mortgage Corporation and other investors in the secondary mortgage market. Consistent with our asset/liability management, we have sold a significant portion of our long-term, fixed rate loans. Servicing is released on all loans sold except those loans sold to FNMA.
Although we offer adjustable rate loans, substantially all of the single-family loan originations over the last few years have consisted of fixed-rate loans due to the low interest rate environment. The adjustable-rate loans held in portfolio typically have interest rates which adjust on an annual basis. These loans generally have an annual cap of 1% on any increase or decrease and a cap of 6% above or below the initial rate over the life of the loan. Such loans are underwritten based on the initial rate plus 2%. At June 30, 2022, $21.8 million, or 18.2%, of our one-to-four family residential mortgage loans were adjustable rate loans.
Commercial Real Estate Secured Loans. As of June 30, 2022, Home Federal Bank had outstanding $127.6 million of loans secured by commercial real estate, $71.9 million, or 18.3%, of which were owner occupied. It is the current policy of Home Federal Bank to lend in a first lien position on real property occupied as a commercial business property. Home Federal Bank offers fixed and variable rate commercial real estate loans. Home Federal Bank’s commercial real estate loans are limited to a maximum of 85% of the appraised value and have terms up to 15 years, however, the terms are generally no more than five years with amortization periods of 20 years or less. It is our policy that commercial real estate secured lines of credit are limited to a maximum of 85% of the appraised value of the property and shall not exceed three to five year amortizations.
Multi-Family Residential Loans. At June 30, 2022, we had outstanding approximately $30.4 million of multi-family residential loans. Our multi-family residential loan portfolio includes income producing properties of five or more units and low income housing developments. We obtain personal guarantees on all properties other than those of the public housing authority for which they are not permitted.
Commercial Business Loans. At June 30, 2022, we had outstanding approximately $44.5 million of non-real estate secured commercial loans. The decrease in this category in fiscal 2022, compared to fiscal 2021, was due to repayments on SBA PPP loans. The business lending products we offer include lines of credit, inventory financing, and equipment loans. Commercial business loans and lines of credit carry more credit risk than other types of commercial loans. We attempt to limit such risk by making loans predominantly to small- and mid-sized businesses located within our market area and having the loans personally guaranteed by the principals involved. We have established underwriting standards in regard to business loans which set forth the criteria for sources of repayment, borrower’s capacity to repay, specific financial and collateral margins, and financial enhancements such as guarantees. The primary source of repayment is cash flow from the business and the general financial strength of the borrower.
Land Loans. As of June 30, 2022, land loans were $22.1 million, or 5.6%, of the total loan portfolio, before net items. Land loans include land which has been acquired for the purpose of development and unimproved land. Our loan policy provides for loan-to-value ratios of 50% for unimproved land loans. Land loans are originated with fixed rates and terms up to five years with longer amortizations. Although land loans generally are considered to have greater credit risk than certain other types of loans, we expect to mitigate such risk by requiring personal guarantees and identifying other secondary sources of repayment for the land loan other than the sale of the collateral. It is our practice to only originate a limited amount of loans for speculative development to borrowers with whom our lenders have a prior relationship.
Construction Loans. At June 30, 2022, we had outstanding approximately $27.9 million, or 7.1%, of construction loans which included loans for the construction of residential and commercial property. Our residential construction loans typically have terms of six to twelve months with a takeout letter from Home Federal for the permanent mortgage. Our commercial construction loans include owner occupied commercial properties, pre-sold property, and speculative office property. As of June 30, 2022, we held $2.7 million of speculative construction loans.
Home Equity and Second Mortgage Loans. At June 30, 2022, we held $1.6 million of home equity and second mortgage loans. These loans are secured by the underlying equity in the borrower’s residence. We do not require that we hold the first mortgage on the properties that secure the second mortgage loans. The amount of our second mortgage loans generally cannot exceed a loan-to-value ratio of 90% after taking into consideration the first mortgage loan. These loans are typically three-to-five year balloon loans with fixed rates and terms that will not exceed 10 years and contain an on-demand clause that allows us to call the loan in at any time.
Equity Lines of Credit. We offer lines of credit secured by a borrower’s equity in real estate. These loans amounted to $17.8 million, or 4.5% of the total loan portfolio, before net items, at June 30, 2022. The unused portion of equity lines was $11.4 million at June 30, 2022. The rates and terms of such lines of credit depend on the history and income of the borrower, purpose of the loan, and collateral. Lines of credit will not exceed 90% of the value of the equity in the collateral.
Consumer Non-Real Estate Loans. We are authorized to make loans for a wide variety of personal or consumer purposes. We originate consumer loans primarily in order to accommodate our customers. The consumer loans at June 30, 2022 consist of loans secured by deposit accounts with us, automobile loans, overdraft, and other unsecured loans.
Consumer non-real estate loans generally have shorter terms and higher interest rates than residential mortgage loans and generally entail greater credit risk than residential mortgage loans, particularly those loans secured by assets that depreciate rapidly, such as automobiles, boats, and recreational vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan, and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In particular, amounts realizable on the sale of repossessed automobiles may be significantly reduced based upon the condition of the automobiles and the fluctuating demand for used automobiles.
We offer loans secured by deposit accounts held with us. These loans amounted to $266,000, or 0.07% of the total loan portfolio, before net items, at June 30, 2022. Such loans are originated for up to 100% of the account balance, with a hold placed on the account restricting the withdrawal of the account balance. The interest rate on the loan is equal to the interest rate paid on the account plus 2%. These loans typically are payable on demand with a maturity date of one year.
Loan Origination and Other Fees. In addition to interest earned on loans, we generally receive loan origination fees or “points” for originating loans. Loan points are a percentage of the principal amount of the mortgage loan and are charged to the borrower in connection with the origination of the loan. In accordance with accounting guidance, loan origination fees and points are deferred and amortized into income as an adjustment of yield over the life of the loan.
Asset Quality
General. During fiscal 2022, our annual review was completed in September 2021. The scope of the services provided included testing of credit underwriting, adherence to our loan policies, as well as regulatory policies, and recommendations regarding reserve allocations. We expect these reviews will be done roughly every twelve to eighteen months with our next review in the early fall of 2022.
Our collection procedures provide that when a loan is 10 days past due personal contact efforts are attempted, either in person or by telephone. At 15 days past due, a late charge notice is sent to the borrower requesting payment. If the loan is still past due at 30 days, a formal letter is sent to the borrower stating that the loan is past due and that legal action, including foreclosure proceedings, may be necessary. If a loan becomes 60 days past due and no progress has been made in resolving the delinquency, a collection letter from legal counsel is sent and personal contact is attempted. When a loan continues in a delinquent status for 90 days or more, and a repayment schedule has not been made or kept by the borrower, generally a notice of intent to foreclose is sent to the borrower. If the delinquency is not cured, foreclosure proceedings are initiated. In most cases, deficiencies are cured promptly. While we generally prefer to work with borrowers to resolve such problems, we will institute foreclosure or other collection proceedings, when necessary, to minimize any potential loss.
Loans are placed on non-accrual status when management believes the probability of collection of interest is doubtful. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. We generally discontinue the accrual of interest income when the loan becomes 90 days past due, as to principal or interest, unless the credit is well secured and we believe we will fully collect.
Real estate and other assets we acquire as a result of foreclosure or by deed-in-lieu of foreclosure are classified as real estate owned until sold. At June 30, 2022, we had no other real estate owned compared to one commercial real estate property and one single family residence at June 30, 2021.
Delinquent Loans. The following table shows the delinquencies in our loan portfolio as of the dates indicated.
June 30,
30 - 89
Days Overdue
90 or More Days
Overdue
30 - 89
Days Overdue
90 or More Days
Overdue
Number
of Loans
Principal
Balance
Number
of Loans
Principal
Balance
Number
of Loans
Principal
Balance
Number
of Loans
Principal
Balance
(Dollars in thousands)
One-to-four family residential
$
1,923
$
$
$
Commercial - real estate secured
--
--
--
--
--
--
Multi-family residential
--
--
--
--
--
--
--
--
Commercial business
--
--
--
--
--
--
--
--
Land
--
--
--
--
--
--
--
--
Construction
--
--
--
--
--
--
--
--
Home equity loans and lines of credit and other consumer
--
--
--
--
--
--
Total delinquent loans
$
1,947
$
$
$
1,013
Delinquent loans to total net loans
0.50
%
0.30
%
0.01
%
0.30
%
Delinquent loans to total loans
0.50
%
0.30
%
0.01
%
0.30
%
Non-Performing Assets. The following table shows the amounts of our non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due, and real estate owned) at the dates indicated.
June 30,
(Dollars in thousands)
Non-accruing loans:
One-to-four family residential
$
2,157
$
Commercial - real estate secured
--
Multi-family residential
--
--
Commercial business
--
--
Land
--
--
Construction
--
--
Home equity loans and lines of credit and other consumer
--
--
Total non-accruing loans
2,157
Accruing loans 90 days or more past due:
One-to-four family residential
Commercial - real estate secured
--
--
Multi-family residential
--
--
Commercial business
--
--
Land
--
--
Construction
--
--
Home equity loans and lines of credit and other consumer
--
--
Total non-performing loans(1)
2,183
1,013
Real estate owned, net
--
Total non-performing assets
$
2,183
$
1,396
Troubled debt restructurings (2)
--
Total non-performing assets and troubled debt restructurings
$
2,395
$
1,396
Total non-performing loans as a percent of loans, net
0.62
%
0.30
%
Total non-performing assets as a percent of total assets
0.37
%
0.25
%
Total non-performing assets and troubled debt restructurings as a percentage of total assets
0.41
%
0.25
%
(1)
Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more past due.
(2)
Troubled debt restructurings not included in non-accruing loans and accruing loans 90 days or more past due.
At June 30, 2022, the Company had $2.2 million of non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due, and other real estate owned) compared to $1.4 million of non-performing assets at June 30, 2021, consisting of seven single family residential loans at June 30, 2022, compared to three single family residential loans, six commercial real estate loans to one borrower, and one commercial real estate property and one single family residence in other real estate owned at June 30, 2021. The increase in non-performing assets from $1.4 million at June 30, 2021 to $2.5 million at June 30, 2022 was primarily due to a $1.8 million loan relationship with one customer secured by multiple one-to-four family non-owner occupied homes designated as a troubled debt restructuring on non-accrual at June 30, 2022. At June 30, 2022, the Company had five single family residential loans and two commercial real estate loans classified as substandard compared to one single family residential loan and eight commercial real estate loans with six of those to one borrower classified as substandard at June 30, 2021. There were no loans classified as doubtful at June 30, 2022 or June 30, 2021.
Classified Assets. Federal regulations require that each insured savings institution classify its assets on a regular basis and the amount of its valuation allowance is subject to review by Federal bank regulators. There are three classifications for problem assets: “substandard”, “doubtful”, and “loss”. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss, if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values questionable, and there is a higher possibility of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated “special mention” also must be established and maintained for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful, or loss. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset, or portion thereof, is classified as loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution’s regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital. Federal examiners may disagree with an insured institution’s classifications and amounts reserved. At June 30, 2022, we had $7.1 million in classified assets. There were three residential mortgage loans designated as special mention totaling $352,000 and five commercial real estate and business loans designated as special mention totaling $2.8 million. There were five residential loans for $2.2 million and two commercial real estate loans totaling $1.7 million classified as substandard. There were no loans classified as doubtful or loss at June 30, 2022.
Allowance for Loan Losses. At June 30, 2022, our allowance for loan losses amounted to $4.5 million. The allowance for loan losses is maintained at a level believed, to the best of our knowledge, to cover all known and inherent losses in the portfolio, both probable and reasonable, to be estimated at each reporting date. The level of allowance for loan losses is based on our 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 any underlying collateral, and prevailing conditions. Historically, we have primarily engaged in originating single-family residential loans. Our management considers the deficiencies of all classified loans in determining the amount of allowance for loan losses required at each reporting date. Our management analyzes the probability of the correction of the substandard loans’ weaknesses and the extent of any known or inherent losses that we might sustain on them. During the fiscal year 2022, we recorded a provision for loan losses of $336,000, as compared to $1.8 million recorded for fiscal year 2021.
The decrease in the provision for fiscal year 2022 primarily reflects an improvement in our overall credit quality. Total non-performing loans increased by approximately $1.5 million as of June 30, 2022 compared to June 30, 2021.
While management believes that it determines the size of the allowance based on the best information available at the time, the allowance will need to be adjusted as circumstances change and assumptions are updated. Future adjustments to the allowance could significantly affect net income.
CARES Act. Under the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief will not be considered troubled debt restructurings.
The following table shows changes in our allowance for loan losses during the periods presented. We had $31,000 and $2.0 million of loan charge-offs during fiscal 2022 and 2021, respectively. Bad debt recoveries amounted to $24,000 during fiscal 2022.
June 30,
(Dollars in thousands)
Total loans outstanding at end of period
$
392,635
$
341,260
Average loans outstanding
360,774
366,546
Allowance for loan losses, beginning of period
4,122
4,081
Provision for loan losses
1,800
Recoveries
Charge-offs
(31
)
(1,961
)
Allowance for loan losses, end of period
$
4,451
$
4,122
Allowance for loan losses as a percent of non-performing loans
174.91
%
406.85
%
Allowance for loan losses as a percent of loans outstanding
1.13
%
1.21
%
The following table shows how our allowance for loan losses is allocated by type of loan at each of the dates indicated.
Amount of
Allowance
Loan
Category
as a %
of Total
Loans
Amount of
Allowance
Loan
Category
as a %
of Total
Loans
(Dollars in thousands)
One-to-four family residential
$
1,367
30.71
%
$
28.60
%
Commercial - real estate secured
1,295
29.10
1,630
28.18
Multi-family residential
8.02
9.09
Commercial business
14.51
20.48
Land
6.85
4.77
Construction
6.34
4.49
Home equity loans and lines of credit and other consumer
4.47
4.39
Total
$
4,451
100.00
%
$
4,122
100.00
%
Investment Securities
We have authority to invest in various types of securities, including mortgage-backed securities, U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, certificates of deposit at federally insured banks and savings institutions, certain bankers’ acceptances, and federal funds. Our investment strategy is established by the board of directors.
The following table sets forth certain information relating to our investment securities portfolio at the dates indicated.
June 30,
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In thousands)
Securities Held-to-Maturity:
Mortgage-backed securities
$
78,072
$
67,737
$
52,818
$
52,699
Municipals
1,336
1,234
1,361
1,382
FNBB stock
FHLB stock
Total Securities Held-to-Maturity
79,950
69,513
54,706
54,608
Securities Available-for-Sale:
Mortgage-backed securities
30,250
28,099
29,201
29,550
Total Investment Securities
$
110,200
$
97,612
$
83,907
$
84,158
The following table sets forth the amount of investment securities which contractually mature during each of the periods indicated and the weighted average yields for each range of maturities at June 30, 2022. The amounts reflect the fair value of our securities at June 30, 2022.
Amounts at June 30, 2022 which Mature in
One Year
or Less
Weighted
Average
Yield
Over One
Year
Through
Five Years
Weighted
Average
Yield
Over Five
Through
Ten Years
Weighted
Average
Yield
Over
Ten Years
Weighted
Average
Yield
(Dollars in thousands)
Bonds and other debt securities:
Mortgage-backed securities
$
--
--
%
$
2.28
%
$
1,334
1.60
%
$
94,498
1.91
%
Municipals
--
--
1.05
%
--
--
1,016
2.97
%
Equity securities(1):
FNBB stock
--
--
--
--
--
--
1.25
%
FHLB stock
--
--
--
--
--
--
1.23
%
Total investment securities and bank stock
$
--
--
%
$
1.07
%
$
1,334
1.60
%
$
96,026
1.92
%
(1)
None of the listed equity securities has a stated maturity.
Our investment in equity securities consists primarily of FHLB stock and shares of First National Bankers Bankshares, Inc. (“FNBB”). Management monitors its investment portfolio to determine whether any investment securities which have unrealized losses should be considered other than temporarily impaired.
Mortgage-backed securities represent a participation interest in a pool of one-to-four family or multi-family mortgages. The mortgage originators use intermediaries (generally U.S. Government agencies and government-sponsored enterprises) to pool and repackage the participation interests in the form of securities, with investors receiving the principal and interest payments on the mortgages. Such U.S. Government agencies and government-sponsored enterprises guarantee the payment of principal and interest to investors.
Mortgage-backed securities are typically issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security approximates the life of the underlying mortgages.
Our mortgage-backed securities consist of Ginnie Mae securities (“GNMA”), Freddie Mac securities (“FHLMC”), and Fannie Mae securities (“FNMA”). Ginnie Mae is a government agency within the Department of Housing and Urban Development, which is intended to help finance government-assisted housing programs. Ginnie Mae securities are backed by loans insured by the Federal Housing Administration or guaranteed by the Veterans Administration. The timely payment of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. Government. Freddie Mac is a private corporation chartered by the U.S. Government. Freddie Mac issues participation certificates backed principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest and the ultimate return of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae securities. Freddie Mac and Fannie Mae securities are not backed by the full faith and credit of the U.S. Government. In September 2008, the Federal Housing Finance Agency was appointed as conservator of Fannie Mae and Freddie Mac. The U.S. Department of the Treasury agreed to provide capital, as needed, to ensure that Fannie Mae and Freddie Mac continue to provide liquidity to the housing and mortgage markets.
Mortgage-backed securities generally yield less than the loans which underlie such securities because of their payment guarantees or credit enhancements, which offer nominal credit risk. In addition, mortgage-backed securities are more liquid than individual mortgage loans and may be used to collateralize our borrowings or other obligations.
The following table sets forth the composition of our mortgage-backed securities portfolio at fair value at each of the dates indicated. The amounts reflect the fair value of our mortgage-backed securities at June 30, 2022 and 2021.
June 30,
(In thousands)
Fixed rate:
GNMA
$
3,831
$
5,327
FHLMC
34,906
13,806
FNMA
55,940
61,453
Total fixed rate
94,677
80,586
Adjustable rate:
GNMA
1,150
1,649
FHLMC
FNMA
--
Total adjustable-rate
1,159
1,663
Total mortgage-backed securities
$
95,836
$
82,249
Information regarding the contractual maturities and weighted average yield of our mortgage-backed securities portfolio at June 30, 2022 is presented below. Due to repayments of the underlying loans, the actual maturities of mortgage-backed securities generally are substantially less than the scheduled maturities. The amounts reflect the fair value of our mortgage-backed securities at June 30, 2022.
Amounts at June 30, 2022 Which Mature in
One Year
or Less
Weighted
Average
Yield
Over One
through
Five Years
Weighted
Average
Yield
Over
Five Years
Weighted
Average
Yield
(In thousands)
Fixed rate:
GNMA
$
--
--
%
$
--
--
%
$
3,831
1.54
%
FHLMC
--
--
--
--
34,906
1.72
FNMA
--
--
--
--
55,940
2.08
Total fixed-rate
--
--
%
--
--
%
94,677
1.92
%
Adjustable rate:
GNMA
$
--
--
%
$
2.79
%
$
1,149
0.02
%
FHLMC
--
--
2.02
4.00
FNMA
--
--
--
0.00
--
--
Total adjustable rate
--
--
%
$
2.28
%
$
1,155
0.04
%
Total
$
--
--
%
$
2.28
%
$
95,832
1.90
%
The following table sets forth the purchases, sales, and principal repayments of our mortgage-backed securities during the periods indicated.
At or For the
Year Ended June 30,
(Dollars in thousands)
Mortgage-backed securities at beginning of period
$
82,019
$
58,557
Purchases
44,103
51,763
Repayments
(17,716
)
(28,157
)
Sales
--
--
Amortizations of premiums and discounts, net
(84
)
(144
)
Mortgage-backed securities at end of period
$
108,322
$
82,019
Weighted average yield at end of period
1.68
%
1.76
%
Sources of Funds
General. Deposits are our primary source of funds for lending and other investment purposes. In addition to deposits, principal and interest payments on loans and investment securities are a source of funds. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Borrowings may also be used on a short-term basis to compensate for reductions in the availability of funds from other sources and on a longer-term basis for general business purposes.
