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

form10q.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM 10-Q
(Mark One)
T
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended:
March 31, 2014
or
 
G
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.   TYes     G 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).         TYes    G 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                                                      G                                Accelerated filer                                           G
Non-accelerated filer                                                        G                                Smaller reporting company                        T
(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).
G Yes      T No
 
Shares of common stock, par value $.01 per share, outstanding as of May 9, 2014: The registrant had 2,238,181 shares of common stock outstanding.
 
 
 
 

 
 
INDEX


PART I - FINANCIAL INFORMATION
Page
 
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
24
 
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
33
     
Item 4:
Controls and Procedures
33
     
PART II - OTHER INFORMATION
 
Item 1:
Legal Proceedings
 33
 
Item 1A:
Risk Factors
 33
 
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
 33
 
Item 3:
Defaults Upon Senior Securities
 34
 
Item 4:
Mine Safety Disclosures
 34
 
Item 5:
Other Information
 34
 
Item 6:
Exhibits
 34
 
SIGNATURES
 
 
 

 
 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
 
                 
     
March 31, 2014
     
June 30, 2013
 
     
(Dollars In Thousands)
 
ASSETS                
  Cash and Cash Equivalents (Includes Interest-Bearing
             Deposits with Other Banks of $123 and $1,028 for
             March 31, 2014 and June 30, 2013, Respectively)
  $  6,649     $  3,685  
Securities Available-for-Sale
    40,094       47,961  
Securities Held-to-Maturity
    1,113       1,465  
Loans Held-for-Sale
    6,795       3,464  
Loans Receivable, Net of Allowance for Loan Losses
of $2,346 and $2,240, Respectively
    218,731       206,079  
Accrued Interest Receivable
    914       774  
Premises and Equipment, Net
    7,814       6,559  
Bank Owned Life Insurance
    6,161       6,030  
Deferred Tax Asset
    813       775  
Other Assets
    440       363  
                 
Total Assets
  $ 289,524     $ 277,155  
   
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
                 
LIABILITIES
               
   Deposits
  $ 229,246     $ 211,922  
Advances from Borrowers for Taxes and Insurance
    222       277  
Advances from Federal Home Loan Bank of Dallas
    17,454       21,662  
Other Bank Borrowings
    --       500  
Other Accrued Expenses and Liabilities
    623       812  
 
Total Liabilities
    247,545       235,173  
                 
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
   2,243,047 Shares Outstanding at March 31, 2014;
   2,351,950 Shares Outstanding at June 30, 2013
        34           32  
Additional Paid-in Capital
    32,675       32,218  
Treasury Stock, at Cost – 819,339 shares at March 31, 2014;
   710,436 at June 30, 2013
    (15,486 )     (13,168 )
Unearned ESOP Stock
    (1,590 )     (1,676 )
Unearned RRP Trust Stock
    (609 )     (863 )
Retained Earnings
    26,974       25,395  
Accumulated Other Comprehensive (Loss) Income
     (19 )     44  
                 
Total Stockholders’ Equity
    41,979       41,982  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 289,524     $ 277,155  
 
 
See accompanying notes to consolidated financial statements.
 
1

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

   
For the Three Months Ended
March 31,
   
For the Nine Months Ended
March 31,
 
   
2014
   
2013
   
2014
   
2013
 
   
(In Thousands, Except per Share Data)
 
INTEREST INCOME
                       
Loans, Including Fees
  $ 2,968     $ 2,880     $ 8,979     $ 8,564  
Investment Securities
    1       5       4       20  
Mortgage-Backed Securities
    235       383       780       1,314  
Other Interest-Earning Assets
    2        2       10        10  
Total Interest Income
    3,206       3,270       9,773        9,908  
                                 
INTEREST EXPENSE
                               
Deposits
    522       543       1,652       1,693  
Federal Home Loan Bank Borrowings
    37       1       125       4  
Other Bank Borrowings
    --        76       14        263  
Total Interest Expense
    559       620       1,791       1,960  
Net Interest Income
    2,647       2,650       7,982       7,948  
                                 
PROVISION FOR LOAN LOSSES
    30       214       118       441  
Net Interest Income after
Provision for Loan Losses
     2,617         2,436        7,864        7,507  
                                 
