See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
1. Summary of 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 mature within ninety days.
The Company classifies its debt and equity investment securities into one of three categories: held-to-maturity, available-for-sale, or trading. Investments in nonmarketable 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 amortized cost. 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 securities are excluded from earnings and reported in other comprehensive income. 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 Bank 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 originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Loans receivable are stated at unpaid principal balances, less allowances for loan losses and unamortized deferred loan fees. Net nonrefundable fees (loan origination fees, commitment fees, discount points) and costs associated with lending activities are being deferred and subsequently amortized into income as an adjustment of yield on the related interest earning assets using the interest method. Interest income on contractual loans receivable is recognized on the accrual method. Unearned discount on property improvement and automobile loans is deferred and amortized on the interest method over the life of the loan.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the 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 collectibility 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
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Accounting Policies (continued)
Allowance for Loan Losses (continued)
value of the underlying collateral and prevailing economic conditions. The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information or events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. When a loan is impaired, the measurement of such impairment is based upon the present value of expected future cash flows or the fair value of the collateral of the loan. If the present value of expected future cash flows or 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.
An allowance is also established for uncollectible interest on loans classified as substandard. Loans are classified as substandard and placed on non-accrual status when they are in excess of ninety days delinquent. 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 possible losses in the existing loan portfolio.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Bank has entered into commitments to extend credit. Such financial instruments are recorded when they are funded.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held-for-sale and are transferred to other real estate owned at the lower of cost or current fair value minus estimated cost to sell as of the date of foreclosure. Cost is defined as the lower of the fair value of the property or the recorded investment in the loan. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.
Premises and Equipment
Land is carried at cost. Buildings and equipment are carried at cost less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets.
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. Although realization is not assured, management believes it is more likely
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Accounting Policies (continued)
Income Taxes (continued)
than not that all of the deferred tax assets will be realized. Current taxes are measured by applying the provisions of enacted tax laws to taxable income to determine the amount of taxes receivable or payable.
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.
Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the Consolidated Statements of Financial Condition, such items, along with net income, are components of comprehensive income.
2. Securities
The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:
| |
|
March 31, 2011
|
|
| |
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
| |
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Securities Available-for-Sale
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
| |
|
(In Thousands)
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC Mortgage-Backed Certificates
|
|
$ |
1,935 |
|
|
$ |
79 |
|
|
$ |
-- |
|
|
$ |
2,014 |
|
|
FNMA Mortgage-Backed Certificates
|
|
|
38,485 |
|
|
|
1,392 |
|
|
|
-- |
|
|
|
39,877 |
|
|
GNMA Mortgage-Backed Certificates
|
|
|
106 |
|
|
|
1 |
|
|
|
-- |
|
|
|
107 |
|
|
FHLB Notes
|
|
|
3,149 |
|
|
|
5 |
|
|
|
-- |
|
|
|
3,154 |
|
|
FHMC Notes
|
|
|
21,517 |
|
|
|
2 |
|
|
|
14 |
|
|
|
21,505 |
|
|
FNDB Notes
|
|
|
12,216 |
|
|
|
3 |
|
|
|
6 |
|
|
|
12,213 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Securities
|
|
|
77,408 |
|
|
|
1,482 |
|
|
|
20 |
|
|
|
78,870 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,612 Shares, AMF ARM Fund
|
|
|
1,291 |
|
|
|
17 |
|
|
|
-- |
|
|
|
1,308 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Available-for-Sale
|
|
$ |
78,699 |
|
|
$ |
1,499 |
|
|
$ |
20 |
|
|
$ |
80,178 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA Mortgage-Backed Certificates
|
|
$ |
151 |
|
|
$ |
22 |
|
|
$ |
-- |
|
|
$ |
173 |
|
|
FNMA Mortgage-Backed Certificates
|
|
|
4,011 |
|
|
|
2 |
|
|
|
160 |
|
|
|
3,853 |
|
|
FHLMC Mortgage-Backed Certificates
|
|
|
23 |
|
|
|
1 |
|
|
|
-- |
|
|
|
24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Securities
|
|
|
4,185 |
|
|
|
25 |
|
|
|
160 |
|
|
|
4,050 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities (Non-Marketable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
630 Shares – First National Bankers
Bankshares, Inc.
