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Home Federal Bancorp, Inc. of Louisiana - Quarter Report: 2014 September (Form 10-Q)

form10q.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended:
   September 30, 2014
or
 
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from
 
to
 
 
Commission file number:
   001-35019
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
(Exact name of registrant as specified in its charter)
 
Louisiana
 
02-0815311
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
624 Market Street, Shreveport, Louisiana
 
71101
(Address of principal executive offices)
 
(Zip Code)
 
(318) 222-1145
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    [X]  Yes     [   ]  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).         [X]  Yes    [   ]   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
Large accelerated filer                             [   ]                                                 Accelerated filer                                           [   ]
Non-accelerated filer                              [   ]                                                  Smaller reporting company                         [X]
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[   ]  Yes    [X]   No
 
Shares of common stock, par value $.01 per share, outstanding as of November 7, 2014: The registrant had 2,198,442 shares of common stock outstanding.
 
 
 
 

 
 
INDEX


                 Page
PART I  
FINANCIAL INFORMATION
 
       
Item 1:  
Financial Statements (Unaudited)
 
       
   
Consolidated Statements of Financial Condition
1
       
   
Consolidated Statements of Income
2
       
   
Consolidated Statements of Comprehensive Income
3
       
   
Consolidated Statements of Changes in Stockholders' Equity
4
       
   
Consolidated Statements of Cash Flows
5
       
   
Notes to Consolidated Financial Statements
7
       
Item 2:  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  25
       
Item 3:  
Quantitative and Qualitative Disclosures About Market Risk
  31
       
Item 4:  
Controls and Procedures
  31
       
PART II  
OTHER INFORMATION
 
       
Item 1:  
Legal Proceedings
  31
       
Item 1A:  
Risk Factors
  31
       
Item 2:  
Unregistered Sales of Equity Securities and Use of Proceeds
  32
       
Item 3:  
Defaults Upon Senior Securities
  32
       
Item 4:  
Mine Safety Disclosures
  32
       
Item 5:  
Other Information
  32
       
Item 6:  
Exhibits
  32
       
       
SIGNATURES  
 
 
 
 

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
   
September 30, 2014
   
June 30, 2014
 
   
(Dollars In Thousands)
 
ASSETS
           
    Cash and Cash Equivalents (Includes Interest-Bearing
       Deposits with Other Banks of $1,859 and $9,317 for
       September 30, 2014 and June 30, 2014, Respectively)
  $  4,794     $  13,633  
    Securities Available-for-Sale
    55,494       48,434  
    Securities Held-to-Maturity
    2,399       1,765  
    Loans Held-for-Sale
    11,035       9,375  
    Loans Receivable, Net of Allowance for Loan Losses
       of $2,285 and $2,396, Respectively
    248,309       239,563  
    Accrued Interest Receivable
    987       965  
    Premises and Equipment, Net
    9,994       8,454  
    Bank Owned Life Insurance
    6,244       6,203  
    Deferred Tax Asset
    776       723  
    Other Assets
    453       414  
                 
Total Assets
  $ 340,485     $ 329,529  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
LIABILITIES
               
    Deposits
  $ 252,011     $ 272,295  
    Advances from Borrowers for Taxes and Insurance
    615       428  
    Advances from Federal Home Loan Bank of Dallas
    43,589       12,897  
    Other Accrued Expenses and Liabilities
    1,612       1,130  
                 
Total Liabilities
    297,827       286,750  
                 
STOCKHOLDERS’ EQUITY
               
    Preferred Stock – 10,000,000 Shares of $.01 Par Value
       Authorized; None Issued and Outstanding
    --       --  
    Common Stock – 40,000,000 Shares of $.01 Par Value
       Authorized; 3,062,386 Shares Issued and
       2,203,442 Shares Outstanding at September 30, 2014;
       2,241,967 Shares Outstanding at June 30, 2014
        34           34  
    Additional Paid-in Capital
    32,940       32,853  
    Treasury Stock, at Cost – 858,944 shares at September 30, 2014;
       820,419 at June 30, 2014
    (16,454 )     (15,658 )
    Unearned ESOP Stock
    (1,532 )     (1,561 )
    Unearned RRP Trust Stock
    (599 )     (609 )
    Retained Earnings
    28,255       27,588  
    Accumulated Other Comprehensive Income
    14       172  
                 
Total Stockholders’ Equity
    42,658       42,779  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 340,485     $ 329,529  
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
1

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

   
For the Three Months Ended
September 30,
 
   
2014
   
2013
 
   
(In Thousands, Except per Share Data)
 
INTEREST INCOME
           
Loans, Including Fees
  $ 3,307     $ 3,050  
Investment Securities
    1       1  
Mortgage-Backed Securities
    244       276  
Other Interest-Earning Assets
    3        4  
Total Interest Income
    3,555       3,331  
                 
INTEREST EXPENSE
               
Deposits
    535       575  
     Federal Home Loan Bank Borrowings
    45       48  
Other Bank Borrowings
    --       7  
Total Interest Expense
    580       630  
Net Interest Income
    2,975       2,701  
                 
PROVISION FOR LOAN LOSSES
    40       66  
Net Interest Income after
Provision for Loan Losses
     2,935        2,635  
                 
NON-INTEREST INCOME
               
Gain on Sale of Loans
    472       476  
Income on Bank Owned Life Insurance
    41       44  
     Service Charges on deposit accounts
    101       75  
Other Income
    15       9  
Total Non-Interest Income
    629       604  
                 
NON-INTEREST EXPENSE
               
Compensation and Benefits
    1,502       1,384  
Occupancy and Equipment
    229       195  
Data Processing
    119       115  
Audit and Examination Fees
    53       57  
Franchise and Bank Shares Tax
    73       93  
Advertising
    75       64  
Legal Fees
    69       93  
Loan and Collection
    66       32  
Deposit Insurance Premium
    31       33  
Other Expense
    120       116  
Total Non-Interest Expense
    2,337       2,182  
Income Before Income Taxes
    1,227       1,057  
                 
PROVISION FOR INCOME TAX EXPENSE
    404       344  
Net Income
  $ 823     $ 713  
EARNINGS PER COMMON SHARE:
               
Basic
  $ 0.41     $ 0.34  
Diluted
  $ 0.40     $ 0.33  
DIVIDENDS DECLARED
  $ 0.07     $ 0.06  
 
 
See accompanying notes to unaudited consolidated financial statements.
 
2

 
 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

   
For the Three Months Ended
September 30,
 
   
2014
   
2013
 
   
(In Thousands)
 
             
Net Income
  $ 823     $ 713  
                 
Other Comprehensive (Loss), Net of Tax
               
   Unrealized Holding (Loss) on Securities Available-for-Sale,
     Net of Tax of $81 in 2014 and $135 in 2013
    (158 )     (262 )
                 
        Total Comprehensive Income
  $ 665     $ 451  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
3

 
 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(Unaudited)

   
Common
Stock
   
Additional
Paid-in
Capital
   
Unearned
ESOP
Stock
   
Unearned
RRP
Trust
Stock
   
Retained
Earnings
   
Treasury Stock
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Stockholders’
Equity
 
                     
(In Thousands)
                   
BALANCE – June 30, 2013
  $ 32     $ 32,218     $ (1,676 )   $ (863 )   $ 25,395     $ (13,168 )   $ 44     $ 41,982  
                                                                 
Net Income
    --       --       --       --       713       --       --       713  
                                                                 
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
      --         --         --         --         --         --       (262 )     (262 )
                                                                 
RRP Shares Earned
    --       --       --       10       --       --       --       10  
                                                                 
Stock Options Vested
    --       41       --       --       --       --       --       41  
                                                                 
Common Stock Issuance for Stock
    Option Exercises
    1       245       --       --       --       --       --       246  
                                                                 
ESOP Compensation Earned
    --       21       28       --       --       --       --       49  
                                                                 