Deposits. We attract deposits principally from residents of Louisiana and particularly from Caddo and Bossier Parishes. Deposit account terms vary, with the principal differences being the minimum balance required, the time periods the funds must remain on deposit, and the interest rate. We utilize brokered certificates of deposit as a component of our strategy for lowering the overall cost of funds. The brokered certificates of deposit are callable by Home Federal Bank after twelve months. At June 30, 2022 and 2021, we had $6.0 million and $10.7 million, respectively, in brokered certificates of deposit.
We establish interest rates paid, maturity terms, service fees, and withdrawal penalties on a periodic basis. Management determines the rates and terms based on rates paid by competitors, the need for funds or liquidity, growth goals, and federal regulations. We attempt to control the flow of deposits by pricing our accounts to remain generally competitive with other financial institutions in the market area.
The following table shows the distribution of, and certain other information relating to, our deposits by type of deposit, as of the dates indicated.
June 30,
Amount
Percent of
Total
Deposits
Amount
Percent of
Total
Deposits
(Dollars in thousands)
Certificate accounts:
0.00% - 0.99%
$
36,150
6.80
%
$
37,756
7.45
%
1.00% - 1.99%
28,559
5.37
30,588
6.04
2.00% - 2.99%
14,323
2.69
39,037
7.71
3.00% - 3.99%
1,252
0.23
1,628
0.32
Total certificate accounts
80,284
15.09
109,009
21.52
Transaction accounts:
Passbook savings
132,981
25.00
129,130
25.49
Non-interest-bearing demand accounts
161,142
30.29
131,014
25.86
NOW accounts
58,957
11.08
49,262
9.72
Money market
98,627
18.54
88,181
17.41
Total transaction accounts
451,707
84.91
397,587
78.48
Total deposits
$
531,991
100.00
%
$
506,596
100.00
%
The following table shows the average balance of each type of deposit and the average rate paid on each type of deposit for the periods indicated.
Year Ended June 30,
Average
Balance
Interest
Expense
Average
Rate
Paid
Average
Balance
Interest
Expense
Average
Rate
Paid
(Dollars in thousands)
Passbook savings
$
136,139
$
0.29
%
$
108,592
$
0.52
%
NOW accounts
51,412
0.11
44,655
0.20
Money market
91,862
0.12
77,198
0.28
Certificates of deposit
88,450
1,212
1.37
138,603
2,324
1.68
Total interest-bearing deposits
367,863
1,770
0.51
369,048
3,195
0.87
Non-Interest bearing demand accounts
$
145,522
$
--
--
%
$
118,662
$
--
--
%
Total deposits
$
513,385
$
1,770
0.51
%
$
487,710
$
3,195
0.66
%
The following table shows our deposit flows during the periods indicated.
Year Ended June 30,
(In thousands)
Net deposits (withdrawals)
$
24,351
$
43,396
Interest credited
1,044
2,390
Total increase in deposits
$
25,395
$
45,786
The following table presents, by various interest rate categories and maturities, the amount of certificates of deposit at June 30, 2022.
Balance at June 30, 2022
Maturing in the 12 Months Ending June 30,
Certificates of Deposit
Thereafter
Total
(In thousands)
0.00% - 0.99%
$
24,466
$
4,391
$
2,158
$
5,135
$
36,150
1.00% - 1.99%
20,495
4,345
3,358
28,559
2.00% - 2.99%
5,810
8,059
--
14,323
3.00% - 3.99%
--
--
1,252
Total certificate accounts
$
51,037
$
17,781
$
5,970
$
5,496
$
80,284
The following table shows the maturities of our certificates of deposit of $100,000 or more at June 30, 2022 by time remaining to maturity.
Amount
Weighted
Average Rate
(Dollars in thousands)
September 30, 2022
$
12,753
1.13
%
December 31, 2022
5,441
0.66
March 31, 2023
5,597
0.80
June 30, 2023
14,183
1.08
After June 30, 2023
17,580
1.63
Total certificates of deposit with balances of $100,000 or more
$
55,554
1.20
%
The following table shows the maturities of our certificates of deposit in excess of the FDIC insurance limit (generally, $250,000) at June 30, 2022 by time remaining to maturity.
Amount
Weighted
Average Rate
(Dollars in thousands)
September 30, 2022
$
9,494
1.16
%
December 31, 2022
2,592
0.85
March 31, 2023
1,169
0.36
June 30, 2023
6,115
0.93
After June 30, 2023
7,385
1.58
Total certificates of deposit with balances of $250,000 or more
$
26,755
1.16
%
Borrowings. We may obtain advances from the Federal Home Loan Bank of Dallas upon the security of the common stock we own in that bank and certain of our residential mortgage loans and mortgage-backed and other investment securities, provided certain standards related to creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Federal Home Loan Bank advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending.
As of June 30, 2022, we were permitted to borrow up to an aggregate total of $176.7 million from the Federal Home Loan Bank of Dallas. We had $832,000 and $867,000 of Federal Home Loan Bank advances outstanding at June 30, 2022 and 2021, respectively. Additionally, at June 30, 2022, 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, 2022. At June 30, 2022, Home Federal Bancorp had available a $10.0 million line of credit agreement with First National Bankers Bank, maturing June 28, 2023. The line is secured by Home Federal Bank’s common stock and bears interest at the Prime Rate, which is subject to change when adjustments are made to Wall Street Journal Prime. At June 30, 2022, the line had an outstanding balance of $2.4 million.
The following table shows certain information regarding our borrowings at or for the dates indicated:
At or For the Year
Ended June 30,
FHLB advances:
Average balance outstanding
$
$
Maximum amount outstanding at any month-end during the period
1,060
Balance outstanding at end of period
Average interest rate during the period
4.83
%
4.88
%
Weighted average interest rate at end of period
4.84
%
4.84
%
At June 30, 2022, $832,000 of our borrowings were short-term (maturities of one year or less). Such short-term borrowings had a weighted average interest rate of 4.84% at June 30, 2022.
The following table shows maturities of Federal Home Loan Bank advances at June 30, 2022 or the years indicated:
Years Ending June 30,
Amount
(In thousands)
$
--
--
--
--
Thereafter
--
Total
$
Subsidiaries
At June 30, 2022, the Company had one subsidiary, Home Federal Bank. The Bank’s only subsidiary at such date was Metro Financial Services, Inc., which previously engaged in the sale of annuity contracts and does not currently engage in a meaningful amount of business.
Employees
Home Federal Bank had 70 full-time employees and four part-time employees at June 30, 2022. None of these employees are covered by a collective bargaining agreement, and we believe that we enjoy good relations with our personnel.
REGULATION
General
Home Federal Bank, as a federally chartered savings bank, is subject to federal regulation and oversight by the Office of the Comptroller of the Currency extending to all aspects of its operations. Home Federal Bank also is subject to regulation and examination by the Federal Deposit Insurance Corporation, which insures the deposits of Home Federal Bank to the maximum extent permitted by law, and requirements established by the Federal Reserve Board. Federally chartered savings institutions are required to file periodic reports with the Office of the Comptroller of the Currency and are subject to periodic examinations by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The investment and lending authority of savings institutions is prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision primarily are intended for the protection of depositors and not for the purpose of protecting shareholders.
Federal law provides the federal banking regulators, including the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, with substantial enforcement powers. The Office of the Comptroller of the Currency’s enforcement authority over all savings institutions includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders, and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the Office of the Comptroller of the Currency. Any change in these laws and regulations, whether by the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or Congress, could have a material adverse impact on Home Federal Bancorp and Home Federal Bank and our operations.
2018 Regulatory Reform
In May 2018 the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Act”), was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in 2010 (the “Dodd-Frank Act”). While the Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion. Many of these changes could result in meaningful regulatory relief for community banks such as Home Federal Bank.
The Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” of between 8 and 10 percent to replace the leverage and risk-based regulatory capital ratios. The Act also expands the category of holding companies that may rely on the “Small Bank Holding Company and Savings and Loan Holding Company Policy Statement” (the “SBHC Policy”) by raising the maximum amount of assets a qualifying holding company may have from $1 billion to $3 billion. This expansion also excludes such holding companies from the minimum capital requirements of the Dodd-Frank Act. In addition, the Act includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading prohibitions), mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
Regulation of Home Federal Bancorp
Home Federal Bancorp, a Louisiana corporation, is a registered savings and loan holding company within the meaning of Section 10 of the Home Owners’ Loan Act and is subject to examination and supervision by the Federal Reserve Board, as well as certain reporting requirements. While new capital requirements began to phase in for savings and loan holding companies on January 1, 2015, Home Federal Bancorp is currently exempt from those requirements. In addition, because Home Federal Bank is a subsidiary of a savings and loan holding company, it is subject to certain restrictions in dealing with us and with other persons affiliated with the Bank.
Holding Company Acquisitions. Home Federal Bancorp is a savings and loan holding company under the Home Owners’ Loan Act, as amended. Federal law generally prohibits a savings and loan holding company, without prior approval of the Federal Reserve Board, from acquiring the ownership or control of any other savings institution or savings and loan holding company, or all, or substantially all, of the assets, or more than 5% of the voting shares of the savings institution or savings and loan holding company. These provisions also prohibit, among other things, any director or officer of a savings and loan holding company, or any individual who owns or controls more than 25% of the voting shares of such holding company, from acquiring control of any savings institution not a subsidiary of such savings and loan holding company, unless the acquisition is approved by the Federal Reserve Board.
The Federal Reserve Board may not approve any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies and (ii) the acquisition of a savings institution in another state, if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.
Holding Company Activities. Home Federal Bancorp operates as a unitary savings and loan holding company and is permitted to engage only in the activities permitted for financial institution holding companies or for multiple savings and loan holding companies. Multiple savings and loan holding companies are permitted to engage in the following activities: (i) activities permitted for a bank holding company under section 4(c) of the Bank Holding Company Act (unless the Federal Reserve Board prohibits or limits such 4(c) activities); (ii) furnishing or performing management services for a subsidiary savings association; (iii) conducting any insurance agency or escrow business; (iv) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings association; (v) holding or managing properties used or occupied by a subsidiary savings association; (vi) acting as trustee under deeds of trust; or (vii) activities authorized by regulation as of March 5, 1987 to be engaged in by multiple savings and loan holding companies. Under the Dodd-Frank Act, savings and loan holding companies became subject to statutory capital requirements. However, in May 2015, amendments to the SBHC Policy became effective. The amendments made the SBHC Policy applicable to savings and loan holding companies, such as Home Federal Bancorp, and increased the asset threshold to qualify to be subject to the provisions of the SBHC Policy from $500 million to $1.0 billion. The 2018 regulatory reform increased the asset threshold to $3.0 billion. Savings and loan holding companies that have total assets of $3.0 billion or less are subject to the SBHC Policy and are not required to comply with the regulatory capital requirements set forth in the table below. Such treatment continues until Home Federal Bancorp’s total assets exceed $3.0 billion or the Federal Reserve Board deems it to no longer be a small savings and loan holding company.
While there are no specific restrictions on the payment of dividends or other capital distributions for savings and loan holding companies, federal regulations do prescribe such restrictions on subsidiary savings institutions, as described below. Home Federal Bank is required to notify the Federal Reserve Board 30 days before declaring any dividend. In addition, the financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the Federal Reserve Board, and the agency has authority to order cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the institution.
All savings associations’ subsidiaries of savings and loan holding companies are required to meet a qualified thrift lender, or QTL, test to avoid certain restrictions on their operations. If the subsidiary savings institution fails to meet the QTL, as discussed below, then the savings and loan holding company must register with the Federal Reserve Board as a bank holding company, unless the savings institution requalifies as a QTL within one year thereafter.
Federal Securities Laws. Home Federal Bancorp registered its common stock with the Securities and Exchange Commission under Section 12(b) of the Securities Exchange Act of 1934. Home Federal Bancorp is subject to the proxy and tender offer rules, insider trading reporting requirements and restrictions, and certain other requirements under the Securities Exchange Act of 1934.
The Sarbanes-Oxley Act. As a public company, Home Federal Bancorp is subject to the Sarbanes-Oxley Act of 2002 which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our principal executive officer and principal financial officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining, and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.
Volcker Rule Regulations
Regulations have been adopted by the federal banking agencies to implement the provisions of the Dodd-Frank Act, commonly referred to as the Volcker Rule. The regulations contain prohibitions and restrictions on the ability of financial institutions holding companies and their affiliates to engage in proprietary trading and to hold certain interests in, or to have certain relationships with, various types of investment funds, including hedge funds and private equity funds. However, federal regulations exclude from the Volcker Rule restrictions community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of five percent or less of total consolidated assets. Home Federal Bancorp qualifies for the exclusion from the Volcker Rule restrictions.
Regulation of Home Federal Bank
General. Home Federal Bank is subject to the regulation of the Office of the Comptroller of the Currency, as its primary federal regulator, the Federal Deposit Insurance Corporation, as the insurer of its deposit accounts, and, to a limited extent, the Federal Reserve Board.
Insurance of Accounts. The deposits of Home Federal Bank are insured to the maximum extent permitted by the Deposit Insurance Fund and are backed by the full faith and credit of the U.S. Government. The 2010 financial institution reform legislation permanently increased deposit insurance on most accounts to $250,000. As insurer, the Federal Deposit Insurance Corporation is authorized to conduct examinations of and to require reporting by insured institutions. It also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious threat to the Federal Deposit Insurance Corporation. The Federal Deposit Insurance Corporation also has the authority to initiate enforcement actions against savings institutions after giving the Office of the Comptroller of the Currency an opportunity to take such action.
The Federal Deposit Insurance Corporation assesses deposit insurance premiums on the assessment base of a depository institution, which is its average total assets reduced by the amount of its average tangible equity. For a small institution (one with assets of less than $10 billion) that has been federally insured for at least five years, effective July 1, 2016, the initial base assessment rate ranges from 3 to 30 basis points, based on the institution’s CAMELS composite and component ratings and certain financial ratios; its leverage ratio; its ratio of net income before taxes to total assets; its ratio of nonperforming loans and leases to gross assets; its ratio of other real estate owned to gross assets; its brokered deposits ratio (excluding reciprocal deposits if the institution is well capitalized and has a CAMELS composite rating of 1 or 2); its one year asset growth ratio (which penalizes growth adjusted for mergers in excess of 10%); and its loan mix index (which penalizes higher risk loans based on historical industry charge off rates). The initial base assessment rate is subject to downward adjustment (not below 1.5%) based on the ratio of unsecured debt the institution has issued to its assessment base and to upward adjustment (which can cause the rate to exceed 30 basis points) based on its holdings of unsecured debt issued by other insured institutions. Institutions with assets of $10 billion or more are assessed using a scorecard method.
The Federal Deposit Insurance Corporation may terminate the deposit insurance of any insured depository institution, including Home Federal Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order, or any condition imposed by an agreement with the Federal Deposit Insurance Corporation. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the Federal Deposit Insurance Corporation. Management is aware of no existing circumstances which would result in termination of Home Federal Bank’s deposit insurance.
Regulatory Capital Regulations
In July of 2013, the respective U.S. federal banking agencies issued final rules implementing Basel III and the Dodd-Frank Act capital requirements to be fully-phased in on a global basis on January 1, 2019. The 2013 regulations establish a tangible common equity capital requirement, increase the minimum requirement for the current Tier 1 risk-weighted asset (“RWA”) ratio, phase out certain kinds of intangibles treated as capital and certain types of instruments, and change the risk weightings of certain assets used to determine required capital ratios. Provisions of the Dodd-Frank Act generally require these capital rules to apply to savings and loan holding companies and their savings association subsidiaries. The common equity Tier 1 capital component requires capital of the highest quality - predominantly composed of retained earnings and common stock instruments. For community banks, such as Home Federal Bank, the new capital rules require a common equity Tier 1 capital ratio of 4.5% and also increased the minimum Tier 1 capital ratio from 4.0% to 6.0%. In addition, in order to make capital distributions and pay discretionary bonuses to executive officers without restriction, an institution must also maintain greater than 2.5% in common equity attributable to a capital conservation buffer. The rules also increase the risk weights for several categories of assets, including an increase from 100% to 150% for certain acquisition, development, and construction loans and more than 90-day past due exposures. The capital rules maintain the general structure of the prompt corrective action rules but incorporate the new common equity Tier 1 capital requirement and the increase Tier 1 RWA requirement into the prompt corrective action framework.
Effective January 1, 2020, qualifying community banking organizations may elect to comply with a greater than 9% community bank leverage ratio (the “CBLR”) requirement in lieu of the currently applicable requirements for calculating and reporting risk-based capital ratios. The CBLR is equal to Tier 1 capital divided by average total consolidated assets. In order to qualify for the CBLR election, a community bank must (i) have a leverage capital ratio greater than 9 percent, (2) have less than $10 billion in average total consolidated assets, (3) not exceed certain levels of off-balance sheet exposure and trading assets plus trading liabilities and (4) not be an advanced approaches banking organization. A community bank that meets the above qualifications and elects to utilize the CBLR is considered to have satisfied the risk-based and leverage capital requirements in the generally applicable capital rules and is also considered to be “well capitalized” under the prompt corrective action rules. As of June 30, 2022, Home Federal Bank has not made the CBLR election.
Unless a community bank qualifies for and elects to comply with the CBLR beginning on January 1, 2020, federally insured savings institutions are required to maintain the minimum levels of regulatory capital described below. Current Office of the Comptroller of the Currency capital standards require savings institutions to satisfy a tangible capital requirement, a common equity Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement. The tangible capital must equal at least 1.5% of adjusted total assets. The common equity Tier 1 capital component generally consists of retained earnings and common stock instruments and must equal at least 4.5% of risk-weighted assets. Leverage capital, also known as “core” capital, must equal at least 3.0% of adjusted total assets for the most highly rated savings associations. An additional cushion of at least 100 basis points is required for all other savings associations, which effectively increases their minimum Tier 1 leverage ratio to 4.0% or more. Under the Office of the Comptroller of the Currency’s regulation, the most highly-rated banks are those that the Office of the Comptroller of the Currency determines are strong associations that are not anticipating or experiencing significant growth and have well-diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, and good earnings. Under the risk-based capital requested, “Total” capital (a combination of core and “supplementary” capital) must equal at least 8.0% of “risk-weighted” assets. The Office of the Comptroller of the Currency also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.
Core capital generally consists of common stockholders’ equity (including retained earnings). Tangible capital generally equals core capital minus intangible assets, with only a limited exception for purchased mortgage servicing rights. Home Federal Bank had no intangible assets at June 30, 2022. Both core and tangible capital are further reduced by an amount equal to a savings institution’s debt and equity investments in subsidiaries engaged in activities not permissible to national banks (other than subsidiaries engaged in activities undertaken as agent for customers or in mortgage banking activities and subsidiary depository institutions or their holding companies). These adjustments do not affect Home Federal Bank’s regulatory capital.
In determining compliance with the risk-based capital requirement, a savings institution is allowed to include both core capital and supplementary capital in its total capital, provided that the amount of supplementary capital included does not exceed the savings institution’s core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum of 1.25% of risk-weighted assets together with certain other items. In determining the required amount of risk-based capital, total assets, including certain off-balance sheet items, are multiplied by a risk weight based on the risks inherent in the type of assets. The risk weights range from 0% for cash and securities issued by the U.S. Government, or unconditionally backed by the full faith and credit of the U.S. Government, to 100% for loans (other than qualifying residential loans weighted at 80%) and repossessed assets.
Savings institutions must value securities available for sale at amortized cost for regulatory capital purposes. This means that in computing regulatory capital, savings institutions should add back any unrealized losses and deduct any unrealized gains, net of income taxes, on debt securities reported as a separate component of capital as defined by generally accepted accounting principles.
At June 30, 2022, Home Federal Bank exceeded all of its regulatory capital requirements with tangible, common equity Tier 1, core, and risk-based capital ratios of 9.61%, 14.85%, 9.61% and 15.98%, respectively.