|
|
|
250 |
|
|
|
-- |
|
|
|
-- |
|
|
|
250 |
|
|
12,883 Shares – Federal Home Loan Bank
|
|
|
1,288 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,288 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities
|
|
|
1,538 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,538 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Held-to-Maturity
|
|
$ |
5,723 |
|
|
$ |
25 |
|
|
$ |
160 |
|
|
$ |
5,588 |
|
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.Securities (continued)
| |
|
June 30, 2010
|
|
| |
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
| |
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Securities Available-for-Sale
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
| |
|
(In Thousands)
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC Mortgage-Backed Certificates
|
|
$ |
3,031 |
|
|
$ |
175 |
|
|
$ |
-- |
|
|
$ |
3,206 |
|
|
FNMA Mortgage-Backed Certificates
|
|
|
55,828 |
|
|
|
2,980 |
|
|
|
|
|
|
|
58,808 |
|
|
GNMA Mortgage-Backed Certificates
|
|
|
115 |
|
|
|
1 |
|
|
|
1 |
|
|
|
115 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Securities
|
|
|
58,974 |
|
|
|
3,156 |
|
|
|
1 |
|
|
|
62,129 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,350 Shares, AMF ARM Fund
|
|
|
1,538 |
|
|
|
21 |
|
|
|
-- |
|
|
|
1,559 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Available-for-Sale
|
|
$ |
60,512 |
|
|
$ |
3,177 |
|
|
$ |
1 |
|
|
$ |
63,688 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA Mortgage-Backed Certificates
|
|
$ |
196 |
|
|
$ |
22 |
|
|
$ |
-- |
|
|
$ |
218 |
|
|
FNMA Mortgage-Backed Certificates
|
|
|
75 |
|
|
|
2 |
|
|
|
-- |
|
|
|
77 |
|
|
FHLMC Mortgage-Backed Certificates
|
|
|
27 |
|
|
|
1 |
|
|
|
-- |
|
|
|
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Securities
|
|
|
298 |
|
|
|
25 |
|
|
|
-- |
|
|
|
323 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities (Non-Marketable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,402 Shares – Federal Home Loan Bank
|
|
|
1,840 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,840 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Held-to- Maturity
|
|
$ |
2,138 |
|
|
$ |
25 |
|
|
$ |
-- |
|
|
$ |
2,163 |
|
The amortized cost and fair value of debt securities by contractual maturity at March 31, 2011, follows:
| |
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
| |
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
| |
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
| |
|
(In Thousands)
|
|
| |
|
|
|
|
Within One Year or Less
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
One through Five Years
|
|
|
36,884 |
|
|
|
36,875 |
|
|
|
13 |
|
|
|
13 |
|
|
After Five through Ten Years
|
|
|
643 |
|
|
|
655 |
|
|
|
107 |
|
|
|
115 |
|
|
Over Ten Years
|
|
|
39,881 |
|
|
|
41,340 |
|
|
|
4,065 |
|
|
|
3,922 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
77,408 |
|
|
$ |
78,870 |
|
|
$ |
4,185 |
|
|
$ |
4,050 |
|
For the nine months ended March 31, 2011 and 2010, proceeds from the sale of securities available-for-sale amounted to $6.8 million and $13.0 million, respectively. Gross realized gains amounted to $311,000 and $494,000 for the nine months ended March 31, 2011 and 2010, respectively.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.Securities (continued)
The following tables show information pertaining to gross unrealized losses on securities available-for-sale and held-to-maturity at March 31, 2011 and June 30, 2010, aggregated by investment category and length of time that individual securities have been in a continuous loss position. There were no unrealized losses on securities held-to-maturity at June 30, 2010.
| |
|
March 31, 2011
|
|
| |
|
Less than Twelve Months
|
|
|
Over Twelve Months
|
|
| |
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
| |
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
| |
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
| |
|
(In Thousands)
|
|
|
Securities Available-for-Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
Federal Agency Notes
|
|
|
20 |
|
|
|
21,311 |
|
|
|
-- |
|
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Equity Securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Available-for-Sale
|
|
$ |
20 |
|
|
$ |
21,311 |
|
|
$ |
-- |
|
|
$ |
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$ |
160 |
|
|
$ |
3,947 |
|
|
$ |
-- |
|
|
$ |
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Marketable Equity Securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Held-to-Maturity
|
|
$ |
160 |
|
|
$ |
3,947 |
|
|
$ |
-- |
|
|
$ |
-- |
|
| |
|
June 30, 2010
|
|
| |
|
Less than Twelve Months
|
|
|
Over Twelve Months
|
|
| |
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
| |
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
| |
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
| |
|
(In Thousands)
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
1 |
|
|
$ |
89 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Equity Securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Available-for-Sale
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
1 |
|
|
$ |
89 |
|
The Company’s investment in equity securities consists primarily of shares of an adjustable rate mortgage loan mutual fund. During the year ended June 30, 2010, the Company made a determination that the impairment of this investment was other-than-temporary based upon conditions which indicated that a significant recovery in fair value of this investment would not occur. Accordingly, the Company recognized an impairment charge against earnings in the amount of $627,000. No impairment charges were recognized during the nine months ended March 31, 2011.