Acquisition of Treasury Stock
    --       --       --       --       --       (473 )     --       (473 )
                                                                 
Dividends Declared
    --       --       --       --       (141 )     --       --       (141 )
                                                                 
BALANCE – September  30, 2013
  $ 33     $ 32,525     $ (1,648 )   $ (853 )   $ 25,967     $ (13,641 )   $ (218 )   $ 42,165  
                                                                 
BALANCE – June 30, 2014
  $  34     $ 32,853     $ (1,561 )   $ (609 )   $ 27,588     $ (15,698 )   $ 172     $ 42,779  
                                                                 
Net Income
    --       --       --       --       823       --       --       823  
                                                                 
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
    --       --       --       --       --       --       (158 )     (158 )
                                                                 
RRP Shares Earned
    --       --       --       10       --       --       --       10  
                                                                 
Stock Options Vested
    --       43       --       --       --       --       --       43  
                                                                 
Common Stock Issuance for Stock
    Option Exercises
    --       17       --       --       --       --       --       17  
                                                                 
ESOP Compensation Earned
    --       27       29       --       --       --       --       56  
                                                                 
Acquisition of Treasury Stock
    --       --       --       --       --       (756 )     --       (756 )
                                                                 
Dividends Declared
    --       --       --       --       (156 )     --       ---       (156 )
                                                                 
BALANCE – September  30, 2014
  $ 34     $ 32,940     $ (1,532 )   $ (599 )   $ 28,255     $ (16,454 )   $ 14     $ 42,658  
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
4

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
   
   
Three Months Ended
 
   
September 30,
 
   
2014
   
2013
 
   
(In Thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Income
  $ 823     $ 713  
Adjustments to Reconcile Net Income to Net
               
Cash Used in Operating Activities
               
Net Amortization and Accretion on Securities
    3       18  
Gain on Sale of Loans
    (472 )     (476 )
Amortization of Deferred Loan Fees
    (76 )     (18 )
Depreciation of Premises and Equipment
    84       69  
ESOP Expense
    56       49  
Stock Option Expense
    44       41  
Recognition and Retention Plan Expense
    57       53  
Deferred Income Tax
    29       (17 )
Provision for Loan Losses
    40       66  
Increase in Cash Surrender Value on Bank Owned Life Insurance
    (41 )     (44 )
Changes in Assets and Liabilities:
               
Loans Held-for-Sale – Originations and Purchases
    (23,062 )     (20,378 )
Loans Held-for-Sale – Sale and Principal Repayments
    21,874       18,341  
Accrued Interest Receivable
    (21 )     (4 )
Other Operating Assets
    (40 )     46  
Other Operating Liabilities
    435       419  
                 
Net Cash Used In Operating Activities
    (267 )      (1,122 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Loan Originations and Purchases, Net of Principal Collections
    (8,714 )     (849 )
Deferred Loan Fees Collected
    4       17  
Acquisition of Premises and Equipment
    (1,624 )     (445 )
Activity in Available-for-Sale Securities:
               
Principal Payments on Mortgage-Backed Securities
    2,540       3,401  
Purchases of Securities
    (9,843 )     (8,798 )
Activity in Held-to-Maturity Securities:
               
Redemption Proceeds
    128       --  
Purchases of Securities
    (762 )     (134 )
                 
Net Cash Used in Investing Activities
     (18,271 )     (6,808 )
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
5

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
(Unaudited)
 
   
   
Three Months Ended
 
   
September 30,
 
   
2014
   
2013
 
   
(In Thousands)
 
CASH FLOWS FROM FINANCING ACTIVITIES
     
Net (Decrease) Increase in Deposits
  $ (20,284 )   $ 20,603  
Proceeds from Federal Home Loan Bank Advances
    349,750       217,750  
Repayments of Advances from Federal Home Loan Bank
    (319,058 )     (223,879 )
Net Increase in Advances from Borrowers for Taxes and Insurance
    186       115  
Dividends Paid
    (156 )     (141 )
Acquisition of Treasury Stock
    (756 )     (473 )
Proceeds from Stock Options Exercised
    17       245  
Proceeds from other Bank Borrowings
    --       300  
                 
Net Cash Provided by Financing Activities
    9,699        14,520  
                 
NET (DECREASE)  INCREASE  IN CASH AND CASH EQUIVALENTS
    (8,839 )     6,590  
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
    13,633        3,685  
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
  $ 4,794     $ 10,275  
                 
SUPPLEMENTARY CASH FLOW INFORMATION
               
Interest Paid on Deposits and Borrowed Funds
  $ 571     $  636  
Income Taxes Paid
    1       --  
Market Value Adjustment for Loss on Securities Available-for-Sale
    (240 )     (397 )
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
6

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
1.           Summary of Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Home Federal Bancorp, Inc. of Louisiana (the “Company”) and its subsidiary, Home Federal Bank (“Home Federal Bank” or the “Bank”).  These consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three month period ended September 30, 2014, is not necessarily indicative of the results which may be expected for the fiscal year ending June 30, 2015.

The Company follows accounting standards set by the Financial Accounting Standards Board (the “FASB”). The FASB sets generally accepted accounting principles (“GAAP”) that we follow to ensure we consistently report our financial condition, results of operations and cash flows.  References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification (the “Codification” or the “ASC”).

In accordance with the subsequent events topic of the ASC, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements.  The effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of September 30, 2014.  In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued.

Use of Estimates

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statements of Financial Condition and reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the allowance for loan losses.

Nature of Operations

Home Federal Bancorp, Inc. of Louisiana, a Louisiana corporation, is the fully public stock holding company for Home Federal Bank located in Shreveport, Louisiana.  The Bank is a federally chartered, stock savings and loan association and is subject to federal regulation by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.  The Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. Services are provided to the Bank’s customers by five full-service banking offices and one agency office, located in Caddo and Bossier Parishes, Louisiana.  The area served by the Bank is primarily the Shreveport-Bossier City metropolitan area; however, loan and deposit customers are found dispersed in a wider geographical area covering much of northwest Louisiana. As of September 30, 2014, the Bank had one wholly-owned subsidiary, Metro Financial Services, Inc., which previously engaged in the sale of annuity contracts and does not currently engage in a meaningful amount of business.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, balances due from banks, and federal funds sold, all of which mature within ninety days.

 
 
 
 
 
 
 
7

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
1.           Summary of Accounting Policies (continued)

Securities

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 Held-for-Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate.  Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Loans

Loans receivable are stated 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 value of the underlying collateral and prevailing economic conditions.  The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
 
 
 
 
 
 
 
8

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
1.           Summary of Accounting Policies (continued)

Allowance for Loan Losses (continued)

A loan is considered impaired when, based on current information or events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.  When a loan is impaired, the measurement of such impairment is based upon the 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.  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 pays its pro-rata share of income taxes in accordance with a written tax-sharing agreement.

The Company accounts for income taxes on the asset and liability method.  Deferred tax assets and liabilities are recorded based on the difference between the tax 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 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.

 
 
 
 
9

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
1.           Summary of Accounting Policies (continued)

Income Taxes (continued)

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.

Comprehensive Income

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale 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.