NON-INTEREST INCOME
                               
Gain on Sale of Real Estate
    129       --       129       --  
Gain on Sale of Loans
    360       655       1,240       1,992  
Gain on Sale of Securities
    1       --       35       215  
Income on Bank Owned Life Insurance
    43       44       131       141  
Other Income
    94       71       264       273  
Total Non-Interest Income
    627       770       1,799       2,621  
                                 
NON-INTEREST EXPENSE
                               
Compensation and Benefits
    1,474       1,403       4,204       4,068  
Occupancy and Equipment
    202       148       634       540  
Data Processing
    152       126       353       313  
Audit and Examination Fees
    57       52       163       158  
Franchise and Bank Shares Tax
    85       84       263       224  
Advertising
    62       61       195       181  
Legal Fees
    82       151       320       398  
Loan and Collection
    28       25       92       87  
Deposit Insurance Premium
    39       32       107       95  
Other Expense
    123       125       381       338  
Total Non-Interest Expense
    2,304       2,207       6,712       6,402  
                                 
Income Before Income Taxes
    940       999       2,951       3,726  
                                 
PROVISION FOR INCOME TAX EXPENSE
    302       323        955       1,231  
Net Income
 
  638
    $ 676     $  1,996     $ 2,495  
EARNINGS PER COMMON SHARE:
                               
Basic
  $
   0.31
    $ 0.31     $ 0.96     $ 1.04  
Diluted
  $
    0.31
    $ 0.30     $ 0.94     $ 1.01  
DIVIDENDS DECLARED
  $
    0.06
    $ 0.06     $  0.18     $ 0.18  
 
See accompanying notes to consolidated financial statements.
 
2

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

   
For the Three Months Ended
March 31,
   
For the Nine Months Ended
March 31,
 
   
2014
   
2013
   
2014
   
2013
 
   
(In Thousands)
 
                         
Net Income
  $ 638     $ 676     $ 1,996     $ 2,495  
                                 
Other Comprehensive Income (Loss), Net of Tax
                               
   Unrealized Holding Gain (Loss) on Securities Available-for-Sale,
     Net of Tax of $28 and $27 in 2014, respectively, and $121 and
     $240 in 2013, respectively
    (55 )     (234 )     (53 )     (466 )
                                 
   Reclassification Adjustment for Gain Included in
     Net Income, Net of Tax of $0 and $5 in 2014, respectively, and
     $7 and $69 in 2013, respectively
       --        (14 )     (10 )     (134 )
                                 
        Net Other Comprehensive Income (Loss)
    (55 )     (248 )     (63 )     (600 )
                                 
        Total Comprehensive Income
  $
583
    $ 428     $ 1,933     $ 1,895  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
3

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED MARCH 31, 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, 2012
  $ 32     $ 31,199     $ (1,792 )   $ (1,114 )   $ 22,897     $ (2,706 )   $ 1,372     $ 49,888  
                                                                 
Net Income
    --       --       --       --       2,495       --       --       2,495  
                                                                 
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
      --         --         --         --         --         --       (600 )     (600 )
                                                                 
RRP Shares Earned
    --       --       --       251       --       --       --       251  
                                                                 
Stock Options Vested
    --       125       --       --       --       --       --       125  
                                                                 
Common Stock Issuance for Stock
    Option Exercises
    --        742       --       --       --       --       --       742  
                                                                 
ESOP Compensation Earned
    --       62       87       --       --       --       --       149  
                                                                 
Acquisition of Treasury Stock
    --       --       --       --       --       (10,244 )     --       (10,244 )
                                                                 
Dividends Declared
    --       --       --       --       (492 )     --       --        (492 )
                                                                 
BALANCE – March 31, 2013
  $ 32     $ 32,128     $ (1,705 )   $ (863 )   $ 24,900     $ (12,950 )   $ 772     $  42,314  
                                                                 
BALANCE – June 30, 2013
  $ 32     $ 32,218     $ (1,676 )   $ (863 )   $ 25,395     $ (13,168 )   $ 44     $ 41,982  
                                                                 
Net Income
    --       --       --       --       1,996       --       --       1,996  
                                                                 
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
      --         --         --         --         --         --       (63 )     (63 )
                                                                 