At March 31, 2011, securities with a carrying value of $3.3 million were pledged to secure public deposits, and securities and mortgage loans with a carrying value of $54.8 million were pledged to secure FHLB advances.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Earnings Per Share
Basic earnings per common share are computed based on the weighted average number of shares outstanding. Diluted earnings per share is computed based on the weighted average number of shares outstanding and common share equivalents that would arise from the exercise of dilutive securities. Prior period share amounts were adjusted for comparability using the conversion ratio of 0.9110 due to completion of second step offering on December 22, 2010. Earnings per share for the three and nine months ended March 31, 2011 and 2010 were calculated as follows:
| |
|
Three Months Ended
March 31, 2011
|
|
|
Three Months Ended
March 31, 2010
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(In Thousands, Except Share Data) |
|
| |
|
|
|
|
Net income (loss)
|
|
$ |
313 |
|
|
$ |
313 |
|
|
$ |
(292 |
) |
|
$ |
(292 |
) |
|
Weighted average shares outstanding
|
|
|
2,966,904 |
|
|
|
2,966,904 |
|
|
|
2,953,027 |
|
|
|
2.953,027 |
|
|
Effect of unvested common stock awards
|
|
|
-- |
|
|
|
10,537 |
|
|
|
-- |
|
|
|
-- |
|
|
Adjusted weighted average shares used in
earnings per share computation
|
|
|
2,966,904 |
|
|
|
2,977,441 |
|
|
|
2,953,027 |
|
|
|
2,953,027 |
|
|
Earnings (loss) per share
|
|
$ |
0.11 |
|
|
$ |
0.11 |
|
|
$ |
(0.10 |
) |
|
$ |
(0.10 |
) |
| |
|
Nine Months Ended
March 31, 2011
|
|
|
Nine Months Ended
March 31, 2010
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(In Thousands, Except Share Data) |
|
| |
|
|
|
|
Net income
|
|
$ |
1,460 |
|
|
$ |
1,460 |
|
|
$ |
209 |
|
|
$ |
209 |
|
|
Weighted average shares outstanding
|
|
|
2,963,622 |
|
|
|
2,963,622 |
|
|
|
2,958,749 |
|
|
|
2,958,749 |
|
|
Effect of unvested common stock awards
|
|
|
-- |
|
|
|
10,537 |
|
|
|
-- |
|
|
|
-- |
|
|
Adjusted weighted average shares used in
earnings per share computation
|
|
|
2,963,622 |
|
|
|
2,974,159 |
|
|
|
2,958,749 |
|
|
|
2,958,749 |
|
|
Earnings per share
|
|
$ |
0.49 |
|
|
$ |
0.49 |
|
|
$ |
0.07 |
|
|
$ |
0.07 |
|
For the three months ended March 31, 2011 and 2010, there were outstanding options to purchase 174,389 and 158,134 shares, respectively, at a weighted average exercise price of $9.86 per share and for the nine months ended March 31, 2011 and 2010, there were weighted-average outstanding options to purchase 170,380 and 158,134 shares, respectively, at $9.86 per share. For the quarter and nine months ended March 31, 2011, 10,537 options were included in the computation of diluted earnings per share.
4. Recognition and Retention Plan
On August 10, 2005, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2005 Recognition and Retention Plan and Trust Agreement (the “Recognition Plan”) as an incentive to retain personnel of experience and ability in key positions. The aggregate number of shares of the Company’s common stock subject to award under the Recognition Plan totaled 63,547 shares (as adjusted). As the shares were acquired for the Recognition Plan, the purchase price of these shares was recorded as a contra equity account. As the shares are distributed, the contra equity account is reduced. During the nine months ended March 31, 2011, 13,567 shares vested and were released from the Recognition Plan Trust and no shares remained in the Recognition Plan Trust at March 31, 2011.
Recognition Plan shares are earned by recipients at a rate of 20% of the aggregate number of shares covered by the Recognition Plan award over five years. Generally, if the employment of an employee or service as a non-employee director is terminated prior to the fifth anniversary of the date of grant of Recognition Plan share award, the recipient shall forfeit the right to any shares subject to the award that have not been earned. In the case of death or disability of the recipient or a change in control of the Company, the Recognition Plan awards will be vested and shall be distributed as soon as practicable thereafter.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Recognition and Retention Plan (continued)
The present cost associated with the Recognition Plan is based on share prices of $10.82 and $10.93, which represent the market price of the Company’s stock on August 18, 2005 and August 19, 2010, the dates on which the Recognition Plan shares were granted, as adjusted for the exchange ratio of 0.9110 on December 22, 2010. The cost is recognized over the five year vesting period.