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method.  This ASU is not expected to have a significant impact on the Company’s financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.  The new guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.   ASU 2014-12 is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted.  The Company’s current accounting treatment of performance conditions for employees who are or become eligible prior to the achievement of the performance target are consistent with ASU 2014-12, and as such does not expect the new guidance to have a material effect on the Corporation's financial condition and results of operations.  The Company expects to prospectively adopt ASU 2014-12 in the first quarter of 2015.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
2.           Securities

The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:

   
September 30, 2014
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
 
 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale      
       
Debt Securities
                       
  FHLMC Mortgage-Backed Certificates
  $ 301     $ 11     $ --     $ 312  
  FNMA Mortgage-Backed Certificates
    33,901       732       121       34,512  
  GNMA Mortgage-Backed Certificates
    21,271       6       607       20,670  
                                 
          Total Debt Securities
    55,473        749        728        55,494  
                                 
    Total Securities Available-for-Sale
  $ 55,473     $ 749     $ 728     $ 55,494  
                                 
Securities Held-to-Maturity
                               
                                 
Equity Securities (Non-Marketable)
                               
  21,487 Shares – Federal Home Loan Bank
  $ 2,149     $ --     $ --     $ 2,149  
  630 Shares – First National Bankers
    Bankshares, Inc.
     250        --        --        250  
                                 
          Total Equity Securities
    2,399       --       --       2,399  
                                 
    Total Securities Held-to-Maturity
  $  2,399     $  --     $  --     $  2,399  
 
 
   
June 30, 2014
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
 
 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale      
       
Debt Securities
                       
  FHLMC Mortgage-Backed Certificates
  $ 311     $ 12     $ --     $ 323  
  FNMA Mortgage-Backed Certificates
    24,947       857       24       25,780  
  GNMA Mortgage-Backed Certificates
    22,915       6       590       22,331  
                                 
          Total Debt Securities
    48,173       875       614       48,434  
                                 
          Total Securities Available-for-Sale
  $ 48,173     $  875     $  614     $  48,434  
                                 
Securities Held-to-Maturity
                               
                                 
Equity Securities (Non-Marketable)
                               
  15,145 Shares – Federal Home Loan Bank
  $   1,515     $  --     $  --     $  1,515  
  630 Shares – First National Bankers
    Bankshares, Inc.
     250        --        --        250  
                                 
          Total Equity Securities
    1,765       --       --       1,765  
                                 
          Total Securities Held-to-Maturity
  $ 1,765     $ --     $ --     $ 1,765  
 
 
 
 
 
11

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
2.           Securities (continued)

The amortized cost and fair value of securities by contractual maturity at September 30, 2014, 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
    239       246       --       --  
  After Five through Ten Years
    152       157       --       --  
  Over Ten Years
    55,082       55,091        --       --  
      55,473       55,494       --       --  
  Other Equity Securities
    --       --       2,399       2,399  
                                 
   Total
  $ 55,473     $ 55,494     $ 2,399     $ 2,399  

There were no sales of available-for-sale securities during the three months ended September 30, 2014.

The following tables show information pertaining to gross unrealized losses on securities available-for-sale at September 30, 2014 and June 30, 2014 aggregated by investment category and length of time that individual securities have been in a continuous loss position.

   
September 30, 2014
   
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
 
$             91
 
$   19,697
 
$         637
 
$     22,471
Marketable Equity Securities
 
              -- 
 
            --
 
            --
 
            --
                 
        Total Securities Available-for-Sale
 
$             91
 
$    19,697
 
$         637
 
$     22,471
                 
 
 
June 30, 2014
 
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
$             24
 
$       1,947
 
$          590
 
$     22,193
Marketable Equity Securities
              --
 
              --
 
              --
 
               --
               
        Total Securities Available-for-Sale
$             24
 
$       1,947
 
$          590
 
$     22,193

The Company’s investment in equity securities consists primarily of FHLB stock, and shares of First National Bankers Bankshares, Inc. (“FNBB”).  Management monitors its investment portfolio to determine whether any investment securities which have unrealized losses should be considered other than temporarily impaired.

 
 
 
12

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
2.           Securities (continued)

At September 30, 2014, securities with a carrying value of $9.1 million were pledged to secure public deposits, and securities and mortgage loans with a carrying value of $149.9 million were pledged to secure FHLB advances.

3.           Loans Receivable

Loans receivable are summarized as follows:
 
     September 30, 2014      June 30, 2014  
    (In Thousands)  
Loans Secured by Mortgages on Real Estate
           
One- to Four-Family Residential
  $ 96,279     $ 89,545  
Commercial
    55,554       56,266  
Multi-Family Residential
    15,967       20,368  
Land
    22,513       19,945  
Construction
    13,366       12,505  
Equity and Second Mortgage
    2,318       2,563  
Equity Lines of Credit
    17,380       14,950  
Total Mortgage Loans
    223,377       216,142  
                 
Commercial Loans
    27,032       25,749  
Consumer Loans
               
Loans on Savings Accounts
    304       255  
Automobile and Other Consumer Loans
     107       111  
Total Consumer and Other Loans
    411       366  
Total Loans
    250,820       242,257  
                 
Less:  Allowance for Loan Losses
    (2,285 )     (2,396 )
           Unamortized Loan Fees
    (226 )     (298 )
                     Net Loans Receivable
  $ 248,309     $ 239,563  
 
Following is a summary of changes in the allowance for loan losses:

   
Three Months Ended September 30,
 
   
2014
 
2013
 
   
(In Thousands)
 
             
Balance - Beginning of Period
  $ 2,396     $ 2,240  
Provision for Loan Losses
    40       66  
Loan Charge-Offs
    (151 )      --  
                 
Balance - End of Period
  $ 2,285     $ 2,306  

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.
 
 
 
13

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
3.           Loans Receivable (continued)

Credit Quality Indicators (continued)

Loans excluded from the scope of the quarterly review process above are generally identified as pass credits until:  (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification.  In these circumstances, the loan is specifically evaluated for potential classification and the need to allocate reserves or charge-off.  The Company uses the following definitions for risk ratings:

Special Mention - Loans identified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss - This classification includes those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted.  Even though partial recovery may be possible in the future, it is not practical or desirable to defer writing off these basically worthless loans.  Accordingly, these loans are charged-off before period end.

The following tables present the grading of loans, segregated by class of loans, as of September 30, 2014 and June 30, 2014:
 
          Special                    
September 30, 2014   Pass     Mention     Substandard     Doubtful     Total  
          (In Thousands)        
Real Estate Loans:
                             
  One- to Four-Family Residential
  $ 96,151     $ 115     $ 13     $ --     $ 96,279  
  Commercial
    54,937       553       --       64       55,554  
  Multi-Family Residential
    15,967       --       --       --       15,967  
  Land
    22,513       --       --       --       22,513  
  Construction
    13,366       --       --       --       13,366  
  Equity and Second Mortgage
    2,318       --       --       --       2,318  
  Equity Lines of Credit
    17,353       --       --       27       17,380  
Commercial Loans
    27,032       --       --       --       27,032  
Consumer Loans
    411       --       --       --       411  
     Total
  $ 250,048     $ 668     $ 13     $ 91     $ 250,820  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
3.           Loans Receivable (continued)
 
Credit Quality Indicators (continued)
   
 
          Special                    
June 30, 2014    Pass     Mention      Substandard     Doubtful     Total  
                (In Thousands)              
Real Estate Loans:
                             
  One- to Four-Family Residential
  $ 89,345     $ 49     $ --     $ 151     $  89,545  
  Commercial
    53,621       2,645       --       --       56,266  
  Multi-Family Residential
    20,368       --       --       --       20,368  
  Land
    19,945       --       --       --       19,945  
  Construction
    12,505       --       --       --       12,505  
  Equity and Second Mortgage
    2,563       --       --       --       2,563  
  Equity Lines of Credit
    14,923       --       --       27       14,950  
Commercial Loans
    25,749       --       --       --       25,749  
Consumer Loans
     366        --        --        --        366  
                                         
     Total
  $ 239,385     $ 2,694     $ --     $ 178     $ 242,257  
 
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when contractually due.  Loans that experience insignificant payment delays or payment shortfalls are generally not classified as impaired.  On a case-by-case basis, management determines the significance of payment delays and payment shortfalls, taking into consideration all of the circumstances related to the loan, including:  the length of the payment delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The following tables present an aging analysis of past due loans, segregated by class of loans, as of September 30, 2014 and June 30, 2014:
 