RRP Shares Earned
    --       --       --       254       --       --       --       254  
                                                                 
Stock Options Vested
    --       122       --       --       --       --       --       122  
                                                                 
Common Stock Issuance for Stock
    Option Exercises
    2       270       --       --       --       --       --       272  
                                                                 
ESOP Compensation Earned
    --       65       86       --       --       --       --       151  
                                                                 
Acquisition of Treasury Stock
    --       --       --       --       --       (2,318 )     --       (2,318 )
                                                                 
Dividends Declared
    --       --       --       --       (417 )     --       --       (417 )
                                                                 
BALANCE – March  31, 2014
  $ 34     $ 32,675     $ (1,590 )   $ (609 )   $ 26,974     $ (15,486 )   $ (19 )   $ 41,979  
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
4

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
   
   
Nine Months Ended
 
   
March 31,
 
   
2014
   
2013
 
   
(In Thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Income
  $ 1,996     $ 2,495  
Adjustments to Reconcile Net Income to Net
               
Cash (Used in) Provided by Operating Activities
               
Net Amortization and Accretion on Securities
    50       13  
Gain on Sale of Securities
    (35 )     (215 )
Gain on Sale of Loans
    (1,240 )     (1,991 )
Amortization of Deferred Loan Fees
    (65 )     (197 )
Depreciation of Premises and Equipment
    223       156  
ESOP Expense
    151       149  
Stock Option Expense
    122       125  
Recognition and Retention Plan Expense
    157       157  
Deferred Income Tax
    (5 )     (120 )
Provision for Loan Losses
    118       441  
Increase in Cash Surrender Value on Bank Owned Life Insurance
    (131 )     (141 )
Gain on Sale of Real Estate
    (129 )     --  
Changes in Assets and Liabilities:
               
Loans Held-for-Sale – Originations
    (49,753 )     (84,719 )
Loans Held-for-Sale – Sale and Principal Repayments
    47,661       93,693  
Accrued Interest Receivable
    (140 )     37  
Other Operating Assets
    (78 )     329  
Other Operating Liabilities
     (93 )     (623 )
                 
Net Cash (Used In) Provided by Operating Activities
     (1,191 )     9,589  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Loan Originations and Purchases, Net of Principal Collections
    (12,812 )     (28,480 )
Deferred Loan Fees Collected
    108       81  
Acquisition of Premises and Equipment
    (1,914 )     (1,270 )
Proceeds from Sale of Real Estate
    566       --  
Activity in Available-for-Sale Securities:
               
Proceeds from Sales of Securities
    13,019       34,638  
Principal Payments on Mortgage-Backed Securities
    8,029       11,282  
Purchases of Securities
    (13,292 )     (31,515 )
Activity in Held-to-Maturity Securities:
               
Redemption Proceeds
    488       107  
Purchases of Securities
      (136 )     (646 )
                 
Net Cash Used in Investing Activities
     (5,944 )     (15,803 )
 
 
 
See accompanying notes to consolidated financial statements.
 
5

 
 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
(Unaudited)
 
   
   
Nine Months Ended
 
   
March 31,
 
   
2014
   
2013
 
   
(In Thousands)
 
CASH FLOWS FROM FINANCING ACTIVITIES
     
Net Increase (Decrease) in Deposits
  $ 17,324     $ (18,368 )
Proceeds from Federal Home Loan Bank Advances
    401,850       162,400  
Repayments of Advances from Federal Home Loan Bank
    (406,057 )     (156,123 )
Net Decrease in Advances from Borrowers for Taxes and Insurance
    (55 )     (40 )
Dividends Paid
    (417 )     (492 )
Acquisition of Treasury Stock
    (2,113 )     (10,085 )
Proceeds from Stock Options Exercised
    67       583  
Proceeds from other Bank Borrowings
    300        1,500  
Repayment of Other Bank Borrowings
    (800 )     1,000  
                 
Net Cash Provided by (Used In) Financing Activities
    10,099       (21,625 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    2,964       (27,839 )
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
    3,685       34,863  
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
  $ 6,649     $ 7,024  
                 
SUPPLEMENTARY CASH FLOW INFORMATION
               
Interest Paid on Deposits and Borrowed Funds
  $ 1,797     $  1,979  
Income Taxes Paid
    884       1,353  
Market Value Adjustment for Loss on Securities Available-for-Sale
    (95 )     (909 )
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to 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 nine month period ended March 31, 2014, are not necessarily indicative of the results which may be expected for the fiscal year ending June 30, 2014.