5. Stock Option Plan
On August 10, 2005, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2005 Stock Option Plan (the “Option Plan”) for the benefit of directors, officers, and other key employees. The aggregate number of shares of common stock reserved for issuance under the Option Plan totaled 158,868 (as adjusted). Both incentive stock options and non-qualified stock options may be granted under the Option Plan.
On August 18, 2005, the Company granted 158,868 (as adjusted) options to directors and employees. Under the Option Plan, the exercise price of each option cannot be less than the fair market value of the underlying common stock as of the date of the option grant, which was $10.82 (as adjusted), and the maximum term is ten years. On August 19, 2010, 21,616 options, which had been forfeited, were granted at an exercise price of $10.93 per share. 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. As of March 31, 2011, 2,121 stock options were available for future grant. In the event of the 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 accounts for the Option Plan under the guidance of FASB ASC Topic 718, Compensation – Stock Compensation.
6. Fair Value of Financial Instruments
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 Bank in estimating fair values of financial instruments:
|
|
Cash and Cash Equivalents
|
|
|
The carrying amount approximates the fair value of cash and cash equivalents.
|
|
|
Securities to be Held-to-Maturity and Available-for-Sale
|
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.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Fair Value of Financial Instruments (continued)
|
|
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.
The fair value of interest rate floors and caps contained in some loan servicing agreements and variable rate mortgage loan contracts are considered immaterial within the context of fair value disclosure requirements. Accordingly, no fair value estimate is provided for these instruments.
The carrying amount and estimated fair values of the Bank’s financial instruments were as follows:
| |
|
March 31, 2011
|
|
|
June 30, 2010
|
|
| |
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
| |
|
Value
|
|
|
Fair Value
|
|
|
Value
|
|
|
Fair Value
|
|
|
Financial Assets
|
|
(In Thousands)
|
|
| |
|
|
|
|
Cash and Cash Equivalents
|
|
$ |
10,602 |
|
|
$ |
10,602 |
|
|
$ |
8,837 |
|
|
$ |
8,837 |
|
|
Securities Available-for-Sale
|
|
|
80,178 |
|
|
|
80,178 |
|
|
|
63,688 |
|
|
|
63,688 |
|
|
Securities to be Held-to-Maturity
|
|
|
5,723 |
|
|
|
5,588 |
|
|
|
2,138 |
|
|
|
2,163 |
|
|
Loans Held-for-Sale
|
|
|
1,080 |
|
|
|
1,080 |
|
|
|
13,403 |
|
|
|
13,403 |
|
|
Loans Receivable
|
|
|
114,755 |
|
|
|
125,772 |
|
|
|
93,056 |
|
|
|
109,322 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
142,079 |
|
|
|
155,292 |
|
|
|
117,722 |
|
|
|
120,460 |
|
|
Advances from FHLB
|
|
|
23,947 |
|
|
|
25,000 |
|
|
|
31,507 |
|
|
|
33,175 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loan Commitments
|
|
|
-- |
|
|
|
147 |
|
|
|
-- |
|
|
|
142 |
|
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 Bank taken as a whole.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.Fair Value Accounting
On July 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurement, now codified in FASB ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 affirms a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 was issued to establish a uniform definition of fair value. The definition of fair value is market-based as opposed to company-specific, and includes the following:
|
■
|
Defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in either case, through an orderly transaction between market participants at a measurement date and establishes a framework for measuring fair value;
|
|
■
|
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 instrument that are measured at fair value.
ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy favors the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
|
■
|
Level 1 – Fair value is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets in which the Company can
participate.
|
|
|
Level 2 – Fair value is based upon (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly; (c) inputs other than quoted prices that are observable for the asset or liability or (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
■
|
Level 3 – Fair value is based upon inputs that are unobservable for the asset or liability. These inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available in the circumstances, which include the Company’s own data. The Company’s own data used to develop unobservable inputs are adjusted if information indicates that market participants would use different assumptions.