Any savings institution that fails any of the capital requirements is subject to possible enforcement actions by the Office of the Comptroller of the Currency or the Federal Deposit Insurance Corporation. Such actions could include a capital directive, a cease and desist order, civil money penalties, establishment of restrictions on the institution’s operations, termination of federal deposit insurance, and the appointment of a conservator or receiver. The Office of the Comptroller of the Currency’s capital regulation provides that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions.
Prompt Corrective Action. The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations.
Capital Category
Total Risk-
Based
Capital
Tier 1 Risk-
Based
Capital
Common
Equity Tier 1
Capital
Tier 1
Leverage
Capital
Well capitalized
10% or more
8% or more
6.5% or more
5% or more
Adequately capitalized
8% or more
6% or more
4.5% or more
4% or more
Undercapitalized
Less than 8%
Less than 6%
Less than 4.5%
Less than 4%
Significantly undercapitalized
Less than 6%
Less than 4%
Less than 3%
Less than 3%
In addition, an institution is “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the Office of the Comptroller of the Currency may not reclassify a significantly undercapitalized institution as critically undercapitalized).
An institution, generally, must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized, or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. An institution which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized institutions are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions.
At June 30, 2022, Home Federal Bank was deemed a well-capitalized institution for purposes of the prompt corrective action regulations and as such is not subject to the above mentioned restrictions.
Capital Distributions. Office of the Comptroller of the Currency regulations govern capital distributions by savings institutions, which include cash dividends, stock repurchases, and other transactions charged to the capital account of a savings institution to make capital distributions. A savings institution must file an application for Office of the Comptroller of the Currency approval of the capital distribution if either (i) the total capital distributions for the applicable calendar year exceed the sum of the institution’s net income for that year to date plus the institution’s retained net income for the preceding two years, (ii) the institution would not be at least adequately capitalized following the distribution, (iii) the distribution would violate any applicable statute, regulation, agreement, or Office of the Comptroller of the Currency-imposed condition, or (iv) the institution is not eligible for expedited treatment of its filings. If an application is not required to be filed, savings institutions must still file a notice with the Office of the Comptroller of the Currency at least 30 days before the board of directors declares a dividend or approves a capital distribution if either (i) the institution would not be well-capitalized following the distribution; (ii) the proposed distribution would reduce the amount or retire any part of our common or preferred stock or retire any part of a debt instrument included in our regulatory capital, or (iii) the savings institution is a subsidiary of a savings and loan holding company, and the proposed capital distribution is not a cash dividend. If a savings institution, such as Home Federal Bank, that is the subsidiary of a savings and loan holding company has filed a notice with the Federal Reserve Board for a cash dividend and is not required to file an application or notice with the Office of the Comptroller of the Currency for any of the reasons described above, then the savings institution is only required to provide an informational copy to the Office of the Comptroller of the Currency of the notice filed with the Federal Reserve Board at the same time that it is filed with the Federal Reserve Board.
An institution that either before or after a proposed capital distribution fails to meet its then applicable minimum capital requirement or that has been notified that it needs more than normal supervision may not make any capital distributions without the prior written approval of the Office of the Comptroller of the Currency. In addition, the Office of the Comptroller of the Currency may prohibit a proposed capital distribution, which would otherwise be permitted by Office of the Comptroller of the Currency regulations, if the Office of the Comptroller of the Currency determines that such distribution would constitute an unsafe or unsound practice.
Under federal rules, an insured depository institution may not pay any dividend, if payment would cause it to become undercapitalized, or if it is already undercapitalized. In addition, federal regulators have the authority to restrict or prohibit the payment of dividends for safety and soundness reasons. The Federal Deposit Insurance Corporation also prohibits an insured depository institution from paying dividends on its capital stock or interest on its capital notes or debentures (if such interest is required to be paid only out of net profits) or distributing any of its capital assets while it remains in default in the payment of any assessment due the Federal Deposit Insurance Corporation. Home Federal Bank is currently not in default in any assessment payment to the Federal Deposit Insurance Corporation.
Qualified Thrift Lender Test. All savings institution subsidiaries of savings and loan holding companies are required to meet a qualified thrift lender, or QTL, test to avoid certain restrictions on their operations. A savings institution can comply with the QTL test by either qualifying as a domestic building and loan association as defined in the Internal Revenue Code or meeting the Office of the Comptroller of the Currency QTL test. Currently, the Office of the Comptroller of the Currency QTL test requires that 65% of an institution’s “portfolio assets” (as defined) consist of certain housing and consumer-related assets on a monthly average basis in nine out of every 12 months. To be a qualified thrift lender under the IRS test, the savings institution must meet a “business operations test” and a “60 percent assets test,” each defined in the Internal Revenue Code.
If a savings association fails to remain a QTL, it is immediately prohibited from the following:
•
Making any new investments or engaging in any new activity not allowed for both a national bank and a savings association;
•
Establishing any new branch office unless allowable for a national bank; and
•
Paying dividends unless allowable for a national bank and necessary to meet the obligations of its holding company.
Any company that controls a savings institution that is not a qualified thrift lender must register as a bank holding company within one year of the savings institution’s failure to meet the QTL test. Three years from the date a savings association should have become or ceases to be a QTL, the institution must dispose of any investment or not engage in any activity unless the investment or activity is allowed for both a national bank and a savings association. A savings institution not in compliance with the QTL test is also subject to an enforcement action for violation of the Home Owners’ Loan Act, as amended.
At June 30, 2022, Home Federal Bank believes that it meets the requirements of the QTL test.
Community Reinvestment Act. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. An institution’s failure to comply with the provisions of the Community Reinvestment Act could result in restrictions on its activities. Home Federal Bank received a “satisfactory” Community Reinvestment Act rating in its most recently completed examination.
Limitations on Transactions with Affiliates. Transactions between a savings association and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act as made applicable to savings associations by Section 11 of the Home Owners’ Loan Act. An affiliate of a savings association is any company or entity which controls the savings association or that is controlled by a company that controls the savings association. In a holding company context, the holding company of a savings association (such as Home Federal Bancorp) and any companies which are controlled by such holding company are affiliates of the savings association. Generally, Section 23A limits the extent to which the savings association or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such association’s capital stock and surplus and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. Section 23B applies to “covered transactions” as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least as favorable, to the savings association as those provided to a non-affiliate. The term “covered transaction” includes the making of loans to, purchase of assets from, and issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions also include the provision of services and the sale of assets by a savings association to an affiliate. In addition to the restrictions imposed by Sections 23A and 23B, a savings association is prohibited from (i) making a loan or other extension of credit to an affiliate, except for any affiliate which engages only in certain activities which are permissible for bank holding companies, or (ii) purchasing or investing in any stocks, bonds, debentures, notes, or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings association.
In addition, Sections 22(g) and (h) of the Federal Reserve Act as made applicable to savings associations by Section 11 of the Home Owners’ Loan Act place restrictions on loans to executive officers, directors, and principal shareholders of the savings association and its affiliates. Under Section 22(h), loans to a director, an executive officer, and to a greater than 10% shareholder of a savings association, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings association’s loans to one borrower limit (generally equal to 15% of the association’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers, and principal shareholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the savings association and (ii) does not give preference to any director, executive officer, or principal shareholder, or certain affiliated interests of either, over other employees of the savings association. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings association to all insiders cannot exceed the savings association’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. Home Federal Bank currently is subject to Section 22(g) and (h) of the Federal Reserve Act and at June 30, 2021, was in compliance with the above restrictions.
Incentive Compensation. Guidelines adopted by the federal banking agencies pursuant to the FDIA prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal stockholder.
In June 2010, the federal banking agencies issued comprehensive guidance on incentive compensation policies (the “Incentive Compensation Guidance”) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Incentive Compensation Guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The Incentive Compensation Guidance provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Regulation of Residential Mortgage Loan Originators. Under the final rule adopted by the federal bank regulatory authorities pursuant to the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, residential mortgage loan originators employed by financial institutions, such as Home Federal Bank, must register with the Nationwide Mortgage Licensing System and Registry, obtain a unique identifier from the registry, and maintain their registration. Any residential mortgage loan originator who fails to satisfy these requirements will not be permitted to originate residential mortgage loans.
Anti-Money Laundering. All financial institutions, including savings associations, are subject to federal laws that are designed to prevent the use of the U.S. financial system to fund terrorist activities. Financial institutions operating in the United States must develop anti-money laundering compliance programs, due diligence policies, and controls to ensure the detection and reporting of money laundering. Such compliance programs are intended to supplement compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations. Home Federal Bank has established policies and procedures to ensure compliance with these provisions.
Federal Home Loan Bank System. Home Federal Bank is a member of the Federal Home Loan Bank of Dallas, which is one of 11 regional Federal Home Loan Banks that administer a home financing credit function primarily for its members. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. The Federal Home Loan Bank of Dallas is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the Federal Home Loan Bank. At June 30, 2022, Home Federal Bank had $832,000 of Federal Home Loan Bank advances and $176.7 million available on its credit line with the Federal Home Loan Bank.
As a member, Home Federal Bank is required to purchase and maintain stock in the Federal Home Loan Bank of Dallas in an amount equal to 0.038% of its total assets. At June 30, 2022, Home Federal Bank had $292,000 in Federal Home Loan Bank stock, which was in compliance with the applicable requirement.
The Federal Home Loan Banks are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of Federal Home Loan Bank dividends paid in the past and could do so in the future. These contributions also could have an adverse effect on the value of Federal Home Loan Bank stock in the future.
Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain reserves against their transaction accounts (primarily NOW and Super NOW checking accounts) and non-personal time deposits. The required reserves must be maintained in the form of vault cash or an account at a Federal Reserve Bank. At June 30, 2022, Home Federal Bank had met its reserve requirement.
TAXATION
Federal Taxation
General. Home Federal Bancorp and Home Federal Bank are subject to federal income taxation in the same general manner as other corporations with some exceptions listed below. The following discussion of federal and state income taxation is only intended to summarize certain pertinent income tax matters and is not a comprehensive description of the applicable tax rules. Home Federal Bank’s tax returns have not been audited during the past five years.
Method of Accounting. For federal income tax purposes, Home Federal Bank reports income and expenses on the accrual method of accounting and used a June 30 tax year in 2021 for filing its federal income tax return.
Bad Debt Reserves. The Small Business Job Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings associations, effective for taxable years beginning after 1995. Prior to that time, Home Federal Bank was permitted to establish a reserve for bad debts and to make additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at taxable income. In addition, federal legislation required the recapture over a six year period of the excess of tax bad debt reserves at December 31, 1995 over those established as of December 31, 1987.
Taxable Distributions and Recapture. Prior to the Small Business Job Protection Act of 1996, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if Home Federal Bank failed to meet certain thrift asset and definitional tests. New federal legislation eliminated these savings association related recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should Home Federal Bank make certain non-dividend distributions or cease to maintain a bank charter.
At June 30, 2022, the total federal pre-1988 reserve was approximately $3.3 million. The reserve reflects the cumulative effects of federal tax deductions by Home Federal Bank for which no federal income tax provisions have been made.
Corporate Dividends-Received Deduction. Home Federal Bancorp may exclude from its income 100% of dividends received from Home Federal Bank as a member of the same affiliated group of corporations. The corporate dividends received deduction is 65% in the case of dividends received from corporations which a corporate recipient owns less than 80% but at least 20% of the distribution corporation. Corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 50% of dividends received.
State and Local Taxation
Home Federal Bancorp is subject to the Louisiana Corporation Income Tax based on our Louisiana taxable income. The Corporation Income Tax applies at graduated rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in excess of $200,000. For these purposes, “Louisiana taxable income” means net income which is earned by us within or derived from sources within the State of Louisiana, after adjustments permitted under Louisiana law, including a federal income tax deduction. In addition, Home Federal Bank is subject to the Louisiana Shares Tax which is imposed on the assessed value of a company’s stock. The formula for deriving the assessed value is to calculate 15% of the sum of:
(a) 20% of our capitalized earnings, plus
(b) 80% of our taxable stockholders’ equity, minus
(c) 50% of our real and personal property assessment.
Various items may also be subtracted in calculating a company’s capitalized earnings.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Not applicable.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties
We currently conduct business from six full-service banking offices located in Shreveport, Louisiana, two full-service banking offices located in Bossier City, Louisiana and one full-service banking office located in Minden, Louisiana. The following table sets forth certain information, as of June 30, 2022, 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
$
$ 1,746
$
--
Building/ATM (Market Street Branch)
624 Market Street, Shreveport, LA
Owned
93,246
Building/ATM (Youree Drive Branch)
6363 Youree Drive, Shreveport, LA
Owned
(1)
165,831
Building/ATM (Southern Hills Branch)
9449 Mansfield Road, Shreveport, LA
Owned
1,913
69,027
Building/ATM (Viking Drive Branch)
2555 Viking Drive, Bossier City, LA
Owned
1,746
58,974
Building/ATM (Stockwell Branch)
7964 E. Texas Street, Bossier City, LA
Owned
1,556
45,695
Building/ATM (Northwood Branch)
5841 North Market Street, Shreveport, LA
Owned
1,526
37,321
Building/ATM (Pierremont Road Branch)
925 Pierremont Road, Shreveport, LA
Owned
2,138
48,952
Building (2)
614 Market Street, Shreveport, LA
Owned
(2)
--
Building/ATM (Huntington Branch)
6903 Pines Road, Shreveport, LA
Owned
1,985
3,270
Building/ATM (Minden Branch)
306 Homer Road, Minden, LA
Leased
(3)
$
$
9,675
(1)
The building is owned but the land is subject to an operating lease which was renewed effective March 15, 2018 for a ten-year period.
(2)
The building is vacant and available to serve as potential future administrative offices and storage.
(3)
The building is subject to an operating lease with a five year term expiring August 21, 2026.

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ITEM 3. LEGAL PROCEEDINGS
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.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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 20, 2022, Home Federal Bancorp had 183 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, 2022 are set forth in the table below, including stock-for-stock option exercises:
Period
Total Number
of Shares
Purchased
Average
Price
Paid per
Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs (a)
April 1, 2022 - April 30, 2022
--
$
--
--
143,076
May 1, 2022 - May 31, 2022
10,000
21.49
10,000
133,076
June 1, 2022 - June 30, 2022
3,000
19.56
3,000
130,076
Total
13,000
$
21.04
13,000
130,076
Notes to this table:
(a)
On February 16, 2022, the Company announced that its Board of Directors approved an eleventh stock repurchase program for the repurchase of up to 170,000 shares or approximately 5.0% of its then outstanding shares of common stock. The repurchase program does not have an expiration date.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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 $4.9 million in fiscal 2022 compared to net income of $5.4 million in fiscal 2021.
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 a decrease in our average rate on our interest-bearing assets, partially offset by a decrease in our rate on total interest bearing liabilities, our net interest margin decreased from 3.31% to 3.27% during fiscal 2022 compared to 2021, and our net interest income increased $416,000 to $17.4 million for fiscal 2022 as compared to $16.9 million for fiscal 2021. We expect to continue to emphasize 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.
Business Strategy
Our business strategy is focused on operating a growing and profitable community-oriented financial institution. Our current business strategy includes:
•
Continuing to Grow and Diversify Our Loan Portfolio. We intend to grow and continue to diversify our loan portfolio by, among other things, emphasizing the origination of commercial real estate and business loans. At June 30, 2022, our commercial real estate loans amounted to $127.6 million, or 32.5% of the total loan portfolio. Our commercial business loans amounted to $44.5 million, or 11.3% of the total loan portfolio. Commercial real estate, commercial business, construction and development, and consumer loans all typically have higher yields and are more interest sensitive than long-term single-family residential mortgage loans.
•
Diversify Our Products and Services. We intend to continue to emphasize our commercial business products to provide a full-service banking relationship to our commercial customers. We have introduced mobile and Internet banking and remote deposit capture, to better serve our commercial clients. Additionally, we have developed new deposit products focused on expanding our deposit base to new types of customers.
•
Managing Our Expenses. We have incurred significant additional expenses related to personnel and infrastructure in recent periods as we implemented our business strategy. Our efficiency ratio, net interest income plus non-interest income divided by non-interest expense, for 2022 was 69.59% compared to 61.55% for fiscal 2021.
•
Enhancing Core Earnings. We expect to continue to emphasize commercial real estate and business loans, which generally bear interest rates higher than residential real estate loans, and sell a substantial part of our fixed rate residential mortgage loan originations.
•
Expanding Our Franchise in our Market Area and Contiguous Communities. We intend to continue to pursue opportunities to expand our market area by opening additional de novo banking offices and possibly through acquisitions of other financial institutions and banking related businesses. We expect to focus on contiguous areas to our current locations in Caddo, Bossier and Webster Parishes. We announced our expansion into Webster Parish with a new loan production office in September 2021 which converted to a full-service branch in October 2021. In December 2021, we opened our ninth full-service branch location in West Shreveport.
•
Maintain Our Asset Quality. At June 30, 2022, our non-performing assets totaled $2.5 million, or 0.43% of total assets. We had no balances in other real estate owned at June 30, 2022. We intend to continue to stress maintaining high asset quality, even as we continue to grow our institution and diversify our loan portfolio.
•
Cross-Selling Products and Services and Emphasizing Local Decision Making. We have promoted cross-selling products and services in our branch offices and emphasized our local decision making and streamlined loan approval process.
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.
Allowance for Loan Losses. We have identified the evaluation of the allowance for loan losses as a critical accounting policy and a critical accounting estimate 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.
The allowance for loan losses is comprised of (i) specific reserves determined in accordance with current authoritative accounting guidance based on probable specific losses (ii) general reserve determined in accordance with current authoritative accounting guidance that consider historical loss experience, and (iii) qualitative reserves determined in accordance with current authoritative accounting guidance based upon qualitive 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.
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, 2022, 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 $68.4 million of SBA PPP loans that have been forgiven which represents 99.4% of the total amount of loans funded. The provision for loan losses for the year ended June 30, 2022 was $336,000 compared to $1.8 million for the year ended June 30, 2021. The decrease is mainly due to an improvement in our overall credit quality.
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, 2022 and 2021 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:
Total assets
$
590,480
$
565,731
Cash and cash equivalents
64,078
104,405
Securities available for sale
28,099
29,550
Securities held to maturity
79,950
54,706
Loans held-for-sale
3,978
14,427
Loans receivable, net
387,873
336,394
Deposits
531,991
506,596
Federal Home Loan Bank advances
Total Stockholders’ equity
52,347
52,725
As of or for the Year
Ended June 30,
(Dollars in thousands, except per share
amounts)
Selected Operating Data:
Total interest income
$
19,234
$
20,245
Total interest expense
1,877
3,304
Net interest income
17,357
16,941
Provision for loan losses
1,800
Net interest income after provision for loan losses
17,021
15,141
Total non-interest income
3,476
5,452
Total non-interest expense
14,497
13,783
Income before income tax expense
6,000
6,810
Income tax expense
1,127
1,445
Net income
$
4,873
$
5,365
Earnings per share of common stock:
Basic
$
1.50
$
1.66
Diluted
$
1.41
$
1.57
As of or for the Year
Ended June 30,
Selected Operating Ratios(1):
Average yield on interest-earning assets
3.62
%
3.96
%
Average rate on interest-bearing liabilities
0.51
0.89
Average interest rate spread(2)
3.11
3.07
Net interest margin(2)
3.27
3.31
Average interest-earning assets to average interest-bearing liabilities
143.32
137.46
Net interest income after provision for loan losses to non-interest expense
117.41
109.85
Total non-interest expense to average assets
2.54
2.53
Efficiency ratio(3)
69.59
61.55
Return on average assets
0.85
0.98
Return on average equity
9.24
10.45
Average equity to average assets
9.22
9.42
Dividend payout ratio
28.37
20.91
Selected Quality Ratios(4):
Non-performing loans as a percent of loans receivable, net
0.62
%
0.30
%
Non-performing assets as a percent of total assets
0.37
0.25
Allowance for loan losses as a percent of total loans receivable
1.13
1.21
Net charge-offs to average loans receivable
0.00
0.48
Allowance for loan losses as a percent of non-performing loans
174.96
406.85
Bank Capital Ratios(4):
Tangible capital ratio
9.65
%
9.57
%
Core capital ratio
9.65
9.57
Total capital ratio
15.62
17.88
Other Data:
Offices (branch and home)
Employees (full-time)
(1)
With the exception of end of period ratios, all ratios are based on average monthly balances during the indicated periods.