                                        Recorded  
                                        Investment  
          60-89     Greater                  Total      > 90 Days  
    30-59 Days     Days Past     Than 90     Total           Loans     and  
September 30, 2014   Past Due     Due     Days     Past Due     Current     Receivable     Accruing  
                (In Thousands)              
Real Estate Loans:
                                         
  One- to Four-Family
     Residential
  $ 1,138     $ 923     $ 81     $ 2,142     $ 94,137     $ 96,279     $ 68  
  Commercial
    --       --       --       --       55,554       55,554       --  
  Multi-Family
     Residential
    --       --       --       --       15,967       15,967       --  
  Land
    --       --       --       --       22,513       22,513       --  
  Construction
    --       --       --       --       13,366       13,366       --  
  Equity and Second
      Mortgage
    --       --       --       --       2,318       2,318       --  
  Equity Lines of Credit
    --       --       27       27       17,353       17,380       --  
Commercial Loans
    --       --       --       --       27,032       27,032       --  
Consumer Loans
    --       --       --       --       411       411       --  
     Total
  $ 1,138     $  923     $ 108     $ 2,169     $ 248,651     $ 250,820     $ 68  
 
 
 
 
 
 
 
 
 
 
 
 
 
15

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
3.           Loans Receivable (continued)

Credit Quality Indicators (continued)

 June 30, 2014
 
30-59 Days
Past Due
   
60-89
Days Past
Due
   
Greater
Than 90
Days
   
Total
Past Due
   
Current
   
Total
Loans
Receivable
   
Recorded
Investment
 > 90 Days
and
Accruing
 
   
(In Thousands)
 
Real Estate Loans:
                                         
One- to Four-Family
     Residential
  $  1,326     $  435     $  164     $ 1,925     $  87,620     $  89,545     $  13  
  Commercial
    --       --       --       --       56,266       56,266       --  
  Multi-Family
     Residential
    --       --       --       --       20,368       20,368       --  
  Land
    --       --       --       --       19,945       19,945       --  
  Construction
    --       --       --       --       12,505       12,505       --  
  Equity and Second
     Mortgage
    --       --       --       --       2,563       2,563       --  
  Equity Lines of Credit
    --       --       27       27       14,923       14,950       --  
Commercial Loans
    259       --       --       259       25,490       25,749       --  
Consumer Loans
    --       --       --       --        366        366        --  
                                                         
     Total
  $ 1,585     $  435     $  191     $  2,211     $ 240,046     $ 242,257     $ 13  

Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings and designated as impaired.  There were no troubled debt restructurings as of September 30, 2014 or June 30, 2014.
 
The change in the allowance for loan losses by loan portfolio class and recorded investment in loans for the three months ended September 30, 2014 was as follows:

       Real Estate Loans                          
                                              Home                           
                                              Equity                          
                                               Loans                          
                                              and                           
      1-4 Family                Multi-                         Lines       Commercial        Consumer           
September 30, 2014     
Residential 
      Commercial       
Family 
      Land        Construction       
of  Credit
      Loans        Loans        Total   
                              (In Thousands)                          
Allowance for loan losses:                                                                  
Beginning Balances
  $ 1,224     $  464     $ 128     $ 168     $ 105     $ 99     $ 202     $ 6     $ 2,396  
Charge-Offs
    (151 )     --       --       --       --       --       --       --       (151 )
Recoveries
    --       --       --       --       --       --       --       --       --  
Current Provision
    96       (108 )     (56     12       22       29       45       --       40  
Ending Balances
  $ 1,169     $  356     $ 72     $ 180     $ 127     $  128     $ 247     $ 6     $ 2,285  
                                                                         
Evaluated for
   Impairment:
                                                                       
   Individually
    --       --       --       --       --       --       --       --       --  
   Collectively
    1,169       356       72       180       127       128       247       6       2,285  
                                                                         
Loans Receivable:
                                                                       
Ending Balances – Total
$ 96,279     $ 55,554     $ 15,967     $ 22,513     $ 13,366     $ 19,698     $ 27,032     $ 411     $ 250,820  
Ending Balances:
                                                                       
Evaluated for
   Impairment:
                                                                       
   Individually
    128       617       --       --       --       27       --       --       772  
   Collectively
  $ 96,151     $ 54,937     $ 15,967     $ 22,513     $ 13,366     $ 19,671     $ 27,032     $ 411     $ 250,048  

 
 
 
 
 
16

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
3.           Loans Receivable (continued)

Credit Quality Indicators (continued)

The change in the allowance for loan losses by loan portfolio class and recorded investment in loans for the year ended June 30, 2014 and three months ended September 30, 2013, was as follows:

   
Real Estate Loans
                   
June 30, 2014
 
1-4 Family
Residential
   
Commercial
   
Multi-Family
   
Land
   
Construction
   
Home
Equity
Loans
and
Lines
of Credit
   
Commercial
Loans
   
Consumer
Loans
   
Total
 
   
(In Thousands)
 
Allowance for loan losses:
                                                 
Beginning Balances
  $ 1,023     $  338     $ 103     $ 127     $ 146     $ 85     $ 412     $ 6     $ 2,240  
Charge-Offs
    --       --       --       --       --       (12 )     --       --       (12 )
Recoveries
    --       --       --       --       --       --       --       --       --  
Current Provision
    201       126           25       41       (41 )     26       (210 )     --       168  
Ending Balances
  $ 1,224     $  464     $ 128     $ 168     $ 105     $ 99     $ 202     $ 6     $ 2,396  
                                                                         
Evaluated for Impairment:
                                                                       
  Individually
    --       --       --       --       --       --       --       --       --  
  Collectively
    1,224       464        128       168       105       99       202       6       2,396  
                                                                         
Loans Receivable:
                                                                       
Ending Balances - Total
$ 89,545     $ 56,266     $ 20,368     $ 19,945     $ 12,505     $ 17,513     $ 25,749     $ 366     $ 242,257  
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                       
  Individually
    200       2,645       --       --       --       27       --       --       2,872  
  Collectively
  $ 89,345     $ 53,621     $ 20,368     $ 19,945     $ 12,505     $ 17,486     $ 25,749     $ 366     $ 239,385  
 
   
Real Estate Loans
                   
 
 
 
 
September 30, 2013
 
1-4 Family
Residential
   
Commercial
   
Multi-
Family
   
Land
   
Construction
   
Home
Equity
 Loans
and
Lines
of Credit
   
Commercial
Loans
   
Consumer
Loans
   
Total
 
                     
(In Thousands)
                   
Allowance for loan losses:
                                     
Beginning Balances
  $ 1,023     $ 338     $ 103     $ 127     $ 146     $ 85     $ 412     $ 6     $ 2,240  
Charge-Offs
    --       --       --       --       --       --       --       --       --  
Recoveries
    --       --       --       --       --       --       --       --       --  
Current Provision
    94       74       (13 )     2       (17 )     (5 )     (71 )     2       66  
Ending Balances
  $ 1,117     $ 412     $ 90     $ 129     $ 129     $ 80     $ 341     $ 8     $ 2,306  
                                                                         
Evaluated for Impairment:
                                                                       
   Individually
    --       --       --       --       --       --       --       --       --  
   Collectively
    1,117       412       90       129       129       80       341       8       2,306  
                                                                         
Loans Receivable:
                                                                       
Ending Balances - Total
$ 76,379     $ 50,310     $ 19,567     $ 15,317     $ 16,152     $ 14,165     $ 17,176     $ 368     $ 209,434  
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                       
   Individually
    565       1,699       --       --       --       116       2,937       --       5,317  
   Collectively
  $ 75,814     $ 48,611     $ 19,567     $ 15,317     $ 16,152     $ 14,049     $ 14,239     $ 368     $ 204,117  

 
 
 
 
 
 
 
 
 
17

 
  HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
3.           Loans Receivable (continued)

Credit Quality Indicators (continued)