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 March 31, 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 four 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 March 31, 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 significant 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.

2.           Securities

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

   
March 31, 2014
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
Securities Available-for-Sale
 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Debt Securities
                       
  FHLMC Mortgage-Backed Certificates
  $ 325     $ 13     $ --     $ 338  
  FNMA Mortgage-Backed Certificates
    15,464       701       101       16,064  
  GNMA Mortgage-Backed Certificates
    24,334       7       649       23,692  
                                 
          Total Debt Securities
    40,123       721       750       40,094  
                                 
    Total Securities Available-for-Sale
  $
40,123
    $
721
   
750
    $
40,094
 
                                 
Securities Held-to-Maturity
                               
                                 
Equity Securities (Non-Marketable)
                               
  8,633 Shares – Federal Home Loan Bank
  $ 863     $ --     $ --     $ 863  
  630 Shares – First National Bankers Bankshares, Inc.
     250        --        --        250  
                                 
          Total Equity Securities
    1,113       --       --       1,113  
                                 
    Total Securities Held-to-Maturity
 
$1,113
   
--
   
--
   
1,113
 

 
 
 
 
 
 
 
 
 
 
 
 
10

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

   
June 30, 2013
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
Securities Available-for-Sale
 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Debt Securities
                       
  FHLMC Mortgage-Backed Certificates
  $ 397     $ 19     $  --     $ 416  
  FNMA Mortgage-Backed Certificates
    11,185       775       --       11,960  
  GNMA Mortgage-Backed Certificates
    36,312       10       737       35,585  
                                 
          Total Debt Securities
    47,894       804       737       47,961  
                                 
          Total Securities Available-for-Sale
  $  47,894     $ 804     $ 737     $ 47,961  
                                 
Securities Held-to-Maturity
                               
                                 
Equity Securities (Non-Marketable)
                               
  12,149 Shares – Federal Home Loan Bank
  $  1,215     $ --     $ --     $ 1,215  
  630 Shares – First National Bankers Bankshares, Inc.
     250          --        --        250  
                                 
          Total Equity Securities
    1,465        --        --       1,465  
                                 
          Total Securities Held-to-Maturity
  $ 1,465     $ --     $ --     $ 1,465  

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2014, follows:

   
Available-for-Sale
   
Held-to-Maturity
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
   
(In Thousands)
 
                         
Within One Year or Less
  $ 3     $ 3     $ --     $ --  
One through Five Years
    282       290       --       --  
After Five through Ten Years
    184       189       --       --  
Over Ten Years
     39,654        39,612        --        --  
                                 
   Total
  $ 40,123     $ 40,094     $ --     $ --  

For the nine months ended March 31, 2014, proceeds from the sale of securities available-for-sale amounted to $13.0 million. Gross realized gains amounted to $35,000 for the nine months ended March 31, 2014.

 
 
 
 
 
 
 
11

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

The following tables show information pertaining to gross unrealized losses on securities available-for-sale at March 31, 2014 and June 30, 2013 aggregated by investment category and length of time that individual securities have been in a continuous loss position.  There were no unrealized losses on securities held-to-maturity at March 31, 2014 or June 30, 2013.

   
March 31, 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
  $ 101     $ 1,879     $ 649     $ 23,550  
                                 
        Total Securities Available-for-Sale
  $ 101     $ 1,879     $ 649     $ 23,550  
                                 
 
   
June 30, 2013
 
   
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
  $ 737     $ 27,875     $ --     $ --  
                                 
        Total Securities Available-for-Sale
  $ 737     $ 27,875     $ --     $ --  

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.

At March 31, 2014, securities with a carrying value of $10.5 million were pledged to secure public deposits, and securities and mortgage loans with a carrying value of $100.1 million were pledged to secure FHLB advances.