(2)
Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities, and net interest margin represents net interest income as a percentage of average interest-earning assets.
(3)
Non-GAAP: The efficiency ratio represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income.
(4)
Asset quality ratios and capital ratios are end of period ratios, except for net charge-offs to average loans receivable.
Changes in Financial Condition
At June 30, 2022, the Company reported total assets of $590.5 million, an increase of $24.7 million, or 4.4%, compared to total assets of $565.7 million at June 30, 2021. The increase in assets was comprised primarily of increases in loans receivable, net of $51.5 million, or 15.3%, from $336.4 million at June 30, 2021 to $387.9 million at June 30, 2022, investment securities of $23.8 million, or 28.2%, from $84.3 million at June 30, 2021 to $108.0 million at June 30, 2022, premises and equipment of $1.3 million, or 8.9%, from $14.9 million at June 30, 2021 to $16.2 million at June 30, 2022, and deferred tax assets of $324,000, or 39.6%, from $819,000 at June 30, 2021 to $1.1 million at June 30, 2022. These increases were partially offset by decreases in cash and cash equivalents of $40.3 million, or 38.6%, from $104.4 million at June 30, 2021 to $64.1 million at June 30, 2022, loans held-for-sale of $10.4 million, or 72.4%, from $14.4 million at June 30, 2021 to $4.0 million at June 30, 2022, bank owned life insurance of $617,000, or 8.6%, from $7.2 million at June 30, 2021 to $6.6 million at June 30, 2022, real estate owned of $383,000, or 100.0%, from $383,000 at June 30, 2021 to none at June 30, 2022, other assets of $366,000, or 20.9%, from $1.8 million at June 30, 2021 to $1.4 million at June 30, 2022, and accrued interest receivable of $39,000, or 3.4%, from $1.2 million at June 30, 2021 to $1.1 million at June 30, 2022.
Loans receivable, net increased $51.5 million, or 15.3%, from $336.4 million at June 30, 2021 to $387.9 million at June 30, 2022. The increase in loans receivable, net was attributable primarily to increases in commercial real estate loans of $31.4 million, one-to-four family residential loans of $22.4 million, construction loans of $12.5 million, land loans of $5.9 million, equity lines of credit loans of $5.0 million, and equity and second mortgage loans of $320,000, partially offset by decreases in commercial business loans of $25.4 million, and consumer loans of $210,000. With rising interest rates, 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, 2022, Home Federal Bank had $127.6 million of commercial real estate loans, 32.5% of the total loan portfolio, and $44.5 million of commercial business loans, 11.3% 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 $1.5 million, or 4.9%, from $29.6 million at June 30, 2021 to $28.1 million at June 30, 2022. This decrease resulted primarily from principal repayments of $9.5 million and a decrease in market values of securities of $2.5 million, partially offset by purchases of $9.3 million in mortgage-backed securities.
Securities held-to-maturity increased $25.2 million, from $54.7 million at June 30, 2021 to $79.9 million at June 30, 2022. This increase was primarily due to purchases of $34.6 million of mortgage backed securities and purchases of $14,800 in FHLB stock, partially offset by principal repayments of $9.3 million. We chose to place these securities in held-to-maturity as part of our interest rate risk management strategy.
Cash and cash equivalents decreased $40.3 million, or 38.6%, from $104.4 million at June 30, 2021 to $64.1 million at June 30, 2022. The decrease in cash and cash equivalents was primarily due to the funding of additional loan growth and purchases of securities with excess liquidity.
Total liabilities increased $25.1 million, or 4.9%, from $513.0 million at June 30, 2021 to $538.1 million at June 30, 2022 primarily due to increases in total deposits of $25.4 million, or 5.0%, to $532.0 million at June 30, 2022 compared to $506.6 million at June 30, 2021, partially offset by a decrease of $111,000, or 4.1%, in other accrued expenses and liabilities from $2.7 million at June 30, 2021 to $2.6 million at June 30, 2022, a decrease of $72,000, or 16.9%, in advances from borrowers for taxes and insurance from $426,000 at June 30, 2021 to $354,000 at June 30, 2022, a decrease of $50,000, or 2.1%, in other borrowings from $2.4 million at June 30, 2021 to $2.3 million at June 30, 2022, and a decrease of $35,000, or 4.0%, in advances from the Federal Home Loan Bank from $867,000 at June 30, 2021 to $832,000 at June 30, 2022. The increase in deposits was primarily due to a $30.1 million, or 23.0%, increase in non-interest bearing deposits from $131.0 million at June 30, 2021 to $161.1 million at June 30, 2022, a $10.4 million, or 11.8%, increase in money market deposits from $88.2 million at June 30, 2021 to $98.6 million at June 30, 2022, a $9.7 million, or 19.7%, increase in NOW accounts from $49.3 million at June 30, 2021 to $59.0 million at June 30, 2022, and an increase in savings deposits of $3.9 million, or 3.0%, from $129.1 million at June 30, 2021 to $133.0 million at June 30, 2022, partially offset by a decrease of $28.7 million, or 26.4%, in certificates of deposit from $109.0 million at June 30, 2021 to $80.3 million at June 30, 2022. The Company had $6.0 million in brokered deposits at June 30, 2022 compared to $10.7 million at June 30, 2021. The decrease in advances from the Federal Home Loan Bank was primarily due to principal paydowns on amortizing advances. The entire balance in advances from the Federal Home Loan Bank are now short-term due to our only advance with a balloon maturity in January 2023.
Stockholders’ equity decreased $378,000, or 0.7%, to $52.3 million at June 30, 2022 from $52.7 million at June 30, 2021. The primary reasons for the changes in stockholders’ equity from June 30, 2021 were the repurchase of Company stock of $4.5 million, a decrease in the Company’s accumulated other comprehensive income of $2.0 million, and dividends paid totaling $1.4 million, partially offset by net income of $4.9 million, proceeds from the issuance of common stock from the exercise of stock options of $1.9 million, and the vesting of restricted stock awards, stock options, and the release of employee stock ownership plan shares totaling $671,000.
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.
June 30,
Average
Balance
Interest
Average
Yield/
Rate
Average
Balance
Interest
Average
Yield/
Rate
(Dollars in thousands)
Interest-earning assets:
Loans receivable(1)
$
360,774
$
17,501
4.85
%
$
366,546
$
18,913
5.16
%
Investment securities
98,229
1,509
1.53
65,721
1,228
1.87
Interest-earning deposits
72,189
0.32
79,028
0.13
Total interest-earning assets
531,192
19,234
3.62
%
511,295
20,245
3.96
%
Non-interest-earning assets
40,426
33,784
Total assets
$
571,618
$
545,079
Interest-bearing liabilities:
Savings accounts
136,139
0.29
%
108,592
0.52
%
NOW accounts
51,412
0.11
44,655
0.20
Money market accounts
91,862
0.12
77,198
0.28
Certificates of deposit accounts
88,450
1,212
1.37
138,603
2,324
1.68
Total interest-bearing deposits
367,863
1,770
0.48
369,048
3,195
0.87
FHLB advances
4.83
4.88
Other bank borrowings
1,921
3.44
1,991
3.21
Total interest-bearing liabilities
370,632
1,877
0.51
%
371,962
3,304
0.89
%
Non-interest-bearing liabilities:
Non-interest-bearing demand accounts
145,522
118,662
Other liabilities
2,741
3,092
Total liabilities
518,895
493,716
Total stockholders’ equity(2)
52,723
51,368
Total liabilities and equity
$
571,618
$
545,079
Net interest-earning assets
$
160,560
$
139,333
Net interest income; average interest rate spread(3)
$
17,357
3.11
%
$
16,941
3.07
%
Net interest margin(4)
3.27
%
3.31
%
Average interest-earning assets to average interest-bearing liabilities
143.32
%
137.46
%
(1)
Includes loans held for sale.
(2)
Includes retained earnings and accumulated other comprehensive loss.
(3)
Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities.
(4)
Net interest margin is net interest income divided by net average interest-earning assets.
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.
2022 vs. 2021
2021 vs. 2020
Increase (Decrease)
Due to
Total
Increase
Increase (Decrease)
Due to
Total
Increase
Rate
Volume
(Decrease)
Rate
Volume
(Decrease)
(In thousands)
Interest income:
Investment securities
$
(327
)
$
$
$
(255
)
$
(76
)
$
(331
)
Loans receivable, net
(1,114
)
(298
)
(1,412
)
(944
)
1,422
Interest-earning deposits
(9
)
(818
)
(238
)
Total interest-earning assets
(1,312
)
(1,011
)
(2,017
)
1,926
Interest expense:
Savings accounts
(315
)
(172
)
(628
)
(135
)
NOW accounts
(48
)
(34
)
(147
)
(86
)
Money market accounts
(148
)
(107
)
(540
)
(511
)
Certificate accounts
(271
)
(841
)
(1,112
)
(521
)
(597
)
(1,118
)
Total deposits
(782
)
(643
)
(1,425
)
(1,836
)
(14
)
(1,850
)
FHLB advances and other borrowings
(5
)
(2
)
(22
)
--
Total interest-bearing liabilities
(779
)
(648
)
(1,427
)
(1,858
)
(1,850
)
Increase (Decrease) in net interest income
$
(533
)
$
$
$
(159
)
$
1,918
$
1,759
Comparison of Operating Results for the Years Ended June 30, 2022 and 2021
General. The decrease in net income for the year ended June 30, 2022 resulted primarily from a $2.0 million, or 36.2%, decrease in non-interest income, and an increase of $714,000, or 5.2%, in non-interest expense, partially offset by a decrease of $1.5 million, or 81.3%, in provision for loan losses, an increase of $416,000, or 2.5%, in net interest income, and a decrease of $318,000, or 22.0% in provision for income taxes. The decrease in the provision for loan losses is mainly due to an improvement in overall credit quality. The increase in net interest income was primarily due to a $1.4 million, or 43.2%, decrease in total interest expense, partially offset by a $1.0 million, or 5.0%, decrease in total interest income. The Company’s average interest rate spread was 3.11% for the year ended June 30, 2022 compared to 3.07% for the year ended June 30, 2021. The Company’s net interest margin was 3.27% for the year ended June 30, 2022 compared to 3.31% for the year ended June 30, 2021.
Net Interest Income. Net interest income amounted to $17.4 million for fiscal year 2022, an increase of $416,000, or 2.5%, compared to $16.9 million for fiscal year 2021. The increase was due primarily to a decrease of $1.4 million in interest expense, partially offset by a $1.0 million decrease in total interest income.
The average interest rate spread increased from 3.07% for fiscal 2021 to 3.11% for fiscal 2022, while the average balance of interest-earning assets increased from $511.3 million to $531.2 million during the same periods. The percentage of average interest-earning assets to average interest-bearing liabilities increased to 143.32% for fiscal 2022 compared to 137.46% for fiscal 2021. The average rate paid on certificates of deposit decreased from 1.68% for fiscal 2021 to 1.37% for fiscal 2022. Net interest margin decreased to 3.27% for fiscal 2022 compared to 3.31% for fiscal 2021.
Interest income decreased $1.0 million, or 5.0%, to $19.2 million for fiscal 2022 compared to $20.2 million for fiscal 2021, primarily due to a decrease in interest income from loans of $1.4 million, partially offset by an increase in interest income from investment and mortgage-backed securities of $282,000, and an increase in interest income on other earning assets of $120,000. 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 12 basis points during fiscal 2022 mainly due to a lower interest rate environment.
Interest expense decreased $1.4 million, or 43.2%, to $1.9 million for fiscal 2022 compared to $3.3 million for fiscal 2021, 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 $336,000 was made to the allowance during fiscal 2022, compared to a provision of $1.8 million in fiscal 2021. At June 30, 2022, the Company had $2.2 million of non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due, and other real estate owned) compared to $1.4 million of non-performing assets at June 30, 2021, consisting of seven single family residential loans at June 30, 2022, compared to three single-family residential loans, six commercial real estate loans to one borrower, and one commercial real estate property and one single family residence in other real estate owned at June 30, 2021. The increase in non-performing assets from $1.4 million at June 30, 2021 to $2.5 million at June 30, 2022 was primarily due to a $1.8 million loan relationship with one customer secured by multiple one-to-four family non-owner occupied homes. At June 30, 2022, the Company had five single family residential loans and two commercial real estate loans classified as substandard compared to one single family residential loan and eight commercial real estate loans with six of those to one borrower classified as substandard at June 30, 2021. There were no loans classified as doubtful at June 30, 2022 or June 30, 2021.
Non-Interest Income. Non-interest income amounted to $3.5 million for the year ended June 30, 2022, a decrease of $2.0 million, or 36.2%, compared to non-interest income of $5.5 million for the year ended June 30, 2021. The $2.0 million decrease in non-interest income for the year ended June 30, 2022 compared to the prior year period was primarily due to a decrease of $2.3 million in gain on sale of loans, a $14,000 decrease in income from bank owned life insurance, and an increase of $6,000 in loss on sale of real estate, partially offset by an increase of $225,000 in other non-interest income, and a $156,000 increase in service charges on deposit accounts. The decrease in gain on sale of loans for the year ended June 30, 2022 was primarily due to a decrease in refinance activity causing a decrease in mortgage loan originations. The Company sells most of its long-term fixed rate residential mortgage loan originations primarily in order to manage interest rate risk. The increase in other non-interest income for the year ended June 30, 2022 was due to a $228,000 bank-owned life insurance claim on a retired bank executive officer.
Non-Interest Expense. Non-interest expense increased $714,000, or 5.2%, in fiscal 2022 compared to the prior year period. The $714,000 increase in non-interest expense for the year ended June 30, 2022, compared to the prior year period, is primarily attributable to increases of $354,000 in compensation and benefits expense, $299,000 in occupancy and equipment expense, $139,000 in advertising expense, $128,000 in franchise and bank shares tax expense, $95,000 in audit and examination fees, $70,000 in data processing expense, $52,000 in other non-interest expense, and a $17,000 increase in deposit insurance premium expense, partially offset by decreases of $200,000 in real estate owned valuation adjustment expense, $146,000 in loan and collection expense, and $94,000 in legal fees.
Provision for Income Tax Expense. The provision for income taxes amounted to $1.1 million and $1.4 million for the fiscal years ended June 30, 2022 and 2021, respectively. Our effective tax rate was 18.8% for fiscal 2022 and 21.2% for fiscal 2021.
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, 2022, 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, 2022 and 2021, securities available-for-sale amounted to $28.1 million and $29.6 million, respectively, or 4.8% and 5.2%, 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, 2022:
Change in Interest Rates in
Net Portfolio Value
NPV as % of Portfolio
Value of Assets
Basis Points (Rate Shock)
Amount
$ Change
% Change
NPV Ratio
Change
(Dollars in thousands)
$
50,261
$
(10,624
)
(17.45
)%
9.76
%
(1.36
)%
58,751
(2,134
)
(3.50
)
11.21
0.09
64,489
3,604
5.92
12.03
0.91
Static
60,885
--
--
11.12
--
(100)
66,700
5,815
9.55
11.79
(0.67
)
(200)
62,259
1,374
2.26
10.71
(0.41
)
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 $339.6 million for fiscal 2022 and $389.8 million for fiscal 2021, while loans sold amounted to $87.2 million and $198.8 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.
Liquidity and Capital Resources
Home Federal Bancorp maintains levels of liquid assets deemed adequate by management. Our liquidity ratio averaged 31.7% for the quarter ended June 30, 2022. 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 $11.9 million and $42.0 million at June 30, 2022 and 2021, 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, 2022, we had $832,000 in advances from the Federal Home Loan Bank of Dallas and had $176.7 million in additional borrowing capacity. Additionally, at June 30, 2022, 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, 2022. In addition, Home Federal Bancorp had available a $10.0 million line of credit agreement at June 30, 2022 with First National Bankers Bank. At June 30, 2022 there was a $2.4 million balance in the credit line.
At June 30, 2022, the Company had outstanding loan commitments of $60.5 million to originate loans and commitments under unused lines of credit of $11.4 million. At June 30, 2022, certificates of deposit scheduled to mature in one year or less totaled $51.1 million, or 64.6% 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, 2022, Home Federal Bank exceeded each of its capital requirements with tangible equity, common equity Tier 1, core, and total risk-based capital ratios of 9.65%, 14.47%, 9.65%, and 15.62%, 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, 2022. 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.
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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Stockholders and
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, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for the year 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 the results of its operations and its cash flows for the year 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 audit. 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 audit 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 audit 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 audit 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 audit provides 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.
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 macroeconomic 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 from 2004 through 2021
Covington, Louisiana
September 28, 2021
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors Home
Federal Bancorp, Inc. of Louisiana
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Home Federal Bancorp, Inc. of Louisiana (the “Company”) as of June 30, 2022 and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the period ended June 30, 2022 and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and the results of its operations and its cash flows for the year ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.
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 audit.
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 audit 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 audit 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 audit 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 include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit 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 were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Allowance for Loan Losses - Qualitative Factors
As described in Note 1 and Note 3 to the financial statements, the Company’s allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. The allowance for loan losses was $4.45 million at June 30, 2022, which is comprised of (i) specific reserves determined in accordance with current authoritative accounting guidance based on probable losses on specific loans (ii) general reserves determined in accordance with current authoritative accounting guidance that consider historical loss experience, and (iii) qualitative reserves. The qualitative reserve is based upon general economic conditions as well as other qualitative risk factors both internal and external to the Company and requires management to make judgments regarding the impact of qualitative factors on probable inherent losses. Of the total allowance for loan loss, the historical loss and qualitative reserve represented $4.35 million, and the specific reserve represented $102 thousand.
We identified the Company’s estimate of the qualitative factors in the allowance for loan loss as a critical audit matter. The principal considerations for that determination included the high degree of subjectivity and judgement in auditing management’s identification and measurement of the factors.
The primary procedures we performed to address this critical audit matter included the following. We performed substantive testing over management’s qualitative factors by evaluating the relevancy and reliability of the underlying data used to derive the qualitative factors, including comparison to internal, external and/or peer data to ensure movement in a directionally consistent manner. Based on the underlying data and our evidence gathered, we evaluated the reasonableness of management’s conclusion on the adjustment to the factors. We tested the accuracy of the mathematical application of the qualitative factors to adjust the historical loss experience.
/s/ FORVIS, LLP (Formerly, Dixon Hughes Goodman LLP)
We have served as the Company’s auditor since 2021.