The following tables present loans individually evaluated for impairment, segregated by class of loans, as of September 30, 2014 and June 30, 2014:
 
September 30, 2014
 
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
  $  128     $ 128     $ --     $ 128     $ --     $ 137  
  Commercial
    617       617       --       617       --       658  
  Multi-Family Residential
    --       --       --       --       --       --  
  Land
    --       --       --       --       --       --  
  Construction
    --       --       --       --       --       --  
  Equity and Second Mortgage
    --       --       --       --       --       --  
  Equity Lines of Credit
    27       27       --       27       --       27  
Commercial Loans
    --       --       --       --       --       --  
Consumer Loans
     --        --       --        --       --        --  
                                                 
Total
  $ 772     $ 772     $ --     $ 772     $ --     $  822  

June 30, 2014
 
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
  $ 200     $ 200     $  --     $ 200     $  --     $ 216  
  Commercial
    2,645       2,645       --       2,645       --       2,661  
  Multi-Family Residential
    --       --       --       --       --       --  
  Land
    --       --       --       --       --       --  
  Construction
    --       --       --       --       --       --  
  Equity and Second Mortgage
    --       --       --       --       --       --  
  Equity Lines of Credit
    27       27       --       27       --       27  
Commercial Loans
    --       --       --       --       --       --  
Consumer Loans
    --       --       --       --       --       --  
                                                 
          Total
  $ 2,872     $ 2,872     $ --     $ 2,872     $  --     $ 2,904  

The Bank has no commitments to loan additional funds to borrowers whose loans were previously in non-accrual status.
 
There was no interest income recognized on non-accrual loans during the three months ended September 30, 2014 or year ended June 30, 2014. If the non-accrual loans had been accruing interest at their original contracted rates, gross interest income that would have been recorded for the three months ended September 30, 2014 and year ended June 30, 2014 was $0 and $3,000, respectively.

4.           Deposits

Deposits at September 30, 2014 and June 30, 2014 consist of the following classifications:

   
September 30, 2014
   
June 30, 2014
 
   
(In Thousands)
 
Non-Interest Bearing
  $ 40,433     $ 43,447  
NOW Accounts
    26,278       24,015  
Money Markets
    45,198       72,240  
Passbook Savings
    13,195       12,165  
      125,104       151,867  
                 
Certificates of Deposit
    126,907       120,428  
                 
     Total Deposits
  $ 252,011     $ 272,295  
 
 
18

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
5.           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. Earnings per share for the three months ended September 30, 2014 and 2013 were calculated as follows:

   
Three Months Ended
September 30,
 
   
2014
   
2013
 
   
(In Thousands, Except Per Share Data)
 
             
Net income
  $ 823     $ 713  
                 
Weighted average shares outstanding - basic
    2,006       2,113  
Effect of dilutive common stock equivalents
    52         53  
Adjusted weighted average shares outstanding - diluted
     2,058       2,166  
                 
Basic earnings per share
  $ 0.41     $ 0.34  
Diluted earnings per share
  $ 0.40     $ 0.33  

For the three months ended September 30, 2014 and 2013, there were outstanding options to purchase 228,259 and 241,886 shares, respectively, at a weighted average exercise price of $14.68 and $13.25 per share, respectively. For the quarter ended September 30, 2014, 52,316 options, were included in the computation of diluted earnings per share.
 
The following table presents the components of weighted average outstanding shares for purposes of calculating earnings per share:
 
     
Three Months Ended
September 30,
 
     
2014
   
2013
 
     
(In Thousands)
 
 
Average common shares issued
    3,062       3,062  
 
Average unearned ESOP shares
    (154 )     (165 )
 
Average unearned RRP shares
    (50 )     (64 )
 
Average treasury shares
    (852 )     (720 )
                   
 
Weighted average shares outstanding
    2,006       2,113  

6.           Stock-Based Compensation

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 “2005 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 2005 Recognition Plan totaled 63,547 shares (as adjusted for the exchange ratio of 0.9110 on December 22, 2010).  As the shares were acquired for the 2005 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 three months ended September 30, 2014, 561 shares vested and were released from the 2005 Recognition Plan Trust and 564 shares remained in the 2005 Recognition Plan Trust at September 30, 2014.
 
 
 
 
 
19

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
6.           Stock – Based Compensation (continued)

Recognition and Retention Plan (continued)

On December 23, 2011, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2011 Recognition and Retention Plan and Trust Agreement (the “2011 Recognition Plan”, together with the 2005 Recognition  Plan, the  “Recognition  Plan”) as  an  incentive  to  retain  personnel  of  experience and ability in key positions.  The aggregate number of shares of the Company’s common stock available for award under the 2011 Recognition Plan totaled 77,808 shares.  During the three months ended September 30, 2014, 8,557 shares were awarded under the 2011 Recognition Plan and no shares are available for future awards. At September 30, 2014, 50,124 unvested awards remained in the 2011 Recognition Plan Trust.
 
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.
 
The Recognition Plan cost is recognized over the five year vesting period. During the three months ended September 30, 2014, the Company recognized $57,000 in expense related to the Recognition Plans.
 
Stock Option Plan
 
On August 10, 2005, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2005 Stock Option Plan (the “2005 Option Plan”) for the benefit of directors, officers, and other key employees.  The aggregate number of shares of common stock reserved for issuance under the 2005 Option Plan totaled 158,868 (as adjusted for the exchange ratio).  Both incentive stock options and non-qualified stock options may be granted under the 2005 Option Plan.  During the three months ended September 30, 2014, 2,133 options were granted under the 2005 Option Plan at an exercise price of $18.92. As of September 30, 2014, 37,543 options were outstanding under the 2005 Option Plan and none were available for future grant.
 
On December 23, 2011, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2011 Stock Option Plan (the “2011 Option Plan”, together with the 2005 Option Plan, the “Option Plans”) for the benefit of directors, officers, and other key employees.  The aggregate number of shares of common stock reserved for issuance under the 2011 Option Plan totaled 194,522.  Both incentive stock options and non-qualified stock options may be granted under the 2011 Option Plan. During the three months ended September 30, 2014, 29,178 options were granted under the 2011 Option Plan at an exercise price of $18.92. As of September 30, 2014, 190,715 options were outstanding under the 2011 Option Plan and none were available for future grant.
 
Under the Option Plans, 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 and the maximum term is ten years. Incentive stock options and non-qualified stock options granted under the Option Plans 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 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 Plans under the guidance of FASB ASC Topic 718, Compensation – Stock Compensation.

7.           Related Party Transactions

Certain directors and executive officers were indebted to the Bank in the approximate aggregate amounts of $2.8 million and $2.5 million at September 30, 2014 and June 30, 2014, respectively.
 
 
 
 
20

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
8.            Fair Value Disclosures

The following disclosure is made in accordance with the requirements of ASC 825, Financial Instruments.  Financial instruments are defined as cash and contractual rights and obligations that require settlement, directly or indirectly, in cash.  In cases where quoted market prices are not available, fair values have been estimated using the present value of future cash flows or other valuation techniques.  The results of these techniques are highly sensitive to the assumptions used, such as those concerning appropriate discount rates and estimates of future cash flows, which require considerable judgment.  Accordingly, estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current settlement of the underlying financial instruments.
 
ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.  These disclosures should not be interpreted as representing an aggregate measure of the underlying value of the Company.
 
The following methods and assumptions were used by the Company in estimating fair values of financial instruments:

 
Cash and Cash Equivalents
 
The carrying amount approximates the fair value of cash and cash equivalents.

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.

                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.
 