 
 
 
 
 
 
 
 
 
 
 
 
12

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Loans receivable are summarized as follows:

     March 31, 2014     June 30, 2013   
     (In Thousands)  
             
 Loans Secured by Mortgages on Real Estate            
One- to Four-Family Residential
  $ 82,315     $ 73,243  
Commercial
    49,834       51,169  
Multi-Family Residential
    19,587       19,587  
Land
    17,577       15,589  
Construction
    13,464       16,937  
Equity and Second Mortgage
    2,538       2,305  
Equity Lines of Credit
    13,368       12,592  
Total Mortgage Loans
    198,683       191,422  
                 
Commercial Loans
    22,242       16,776  
Consumer Loans
               
Loans on Savings Accounts
    350       259  
Automobile and Other Consumer Loans
    110       128  
Total Consumer and Other Loans
    460       387  
Total Loans
    221,385       208,585  
                 
Less:  Allowance for Loan Losses
    (2,346 )     (2,240 )
       Unamortized Loan Fees
    (308 )     (266 )
   Net Loans Receivable
  $ 218,731     $ 206,079  
 
Following is a summary of changes in the allowance for loan losses:
 
   
Nine Months Ended March 31,
 
   
2014
 
2013
 
   
(In Thousands)
 
             
Balance - Beginning of Period
  $ 2,240     $ 1,698  
Provision for Loan Losses
    118       441  
Loan Charge-Offs
    (12 )      (15 )
                 
Balance - End of Period
  $ 2,346     $ 2,124  

Credit Quality Indicators

The Company segregates loans into risk categories based on the pertinent information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans according to credit risk.  Loans classified as substandard or identified as special mention are reviewed quarterly by management to evaluate the level of deterioration, improvement, and impairment, if any, as well as assign the appropriate risk category.

Loans excluded from the scope of the quarterly review process above are generally identified as pass credits until:  (a) they become past due; (b) management becomes aware of 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.
 
 
 
13

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

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 March 31, 2014 and June 30, 2013:
 
           Special                    
March 31, 2014
  Pass      Mention      Substandard      Doubtful      Total  
 
          (In Thousands)        
Real Estate Loans:                                        
  One- to Four-Family Residential
  $ 81,848     $ 396     $ 71     $ --     $ 82,315  
  Commercial
    49,505       329       --       --       49,834  
  Multi-Family Residential
    19,587       --       --       --       19,587  
  Land
    17,577       --       --       --       17,577  
  Construction
    13,464       --       --       --       13,464  
  Equity and Second Mortgage
    2,538       --       --       --       2,538  
  Equity Lines of Credit
    13,252       89       --       27       13,368  
Commercial Loans
    22,242       --       --       --       22,242  
Consumer Loans
     460        --       --       --        460  
     Total
  $ 220,473     $ 814     $ 71     $ 27     $ 221,385  
                                         

 
                     
June 30, 2013
 
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
   
(In Thousands)
 
Real Estate Loans:
                             
  One- to Four-Family Residential
  $ 72,595     $ 313     $ 335     $ --     $ 73,243  
  Commercial
    49,457       --       1,712       --       51,169  
  Multi-Family Residential
    19,587       --       --       --       19,587  
  Land
    15,589       --       --       --       15,589  
  Construction
    16,937       --       --       --       16,937  
  Equity and Second Mortgage
    2,305       --       --       --       2,305  
  Equity Lines of Credit
    12,476       89       --       27       12,592  
Commercial Loans
    13,545       --       3,231       --       16,776  
Consumer Loans
     387       --        --        --        387  
     Total
  $ 202,878     $ 402     $ 5,278     $ 27     $ 208,585  

 
 
 
 
 
14

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

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 March 31, 2014 and June 30, 2013:
 
                                         Recorded  
                                         Investment  
           60-89      Greater                  Total      >90 Days  
     30-59 Days      Days Past      Than 90      Total            Loans      and  
March 31, 2014    Past Due      Due      Days      Past Due      Current      Receivable      Accruing  
                  (In Thousands)              
Real Estate Loans:
                                         