Fort Worth, Texas
September 26, 2022
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2022 and 2021
June 30,
(In Thousands)
ASSETS
Cash and Cash Equivalents (Includes Interest-Bearing Deposits with Other Banks of $42,531 and $94,325 June 30, 2022 and 2021, Respectively)
$
64,078
$
104,405
Securities Available-for-Sale
28,099
29,550
Securities Held-to-Maturity (fair value June 30, 2022: $69,513; June 30, 2021: $54,608, Respectively)
79,950
54,706
Loans Held-for-Sale
3,978
14,427
Loans Receivable, Net of Allowance for Loan Losses (June 30, 2022: $4,451; June 30, 2021: $4,122, Respectively)
387,873
336,394
Accrued Interest Receivable
1,124
1,163
Premises and Equipment, Net
16,249
14,915
Bank Owned Life Insurance
6,597
7,214
Deferred Tax Asset
1,143
Real Estate Owned
-
Other Assets
1,389
1,755
Total Assets
$
590,480
$
565,731
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest bearing
$
161,142
$ 131,014
Interest-bearing
370,849
375,582
Total Deposits
531,991
506,596
Advances from Borrowers for Taxes and Insurance
Short-term Federal Home Loan Bank Advances
Long-term Federal Home Loan Bank Advances
-
Other Borrowings
2,350
2,400
Other Accrued Expenses and Liabilities
2,606
2,717
Total Liabilities
538,133
513,006
STOCKHOLDERS’ EQUITY
Preferred Stock - $0.01 Par Value; 10,000,000 Shares Authorized; None Issued and Outstanding
-
-
Common Stock - $0.01 Par Value; 40,000,000 Shares Authorized: 3,387,839 and 3,350,966 Shares Issued
and Outstanding at June 30, 2022 and 2021, Respectively
Additional Paid-in Capital
40,145
37,701
Unearned ESOP Stock
(639
)
(754 )
Retained Earnings
14,506
15,469
Accumulated Other Comprehensive (Loss) Income
(1,699
)
Total Stockholders’ Equity
52,347
52,725
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
590,480
$
565,731
The accompanying notes are an integral part of these consolidated financial statements.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended June 30, 2022 and 2021
For the Years Ended June 30,
(In Thousands, Except Per Share Data)
INTEREST INCOME
Loans, including fees
$
17,501
$
18,913
Investment securities
Mortgage-backed securities
1,505
1,223
Other interest-earning assets
Total interest income
19,234
20,245
INTEREST EXPENSE
Deposits
1,770
3,195
Federal Home Loan Bank borrowings
Other bank borrowings
Total Interest Expense
1,877
3,304
Net Interest Income
17,357
16,941
PROVISION FOR LOAN LOSSES
1,800
Net Interest Income After Provision For Loan Losses
17,021
15,141
NON-INTEREST INCOME
Gain on sale of loans
1,982
4,319
Loss on sale of real estate and fixed assets
(48
)
(42
)
Income on Bank-Owned Life Insurance
Service charges on deposit accounts
1,147
Other income
Total Non-Interest Income
3,476
5,452
NON-INTEREST EXPENSE
Compensation and benefits
9,019
8,665
Occupancy and equipment
1,813
1,514
Data processing
Audit and examination fees
Franchise and bank shares tax
Advertising
Legal fees
Loan and collection
Real estate owned valuation adjustment
-
Deposit insurance premium
Other expenses
Total Non-Interest Expense
14,497
13,783
Income Before Income Taxes
6,000
6,810
PROVISION FOR INCOME TAX EXPENSE
1,127
1,445
Net Income
$ 4,873
$ 5,365
EARNINGS PER SHARE
Basic
$
1.50
$
1.66
Diluted
$
1.41
$
1.57
The accompanying notes are an integral part of these consolidated financial statements.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Years Ended June 30, 2022 and 2021
For the Years Ended June 30,
(In Thousands)
Net Income
$ 4,873
$ 5,365
Other Comprehensive (Loss) Income, Net of Tax
Investment securities available-for-sale:
Net unrealized (losses) gains
(2,500
)
(810
)
Income Tax Effect
Other Comprehensive (Loss) Income
(1,974
)
(640
)
Total Comprehensive Income
$
2,899
$
4,725
The accompanying notes are an integral part of these consolidated financial statements.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended June 30, 2022 and 2021
Common
Stock
Additional
Paid-In
Capital
Unearned
ESOP
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
(In Thousands)
BALANCE - June 30, 2020
$
$
36,531
$
(870
)
$
13,937
$
$
50,535
Share Awards Earned
-
-
-
-
ESOP Compensation Earned
-
-
-
Stock Options Exercised
-
-
-
-
Dividends Paid
-
-
-
(1,122
)
-
(1,122
)
Stock Split
(12 )
-
-
-
-
Stock Options Vested
-
-
-
-
Company Stock Purchased
-
-
-
(2,711
)
-
(2,711
)
Net Income
-
-
-
5,365
-
5,365
Other Comprehensive Loss, Unrealized Loss on Debt Securities, Net of Tax
-
-
-
-
(640
)
(640
)
BALANCE - June 30, 2021
$
$
37,701
$
(754
)
$
15,469
$
$
52,725
Share Awards Earned
-
-
-
-
ESOP Compensation Earned
-
-
-
Stock Options Exercised
-
1,889
-
-
-
1,889
Dividends Paid
-
-
-
(1,353
)
-
(1,353
)
Stock Options Vested
-
-
-
-
Company Stock Purchased
-
-
-
(4,484
)
-
(4,484
)
Net Income
-
-
-
4,873
-
4,873
Other Comprehensive Income, Unrealized Gain on Debt Securities, Net of Tax
-
-
-
-
(1,974
)
(1,974
)
BALANCE - June 30, 2022
$
$
40,145
$
(638
)
$
14,505
$
(1,699
)
$
52,347
The accompanying notes are an integral part of these consolidated financial statements.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2022 and 2021
For the Years Ended June 30,
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
$ 4,873
$ 5,365
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities
Gain on Sale of Loans
(1,982
)
(4,319
)
Net Amortization and Accretion on Securities
Amortization of Deferred Loan Fees
(805
)
(1,326
)
Provision for Loan Losses
1,800
Real Estate Owned Valuation Adjustment
-
Depreciation of Premises and Equipment
Net Loss on Sale of Real Estate
ESOP Compensation Expense
Stock Options Expense
Deferred Income Tax (Benefit) Expense
(324
)
(61
)
Federal Home Loan Bank Stock Certificate
-
(5
)
Recognition and Retention Plan and Share Awards Expense
Decrease (Increase) in Cash Surrender Value on Bank Owned Life Insurance
(127
)
Bad Debt Recovery
Changes in Assets and Liabilities:
Origination and Purchase of Loans Held-for-Sale
(87,238
)
(194,574
)
Sale and Principal Repayments on Loans Held-for-Sale
99,669
199,264
Accrued Interest Receivable
Other Operating Assets
Other Operating Liabilities
(111
)
(276
)
Net Cash Provided By Operating Activities
17,059
8,332
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations and Principal Collections, Net
(51,004
)
21,841
Deferred Loan Fees Collected
Acquisition of Premises and Equipment
(2,574
)
(2,354
)
Proceeds from Sale of Real Estate
Improvements to Real Estate Owned Prior to Disposition
-
(124
)
Activity in Available-for-Sale Securities:
Principal Payments on Mortgage-Backed Securities
8,400
21,712
Purchases of Securities
(9,484
)
(10,086
)
Activity in Held-to-Maturity Securities:
Purchases of Municipal Bonds
-
(1,130
)
Purchases of FHLB Stock
(15 )
-
Principal Payments on Mortgage-Backed Securities
9,317
6,445
Sale/Redemptions of Securities
-
2,437
Purchases of Securities
(34,619
)
(41,678
)
Net Cash Used in Investing Activities
(78,793
)
(1,420
)
The accompanying notes are an integral part of these consolidated financial statements.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended June 30, 2022 and 2021
For the Years Ended June 30,
(In Thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
$
25,395
$
45,786
Repayments of Advances from Federal Home Loan Bank
(35
)
(193
)
Dividends Paid
(1,353
)
(1,122
)
Company Stock Purchased
(4,484
)
(2,593
)
Net Decrease in Advances from Borrowers for Taxes and Insurance
(72
)
(96
)
Proceeds from Other Bank Borrowings
3,150
2,400
Repayment of Other Bank Borrowings
(3,200
)
(2,300
)
Proceeds from Stock Options Exercised
1,889
Recognition and Retention Plan Share Distributions
Net Cash Provided by Financing Activities
21,407
42,622
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(40,327 )
49,534
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
104,405
54,871
CASH AND CASH EQUIVALENTS, END OF YEAR
$
64,078
$
104,405
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid on Deposits and Borrowed Funds
1,892
3,331
Income Taxes Paid
1,115
1,475
Market Value Adjustment for Unrealized Gain on Debt Securities Available For Sale
2,500
(810
)
Transfer from Loans to Other Real Estate
-
The accompanying notes are an integral part of these consolidated financial statements.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
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 passbook savings, certificates of deposit, and demand deposit accounts. Services are provided by nine branch offices, six of which are located in Shreveport, Louisiana, two in Bossier City and one in Minden, 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 nine branch offices, six of which are located in the city of Shreveport, Louisiana, two in Bossier City, Louisiana and one in Minden. 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.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
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, 2022 and 2021, cash and cash equivalents consisted of the following:
(In Thousands)
Cash on Hand
$
1,495
$
1,189
Demand Deposits at Other Institutions
40,758
59,591
Federal Funds Sold
21,825
43,625
Total
$
64,078
$
104,405
Securities
Securities are being accounted for in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320’s, Investments which requires the classification of securities into one of three categories: Trading, Available-for-Sale, or Held-to-Maturity. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates this classification periodically.
Investments in non-marketable equity securities and debt securities, in which the Company has the positive intent and ability to hold to maturity, are classified as held-to-maturity and carried at cost, adjusted for amortization of the related premiums, and accretion of discounts, using the interest method. Investments in debt securities that are not classified as held-to-maturity and marketable equity securities that have readily determinable fair values are classified as either trading or available-for-sale securities.
Securities that are acquired and held principally for the purpose of selling in the near term are classified as trading securities. Investments in securities not classified as trading or held-to-maturity are classified as available-for-sale. Trading account and available-for-sale securities are carried at fair value. Unrealized holding gains and losses on trading securities are included in earnings, while net unrealized holding gains and losses on available-for-sale debt securities are excluded from earnings and reported in other comprehensive income.
The Company held no trading securities as of June 30, 2022 and 2021.
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.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
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.
The allowance for loan losses is comprised of (i) specific reserves determined in accordance with current authoritative accounting guidance based on probable specific losses (ii) general reserve determined in accordance with current authoritative accounting guidance that consider historical loss experience, and (iii) qualitative reserves determined in accordance with current authoritative accounting guidance based upon qualitive 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.
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.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1.
Summary of Significant Accounting Policies (Continued)
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.
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.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
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 $329,000 and $190,000 for the years ended June 30, 2022 and 2021, 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, 2022 and 2021, 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 (Loss) on Debt Securities Available-for-Sale
$
(2,151
)
$
Tax Effect
(73
)
Net-of-Tax Amount
$
(1,699
)
$
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements
In January 2016, the FASB issued ASU 2016-01, Financial Instruments. The amendments in this Update supersede the guidance to classify equity securities with readily determinable fair values into different categories and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The amendments in this Update also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. In addition, the amendments in this Update exempt all entities that are not public business entities from disclosing fair value information for financial instruments measured at amortized cost. In addition, for public business entities, the amendments supersede the requirement to disclose the methods and significant assumptions used in calculating the fair value of financial instruments required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The amendments in this Update require public business entities that are required to disclose fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion consistent with Topic 820, Fair Value Measurement. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update include items brought to the FASB Board’s attention regarding ASU 2016-01. The Company has established an implementation team and has engaged QwickRate’s CECLSolver software to assist us in implementation or our CECL process. The Company is in the process of developing and implementing current expected credit loss model that satisfy the requirements of ASU 2016-13. The future adoption of this ASU may have a material effect on the Company’s consolidated financial statements.
The provisions within this Update require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. This amendment excludes from net income gains or losses that the entity may not realize because those financial liabilities are not usually transferred or settled at their fair values before maturity. The amendments in this Update require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or in the accompanying notes to the financial statements.
For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. From the lessee’s perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting pattern of expense recognition in the income statement for a lessee.
The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For public business entities that are SEC filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods with those fiscal years. The extent of the impact upon adoption is not known and will depend on the characteristics of the Company’s loan portfolio and economic conditions on that date as well as forecasted conditions thereafter.
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), for fiscal years beginning after December 15, 2018. This Update was issued in response to diversity in practice in the amortization period for premiums of callable debt securities and in how the potential for exercise of a call is factored into current impairment assessments. As such, these amendments reduce the amortization period for certain callable debt securities carried at a premium and require the premium to be amortized over the period not to exceed the earliest call date. These amendments do not apply to securities carried at a discount. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718). The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in FASB ASC 718. The effective date of this Update is for fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.
In November 2017, the FASB issued ASU 2017-14, Income Statement - Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) (SEC Update). This Update adds, amends, and supersedes SEC paragraphs of the ASC pursuant to Staff Accounting Bulletin No. 116 and SEC Release 33-10403. This ASU was effective upon issuance.
In May 2018, the FASB issued ASU 2018-06, Codification Improvements to Topic 942, Financial Services - Depository and Lending. The amendments in this Update supersede the guidance in Subtopic 942-740, Financial Services - Depository and Lending - Income Taxes, that is related to Circular 202 because that guidance has been rescinded by the Office of the Comptroller of the Currency (OCC) and is no longer relevant. This ASU was effective upon issuance. Adoption of this ASU did not have a material effect on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Topic 718 improves several areas of nonemployee share-based payment accounting. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption on Topic 606. Adoption of this ASU did not have a material effect on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU removes, modifies, and adds certain disclosure requirements for fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. In addition, entities may early adopt the modified or eliminated disclosure requirements and delay adoption of the additional disclosure requirements until effective date. ASU No. 2018-13 did not impact our consolidated financial statements, as the update only revises disclosure requirements.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued)
In December 2019, the FASB issued ASU No. 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)." The amendments in this ASU simplified the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improved the consistent application of and simplified GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in the ASU are effective for fiscal years and interim periods beginning after December 15, 2020. The Company does not expect the adoption of this ASU to impact the consolidated financial statements.
Accounting Standards Adopted in 2020
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches with terms extending through 2058. Substantially all of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated statements of condition. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated statements of condition as right-of-use (“ROU”) assets and corresponding lease liabilities.
The following table represents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) on the consolidated statements of condition.
(In Thousands)
June 30, 2022
June 30, 2021
Lease Right-of-Use Assets
Classification
Operating lease right-of-use assets
Other Assets
$
$
Total Lease Right-of-Use Assets
$
$
Lease Liabilities
Operating lease liabilities
Other Accrued Expenses and Liabilities
$
$
Total Lease Liabilities
$
$
The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For
operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019, was used. For the Company’s only finance lease, the Company utilized its incremental borrowing rate at lease inception.
June 30, 2022
June 30, 2021
Weighted-average remaining lease term
Operating lease
36.4 years
37.4 years
Weighted-average discount rate
Operating leases
3.00
%
3.00
%
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2. Securities
The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:
June 30, 2022
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Securities Available-for-Sale
Cost
Gains
Losses
Value
(In Thousands)
Debt Securities
FHLMC Mortgage-Backed Certificates
$
7,513
$
$
$
7,032
FNMA Mortgage-Backed Certificates
17,753
-
1,067
16,686
GNMA Mortgage-Backed Certificates
4,984
-
4,381
Total Debt Securities
30,250
2,152
28,099
Total Securities Available-for-Sale
$
30,250
$
$
2,152
$
28,099
Securities Held-to-Maturity
Debt Securities
GNMA Mortgage-Backed Certificates
$
$
-
$
$
FHLMC Mortgage-Backed Certificates
32,485
-
4,602
27,883
FNMA Mortgage-Backed Certificates
44,947
-
5,693
39,254
Total Debt Securities
78,072
-
10,335
67,737
Municipals
1,336
-
1,234
Equity Securities (Non-Marketable)
2,919 Shares - Federal Home Loan Bank
-
-
630 Shares - First National Bankers Bankshares, Inc.
-
-
Total Equity Securities
-
-
Total Securities Held-to-Maturity
$
79,950
$
-
$
10,437
$
69,513
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2. Securities (Continued)
The amortized cost and fair value of securities by contractual maturity at June 30, 2022, follows:
Available-for-Sale
Held-to-Maturity
Amortized
Fair
Amortized
Fair
Cost
Value
Cost
Value
(In Thousands)
Debt Securities
Within One Year or Less
$
-
$
-
$
-
$
-
One through Five Years
-
-
After Five through Ten Years
1,389
1,334
-
-
Over Ten Years
28,856
26,760
78,072
67,737
30,250
28,099
78,072
67,737
Municipals
Within One Year or Less
$
-
$
-
$
-
$
-
One through Five Years
-
-
After Five through Ten Years
-
-
-
-
Over Ten Years
-
-
1,108
1,016
-
-
1,336
1,234
Other Equity Securities
-
-
Total
$
30,250
$
28,099
$
79,950
$
69,513
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2. Securities (Continued)
The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:
June 30, 2021
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Securities Available-for-Sale
Cost
Gains
Losses
Value
(In Thousands)
Debt Securities
FHLMC Mortgage-Backed Certificates
$
4,188
$
$
-
$
4,221
FNMA Mortgage-Backed Certificates
18,666
-
19,152
GNMA Mortgage-Backed Certificates
6,347
6,177
Total Debt Securities
29,201
29,550
Total Securities Available-for-Sale
$
29,201
$
$
$
29,550
Securities Held-to-Maturity
Debt Securities
GNMA Mortgage-Backed Certificates
$
$
$
-
$
FHLMC Mortgage-Backed Certificates
9,876
-
9,599
FNMA Mortgage-Backed Certificates
42,160
42,301
Total Debt Securities
52,818
52,699
Municipals
1,361
-
1,382
Equity Securities (Non-Marketable)
2,766 Shares - Federal Home Loan Bank
-
-
630 Shares - First National Bankers Bankshares, Inc.
-
-
Total Equity Securities
-
-
Total Securities Held-to-Maturity
$
54,706
$
$
$
54,608
The amortized cost and fair value of securities by contractual maturity at June 30, 2021, follows:
Available-for-Sale
Held-to-Maturity
Amortized
Fair
Amortized
Fair
Cost
Value
Cost
Value
(In Thousands)
Debt Securities
Within One Year or Less
$
-
$
-
$
-
$
-
One through Five Years
5,262
5,371
-
-
After Five through Ten Years
14,345
14,708
-
-
Over Ten Years
9,594
9,471
52,818
52,699
29,201
29,550
52,818
52,699
Municipals
Within One Year or Less
$ -
$ -
$ -
$ -
One through Five Years
-
-
After Five through Ten Years
-
-
-
-
Over Ten Years
-
-
1,125
1,142
-
-
1,361
1,382
Other Equity Securities
-
-
Total
$
29,201
$
29,550
$
54,706
$
54,608
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2. Securities (Continued)
Information pertaining to securities with gross unrealized losses at June 30, 2022 and 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
June 30, 2022
Less Than Twelve Months
Over Twelve Months
Gross
Gross
Unrealized
Fair
Unrealized
Fair
Losses
Value
Losses
Value
(In Thousands)
Securities Available-for-Sale
Mortgage-Backed Securities
$
1,335
$
21,813
$
$
6,286
Total Securities Available-for-Sale
$
1,335
$
21,813
$
$
6,286
June 30, 2022
Less Than Twelve Months
Over Twelve Months
Gross
Gross
Unrealized
Fair
Unrealized
Fair
Losses
Value
Losses
Value
(In Thousands)
Securities Held-to-Maturity
Mortgage-Backed Securities
$
4,591
$
35,930
$
5,744
$
31,807
Municipals
$
$ 1,234
$ -
$ -
Total Securities Held-to-Maturity
$
4,693
$
37,164
$
5,744
$
31,807
June 30, 2021
Less Than Twelve Months
Over Twelve Months
Gross
Gross
Unrealized
Fair
Unrealized
Fair
Losses
Value
Losses
Value
(In Thousands)
Securities Available-for-Sale
Mortgage-Backed Securities
$
$
4,522
$
$
1,633
Total Securities Available-for-Sale
$
$
4,522
$
$
1,633
June 30, 2021
Less Than Twelve Months
Over Twelve Months
Gross
Gross
Unrealized
Fair
Unrealized
Fair
Losses
Value
Losses
Value
(In Thousands)
Securities Held-to-Maturity
Mortgage-Backed Securities
$
$
41,154
$
-
$
-
Total Securities Held-to-Maturity
$
$
41,154
$
-
$
-
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2. Securities (Continued)
The unrealized losses on the Company’s investment in mortgage-backed securities at June 30, 2022 and 2021 were caused by interest rate changes. The contractual cash flows of these investments are guaranteed by agencies of the U.S. government. Accordingly, it is expected that these securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2022.
At June 30, 2022 and 2021, securities with a carrying value of $581,000 and $940,000,
respectively, were pledged to secure public deposits, and securities and mortgage loans with a carrying value of $176.7 million and $189.7 million, respectively, were pledged to secure FHLB advances.