 
 
 
21

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
8.           Fair Value Disclosures (continued)

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 Company’s financial instruments were as follows:

   
September 30, 2014
   
June 30, 2014
 
   
Carrying
   
Estimated
   
Carrying
   
Estimated
 
   
Value
   
Fair Value
   
Value
   
Fair Value
 
   
(In Thousands)
 
Financial Assets
                       
   Cash and Cash Equivalents
  $ 4,794     $ 4,794     $ 13,633     $ 13,633  
   Securities Available-for-Sale
    55,494       55,494       48,434       48,434  
   Securities to be Held-to-Maturity
    2,399       2,399       1,765       1,765  
   Loans Held-for-Sale
    11,035       11,035       9,375       9,375  
   Loans Receivable
    248,309       248,301       239,563       242,240  
                                 
Financial Liabilities
                               
   Deposits
    252,011       238,510       272,295       259,411  
   Advances from FHLB
    43,589       43,574       12,897       13,266  
                                 
Off-Balance Sheet Items
                               
   Mortgage Loan Commitments
    319       319       349       349  

The estimated fair values presented above could be materially different than net realizable value and are only indicative of the individual financial instrument’s fair value.  Accordingly, these estimates should not be considered an indication of the fair value of the Company taken as a whole.

The Company follows the guidance of FASB ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820").  ASC 820 affirms a framework for measuring fair value and expands disclosures about fair value measurements.  ASC 820 was issued to establish a uniform definition of fair value.  The definition of fair value is market-based as opposed to company-specific, and includes the following:

·
Defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in either case, through an orderly transaction between market participants at a measurement date and establishes a framework for measuring fair value;

·
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.

 
 
 
 
 
 
 
 
22

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
8.           Fair Value Disclosures (continued)

The standard establishes a three-level valuation hierarchy for disclosure of fair value measurements.  The valuation hierarchy favors the transparency of inputs to the valuation of an asset or liability as of the measurement date.  The three levels are defined as follows:

·
Level 1 – Fair value is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets in which the Company can participate.

·
Level 2 – Fair value is based upon (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly; (c) inputs other than quoted prices that are observable for the asset or liability or (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

·
Level 3 – Fair value is based upon inputs that are unobservable for the asset or liability.  These inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).  These inputs are developed based on the best information available in the circumstances, which include the Company’s own data. The Company’s own data used to develop unobservable inputs are adjusted if information indicates that market participants would use different assumptions.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Fair values of assets and liabilities measured on a recurring basis at September 30, 2014 and June 30, 2014 are as follows:

   
Fair Value Measurements Using:
       
September 30, 2014
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
Unobservable
Inputs
(Level 3)
   
Total
 
   
(In Thousands)
 
Available-for-Sale
                       
Debt Securities
                       
   FHLMC
  $ --     $ 312     $ --     $ 312  
   FNMA
    --       34,512       --       34.512  
   GNMA
    --       20,670       --       20,670  
                                 
Total
  $ --     $ 55,494     $ --     $ 55,494  
 
   
Fair Value Measurements Using:
       
June 30, 2014
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
Unobservable
Inputs
(Level 3)
   
Total
 
         
(In Thousands)
             
Available-for-Sale
                       
Debt Securities
                       
   FHLMC
  $ --     $ 323     $ --     $ 323  
   FNMA
    --       25,780       --       25,780  
   GNMA
    --       22,331       --       22,331  
                                 
Total
  $ --     $ 48,434     $  --     $ 48,434  
 
 
 
 
 
23

 
 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
9.           Subsequent Events

In accordance with FASB ASC 855, Subsequent Events, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements.  The effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of September 30, 2014.  In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The Company’s results of operations are primarily dependent on the results of the Bank, which became a wholly owned subsidiary upon completion of the second-step conversion and reorganization of the Bank on December 22, 2010. 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.

Home Federal Bank operates from its main office in Shreveport, Louisiana, four full service branch offices and an agency office located in Shreveport and Bossier City, Louisiana.  The Company’s primary market area is the Shreveport-Bossier City metropolitan area.  The Company offers security brokerage and advisory services through a third party provider at its agency office, which also serves as the office for the commercial lending division and as a loan production office.  During the quarter ended September 30, 2014, the Bank opened its fifth full service banking office in Bossier City, Louisiana.

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, 2014 to September 30, 2014

General

At September 30, 2014, total assets amounted to $340.5 million compared to $329.5 million at June 30, 2014, an increase of approximately $11.0 million, or 3.3%. The increase in assets was comprised primarily of increases in investment securities of $7.7 million, or 15.3%, from $50.2 million at June 30, 2014, to $57.9 million at September 30, 2014, loans held-for-sale of $1.7 million, or 17.7%, from $9.4 million at June 30, 2014 to $11.0 million at September 30, 2014, and loans receivable net of $8.7 million, or 3.7%, from $239.6 million at June 30, 2014, to $248.3 million at September 30, 2014, partially offset by a decrease in cash and cash equivalents of $8.8 million, or 64.8%, from $13.6 million at June 30, 2014 to $4.8 million at September 30, 2014.

 
 
 
 
 
 
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Discussion of Financial Condition Changes from June 30, 2014 to September 30, 2014 (continued)

Cash and Cash Equivalents

Cash and cash equivalents decreased $8.8 million, or 64.8%, from $13.6 million at June 30, 2014 to $4.8 million at September 30, 2014. The $8.8 million decrease in cash and cash equivalents was due in large part to a single deposit relationship with a transitory deposit during the fourth quarter which had a balance of approximately $30.6 million at June 30, 2014, that was fully withdrawn at September 30, 2014.

Loans Receivable, Net

Loans receivable, net, increased by $8.7 million, or 3.7%, to $248.3 million at September 30, 2014 compared to $239.6 million at June 30, 2014.  During the three months ended September 30, 2014, our total loan originations amounted to $71.9 million compared to $54.6 million for the three months ended September 30, 2013.  The increase in loans receivable, net, was primarily due to increases in one- to four-family residential loans of $6.7 million, home equity lines of credit of $2.4 million, land loans of $2.6 million, commercial business loans of $1.3 million, residential construction loans of $861,000 and consumer loans of $45,000, partially offset by decreases in  multi-family residential loans of $4.4 million, commercial real estate loans of $712,000 and equity and second mortgage loans of $245,000.

Loans Held-for-Sale

Loans held-for-sale increased $1.7 million, or 17.7%, from $9.4 million at June 30, 2014 to $11.0 million at September 30, 2014.  The increase in loans held-for-sale results primarily from an increase at September 30, 2014 in receivables from financial institutions purchasing the Company’s loans held-for-sale and an increase in the origination volume during the first quarter of fiscal 2015.

Investment Securities

Investment securities amounted to $57.9 million at September 30, 2014 compared to $50.2 million at June 30, 2014, an increase of $7.7 million, or 15.3%. The increase in investment securities was primarily due to the acquisition of mortgage backed securities in the amount of $9.8 million, partially offset by principal payments on securities of $2.5 million.

Premises and Equipment, Net

Premises and equipment, net, increased $1.5 million, to $10.0 million at September 30, 2014, compared to $8.5 million at June 30, 2014, primarily due to the completion costs on a new branch location in Bossier City and the acquisition of real estate for a future branch location.

Asset Quality

At September 30, 2014, the Company had $108,000 of non-performing assets compared to $178,000 of non-performing assets at June 30, 2014, consisting of two single-family residential loans and one non-performing line of credit at September 30, 2014, compared to one single family residential loan and one non-performing line of credit at June 30, 2014. At September 30, 2014, the Company had one single family residential loan classified as substandard compared to none at June 30, 2014. The Company had one commercial loan secured by real estate classified as doubtful at September 30, 2014 in the amount of $64,000, one single-family residential loan classified as doubtful in the amount of $151,000 at June 30, 2014 and one line of credit classified as doubtful in the amount of $27,000 at both September 30, 2014 and June 30, 2014.
 