|
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.Fair Value Accounting (continued)
Fair values of assets and liabilities measured on a recurring basis at March 31, 2011 and June 30, 2010 are as follows:
| |
|
Fair Value Measurements Using:
|
|
|
|
|
|
March 31, 2011
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
|
Significant
Other Observable
Inputs
|
|
|
|
|
| |
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
FHLMC Mortgage-Backed Certificates
|
|
$ |
-- |
|
|
$ |
2,014 |
|
|
$ |
2,014 |
|
|
FNMA Mortgage-Backed Certificates
|
|
|
-- |
|
|
|
39,877 |
|
|
|
39,877 |
|
|
GNMA Mortgage-Backed Certificates
|
|
|
-- |
|
|
|
107 |
|
|
|
107 |
|
|
Federal Agency Notes
|
|
|
-- |
|
|
|
36,872 |
|
|
|
36,872 |
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARM Fund
|
|
|
1,308 |
|
|
|
-- |
|
|
|
1,308 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,308 |
|
|
$ |
78,870 |
|
|
$ |
80,178 |
|
| |
|
Fair Value Measurements Using:
|
|
|
|
|
|
June 30, 2010
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
|
Significant
Other Observable
Inputs
|
|
|
|
|
| |
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
FHLMC Mortgage-Backed Certificates
|
|
$ |
-- |
|
|
$ |
3,206 |
|
|
$ |
3,206 |
|
|
FBNA Mortgage-Backed Certificates
|
|
|
-- |
|
|
|
58,808 |
|
|
|
58,808 |
|
|
GNMA Mortgage-Backed Certificates
|
|
|
-- |
|
|
|
115 |
|
|
|
115 |
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARM Fund
|
|
|
1,559 |
|
|
|
-- |
|
|
|
1,559 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,559 |
|
|
$ |
62,129 |
|
|
$ |
63,688 |
|
8. Second Step Conversion
On December 22, 2010, the Company completed its second step conversion from the mutual holding company form of organization to the stock holding company form of organization pursuant to a Plan of Conversion and Reorganization. Upon completion of the conversion, Home Federal Bancorp, Inc. of Louisiana, a newly formed Louisiana chartered corporation, became the holding company for Home Federal Bank and Home Federal Mutual Holding Company of Louisiana and the former Home Federal Bancorp, Inc. of Louisiana ceased to exist. As part of the conversion and in accordance with the Plan of Conversion, all outstanding shares of the former Home Federal Bancorp, Inc. of Louisiana common stock (other than those owned by Home Federal Mutual Holding Company) were converted into the right to receive 0.9110 of a share of the newly formed Home Federal Bancorp, Inc. of Louisiana common stock resulting in 1,100,693 shares issued in the exchange. In addition, a total of 1,828,507 shares of common stock, par value $0.01 per share, of Home Federal Bancorp, Inc. of Louisiana were sold in subscription, community and syndicated community offerings to certain depositors and borrowers of the Bank and other investors for $10.00 per share, or $18.3 million in the aggregate. Treasury stock held was cancelled. The net proceeds of the offering were approximately $16.9 million, after offering expenses.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
General
The Company was formed by the Bank in connection with the Bank’s reorganization into the mutual holding company form of organization and commenced operations on January 18, 2005. The Company completed its conversion from the mutual holding company form of organization to the fully public stock holding company form on December 22, 2010. As a result of the conversion, Home Federal Bancorp, Inc. of Louisiana, a newly formed Louisiana-chartered corporation, became the holding company for Home Federal Bank, and Home Federal Mutual Holding Company and the former Home Federal Bancorp, Inc. of Louisiana ceased to exist. As part of the conversion, all outstanding shares of the former Home Federal Bancorp, Inc. of Louisiana common stock (other than those owned by Home Federal Mutual Holding Company) were converted into the right to receive 0.9110 of a share of the newly formed Home Federal Bancorp, Inc. of Louisiana common stock resulting in 1,100,693 shares issued in the exchange. In addition, a total of 1,828,507 shares of common stock were sold in the subscription, community and syndicated community offerings at the price of $10.00 per share. The completion of the Company’s public offering raised approximately $16.9 million in net proceeds.
The Company’s results of operations are primarily dependent on the results of the Bank, which became a wholly owned subsidiary upon completion of the reorganization. The Bank’s results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by provisions for loan losses and loan sale activities. Non-interest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing and other expense. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial conditions and results of operations.
Critical Accounting Policies
Allowance for Loan Losses. The Company has identified the calculation of the allowance for loan losses as a critical accounting policy, due to the higher degree of judgment and complexity than its other significant accounting policies. Provisions for loan losses are based upon management’s periodic valuation and assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current economic conditions and other relevant factors in order to maintain the allowance for loan losses at a level believed by management to represent all known and inherent losses in the portfolio that are both probable and reasonably estimable. Although management uses the best information available, the level of the allowance for loan losses remains an estimate which is subject to significant judgment and short-term change.
Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. The realization of our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change.
Discussion of Financial Condition Changes from June 30, 2010 to March 31, 2011
At March 31, 2011, total assets amounted to $217.6 million compared to $185.1 million at June 30, 2010, an increase of approximately $32.4 million, or 17.5%. This increase was primarily due to an increase in loans receivable, net, of $21.7 million, or 23.3%, an increase in cash and cash equivalents of $1.8 million or 20.0% and an increase in investment securities of $20.1 million, or 30.5%, partially offset by a decrease in loans available for sale of $12.3 million. Management attributes the decrease in loans held for sale at quarter end to expedited procedures with correspondent banks which resulted in a lower amount of loans held for sale at period end.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from June 30, 2010 to March 31, 2011 (continued)
The increase in loans was primarily due to the origination of new loans by the commercial lending department. The increase in securities was caused by new security acquisitions of $41.2 million, partially offset by normal principal paydowns and sales amounting to $19.8 million and a decrease in the fair value of securities of $1.1 million.
The Company’s total liabilities amounted to $167.2 million at March 31, 2011, an increase of approximately $15.4 million, or 10.1%, compared to total liabilities of $151.8 million at June 30, 2010. The primary reason for the increase in liabilities was due to an increase in deposits of $24.4 million, or 20.7%, partially offset by a $7.6 million, or 24.1%, decrease in advances from the Federal Home Loan Bank and a decrease in other liabilities of $1.4 million.
Stockholders’ equity increased $17.0 million, or 51.1%, to $50.4 million at March 31, 2011 compared to $33.4 million at June 30, 2010. This increase was primarily the result of the recognition of net income of $1.5 million for the nine months ended March 31, 2011, the distribution of shares associated with the Company’s Recognition Plan of $116,000 and proceeds from a common stock issuance of $16.9 million. These increases were offset by dividends of $328,000 paid during the nine months ended March 31, 2011, the acquisition of treasury shares of $46,000, and a decrease of $1.1 million in the Company’s accumulated other comprehensive income associated with unrealized gain on securities available for sale.
The Bank is required to meet minimum capital standards promulgated by the Office of Thrift Supervision (“OTS”). At March 31, 2011, Home Federal Bank’s regulatory capital was well in excess of the minimum capital requirements.
Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 2011 and 2010
General
Net income amounted to $313,000 for the three months ended March 31, 2011 compared to a net loss of $292,000 for the same period in 2010, an increase of $605,000. The increase was primarily due to a $321,000, or 22.7%, increase in net interest income for the three months ended March 31, 2011 compared to the same period in 2010, and a $542,000 increase in non-interest income for the 2011 period compared to for the same period in 2010, partially offset by increases of $225,000 in non-interest expense, and $36,000 in the provision for loan losses. The increase in net interest income for the three months ended March 31, 2011 was primarily due to an increase in interest income and fees from higher loan originations as a result of the hiring of additional loan officers since 2010, and a decrease in the Company’s cost of funds for the three months ended March 31, 2011, compared to the prior year period. The increase in non-interest expense was primarily due to an increase in compensation and benefits expense and other expenses associated with the Company’s growth, including the hiring of officers in connection with the commencement of commercial lending activities and the expansion and improvement of the Company's offices.
For the nine months ended March 31, 2011, net income amounted to $1.5 million, compared to $209,000 for the same period in 2010, an increase of $1.3 million. The increase was primarily due to a $1.1 million or 27.5%, increase in net interest income and a $1.8 million increase in non-interest income, partially offset by increases of $1.1 million in non-interest expense, $329,000 in income taxes, and a $259,000 charge to the provision for loan losses. The increase in non-interest expense was primarily attributable to an increase of $677,000, or 28.8%, in compensation and benefits. Similar to the increase for the quarter ended March 31, 2011, the increase in net interest income for the nine month period was primarily due to an increase in interest income and fees from higher loan originations and a decrease in the Company’s cost of funds. The $259,000 charge to the provision for loan losses during the nine months ended March 31, 2011, reflects the increase in loan loss allowances deemed necessary by management for risks associated with the increasing volume of non-residential and commercial loans.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 2011 and 2010 (continued)
Net Interest Income
Net interest income for the three months ended March 31, 2011 was $1.7 million, an increase of $321,000, or 22.7%, in comparison to $1.4 million for the three months ended March 31, 2010. This increase was primarily due to an increase of $250,000 in total interest income and a decrease of $71,000 in the Company’s cost of funds. The increase in total interest income was primarily due to an increase in interest income generated from loans of $543,000, partially offset by decreases in interest income from mortgage-backed securities of $323,000. The cost of funds from and Federal Home Loan Bank borrowings decreased $82,000 during the period while interest paid on deposits increased $11,000 during the same period.