Note 3.
Loans Receivable
Loans receivable at June 30, 2022 and 2021, are summarized as follows:
(In Thousands)
Loans Secured by Mortgages on Real Estate
One-to-Four Family Residential
$
120,014
$
97,607
Commercial
127,589
96,180
Multi-Family Residential
30,411
31,015
Land
22,127
16,260
Construction
27,884
15,337
Equity and Second Mortgage
1,587
1,267
Equity Lines of Credit
17,831
12,788
Total Mortgage Loans
347,443
270,454
Commercial Loans
44,487
69,891
Consumer Loans
Loans on Savings Accounts
Other Consumer Loans
Total Consumer Other Loans
Total Loans
392,635
341,260
Less: Allowance for Loan Losses
(4,451
)
(4,122
)
Unamortized Loan Fees
(311
)
(744
)
Net Loans Receivable
$
387,873
$
336,394
An analysis of the allowance for loan losses follows:
(In Thousands)
Balance - Beginning of Year
$
4,122
$
4,081
Provision for Loan Losses
1,800
Recoveries
Loan Charge-Offs
(31
)
(1,961
)
Balance - End of Year
$
4,451
$
4,122
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3. Loans Receivable (Continued)
Fixed rate loans receivable, as of June 30, 2022, are scheduled to mature and adjustable rate loans are scheduled to re-price as follows (in thousands):
Under
Over One
Over Five
Over
One
to Five
to Ten
Ten
Year
Years
Years
Years
Total
Loans Secured by One-to-Four
(In Thousands)
Family Residential
Fixed Rate
$
6,619
$
46,745
$
18,985
$
25,855
$
98,204
Adjustable Rate
2,932
5,685
8,874
4,319
21,810
Other Loans Secured by Real Estate
Fixed Rate
34,619
75,311
64,282
14,338
188,550
Adjustable Rate
38,879
-
-
-
38,879
All Other Loans
Fixed Rate
2,284
16,378
9,301
4,577
32,540
Adjustable Rate
12,652
-
-
-
12,652
Total
$
97,985
$
144,119
$
101,442
$
49,089
$
392,635
Credit Quality Indicators
The Company segregates loans into risk categories based on the pertinent information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans according to credit risk. Loans classified as substandard or identified as special mention are reviewed quarterly by management to evaluate the level of deterioration, improvement, and impairment, if any, as well as assign the appropriate risk category.
Loans excluded from the scope of the quarterly review process above are generally identified as pass credits until: (a) they become past due; (b) management becomes aware of a deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification and the need to allocate reserves or charge-off.
The Company uses the following definitions for risk ratings:
Pass - Loans classified as pass are well protected by the current net worth or paying capacity of the obligor or by the fair value, less cost to acquire and sell the underlying collateral in a timely manner.
Pass Watch - Loans are considered marginal, meaning some weakness has been identified which could cause future impairment of repayment. However, these relationships are currently protected from any apparent loss by collateral.
Special Mention - Loans identified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3. Loans Receivable (Continued)
Credit Quality Indicators (Continued)
Loss - This classification includes those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted. Even though partial recovery may be possible in the future, it is not practical or desirable to defer writing off these basically worthless loans. Accordingly, these loans are charged-off before period end.
The following tables present the grading of loans, segregated by class of loans, as of June 30, 2022 and 2021:
June 30, 2022
Pass and
Pass Watch
Special
Mention
Substandard
Doubtful
Total
(In Thousands)
Real Estate Loans:
One-to-Four Family Residential
$
117,464
$
$
2,198
$
-
$
120,014
Commercial
123,292
2,548
1,749
-
127,589
Multi-Family Residential
30,411
-
-
-
30,411
Land
22,127
-
-
-
22,127
Construction
27,884
-
-
-
27,884
Equity and Second Mortgage
1,587
-
-
-
1,587
Equity Lines of Credit
17,831
-
-
-
17,831
Commercial Loans
44,275
-
-
44,487
Consumer Loans
-
-
-
Total
$
385,576
$
3,112
$
3,947
$
-
$
392,635
June 30, 2021
Pass and
Pass Watch
Special
Mention
Substandard
Doubtful
Total
(In Thousands)
Real Estate Loans:
One-to-Four Family Residential
$
97,115
$
$
$
-
$
97,607
Commercial
93,468
-
2,712
-
96,180
Multi-Family Residential
31,015
-
-
-
31,015
Land
16,260
-
-
-
16,260
Construction
15,337
-
-
-
15,337
Equity and Second Mortgage
1,267
-
-
-
1,267
Equity Lines of Credit
12,788
-
-
-
12,788
Commercial Loans
67,087
2,804
-
-
69,891
Consumer Loans
-
-
-
Total
$
335,252
$
3,162
$
2,846
$
-
$
341,260
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when contractually due. Loans that experience insignificant payment delays or payment shortfalls are generally not classified as impaired. On a case-by-case basis, management determines the significance of payment delays and payment shortfalls, taking into consideration all of the circumstances related to the loan, including: the length of the payment delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3. Loans Receivable (Continued)
Credit Quality Indicators (Continued)
An aging analysis of past due loans, segregated by class of loans, as of June 30, 2022 and 2021, is as follows:
June 30, 2022
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
More
Total
Past Due
Current
Total
Loans
Receivable
Recorded
Investment
> 90 Days
and Accruing
(In Thousands)
Real Estate Loans:
One-to-Four Family
Residential
$
-
$
1,923
$
$
2,310
$
117,704
$
120,014
$
Commercial
-
-
-
-
127,589
127,589
-
Multi-Family Residential
-
-
-
-
30,411
30,411
-
Land
-
-
-
-
22,127
22,127
-
Construction
-
-
-
-
27,884
27,884
-
Equity and Second Mortgage
-
-
-
-
1,587
1,587
-
Equity Lines of Credit
-
-
17,807
17,831
-
Commercial Loans
-
-
-
-
44,487
44,487
-
Consumer Loans
-
-
-
-
-
Total
$
$
1,923
$
$
2,334
$
390,301
$
392,635
$
June 30, 2021
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
More
Total
Past Due
Current
Total
Loans
Receivable
Recorded
Investment
> 90 Days
and Accruing
(In Thousands)
Real Estate Loans:
One-to-Four Family
Residential
$
-
$
$
$
$
97,401
$
97,607
$
Commercial
-
-
95,343
96,180
-
Multi-Family Residential
-
-
-
-
31,015
31,015
-
Land
-
-
-
-
16,260
16,260
-
Construction
-
-
-
-
15,337
15,337
-
Equity and Second Mortgage
-
-
-
-
1,267
1,267
-
Equity Lines of Credit
-
-
-
-
12,788
12,788
-
Commercial Loans
-
-
-
-
69,891
69,891
-
Consumer Loans
-
-
-
-
-
Total
$
-
$
$
1,013
$
1,043
$
340,217
$
341,260
$
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3. Loans Receivable (Continued)
Credit Quality Indicators (Continued)
The allowance for loan losses and recorded investment in loans for the year ended June 30, 2022 and 2021 was as follows:
Real Estate Loans
June 30, 2022
Residential
Commercial
Multi-
Family
Land
Construction
Other
Commercial
Loans
Consumer
Loans
Total
(In Thousands)
Allowance for loan losses:
Beginning Balances
$
$
1,630
$
$
$
$
$
$
$
4,122
Charge-Offs
(8
)
(6
)
-
-
-
(17
)
-
-
(31
)
Recoveries
-
-
-
-
-
-
Current Provision
(329
)
(102
)
(1
)
Ending Balances
$
1,367
$
1,295
$
$
$
$
$
$
$
4,451
Evaluated for Impairment:
Individually
-
-
-
-
-
Collectively
1,261
1,166
4,178
Loans Receivable:
Ending Balances - Total
$
120,014
$
127,589
$
30,411
$
22,127
$
27,884
$
19,418
$
44,487
$
$
392,635
Ending Balances:
Evaluated for Impairment:
Individually
2,550
1,749
-
-
-
-
2,760
-
7,059
Collectively
$
117,464
$
125,840
$
30,411
$
22,127
$
27,884
$
19,418
$
41,727
$
$
385,576
Real Estate Loans
June 30, 2021
Residential
Commercial
Multi-
Family
Land
Construction
Other
Commercial
Loans
Consumer
Loans
Total
(In Thousands)
Allowance for loan losses:
Beginning Balances
$
$
$
$
1,024
$
$
$
$
$
4,081
Charge-Offs
(40
)
-
-
(907
)
-
-
(1,014
)
-
(1,961
)
Recoveries
-
-
-
-
Current Provision
(35
)
1,062
(18
)
(1
)
1,800
Ending Balances
$
$
1,630
$
$
$
$
$
$
$
4,122
Evaluated for Impairment:
Individually
-
-
-
-
-
-
Collectively
1,313
3,554
Loans Receivable:
Ending Balances - Total
$
97,607
$
96,180
$
31,015
$
16,260
$
15,337
$
14,055
$
69,891
$
$
341,260
Ending Balances:
Evaluated for Impairment:
Individually
2,712
-
-
-
-
2,804
-
6,008
Collectively
$
97,115
$
93,468
$
31,015
$
16,260
$
15,337
$
14,055
$
67,087
$
$
335,252
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3. Loans Receivable (Continued)
Credit Quality Indicators (Continued)
The following table’s present loans individually evaluated for impairment, segregated by class of loans, as of June 30, 2022 and 2021:
June 30, 2022
Unpaid
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
(In Thousands)
Real Estate Loans:
One-to-Four Family Residential
$
2,550
$
$
2,387
$
2,550
$
$
3,032
Commercial
1,749
-
1,749
1,749
1,811
Multi-Family Residential
-
-
-
-
-
-
Land
-
-
-
-
-
-
Construction
-
-
-
-
-
-
Equity and Second Mortgage
-
-
-
-
-
-
Equity Lines of Credit
-
-
-
-
-
-
Commercial Loans
2,760
2,548
2,760
2,880
Consumer Loans
-
-
-
-
-
-
Total
$
7,059
$
$
6,684
$
7,059
$
$
7,723
June 30, 2021
Unpaid
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
(In Thousands)
Real Estate Loans:
One-to-Four Family Residential
$
$
$
-
$
$
-
$
Commercial
2,712
1,596
1,116
2,712
3,384
Multi-Family Residential
-
-
-
-
-
-
Land
-
-
-
-
-
-
Construction
-
-
-
-
-
-
Equity and Second Mortgage
-
-
-
-
-
-
Equity Lines of Credit
-
-
-
-
-
-
Commercial Loans
2,804
-
2,804
2,804
2,836
Consumer Loans
-
-
-
-
-
-
Total
$
6,008
$
2,088
$
3,920
$
6,008
$
$
6,750
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3. Loans Receivable (Continued)
Credit Quality Indicators (Continued)
A troubled debt restructuring (“TDR”) is a restructuring of a debt made by the Company to a debtor for economic or legal reasons related to the debtor’s financial difficulties that it would not otherwise consider. The Company grants the concession in an attempt to protect as much of its investment as possible.
Information about the Company’s TDRs is as follows (in thousands):
June 30, 2022
Current
Past Due Greater Than 30 Days
Nonaccrual TDRs
Total TDRs
One-to-Four Family
$
-
$
1,818
$
1,818
1,818
Commercial Loans
$
$
-
$
$
June 30, 2021
Current
Past Due Greater Than 30 Days
Nonaccrual TDRs
Total TDRs
Commercial real estate
$
-
$
$
$
For purposes of the determination of an allowance for loan losses on these TDRs, as an identified TDR, the Company considers a loss probable on the loan and, as a result, the loan is reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology. If it is determined losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans. As of June 30, 2022, there were no commitments to lend additional funds to debtors owing sums to the Company whose terms have been modified in TDRs.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3. Loans Receivable (Continued)
Credit Quality Indicators (Continued)
For each of the years ended June 30, 2022 and 2021, approximately $54,000 and $63,000, respectively, of interest was foregone on non-accrual loans. Impaired loans consisted of non-accruing loans at June 30, 2022 and 2021, and TDRs at June 30, 2022 and 2021. Impaired loans, segregated by class of loans, were as follows:
(In Thousands)
Real Estate Loans:
One-to-Four Family Residential
$
2,194
$
Commercial
-
2,712
Multi-Family Residential
-
-
Land
-
-
Construction
-
-
Equity and Second Mortgage
-
-
Equity Lines of Credit
-
-
Commercial Loans
-
Consumer Loans
-
-
Total
$
2,406
$
2,846
Loan Modifications/Troubled Debt Restructurings. Under the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring (“TDR”), and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Home Federal Bank has made that election. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief will not be considered TDRs.
Prior to the enactment of the CARES Act, the banking regulatory agencies provided guidance as to how certain short-term modifications would not be considered TDRs, and have subsequently confirmed that such guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 4.
Accrued Interest Receivable
Accrued interest receivable at June 30, 2022 and 2021 consisted of the following:
(In Thousands)
Accrued Interest on:
Mortgage Loans
$
$
Other Loans
Investments
Municipals
Mortgage-Backed Securities
Total
$
1,124
$
1,163
Note 5.
Premises and Equipment
A summary of the cost and accumulated depreciation of premises and equipment follows:
(In Thousands)
Land
$
4,570
$
4,659
Buildings
14,258
12,571
Equipment
2,829
2,481
Construction in Progress
22,092
19,996
Accumulated Depreciation
(5,843
)
(5,081
)
Total
$
16,249
$
14,915
Depreciation expense charged against operations for the years ended June 30, 2022 and 2021 was $763,000 and $665,000, respectively.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6.
Deposits
Deposits at June 30, 2022 and 2021 are summarized as follows:
Weighted
Weighted
Average
Average
Rate at
Rate at
6/30/2022
6/30/2021
Amount
Percent
Amount
Percent
(Dollars in Thousands)
Non-Interest Bearing
0.00
%
0.00
%
$
161,142
30.29
%
$
131,014
25.86
%
NOW Accounts
0.11
%
0.11
%
58,957
11.08
%
49,262
9.72
Money Market
0.12
%
0.12
%
98,627
18.54
%
88,181
17.41
Passbook Savings
0.26
%
0.36
%
132,981
25.00
%
129,130
25.49
451,707
84.91
%
397,587
78.48
Certificates of Deposit
1.19
%
1.51
%
80,284
15.09
%
109,009
21.52
Total Deposits
$
531,991
100.00
%
$
506,596
100.00
%
The composition of certificates of deposit accounts by interest rate is as follows:
Amount
Percent
Amount
Percent
(Dollars in Thousands)
0.00% to 0.99%
$
36,150
45.03
%
$
37,756
34.63
%
1.00% to 1.99%
28,559
35.57
%
30,588
28.07
2.00% to 2.99%
14,323
17.84
%
39,037
35.81
3.00% to 3.99%
1,252
1.56
%
1,628
1.49
Total Deposits
$
80,284
100.00
%
$
109,009
100.00
%
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6. Deposits (Continued)
Maturities of certificates of deposit accounts at June 30, 2022 are scheduled as follows:
Weighted
Year Ending
Average
June 30,
Amount
Percent
Rate
(Dollars in Thousands)
$
51,038
63.57
%
0.97
%
17,781
22.15
2.00
5,969
7.44
1.19
3,335
4.15
0.73
2,130
2.65
0.57
0.04
0.04
Total
$
80,284
100.00
%
1.19
%
Interest expense on deposits for the years ended June 30, 2022 and 2021 was as follows:
(In Thousands)
NOW and Money Market
$
$
Passbook Savings
Certificates of Deposit
1,212
2,324
Total
$
1,770
$
3,195
The aggregate amount of time deposits in denominations of $100,000 or more at June 30, 2022 and 2021 was $55.6 million and $77.5 million, respectively.
At June 30, 2022 and 2021, the Bank had brokered certificates of deposit totaling $6.0 million and $10.7 million, respectively.
Note 7. Advances from Federal Home Loan Bank of Dallas
Pursuant to collateral agreements with the Federal Home Loan Bank of Dallas (FHLB), advances are secured by a blanket floating lien on first mortgage loans. Total interest expense recognized amounted to $41,000 and $45,000 for fiscal years 2022 and 2021, respectively.
Advances at June 30, 2022 and 2021 consisted of the following:
Advance Total
Contract Rate
(In Thousands)
0.00% to 0.99%
$
-
$
-
1.00% to 1.99%
-
-
2.00% to 2.99%
-
-
3.00% to 3.99%
-
-
4.00% to 4.99%
Total
$
$
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 7. Advances from Federal Home Loan Bank of Dallas (Continued)
Maturities of advances at June 30, 2022 are as follows (in thousands):
Year Ending
June 30,
Amount
$
-
-
-
-
Thereafter
-
Total
$
Note 8. Other Borrowings
At June 30, 2022 and 2021, the Company had available a $10.0 million and $5.0 million, respectively, line of credit agreement with First National Bankers Bank with the latest line maturing June 29, 2023. The line is secured by shares of the subsidiary Bank’s common stock and bears interest at an initial rate of 4.75%, subject to change when adjustments are made to Wall Street Journal Prime. At June 30, 2022, the line had an outstanding balance of $2.4 million. Interest expense amounted to $66,000 and $64,000 for the years ended June 30, 2022 and 2021, respectively.
Note 9.
Commitments
Lease Commitments
The Bank leases property for two branch facilities.
Future minimum rental payments resulting from the non-cancelable term of these leases are as follows (in thousands):
Year Ending
June 30,
Amount
$
Thereafter
Total
$
Total rent expense paid under the terms of these leases for the years ended June 30, 2022 and 2021 amounted to $48,000 and $82,000, respectively.
Contractual Commitment
The Bank has an agreement with a third-party to provide on-line data processing services. The agreement, which expires May 31, 2024, contains minimum monthly service charges of $28,821. At the end of this term, the agreement will automatically continue for successive periods of five years unless terminated upon written notice given at least six months prior to the end of the present term.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 9.
Commitments (Continued)
The future minimum commitments for the on-line processing services are as follows (in thousands):
Year Ending
June 30,
Amount
(In Thousands)
Total
$
Employment Contracts
The Company and the Bank have employment contracts with a certain key employee. These contracts provide for compensation and termination benefits. The
future minimum commitments for the employment contracts are as follows (in thousands):
Year Ending
June 30,
Amount
(In Thousands)
$
Total
$
Letters of Credit
At June 30, 2022, the Company had secured letters of credit in the aggregate amount of $28.8 million outstanding with the Federal Home Loan Bank, and $28.1 million expiring within one year. These letters of credit were issued to secure public body deposits. There were no outstanding borrowings associated with these letters of credit at June 30, 2022.
Note 10. Income Taxes
The Company and its subsidiary file consolidated federal income tax returns. The current provision for federal and state income taxes is calculated on pretax accounting income adjusted by items considered to be permanent differences between book and taxable income. Income tax expense for the years ended June 30, 2022 and 2021 is summarized as follows:
(In Thousands)
Current
$ 1,451
$
1,506
Deferred
(324 )
(61
)
Total
$ 1,127
$
1,445
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 10. Income Taxes (Continued)
The effective federal income tax rate for the years ended June 30, 2022 and 2021 was 18.78% and 21.2%, respectively. Reconciliations
of income tax expense at the statutory rate to the Company’s effective rates are as follows:
(In Thousands)
Computed at Expected Statutory Rate
$ 1,182
$
1,430
Non-Taxable Income
(55 )
-
Other
-
Provision for Income Tax Expense
$ 1,127
$
1,445
At June 30, 2022 and 2021, temporary differences between the financial statement carrying amount and tax bases of assets that gave rise to deferred tax recognition were related to the effect of loan bad debt deduction differences for tax and book purposes, deferred stock option compensation, and supplemental employee retirement benefits. The deferred tax expense or benefit related to securities available-for-sale has no effect on the Company’s income tax provision since it is charged or credited to the Company’s other comprehensive income or loss equity component. A valuation allowance has been established to eliminate the deferred tax benefit of capital losses due to the uncertainty as to whether the tax benefits would be realized in future periods.