 
 
 
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Discussion of Financial Condition Changes from June 30, 2014 to September 30, 2014 (continued)

Total Liabilities

Total liabilities increased $11.1 million, or 3.9%, from $286.8 million at June 30, 2014, to $297.8 million at September 30, 2014, primarily due to an increase in advances from the Federal Home Loan Bank in Dallas of $30.7 million, or 238.0%, to $43.6 million at September 30, 2014, compared to $12.9 million at June 30, 2014, partially offset by a decrease in total deposits of $20.3 million, or 7.4%, to $252.0 million at September 30, 2014, compared to $272.3 million at June 30, 2014.  The decrease in deposits was primarily due to a $27.0 million, or 37.4% decrease in money market deposits from $72.2 million at June 30, 2014 to $45.2 million at September 30, 2014, and a decrease in non-interest bearing demand deposits of $3.0 million, or 6.9%, from $43.4 million at June 30, 2014 to $40.4 million at September 30, 2014, partially offset by increases in certificates of deposit of $6.5 million, or 5.4%, from $120.4 million at June 30, 2014 to $126.9 million at September 30, 2014 and NOW accounts of $2.3 million, or 9.4%, from $24.0 million at June 30, 2014 to $26.3 million at September 30, 2014. The decrease in money market deposits was primarily due to a transitory deposit in the fourth quarter of fiscal 2014 which had a balance of approximately $30.6 million at June 30, 2014. The deposit was short-term in nature and was fully withdrawn as of September 30, 2014.  At both September 30, 2014 and June 30, 2014 the Company had $12.7 million in brokered deposits. The Company utilizes brokered certificates of deposit as a component of its strategy for lowering Home Federal Bank’s overall cost of funds. The brokered certificates of deposit which have maturity dates greater than twelve months are callable by Home Federal Bank after twelve months pursuant to early redemption provisions.  The increase in advances from the Federal Home Loan Bank of Dallas was related to the $30.6 million withdrawal from a money market account as described above.

Shareholders’ Equity

Shareholders’ equity decreased $121,000, or 0.3%, to $42.7 million at September 30, 2014, from $42.8 million at June 30, 2014.  The primary reasons for the decrease in shareholders’ equity from June 30, 2014, were the acquisition of treasury stock in the amount of $756,000, a decrease in the Company’s accumulated other comprehensive income of $158,000, and dividends paid of $156,000.  These decreases were partially offset by net income of $823,000, the vesting of restricted stock awards, stock options and the release of employee stock ownership shares totaling $109,000, and proceeds from the issuance of common stock from the exercise of stock options of $17,000.  The Company’s book value per share increased from $19.08 at June 30, 2014 to $19.36 at September 30, 2014 based on shares outstanding of 2,241,967 and 2,203,442, respectively.

The Bank is required to meet minimum capital standards promulgated by the Office of the Comptroller of the Currency (“OCC”).  At September 30, 2014, Home Federal Bank’s regulatory capital was well in excess of the minimum capital requirements.

Comparison of Operating Results for the Three Month Periods Ended September 30, 2014 and 2013

General

Net income amounted to $823,000 for the three months ended September 30, 2014 compared to $713,000 for the same period in 2013, an increase of $110,000 or 15.4%.  The increase was primarily due to a $274,000 or 10.1%, increase in net interest income, a $25,000 or 4.1%, increase in non-interest income, and a $26,000 or 39.4%, decrease in the provision for loan losses, partially offset by an increase of $155,000, or 7.1%, in non-interest expense and a $60,000 or 17.4%, increase in income tax expense for the 2014 period compared to the same period in 2013.

The increase in net interest income for the three months ended September 30, 2014 was primarily due to an increase in total interest income and a decrease in the Company’s cost of funds for the three months ended September 30, 2014, compared to the prior year period.  The increase in non-interest expense was primarily due to increases in compensation and benefit expense, loan and collection expense, data processing expense, advertising, occupancy and equipment expense and other non-interest expense, partially offset by decreases in legal fees, audit and examination fees, deposit insurance premiums and franchise and bank shares tax.
 
 
 
 
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Comparison of Operating Results for the Three Month Periods Ended September 30, 2014 and 2013 (continued)

Net Interest Income

Net interest income for the three months ended September 30, 2014 was $3.0 million, an increase of $274,000, or 10.1%, in comparison to $2.7 million for the three months ended September 30, 2013.  This increase was primarily due to an increase of $224,000, or 6.7%, in total interest income and a decrease of $50,000 or 7.9%, in the Company’s cost of funds. The cost of funds from Federal Home Loan Bank borrowings decreased $3,000, or 6.3%, compared to the prior year three month period while interest paid on deposits decreased $40,000, or 7.0%, compared to the prior year three month period.

The Company’s average interest rate spread was 3.63% for the three months ended September 30, 2014, compared to 3.65% for the three months ended September 30, 2013.  The Company’s net interest margin was 3.83% for the three months ended September 30, 2014 compared to 3.91% for the three months ended September 30, 2013.  The decrease in net interest margin and average interest rate spread for the three month periods is attributable primarily to a higher volume of interest earning assets and decreasing interest rates.

Provision for Losses on Loans

Based on an analysis of historical experience, the volume and type of lending conducted by Home Federal Bank, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to our market area and other factors related to the collectability of Home Federal Bank’s loan portfolio, a provision for loan losses of $40,000 was made during the three months ended September 30, 2014, compared to a $66,000 provision made during the three months ended September 30, 2013. The allowance for loan losses was $2.3 million, or 0.91% of total loans receivable, at September 30, 2014 compared to $2.3 million, or 1.10%, of total loans receivable at September 30, 2013.  At September 30, 2014, Home Federal Bank had three non-performing loans in the aggregate amount of $108,000 and no other non-performing assets or troubled-debt restructurings. At June 30, 2014, Home Federal had two non-performing loans in the amount of $178,000. 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 $629,000 for the three months ended September 30, 2014, an increase of $25,000 or 4.1% compared to $604,000 for the same period in 2013.  The increase was due to an increase of $26,000 in service charges on deposit accounts and $6,000 in other non-interest income, partially offset by decreases of $4,000 in gain on sale of loans and $3,000 in income on bank owned life insurance compared to the same period in 2013.

Non-interest Expense

Total non-interest expense increased $155,000, or 7.1%, for the three months ended September 30, 2014 compared to the prior year period.  The increase in non-interest expense was primarily due to increases of $118,000 in compensation and benefits expense, $34,000 in occupancy and equipment expense, $34,000 in loan collection expense, $11,000 in advertising expense, $4,000 in other non-interest expense and $4,000 in data processing expense.  These increases were partially offset by decreases of $24,000 in legal fees, $20,000 in franchise and bank shares tax, $4,000 in audit and examination fees, and $2,000 in deposit insurance premiums.

The increases in compensation and benefits expense were a result of normal compensation and benefits increases, including stock option and recognition and retention plan expense, and the hiring of additional commercial and residential loan officers.  The aggregate compensation expense recognized by the Company for its Stock Option, ESOP and Recognition and Retention Plans amounted to $157,000 for the three months ended September 30, 2014, compared to $143,000 for the three months ended September 30, 2013.
 
 
 
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Comparison of Operating Results for the Three Month Periods Ended September 30, 2014 and 2013 (continued)

The Louisiana bank shares tax is assessed on the Bank’s equity and earnings.  For the three months ended September 30, 2014, the Company recognized franchise and bank shares tax expense of $73,000 compared to $93,000 for the same period in 2013.

Income Taxes

Income taxes amounted to $404,000 for the three months ended September 30, 2014, resulting in an effective tax rate of 32.9%. Income taxes amounted to $344,000 for the three months ended September 30, 2013, resulting in an effective tax rate of 32.5%.  The increase in the effective income tax rate for the three months ended September 30, 2014, compared to the prior year period, is primarily the result of the effect of non-taxable income resulting in a 0.4% increase, in rate for the three months ended September 30, 2014.

Average Balances, Net Interest Income, Yields Earned and Rates Paid.  The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be. 