  One- to Four-Family
     Residential
  $ 151     $ 89     $ 267     $ 507     $ 81,808     $ 82,315     $ 196  
  Commercial
    --       --       --       --       49,834       49,834       --  
  Multi-Family Residential
    --       --       --       --       19,587       19,587       --  
  Land
    --       --       --       --       17,577       17,577       --  
  Construction
    --       --       --       --       13,464       13,464       --  
  Equity and Second Mortgage
--       --       --       --       2,538       2,538       --  
  Equity Lines of Credit
    60       27       --       87       13,281       13,368       --  
Commercial Loans
    --       --       --       --       22,242       22,242       --  
Consumer Loans
    --       --       --       --       460       460       --  
     Total
  $ 211     $ 116     $ 267     $ 594     $ 220,791     $ 221,385     $ 196  
 
June 30, 2013
 
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
  $ 1,437     $ 925     $ 622     $ 2,984     $ 70,259     $ 73,243     $ 236  
  Commercial
    --       --       --       --       51,169       51,169       --  
  Multi-Family Residential
    --       --       --       --       19,587       19,587       --  
  Land
    --       --       --       --       15,589       15,589       --  
  Construction
    --       --       --       --       16,937       16,937       --  
  Equity and Second Mortgage
--       --       --       --       2,305       2,305       --  
  Equity Lines of Credit
    --       --       27       27       12,565       12,592       --  
Commercial Loans
    --       --       --       --       16,776       16,776       --  
Consumer Loans
    --       --        --       --        387        387        --  
     Total
  $ 1,437     $ 925     $ 649     $ 3,011     $ 205,574     $ 208,585     $ 236  

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 March 31, 2014 or June 30, 2013.
 
 
 
 
 
15

 
 
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 nine months ended March 31, 2014 and the year ended June 30, 2013, was as follows:

   
Real Estate Loans
                   
                                   Home                    
                                   Equity                    
                                   Loans                    
     1-4 Family            Multi-                  and Lines      Commercial      Consumer        
March 31, 2014   Residential      Commercial      Family      Land      Construction      of Credit      Loans     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
    187       48       (12 )     33       (23 )     3       (122 )     4       118  
Ending Balances
  $ 1,210     $ 386     $ 91     $ 160     $ 123     $ 88     $ 278     $ 10     $ 2,346  
                                                                         
Evaluated for Impairment:
                                                                     
   Individually
    --       --       --       --       --       --       --       --       --  
   Collectively
    1,210       386       91       160       123       88       278       10       2,346  
                                                                         
Loans Receivable:
                                                                       
Ending Balances - Total
  $ 82,315     $ 49,834     $ 19,587     $ 17,577     $ 13,464     $ 15,906     $ 22,242     $ 460     $ 221,385  
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                     
   Individually
    467       329       --       --       --       116       --       --       912  
   Collectively
  $ 81,848     $ 49,505     $ 19,587     $ 17,577     $ 13,464     $ 15,790     $ 22,242     $ 460     $ 220,473  
 
   
Real Estate Loans
                   
June 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
  $ 306     $ 185     $ 205     $ 270     $ 311     $ 110     $ 281     $ 30     $ 1,698  
Charge-Offs
    --       --       --       --       --       (16 )     --       --       (16 )
Recoveries
    --       --       --       --       --       --       --       --       --  
Current Provision
     717       153        (102 )      (143 )      (165 )      (9 )      131        (24 )     558  
Ending Balances
  $ 1,023     $ 338     $ 103     $ 127     $ 146     $ 85     $ 412     $ 6     $ 2,240  
                                                                         
Evaluated for Impairment:
                                                                     
  Individually
    --       --       --       --       --       --       --       --       --  
  Collectively
    1,023       338        103        127        146        85        412        6       2,240  
                                                                         
Loans Receivable:
                                                                     
Ending Balances - Total
  $ 73,243     $ 51,169     $ 19,587     $ 15,589     $ 16,937     $ 14,897     $ 16,776     $ 387     $ 208,585  
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                     
  Individually
    648       1,712       --       --       --       116       3,231       --       5,707  
  Collectively
  $ 72,595     $ 49,457     $ 19,587     $ 15,589     $ 16,937     $ 14,781     $ 13,545     $ 387     $ 202,878  

 
 
 
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 for the nine months ended March 31, 2013, was as follows:
 
   
Real Estate Loans
                   
                                   Home                    
                                    Equity                    
                                    Loans                    
     1-4 Family            Multi-                  and Lines      Commercial      Consumer        
March 31, 2013
   Residential       Commercial       Family       Land       Construction       of Credit       Loans       Loans       Total  
                     