The net deferred income tax asset and liability consisted of the following components at June 30, 2022 and 2021:
Deferred Tax Assets
(In Thousands)
Stock Option and SERP Compensation
$
$
Loans Receivable - Bad Debt Loss Allowance
Capital Losses
-
-
1,106
1,025
Valuation Allowance
-
-
Total Deferred Tax Assets
$ 1,106
$ 1,025
Deferred Tax Liabilities
Market Value Adjustment to Available-for-Sale
Securities
(73 )
Tax over Book Accumulated Depreciation
(415 )
(133 )
Total Deferred Tax Liabilities
(206 )
Net Deferred Tax Asset
$ 1,143
$
Included in retained earnings at June 30, 2022 and 2021 is approximately $3.3 million for which no deferred Federal income tax liability has been recorded. This amount consists of the total amount of bad debt reserves deducted for income tax reporting purposes prior to January 1, 1988. Under current tax law, these pre-1988 bad debt reserves are subject to recapture into taxable income if the Bank were to (a) make certain “non-dividend distributions,” which include distributions in excess of the Bank’s current and accumulated earnings and profits, distributions in redemption of stock, and distributions in partial or complete liquidation or (b) cease to maintain a bank or thrift charter. The unrecorded deferred tax liability was approximately $693,000 at June 30, 2022 and 2021.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 10. Income Taxes (Continued)
Accounting principles generally accepted in the United States of America provide accounting and disclosure guidance about positions taken by an entity in its tax returns that might be uncertain. The Company believes that it has appropriate support for any tax positions taken, and as such, does not have any uncertain tax positions that are material to the consolidated financial statements.
Penalties and interest assessed by income taxing authorities, if any, would be included in income tax expense.
Note 11. Employee Benefit Plans
Effective November 15, 2004, the Bank adopted the Home Federal Bank Employees’ Savings and Profit Sharing Plan and Trust. This plan complies with the requirements of Section 401(k) of the Internal Revenue Code. Those eligible for this defined contribution plan must have completed twelve months of full time service and attained age 21. For 2022, participating employees may make elective salary reduction contributions of up to $20,500 of their eligible compensation. The Bank will contribute a basic “safe harbor” contribution of 3% of participant plan salary and will match 100% of the first 6% of plan salary elective deferrals. The Bank is also permitted to make discretionary contributions to be allocated to participant accounts. Pension costs, including administrative fees, attributable to the Bank’s 401(k) safe harbor plan for the years ended June 30, 2022 and 2021 were $245,000 and $237,000 respectively.
During fiscal year 2011, the Company established a Survivor Benefit Plan for the benefit of selected executives. The purpose of the plan is to provide benefits to designated beneficiaries, if a participant dies while employed by the Company. The plan is considered an unfunded plan for tax and ERISA purposes, and all obligations arising under the plan are payable from the general assets of the Company. At June 30, 2022 and 2021, there were no obligations requiring accrual for this plan.
The Bank adopted a Supplemental Executive Retirement Agreement on December 27, 2012 (Effective Date) for its then Chief Executive Officer, Daniel R. Herndon. The agreement provides for retirement benefits payable in equal annual installments of $75,000 for eight consecutive years after Mr. Herndon’s retirement. Mr. Herndon was 100% vested after December 31, 2017. In the event of his death after a separation from service on or after December 31, 2017, and prior to receipt of eight years of Supplemental Retirement Benefits, the remainder will be payable each year to his designated beneficiary. In the event of his death while in active service, the designated beneficiary shall receive the full Supplemental Retirement Benefit in a single lump sum payment within thirty days following the date of death. Mr. Herndon retired effective March 31, 2020.
The Bank adopted a Supplemental Executive Retirement Agreement on December 13, 2017 for the benefit of Mr. James R. Barlow as President and Chief Executive Officer of the Company and the Bank effective as of January 1, 2018 (Effective Date). Under the terms of the agreement, after the target retirement date of December 31, 2033, Mr. Barlow will receive annual retirement benefits of $120,000, payable in equal annual installments over ten years. In the event of a separation from service prior to December 31, 2033, other than as a result of death and without cause, Mr. Barlow would receive his accrued benefits through such date payable in a lump sum. If Mr. Barlow has a separation from service either concurrently with or within two years following a change in control, he will be credited with five additional years of service following the date of his separation from service for purposes of calculating his accrued amount. In the event of death while in active service, his designated beneficiaries would receive a lump sum payment of the full retirement benefit. In the event of death after retirement, but before all payments have been made, any remaining benefits will be paid to the designated beneficiaries until all the annual installments have been paid. The retirement benefits are vesting ratably at 6.25% per year for sixteen years beginning with the calendar year ending December 31, 2018.
For the years ended June 30, 2022 and 2021, the Company recorded compensation expense totaling $42,817 and $41,329, respectively, to accrue the benefits required by the Supplemental Executive Retirement Agreements. The Bank’s compensation expense under the agreement with Mr. Herndon was fully accrued as of December 31, 2017.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 12. Employee Stock Ownership Plan
During fiscal 2009, the Company instituted an employee stock ownership plan. The Home Federal Bank Employee Stock Ownership Plan (ESOP) enables all eligible employees of the Bank to share in the growth of the Company through the acquisition of stock. Employees are generally eligible to participate in the ESOP after completion of one year of service and attaining the age of 21.
The ESOP purchased the statutory limit of eight percent of the shares sold in our initial public offering completed on January 18, 2005, excluding shares issued to Home Federal Mutual Holding Company of Louisiana. This purchase was facilitated by a loan from the Company to the ESOP in the amount of $1.1 million. The corresponding note is being repaid in 80 quarterly debt service payments of $23,000 on the last business day of each quarter, beginning March 31, 2005, at the rate of 5.25%.
As part of our second step conversion completed on December 22, 2010, the ESOP purchased six percent of the shares sold in the offering. This purchase was facilitated by a loan from the Company to the ESOP in the amount of $1.2 million. The corresponding note is being repaid in 80 quarterly debt service payments of $20,000 on the last business day of each quarter, beginning March 31, 2011, at the rate of 3.2%.
The loans are secured by a pledge of the ESOP shares. The shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheets. The notes payable and the corresponding notes receivable have been eliminated in consolidation.
The Company may contribute to the ESOP, in the form of debt service, at the discretion of its board of directors. Cash dividends on the Company’s unallocated stock shall be used to either repay the loan or be distributed to the participants in the ESOP. If dividends are used to repay the loan, additional shares will be released from the suspense account and allocated to participants. Shares are released for allocation to ESOP participants based on principal and interest payments of the note. Compensation expense is recognized based on the number of shares allocated to ESOP participants each year and the average market price of the stock for the current year. Released ESOP shares become outstanding for earnings per share computations.
As compensation expense is incurred, the unearned ESOP shares account is reduced based on the original cost of the stock. The difference between the cost and the average market price of shares released for allocation is applied to additional paid-in capital. ESOP compensation expense for the years ended June 30, 2022 and 2021, was approximately $459,000 and $333,000, respectively.
The ESOP shares as of June 30, 2022 and 2021, were as follows:
Allocated and Committed to be Released
Shares, Beginning of Year
250,566
264,548
Shares Allocated and Committed to be Released
During the Year
22,046
22,046
Shares Distributed During the Year
-
(36,028
)
Unallocated and Unreleased Shares, as of Year End
125,145
147,191
Total ESOP Shares
397,757
397,757
Fair Value of Unreleased Shares (In Thousands)
$
2,460
$
2,870
Stock Price
$
19.66
$
19.50
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 13. Stock-Based Compensation
Stock Option Plans
On August 10, 2005, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2005 Stock Option Plan (the 2005 Option Plan) for the benefit of directors, officers, and other employees. The aggregate number of shares of common stock reserved for issuance under the Option Plan totaled 317,736 (as adjusted). Both incentive stock options and non-qualified stock options may be granted under the plan. The 2005 Stock Option Plan terminated on June 8, 2015, however the 4,266 outstanding stock options as of June 30, 2022 will remain in effect for the remainder of their original ten year terms.
On December 23, 2011, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2011 Stock Option Plan (the 2011 Option Plan, together with the 2005 Option Plan, the Option Plan) for the benefit of directors, officers, and other employees. The aggregate number of shares of common stock reserved for issuance under the 2011 Option Plan totaled 389,044 (as adjusted). The 2011 Option Plan terminated on December 23, 2021, however, the 49,356 outstanding options as of June 30, 2022 will remain in effect for the remainder of their original ten year term.
Incentive stock options and non-qualified stock options granted under the Option Plan become vested and exercisable at a rate of 20% per year over five years commencing one year from the date of the grant with an additional 20% vesting on each successive anniversary of the date the option was granted. No vesting shall occur after an employee’s employment or service as a director is terminated. In the event of death or disability of an employee or director or change in control of the Company, the unvested options shall become vested and exercisable. The Company recognizes compensation expense during the vesting period based on the fair value of the option on the date of the grant.
Stock Incentive Plans
On November 12, 2014, the shareholders of the Company approved the adoption of the Company’s 2014 Stock Incentive Plan (the 2014 Stock Incentive Plan) for the benefit of employees and non-employee directors as an incentive to contribute to the success of the Company and to reward employees for outstanding performance and the attainment of targeted goals. The 2014 Stock Incentive Plan covers a total of 300,000 shares (as adjusted), of which no more than 75,000 shares (as adjusted), or 25% of the plan, may be share awards. The balance of the plan is reserved for stock option awards which would total 225,000 (as adjusted) stock options assuming all the share awards are issued. All incentive stock options granted under the 2014 Stock Incentive Plan are intended to comply with the requirements of Section 422 of the Internal Revenue Code. On October 26, 2015, the Company granted a total of 69,000 (as adjusted) plan share awards and 207,000 (as adjusted) stock options to directors, officers, and other key employees vesting ratably over five years. On February 5, 2019, the Company granted a total of 6,000 (as adjusted) plan share awards and 27,000 (as adjusted) stock options (which includes 9,000 stock options forfeited from the October 26, 2015 grants) to key employees vesting ratably over five years. The 2014 Stock Incentive Plan cost is recognized over the five year vesting period.
On November 13, 2019, the shareholders of the Company approved the adoption of the Company’s 2019 Stock Incentive Plan which provides for a total of 250,000 shares (as adjusted) reserved for future issuance as stock awards or stock options. No more than 62,500 (as adjusted) shares, or 25%, may be granted as stock awards. The balance of the plan is reserved for stock option awards. On November 11, 2020, the Company granted a total of 62,500 (as adjusted) plan share awards and 187,500 (as adjusted) stock options to directors, officers and other key employees vesting ratably over five years. The Stock Incentive Plans costs are recognized over the five year vesting period. As of June 30, 2022, there are 1,200 plan share awards and 18,000 stock options available for future grants under the Stock Incentive Plans.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 13.
Stock-Based Compensation (Continued)
Share Awards
Following is a summary of the status of the share awards outstanding under the Stock Incentive Plans during the fiscal years ended June 30, 2022 and 2021 (split adjusted):
Awarded Shares
Balance - Beginning of Year
66,100
18,200
Granted
-
62,500
Forfeited
(1,200
)
-
Earned and Issued
(13,300
)
(14,600
)
Balance - End of Year
51,600
66,100
Compensation expense pertaining to the share awards under the Stock Incentive Plans was approximately $117,000 and $153,000 for the years ended June 30, 2022 and 2021, respectively.
Stock Options
Following is a summary of the status of the options outstanding under the Option Plan and Stock Incentive Plan during the fiscal years ended June 30, 2022 and 2021 (split adjusted):
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Contract
Intrinsic
Shares
Price
Term
Value
Outstanding at June 30, 2021
655,022
$
10.11
4.45
$ 6,153,690
Granted
-
-
Exercised
(249,700
)
7.56
Forfeited
(9,000
)
15.63
Outstanding at June 30, 2022
396,322
$
11.58
5.68
$
3,201,824
Options Exercisable at June 30, 2022
239,122
$
11.28
3.97
$
2,002,808
Outstanding at June 30, 2020
562,864
$
9.31
3.39
$ 1,744,623
Granted
187,500
11.86
Exercised
(82,342
)
8.42
Forfeited
(13,000
)
11.50
Outstanding at June 30, 2021
655,022
$
10.11
4.45
$
6,153,690
Options Exercisable at June 30, 2021
451,322
$
9.18
2.29
$
4,658,496
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 13.
Stock-Based Compensation (Continued)
Stock Options (Continued)
The fair value of each option granted is estimated on the grant date using the Black-Scholes model. The following assumptions were made in estimating fair value.
2019 Stock
2014 Stock
2014 Stock
Incentive Plan
Incentive Plan
Incentive Plan
2011 Option Plan
November 11, 2020
February 5, 2019
October 26, 2015
July 31, 2014
Dividend Yield
2.78 %
1.79 %
1.39
%
1.50
%
Expected Term
10 years
10 years
10 years
10 years
Risk-Free Interest Rate
0.98
%
2.71 %
2.07
%
2.58
%
Expected Life
10 years
10 years
10 years
10 years
Expected Volatility (1)
25.56 %
16.17 %
20.38
%
9.56
%
_____________________
(1) Weekly volatility is annualized by multiplying by the square root of 52.
A summary of the status of the Company’s nonvested options as of June 30, 2022 and changes during the year ended June 30, 2022 is as follows (split adjusted):
Weighted
Number of
Average
Shares
Exercise Price
Nonvested at June 30, 2021
203,700
$
12.96
Granted
-
-
Vested
(41,100
)
12.19
Forfeited
(5,400
)
15.63
Nonvested at June 30, 2022
157,200
$
12.03
For the years ended June 30, 2022 and 2021, compensation expense charged to operations for stock options granted under the Stock Incentive Plans was $95,000 and $107,000,
respectively.
Note 14.
Off-Balance Sheet Activities
Credit Related Financial Instruments
The Bank is a party to credit related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Bank’s exposure to credit loss in the event of non-performance by the other party to loan commitments is represented by the contractual amount of the commitment. The Bank follows the same credit policies in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount and type of collateral obtained, if deemed necessary by the Bank upon extension of credit, varies and is based on management’s credit evaluation of the counterparty.
No material gains or losses are anticipated as a result of these transactions.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 14.
Off-Balance Sheet Activities (Continued)
At June 30, 2022 and 2021, the following financial instruments were outstanding:
Contract Amount
(In Thousands)
Commitments to Grant Loans
$
11,365
$
59,118
Unfunded Commitments Under Lines of Credit
60,487
9,677
$
71,852
$
68,795
Fixed Rate Loans (3.50% - 5.00% in 2022; 2.375% - 3.375 % in 2021)
$
71,852
$
68,795
Variable Rate Loans (-% in 2022 and 2021)
-
-
$
71,852
$
68,795
Cash Deposits
The Company periodically maintains cash balances in financial institutions that are in excess of insured amounts. The Company has not experienced any losses and does not believe that significant credit risk exists as a result of this practice. At June 30, 2022, we had $22.4 million in cash deposits over the insured limit of $250,000.
Regional Credit Concentration
A substantial portion of the Bank’s lending activity is with customers located within a 100 mile radius of the Shreveport, Louisiana metropolitan area, which includes areas of northwest Louisiana, northeast Texas and southwest Arkansas. Although concentrated within the region, the Bank has a diversified loan portfolio, which should preclude the Bank from being dependent upon the well-being of any particular economic sector to ensure collectibility of any significant portion of its debtors’ loan contracts.
Other Credit Concentrations
The Bank has purchased, with recourse from the seller, loans from third-party mortgage originators. These loans are serviced by these entities. At June 30, 2022 and 2021, the balance of the loans outstanding being serviced by these entities was $10,000
and $9,000, respectively.
Interest Rate Floors and Caps
The Bank writes interest rate floors and caps into its variable rate mortgage loan contracts and loan servicing agreements in an attempt to manage its interest rate exposure. Such floors and caps enable customers to transfer, modify, or reduce their interest rate risk, which, in turn, creates an off-balance sheet market risk to the Bank. At June 30, 2022, the Bank’s loan portfolio contained approximately $47.0 million of loans in which the loan contracts or servicing agreements possessed interest rate floors and caps.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 15.
Related Party Events
In the ordinary course of business, the Bank makes loans to its directors and officers. These loans are made on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers and do not involve more than normal credit risk or present other unfavorable features.
An analysis of the activity in loans made to such borrowers (both direct and indirect), including lines of credit, is summarized as follows for the years ended June 30, 2022 and 2021:
(In Thousands)
Balance - Beginning of Year
$
4,692
$
4,225
Additions
Principal Payments
(1,147
)
(406
)
Balance - End of Year
$
4,213
$
4,692
Deposits from related parties held by the Bank at June 30, 2022 and 2021 amounted to $3.6 million and $3.7 million, respectively.
Note 16.
Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly other discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital requirements that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The Bank is required to maintain minimum capital ratios under OCC regulatory guidelines in order to ensure capital adequacy. Management believes, as of June 30, 2022 and 2021, that the Bank met all OCC capital adequacy requirements to which it is subject.
As of June 30, 2022, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum capital ratios, which are different than those required to meet OCC capital adequacy requirements.
There are no conditions or events since that notification that management believes may have changed the Bank’s category. The Bank was also classified as well capitalized at June 30, 2021.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 16.
Regulatory Matters (Continued)
The Bank’s actual and required capital amounts and ratios for OCC regulatory capital adequacy purposes are presented below as of June 30, 2022 and 2021:
Required for Capital
Actual
Adequacy Purposes
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
June 30, 2022
Core Capital
(1)
$
56,035
9.65
%
$
17,428
3.00
%
Common Equity Tier 1
(2)
56,035
14.47
26,142
4.50
Tangible Capital
(1)
56,035
9.65
8,714
1.50
Total Risk-Based Capital
(2)
60,486
15.62
30,976
8.00
June 30, 2021
Core Capital
(1)
$
54,277
9.57
%
$
17,019
3.00
%
Common Equity Tier 1
(2)
54,277
16.63
25,529
4.50
Tangible Capital
(1)
54,277
9.57
8,509
1.50
Total Risk-Based Capital
(2)
58,358
17.88
26,106
8.00
__________________________
(1) Amounts and Ratios to Adjusted Total Assets
(2) Amounts and Ratios to Total Risk-Weighted Assets
The Bank’s actual and required capital amounts and ratios to be well capitalized under prompt corrective action provisions are presented below as of June 30, 2022 and 2021:
Required to be
Actual
Well Capitalized
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
June 30, 2022
Tier 1 Leverage Capital
(1)
$
56,035
9.65
%
$
29,046
5.00
%
Common Equity Tier 1
(2)
56,035
14.47
37,760
6.50
Tier 1 Risk-Based Capital
(2)
56,035
14.47
46,474
8.00
Total Risk-Based Capital
(2)
60,486
15.62
38,720
10.00
June 30, 2021
Tier 1 Leverage Capital
(1)
$
54,277
9.57
%
$
28,364
5.00
%
Common Equity Tier 1
(2)
54,277
16.63
21,211
6.50
Tier 1 Risk-Based Capital
(2)
54,277
16.63
26,106
8.00
Total Risk-Based Capital
(2)
58,358
17.88
32,633
10.00
__________________________
(1) Amounts and Ratios to Adjusted Total Assets
(2) Amounts and Ratios to Total Risk-Weighted Assets
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 16.