   
Three Months Ended September 30,
 
   
2014
   
2013
 
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
 
   
(Dollars In Thousands)
 
Interest-earning assets:
                                   
     Investment securities 
  $ 53,820     $ 245       1.82 %   $ 55,312     $ 277       2.00 %
     Loans receivable    
    252,870       3,307       5.23       215,741       3,050       5.65  
Interest-earning deposits
    4,191       3       0.28       5,314       4        0.31  
          Total interest-earning assets
    310,881       3,555       4.57       276,367       3,331       4.82  
Non-interest-earning assets 
    22,595                       19,241                  
          Total assets 
  $ 333,476                     $ 295,608                  
Interest-bearing liabilities:
                                               
     Savings accounts  
    12,788       6       0.20       10,001       6       0.24  
     NOW accounts   
    26,227       45       0.69       25,535       68       1.06  
     Money market accounts   
    45,002       41       0.36       44,026       45       0.41  
     Certificate accounts   
    125,386       443       1.41       113,641       456       1.61  
          Total deposits                       
    209,403       535       1.02       193,203       575       1.19  
Other Borrowings
    --       --       --       733       7       4.01  
FHLB advances            
    36,608       45       0.49       21,864       48       0.88  
          Total interest-bearing liabilities
    246,011       580        0.94 %     215,800         630       1.17 %
Non-interest-bearing liabilities:
                                               
     Non-interest bearing demand accounts
    38,805                       33,963                  
     Other liabilities               
    2,278                       1,601                  
          Total liabilities   
    287,094                       251,364                  
Total Stockholders’ Equity(1) 
    46,382                       44,244                  
                                                 
          Total liabilities and equity
  $ 333,476                     $ 295,608                  
                                                 
Net interest-earning assets                        
  $ 64,870                     $ 60,567                  
                                                 
Net interest income; average interest rate spread(2)
          $ 2,975       3.63 %           $ 2,701        3.65 %
Net interest margin(3)  
                    3.83 %                     3.91 %
Average interest-earning assets to average
  interest-bearing liabilities        
                    126.37 %                     128.07 %
 __________________
(1)
Includes retained earnings and accumulated other comprehensive loss.
(2)
Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities.
(3)
Net interest margin is net interest income divided by net average interest-earning assets.
 
 
 
 
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Comparison of Operating Results for the Three Month Periods Ended September 30, 2014 and 2013 (continued)

Liquidity and Capital Resources

Home Federal Bank maintains levels of liquid assets deemed adequate by management.  The Bank adjusts its liquidity levels to fund deposit outflows, repay its borrowings and to fund loan commitments.  Home Federal Bank also adjusts liquidity as appropriate to meet asset and liability management objectives.

Home Federal Bank’s primary sources of funds are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, loan sales and earnings and funds provided from operations.  While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.  The Bank sets the interest rates on its deposits to maintain a desired level of total deposits.  In addition, Home Federal Bank invests excess funds in short-term interest-earning accounts and other assets, which provide liquidity to meet lending requirements.  Home Federal Bank’s deposit accounts with the Federal Home Loan Bank of Dallas amounted to $40,000 at September 30, 2014.

A significant portion of Home Federal Bank’s liquidity consists of securities classified as available-for-sale and cash and cash equivalents.   Home Federal Bank’s primary sources of cash are net income, principal repayments on loans and mortgage-backed securities and increases in deposit accounts.  If Home Federal Bank requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas which provides an additional source of funds.  At September 30, 2014, Home Federal Bank had $43.6 million in advances from the Federal Home Loan Bank of Dallas and had $106.4 million in additional borrowing capacity.  Additionally, at September 30, 2014, 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 $16.3 million. There were no amounts purchased under this agreement as of September 30, 2014.

At September 30, 2014, Home Federal Bank had outstanding loan commitments of $31.9 million to originate loans.  At September 30, 2014, certificates of deposit scheduled to mature in less than one year totaled $58.7 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, the cost of such deposits could be significantly higher upon renewal in a rising interest rate environment.  Home Federal Bank intends to utilize its high levels of liquidity to fund its lending activities.  If additional funds are required to fund lending activities, Home Federal Bank intends to sell its securities classified as available-for-sale as needed.

At September 30, 2014, Home Federal Bank exceeded each of its regulatory capital requirements with tangible, core and risk-based capital ratios of 12.29%, 12.29% and 20.83%, respectively.

Off-Balance Sheet Arrangements

At September 30, 2014, the Company did not have any off-balance sheet arrangements, as defined by Securities and Exchange Commission rules.

Impact of Inflation and Changing Prices

The financial statements and related financial data presented herein have been prepared in accordance with instructions to Form 10-Q, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation.

Unlike most industrial companies, virtually all of the Company’s assets and liabilities are monetary in nature.  As a result, interest rates generally have a more significant impact on a financial institution’s performance than does the effect of inflation.
 
 

 
 
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Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by and information currently available to management.  In addition, in those and other portions of this document, the words “anticipate,” “believe,” “estimate,” “except,” “intend,” “should” and similar expressions, or the negative thereof, as they relate to the Company or the Company’s management, are intended to identify forward-looking statements.  Such statements reflect the current views of the Company with respect to future looking events and are subject to certain risks, uncertainties and assumptions.  Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary from those described herein as anticipated, believed, estimated, expected or intended.  The Company does not intend to update these forward-looking statements.

ITEM 3.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.                      CONTROLS AND PROCEDURES

Evaluation of Disclosures Controls and Procedures.   Under the supervision and with the participation of our management, including our Chief Executive Officer and our President and Chief Operating Officer (together, the co-principal executive officers) and our Chief Financial Officer (principal financial officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer, the President and Chief Operating Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the applicable time periods specified by the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control over Financial Reporting.  There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

ITEM 1.                      LEGAL PROCEEDINGS

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition of the Company.

ITEM 1A.                      RISK FACTORS

Not applicable.
 
 
 
 
 
 
 
 
 
 
 
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ITEM 2.                      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)
Not applicable.
(b)
Not applicable.
(c)
Purchases of Equity Securities

The Company’s repurchases of its common stock made during the quarter ended September 30, 2014 are set forth in the table below:
 
Period
 
Total Number of
Shares
Purchased
   
Average
 Price Paid
per Share
   
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
   
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (a)
 
July 1, 2014 – July 31, 2014
    31,000     $ 18.83       31,000       74,772  
August 1, 2014 – August 31, 2014
    9,057       19.05       9,057       65,712  
September 1, 2014 –September 30, 2014
    --       --       --       65,715  
Total
    40,057     $ 18.88       40,057       65,715  
______________
Notes to this table:
 
(a)
On January 28, 2014, the Company announced by press release a repurchase program to repurchase up to 115,000 shares, or approximately 5.0% of the Company’s outstanding shares of common stock. The repurchase program does not have an expiration date.

ITEM 3.                      DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.                      MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.                      OTHER INFORMATION

Not applicable.

ITEM 6.                      EXHIBITS

 
 
No.
 
 
Description
   
31.1
 
Rule 13a-14(a)/15d-14(a) Certification of Co-Principal Executive Officer
   
31.2
 
Rule 13a-14(a)/15d-14(a) Certification of Co-Principal Executive Officer
   
31.3
 
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
   
32.0
 
Certification Pursuant to 18 U.S.C Section 1350
       101.INS  
XBRL Instance Document
 
        101.SCH  
XBRL Taxonomy Extension Schema Document
 
    101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
        101.LAB  
XBRL Taxonomy Extension Label Linkbase Document
 
        101.PRE  
XBRL Taxonomy Extension Presentation Linkbase Document
 
        101.DEF  
XBRL Taxonomy Extension Definitions Linkbase Document
 

 
 
 
 
 
 
 
 
 
 
 
 
 
32

 
 
SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
     
     
     
Date:   November 10, 2014
By:
/s/Glen W. Brown
 
 
Glen W. Brown
Senior Vice President and Chief Financial Officer
(Duly authorized officer and principal financial and
accounting officer)