Net interest income for the nine months ended March 31, 2011, was $5.2 million, an increase of $1.1 million, or 27.5%, in comparison to $4.1 million for the nine months ended March 31, 2010. This increase was primarily due to an increase of $905,000 in total interest income, and a decrease of $214,000 in total interest expense. The increase in total interest income was primarily due to an increase in interest income generated from loans of $2.0 million, partially offset by decreases in interest income generated from mortgage-backed securities of $1.1 million. The cost of funds from Federal Home Loan Bank borrowings decreased $230,000 during this period while interest paid on deposit increased $16,000 during the same period.
The Company’s average interest rate spread was 3.00% and 3.25% for the three and nine months ended March 31, 2011, compared to 3.04% and 2.89% for the three and nine months ended March 31, 2010. The Company’s net interest margin was 3.40% and 3.60% for the three and nine months ended March 31, 2011, compared to 3.47% and 3.37% for the three and nine months ended March 31, 2010. The increase in net interest margin and average interest rate spread for the nine month period is attributable primarily to the increase in commercial loan volume and related income in conjunction with a decrease in cost associated with deposits and advances from the Federal Home Loan Bank. While the interest rate spread remained relatively stable, net interest income increased primarily due to the increase in volume of average interest-earning assets.
Provision for Losses on Loans
Based on an analysis of historical experience, the volume and type of lending conducted by Home Federal, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to Home Federal’s market area and other factors related to the collectability of Home Federal’s loan portfolio, a provision for loan losses of $36,000 and $259,000 was made during the three and nine months ended March 31, 2011, respectively, compared to none made during the three and nine months ended March 31, 2010. Home Federal’s allowance for loan losses was $748,000, or 0.65% of total loans, at March 31, 2011 compared to $453,000, or 0.57%, of total loans at March 31, 2010. At March 31, 2011, Home Federal had two non-performing loans in the amount of $183,000. At March 31, 2010, Home Federal had one non-performing loan of $15,000 and no other non-performing assets or troubled-debt restructurings. There can be no assurance that the loan loss allowance will be sufficient to cover losses on non-performing assets in the future.
Non-interest Income
Total non-interest income amounted to $431,000 for the three months ended March 31, 2011, an increase of $542,000 compared to a loss of $111,000 for the same period in 2010. The increase was primarily due to an increase of $159,000 in gain on sale of loans, an increase of $64,000 in other income, and a decrease in an impairment loss on securities of $627,000 for the three months ended March 31, 2011, partially offset by a decrease of $308,000 in gain on sale of investments for the same period compared to 2010. The increase in other non-interest income resulted primarily from the reversal of previously accrued bank shares tax expense in the amount of $42,000.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 2011 and 2010 (continued)
Total non-interest income increased $1.8 million to $2.0 million for the nine months ended March 31, 2011, compared to $228,000 for the same period in 2010. The increase was primarily due to an increase in gain on sale of loans of $1.1 million, an increase in other non-interest income of $313,000, and a decrease in an impairment loss on securities of $627,000, partially offset by a decrease in gain on sale of investments of $183,000. The increase in other non-interest income resulted primarily from the reversal of previously accrued bank shares tax expense in the amount of $263,000.
Non-interest Expense
Total non-interest expense increased $225,000, or 15.7%, for the three months ended March 31, 2011 compared to the prior year period. The increase in non-interest expense was primarily due to an increase in compensation and benefits expense of $105,000, or 11.4%, over the prior year period, as well as increases of $38,000 in occupancy and equipment expenses, $36,000 in franchise and bank taxes, $26,000 in data processing costs and $43,000 in miscellaneous non-interest expenses attributable to office overhead expense increase.
Total non-interest expense increased $1.1 million, or 30.0%, for the nine months ended March 31, 2011 compared to the prior year period. The increase was primarily due to an increase of $677,000 or 28.8%, in compensation and benefits expense and an increase all in other operating expenses of $420,000. The increase in all non-interest expense categories for the three and nine month periods ended March 31, 2011 are primarily attributable to the hiring of new personnel and operating costs of new and expanding commercial loan activities.
The increase in compensation and benefits expense was a result of normal compensation increases including stock options and recognition and retention plan expense and the hiring of additional commercial loan officers. The aggregate compensation expense recognized by the Company for its Stock Option and Recognition and Retention Plans amounted to $4,000 and $14,000, respectively, for the three months ended March 31, 2011 and 2010, and $32,000 and $43,000, respectively, for the nine months ended March 31, 2011 and 2010.