Regulatory Matters (Continued)
The actual and required capital amounts and ratios applicable to the Bank for the years ended June 30, 2022 and 2021 are presented in the following tables, including a reconciliation of capital under generally accepted accounting principles (GAAP) to such amounts reported for regulatory purposes:
Minimum for Capital
Actual
Adequacy Purposes
June 30, 2022
Ratio
Amount
Ratio
Amount
(Dollars in Thousands)
Total Equity, and Ratio to Average Total Assets
9.37 %
$ 54,454
Investments in and Advances to
Nonincludable Subsidiaries
(118
)
Unrealized Gains on Securities Available-for-Sale
1,699
Non-significant investments Capital Stock
-
Tangible Capital, and Ratio to Adjusted Total Assets
9.65
%
$
56,035
1.50
%
$
8,714
Tier 1 (Core) Capital, and Ratio to Adjusted Total Assets
9.65
%
$
56,035
3.00
%
17,428
Tier 1 (Core) Capital, and Ratio to Risk-Weighted Assets
14.47
%
56,035
4.50
%
26,142
Allowance for Loan Losses
4,451
Excess Allowance for Loan Losses
-
Total Risk-Based Capital, and Ratio to Risk-Weighted Assets
15.62
%
$
60,486
8.00
%
$
30,976
Average Total Assets
$
581,047
Adjusted Total Assets
$
580,929
Risk-Weighted Assets
$
387,195
Minimum for Capital
Actual
Adequacy Purposes
June 30, 2021
Ratio
Amount
Ratio
Amount
(Dollars in Thousands)
Total Equity, and Ratio to Average Total Assets
9.63 %
$ 54,670
Investments in and Advances to
Nonincludable Subsidiaries
(118
)
Unrealized Gains on Securities Available-for-Sale
(275
)
Non-significant investments Capital Stock
-
Tangible Capital, and Ratio to Adjusted Total Assets
9.57
%
$
54,277
1.50
%
$
8,509
Tier 1 (Core) Capital, and Ratio to Adjusted Total Assets
9.57
%
$
54,277
3.00
%
17,019
Tier 1 (Core) Capital, and Ratio to Risk-Weighted Assets
16.63
%
54,277
4.50
%
14,685
Allowance for Loan Losses
4,081
Excess Allowance for Loan Losses
-
Total Risk-Based Capital, and Ratio to Risk-Weighted Assets
17.88 %
$
58,358
8.00
%
$ 26,106
Average Total Assets
$
567,351
Adjusted Total Assets
$
567,292
Risk-Weighted Assets
$
326,329
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 17.
Restrictions on Dividends
Banking regulations place certain restrictions on dividends paid by the Bank to the Company. The Company is dependent upon dividends from the Bank to provide funds for the payment of dividends to the Company’s shareholders, interest payments on the subordinated debt and other general corporate purposes. The Bank’s ability to pay cash dividends directly or indirectly to the Company is governed by federal law, regulations and related guidance. These include the requirement that the Bank must receive approval to declare a dividend if the total amount of all dividends, including the proposed dividend, declared by the Bank in any current year exceeds the total of the Bank’s net income for the current year to date, combined with its retained net income for the previous two years. The term “retained net income” as defined by federal regulations means the Bank’s net income for a specified period less the total amount of all dividends declared in that period.
The Bank may not pay dividends to the Company if, after paying those dividends, it would fail to meet the required minimum levels under risk-based capital guidelines or if the bank regulators have notified the Bank that it is in need of more than normal supervision. Under the Federal Deposit Insurance Act, an insured depository institution such as the Bank is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is used in the Federal Deposit Insurance Act). Payment of dividends by the Bank also may be restricted at any time at the discretion of the appropriate regulator if it deems the payment to constitute an unsafe and unsound banking practice.
For the years ended June 30, 2022 and 2021, the Bank paid a total of $3.5 million and $3.0 million, respectively, in cash dividends to the Company. At June 30, 2022, the Bank’s retained net income for the calendar years ended December 31, 2021 and 2020 and six months ended June 30, 2022, less the dividends declared and paid during those periods, totaled $5.1 million.
Note 18.
Fair Value Disclosures
The following disclosure is made in accordance with the requirements of ASC 825, Financial Instruments. Financial instruments are defined as cash and contractual rights and obligations that require settlement, directly or indirectly, in cash. In cases where quoted market prices are not available, fair values have been estimated using the present value of future cash flows or other valuation techniques. The results of these techniques are highly sensitive to the assumptions used, such as those concerning appropriate discount rates and estimates of future cash flows, which require considerable judgment. Accordingly, estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current settlement of the underlying financial instruments.
ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. These disclosures should not be interpreted as representing an aggregate measure of the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating fair values of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates the fair value of cash and cash equivalents.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 18.
Fair Value Disclosures (Continued)
Investment Securities
Fair values for investment securities, including mortgage-backed securities, are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying values of restricted or non-marketable equity securities approximate their fair values. The carrying amount of accrued investment income approximates its fair value.
Mortgage Loans Held-for-Sale
Because these loans are normally disposed of within ninety days of origination, their carrying value closely approximates the fair value of such loans.
Loans Receivable
For variable-rate loans that re-price frequently and with no significant changes in credit risk, fair value approximates the carrying value. Fair values for other loans are estimated using the discounted value of expected future cash flows. Interest rates used are those being offered currently for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest receivable approximates its fair value.
Deposit Liabilities
The fair values for demand deposit accounts are, by definition, equal to the amount payable on demand at the reporting date, that is, their carrying amounts. Fair values for other deposit accounts are estimated using the discounted value of expected future cash flows. The discount rate is estimated using the rates currently offered for deposits of similar maturities.
Advances from Federal Home Loan Bank
The carrying amount of short-term borrowings approximates their fair value. The fair value of long-term debt is estimated using discounted cash flow analyses based on current incremental borrowing rates for similar borrowing arrangements.
Off-Balance Sheet Credit-Related Instruments
Fair values for outstanding mortgage loan commitments to lend are based on fees currently charged to enter into similar agreements, taking into account the remaining term of the agreements, customer credit quality, and changes in lending rates.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 18.
Fair Value Disclosures (Continued)
At June 30, 2022 and 2021, the carrying amount and estimated fair values of the Company’s financial instruments were as follows:
Carrying
Estimated
Carrying
Estimated
Value
Fair Value
Value
Fair Value
(In Thousands)
Financial Assets
Cash and Cash Equivalents
$
64,078
$
64,078
$
104,405
$
104,405
Debt Securities Available-for-Sale
28,099
28,099
29,550
29,550
Securities Held-to-Maturity
79,950
69,513
54,706
54,608
Loans Held-for-Sale
3,978
3,978
14,427
14,427
Loans Receivable, Net
387,873
369,728
336,394
336,865
Financial Liabilities
Deposits
$
531,991
$
490,789
$
506,596
$
492,492
Advances from FHLB
Off-Balance Sheet Items
Mortgage Loan Commitments
$
11,365
$
11,365
$
9,677
$
9,677
The estimated fair values presented above could be materially different than net realizable value and are only indicative of the individual financial instrument’s fair value. Accordingly, these estimates should not be considered an indication of the fair value of the Company taken as a whole.
The Company follows the guidance of ASC 820, Fair Value Measurements. ASC 820 establishes a framework for measuring fair value and expands disclosures about fair value measurements. This standard was issued to establish a uniform definition of fair value. The definition of fair value under ASC 820 is market-based, as opposed to company-specific, and includes the following:
•
Defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in either case, through an orderly transaction between market participants at a measurement date and establishes a framework for measuring fair value;
•
Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date;
•
Nullifies the guidance in EITF 02-3, which required the deferral of profit at inception of a transaction involving a derivative financial instrument in the absence of observable data supporting the valuation technique;
•
Eliminates large position discounts for financial instruments quoted in active markets and requires consideration of the company’s creditworthiness when valuing liabilities; and
•
Expands disclosures about instruments that are measured at fair value.
The standard establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy favors the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 18.
Fair Value Disclosures (Continued)
•
Level 1 - Fair value is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets in which the Company can participate.
•
Level 2 - Fair value is based upon (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly; (c) inputs other than quoted prices that are observable for the asset or liability; or (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•
Level 3 - Fair value is based upon inputs that are unobservable for the asset or liability. These inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available in the circumstances, which include the Company’s own data. The Company’s own data used to develop unobservable inputs are adjusted, if information indicates that market participants would use different assumptions.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The preceding methods described may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used during the year ended June 30, 2022.
Fair values of assets and liabilities measured on a recurring basis at June 30, 2022 and 2021 are as follows:
Fair Value Measurements
June 30, 2022
(Level 1)
(Level 2)
(Level 3)
Total
(In Thousands)
Available-for-Sale
Debt Securities
FHLMC
$
-
$
7,032
$
-
$
7,032
FNMA
-
16,686
-
16,686
GNMA
-
4,381
-
4,381
Total
$
-
$
28,099
$
-
$
28,099
Fair Value Measurements
June 30, 2021
(Level 1)
(Level 2)
(Level 3)
Total
(In Thousands)
Available-for-Sale
Debt Securities
FHLMC
$
-
$
4,221
$
-
$
4,221
FNMA
-
19,152
-
19,152
GNMA
-
6,177
-
6,177
Total
$
-
$
29,550
$
-
$
29,550
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 18.
Fair Value Disclosures (Continued)
The Company did not record any liabilities at fair market value for which measurement of the fair value was made on a recurring basis at June 30, 2022 or 2021.
The following tables present the Company’s assets and liabilities measured at fair value on a non-recurring basis at June 30, 2022 and 2021.
Fair Value Measurements
June 30, 2022
(Level 1)
(Level 2)
(Level 3)
Total
(In Thousands)
Assets:
Impaired Loans,
Net of Allowance
$
-
$
-
$
2,289
$
2,289
Total
$
-
$
-
$
2,289
$
2,289
Fair Value Measurements
June 30, 2021
(Level 1)
(Level 2)
(Level 3)
Total
(In Thousands)
Assets:
Impaired Loans,
Net of Allowance
$
-
$
-
$
4,948
$
4,948
Other Real Estate Owned
-
-
Total
$
-
$
-
$
5,331
$
5,331
Note 19. Earnings Per Common Share
The following table presents the components of average outstanding common shares for the years ended June 30, 2022 and 2021.
Average Common Shares Issued
3,389,537
3,392,774
Average Unearned ESOP Shares
(139,217
)
(162,275
)
Average Unearned RRP Trust Shares
-
-
Weighted Average Number of Common Shares Used in Basic EPS
3,250,320
3,230,499
Effect of Dilutive Securities
Stock Options
214,527
195,704
Weighted Average Number of Common Shares and Dilutive Potential Common Shares Used in Dilutive EPS
3,464,847
3,426,203
Earnings per share are computed using the weighted average number of shares outstanding as prescribed in GAAP. For the years ended June 30, 2022 and 2021, there were outstanding options to purchase 396,322 and 641,022 shares, respectively, at a weighted average share price of $11.58 per share for 2022 and $9.90 per share for 2021.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 20. Subsequent Events
In accordance with FASB ASC 855, Subsequent Events, the Company has determined there have been no subsequent events that have occurred after June 30, 2022, through the date of the financial statements, that would require disclosure of have an adverse impact on financial statements.
Note 21. Revenue Recognition
In accordance with Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
All of the Company’s revenue from contracts with customers in-scope of ASC 606 is recognized in noninterest income and included in our commercial and consumer banking segment. The following table presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended June 30, 2022 and 2021:
At or For the Year Ended
June 30,
(In Thousands)
Noninterest Income
In-scope of Topic 606:
Debit card interchange fees
$
$
ATM surcharge income
Fees from non-sufficient funds
Noninterest Income (in-scope of Topic 606)
1,147
Noninterest Income (out-of-scope of Topic 606)
2,329
4,461
Total Noninterest Income
$
3,476
$
5,452
Deposit Fees
The Bank earns fees from its deposit customers for account maintenance, transaction-based services and overdraft charges. Account maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts on a monthly basis. The performance obligation is satisfied and the fees are recognized on a monthly basis as the service period is completed. Transaction-based fees on deposits accounts are charged to deposit customers for specific services provided to the customer, such as wire fees, as well as charges against the account, such as fees for non-sufficient funds and overdrafts. The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the customer.
Debit Interchange Income
Debit and ATM interchange income represent fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from debit cardholder transactions through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders’ debit card.
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 22. Parent Company Financial Statements
Financial information pertaining only to Home Federal Bancorp, Inc. of Louisiana as of June 30, 2022 and 2021 is as follows:
HOME FEDERAL BANCORP, INC. OF LOUISIANA
Condensed Balance Sheets
June 30, 2022 and 2021
June 30,
(In Thousands)
Assets
Cash and Cash Equivalents
$
$
Investment in Subsidiary
54,454
54,670
Other Assets
Total Assets
$
54,792
$
55,182
Liabilities and Stockholders’ Equity
Borrowings
$
2,350
$
2,400
Other Liabilities
Stockholders’ Equity
52,347
52,725
Total Liabilities and Stockholders’ Equity
$
54,792
$
55,182
HOME FEDERAL BANCORP, INC. OF LOUISIANA
Condensed Statements of Operations
For the Years Ended June 30, 2022 and 2021
For the Years Ended June 30,
(In Thousands)
Equity in Undistributed Earnings of Subsidiary
$
5,258
$
5,715
Interest Income
Total Income
5,307
5,771
Operating Expenses
Interest Expense
Total Expense
Income Before Income Tax Benefit
4,771
5,272
Income Tax Benefit
(102
)
(93
)
Net Income
$
4,873
$
5,365
HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 22. Parent Company Financial Statements (Continued)
HOME FEDERAL BANCORP, INC. OF LOUISIANA
Condensed Statements of Cash Flows
For the Years Ended June 30, 2022 and 2021
For the Years Ended June 30,
(In Thousands)
Operating Activities
Net Income
$ 4,873
$ 5,365
Adjustments to Reconcile Net Income to Net
Cash Used in Operating Activities
Equity in Undistributed Earnings of Subsidiary
(5,258
)
(5,715
)
(Decrease) in Other Assets
(21
)
(36
)
Increase in Other Liabilities
Net Cash Used in Operating Activities
(368 )
(378 )
Financing Activities
Distribution from Subsidiary
3,500
3,000
Proceeds from Stock Options Exercised
1,889
Proceeds of Borrowings
3,150
2,400
Repayment of Borrowings
(3,200
)
(2,300
)
Proceeds Received from Subsidiary on Stock Compensation Programs
Company Stock Purchased
(4,484
)
(2,593
)
Dividends Paid
(1,353
)
(1,122
)
Net Cash Provided by Financing Activities
Decrease in Cash and Cash Equivalents
(195
)
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
$
$

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
(a)
Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.
(b)
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that our internal control over financial reporting was effective as of June 30, 2022.
(c)
No change in the Company’s internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
Not applicable.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers, and Corporate Governance
The information required herein is incorporated by reference from the sections captioned “Information with Respect to Nominees for Director, Continuing Directors, and Executive Officers” and “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management -Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of June 30, 2022 (“Proxy Statement”).
Code of Ethics. Home Federal Bancorp has adopted a Code of Ethics that applies to its principal executive officer and principal financial officer, as well as directors, other officers, and employees of Home Federal Bancorp and Home Federal Bank. A copy of the Code of Ethics may be obtained without charge upon request made to Glen W. Brown, Home Federal Bank, 222 Florida Street, Shreveport, Louisiana 71105.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required herein is incorporated by reference from the section captioned “Management Compensation” in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of June 30, 2022.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management. The information required herein is incorporated by reference from the section captioned “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management” in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of June 30, 2022.
Equity Compensation Plan Information. The following table provides information as of June 30, 2022 with respect to shares of common stock that may be issued under our existing equity compensation plans, which consist of the 2005 and 2011 Stock Option Plans, and 2014 and 2019 Stock Incentive Plans, all of which were approved by our shareholders.
Plan Category
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants
and Rights
(a)
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
Equity compensation plans approved by security holders
447,922
$
11.58
19,200
Equity compensation plans not approved by security holders
--
--
--
Total
447,922
$
11.58
19,200

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required herein is incorporated by reference from the section captioned “Indebtedness of Management and Related Party Transactions” in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of June 30, 2022.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
The information required herein is incorporated by reference from the section captioned “Ratification of Appointment of Independent Registered Public Accounting Firm - Audit Fees” in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of June 30, 2022.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibit and Financial Statement Schedules
(a) The following documents are filed as part of this report and are incorporated herein by reference from Item 8 hereof:
Report of Independent Registered Public Accounting Firm (FORVIS, LLP, PCAOB Firm ID 686)
Consolidated Balance Sheets as of June 30, 2021 and 2020
Consolidated Statements of Operations for the Years Ended June 30, 2021 and 2020
Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2021 and 2020
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended June 30, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended June 30, 2021 and 2020
Notes to Consolidated Financial Statements
The following exhibits are filed as part of the Form 10-K, and this list includes the Exhibit Index:
No.
Description
Location
3.1
Articles of Incorporation of Home Federal Bancorp, Inc. of Louisiana
(1)
3.2
Bylaws of Home Federal Bancorp, Inc. of Louisiana
(1)
4.1
Form of Stock Certificate of Home Federal Bancorp, Inc. of Louisiana
(1)
4.2
Description of Securities
(2)
10.1
Home Federal Bancorp, Inc. of Louisiana 2005 Stock Option Plan*
(3)
10.2
Home Federal Bancorp, Inc. of Louisiana 2011 Stock Option Plan*
(4)
10.3
Home Federal Bancorp, Inc. of Louisiana 2011 Recognition and Retention Plan and Trust Agreement*
(4)
10.4
Amended and Restated Employment Agreement between Home Federal Bank and James R. Barlow, dated as of December 27, 2012*
(5)
10.5
Employment Agreement between Home Federal Bancorp, Inc. of Louisiana and James R. Barlow, dated as of December 27, 2012*
(5)
10.6
Supplemental Executive Retirement Agreement between Home Federal Bank and Daniel R. Herndon, dated as of December 27, 2012*
(5)
10.7
Letter Agreement between Home Federal Bank and Adalberto Cantu, Jr., dated as of February 6, 2013*
(6)
10.8
Letter Agreement by and among Home Federal Bank, Home Federal Bancorp, Inc. of Louisiana and Glen W. Brown accepted as of April 9, 2014*
(7)
10.9
Home Federal Bancorp. Inc. of Louisiana 2014 Stock Incentive Plan*
(8)
10.10
Home Federal Bank 2016 Loan Officer Incentive Compensation Plan*
(9)
10.11
Supplemental Executive Retirement Agreement between Home Federal Bank and James R. Barlow, dated as of December 13, 2017*
(10)
10.12
Separation Agreement by and among Home Federal Bancorp, Inc. of Louisiana, Home Federal Bank and Daniel R. Herndon*
(11)
10.13
Home Federal Bancorp, Inc. of Louisiana 2019 Stock Incentive Plan*
(12)
23.1
Consent of LaPorte, A Professional Accounting Corporation
Filed Herewith
23.2
Consent of FORVIS, LLP
Filed Herewith
31.1
Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer
Filed Herewith
31.2
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
Filed Herewith
32.0
Section 1350 Certifications
Filed Herewith
(Table continued and footnotes on following page)
No.
Description
Location
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
Filed Herewith
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
Filed Herewith
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Filed Herewith
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
Filed Herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Filed Herewith
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document.
Filed Herewith
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
Filed Herewith
*
Denotes a management contract or compensatory plan or arrangement.
(1)
Incorporated herein by reference from the Company’s Registration Statement on Form S-1, as amended, filed with the SEC on September 3, 2010 (File No. 333-169230).
(2)
Incorporated herein by reference from the Company’s Annual Report on Form 10-K filed with the SEC on September 29, 2020 (File No. 001-35019).
(3)
Incorporated herein by reference from the Company’s Definitive Schedule 14A filed with the SEC on June 29, 2005 (File No. 000-51117).
(4)
Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on December 23, 2011 filed with the SEC on October 28, 2011 (File No. 001-35019).
(5)
Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2012 (File No. 001-35019).
(6)
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2013 (File No. 001-35019).
(7)
Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on July 9, 2014 (File No. 001-35019).
(8)
Incorporated by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on November 12, 2014 (File No. 001-35019).
(9)
Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on February 11, 2016 (File No. 001-35019).
(10)
Incorporated herein by reference from the Company’s Current Report on Form 8-K filed with the SEC on December 18, 2017 (File No. 001-35019).
(11)
Incorporated herein by reference from the Company’s Current Report on Form 8-K filed with the SEC on November 22, 2019 (File No. 001-35019).
(12)
Incorporated herein by reference from the Company’s definitive proxy statement for the Annual Meeting of Shareholders held on November 13, 2019 filed with the SEC on October 9, 2019 (File No. 001-35019).