Effective January 1, 2006, the Company, through its subsidiary Home Federal Bank, became subject to the Louisiana bank shares tax. This tax is assessed on the Bank’s equity and earnings. For the three and nine months ended March 31, 2011, the Company recognized franchise and bank shares tax expense of $74,000 and $159,000 respectively.
Income Taxes
Income taxes amounted to $161,000 and $164,000 for the three months ended March 31, 2011 and 2010, respectively, resulting in effective tax rates of 34.0% and 128.1%, respectively. Income taxes amounted to $751,000 and $422,000 for the nine months ended March 31, 2011 and 2010, respectively, resulting in an effective tax rate of 34.0% and 66.9%, respectively. Effective income tax rates for the three and nine months ended March 31, 2010, reflect management’s position that a full tax benefit from the investment impairment loss of $627,000 recognized during the quarter ended March 31, 2010, may ultimately not be realized. A deferred tax benefit valuation allowance of $205,000 was recorded to recognize the estimated tax benefit that may be lost in the event that this loss is not fully deductible for tax purposes. Income tax expense for the March 31, 2010 quarter increased $205,000 as a result of the valuation allowance.
Liquidity and Capital Resources
Home Federal Bank maintains levels of liquid assets deemed adequate by management. The Bank adjusts its liquidity levels to fund deposit outflows, repay its borrowings and to fund loan commitments. Home Federal Bank also adjusts liquidity as appropriate to meet asset and liability management objectives.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
Home Federal Bank’s primary sources of funds are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, loan sales and earnings and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank sets the interest rates on its deposits to maintain a desired level of total deposits. In addition, Home Federal Bank invests excess funds in short-term interest-earning accounts and other assets, which provide liquidity to meet lending requirements. Home Federal Bank’s deposit accounts with the Federal Home Loan Bank of Dallas amounted to $4.7 million at March 31, 2011.
A significant portion of Home Federal Bank’s liquidity consists of securities classified as available-for-sale and cash and cash equivalents. Home Federal Bank’s primary sources of cash are net income, principal repayments on loans and mortgage-backed securities and increases in deposit accounts. If Home Federal Bank requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas which provides an additional source of funds. At March 31, 2011, Home Federal Bank had $23.9 million in advances from the Federal Home Loan Bank of Dallas.
At March 31, 2011, Home Federal Bank had outstanding loan commitments of $14.7 million to originate loans. At March 31, 2011, certificates of deposit scheduled to mature in less than one year, totaled $34.1 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, the cost of such deposits could be significantly higher upon renewal, in a rising interest rate environment. Home Federal Bank intends to utilize its high levels of liquidity to fund its lending activities. If additional funds are required to fund lending activities, Home Federal Bank intends to sell its securities classified as available-for-sale as needed.
Home Federal Bank is required to maintain regulatory capital sufficient to meet tangible, core and risk-based capital ratios of at least 1.5%, 3.0% and 8.0%, respectively. At March 31, 2011, Home Federal Bank exceeded each of its capital requirements with ratios of 19.26%, 19.26% and 40.82%, respectively.
Off-Balance Sheet Arrangements
At March 31, 2011, the Company did not have any off-balance sheet arrangements, as defined by Securities and Exchange Commission rules.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein have been prepared in accordance with instructions to Form 10-Q, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the Company’s assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than does the effect of inflation.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by and information currently available to management. In addition, in those and other portions of this document, the words “anticipate,” “believe,” “estimate,” “except,” “intend,” “should” and similar expressions, or the negative thereof, as they relate to the Company or the Company’s
HOME FEDERAL BANCORP, INC. OF LOUISIANA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future looking events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosures Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the applicable time periods specified by the Securities and Exchange Commission’s rules and forms.
Changes in Internal Control over Financial Reporting. There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition of the Company.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. [REMOVED AND RESERVED]
ITEM 5. OTHER INFORMATION
Not applicable.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
ITEM 6. EXHIBITS
The following Exhibits are filed as part of this report:
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
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32.0 |
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Certification Pursuant to 18 U.S.C Section 1350
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HOME FEDERAL BANCORP, INC. OF LOUISIANA
| Date: May 12, 2011 |
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By: |
/s/Daniel R. Herndon |
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Daniel R. Herndon |
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President and Chief Executive Officer |
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| Date: May 12, 2011 |
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By: |
/s/Clyde D. Patterson |
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Clyde D. Patterson |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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