(In Thousands)
                   
Allowance for loan losses:
                                     
Beginning Balances
  $ 306     $ 185     $ 205     $ 270     $ 311     $ 110     $ 281     $ 30     $ 1,698  
Charge-Offs
    --       --       --       --       --       (15 )     --       --       (15 )
Recoveries
    --       --       --       --       --       --       --       --       --  
Current Provision
    610       149       (110 )     (138 )     (150 )     (10 )     114       (24 )     441  
Ending Balances
  $ 916     $ 334     $ 95     $   132     $ 161     $ 85     $ 395     $ 6     $ 2,124  
                                                                         
Evaluated for Impairment:
                                                                   
   Individually
    --       --       --       --       --       --       --       --       --  
   Collectively
    916       334       95       132       161       85       395       6       2,124  
                                                                         
Loans Receivable:
                                                                       
Ending Balances - Total
$ 67,352     $ 51,450     $ 19,976     $ 15,899     $ 15,298     $ 12,828     $ 15,600     $ 404     $ 198,807  
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                   
   Individually
    768       972       --       --       --       116       3,704       --       5,560  
   Collectively
  $ 66,584     $ 50,478     $ 19,976     $ 15,899     $ 15,298     $ 12,712     $ 11,896     $ 404     $ 193,247  
 
The following tables present loans individually evaluated for impairment, segregated by class of loans, as of March 31, 2014 and June 30, 2013:
 
March 31, 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
  $ 467     $ 467     $ --     $ 467     $ --     $ 487  
  Commercial
    329       329       --       329       --       344  
  Multi-Family Residential
    --       --       --       --       --       --  
  Land
    --       --       --       --       --       --  
  Construction
    --       --       --       --       --       --  
  Equity and Second Mortgage
    --       --       --       --       --       --  
  Equity Lines of Credit
    116       116       --       116       --       116  
Commercial Loans
    --       --       --       --       --       --  
Consumer Loans
     --        --        --        --        --        --  
                                                 
Total
  $  912     $ 912     $  --     $ 912     $ --     $ 947  

June 30, 2013
 
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
  $ 648     $ 648     $  --     $ 648     $  --     $ 650  
  Commercial
    1,712       1,712       --       1,712       --       1,151  
  Multi-Family Residential
    --       --       --       --       --       --  
  Land
    --       --       --       --       --       --  
  Construction
    --       --       --       --       --       --  
  Equity and Second Mortgage
    --       --       --       --       --       --  
  Equity Lines of Credit
    116       116       --       116       --       116  
Commercial Loans
    3,231       3,231       --       3,231       --       3,534  
Consumer Loans
    --       --       --       --       --       --  
                                                 
          Total
  $ 5,707     $ 5,707     $ --     $ 5,707     $  --     $ 5,451  
 
 
 
17

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

The Bank has no commitments to loan additional funds to borrowers whose loans were previously in non-accrual status. Loans totaling $98,000 and $413,000 were in non-accrual status at March 31, 2014 and June 30, 2013, respectively. If the non-accrual loans had been accruing interest at their original contracted rates, approximate gross interest income that would have been recorded for the nine months ended March 31, 2014 and 2013, was $2,700 and $13,000, respectively.

4.           Deposits

Deposits at March 31, 2014 and June 30, 2013 consist of the following classifications:

   
March 31, 2014
   
June 30, 2013
 
   
(In Thousands)
 
Non-Interest Bearing
  $ 32,476     $ 26,027  
NOW Accounts
    26,977       24,625  
Money Markets
    43,703       39,482  
Passbook Savings
    11,846       9,524  
      115,002       99,658  
                 
Certificates of Deposit
    114,244       112,264  
                 
     Total Deposits
  $ 229,246     $ 211,922  

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 and nine months ended March 31, 2014 and 2013 were calculated as follows:
 
      Three Months Ended       Nine Months Ended  
     
March 31,
     
March 31,
 
      2014        2013        2014        2013  
         (In Thousands, Except Per Share Data)  
Net income
  $ 638     $ 676     $ 1,996     $ 2,495  
                                 
Weighted average shares outstanding - basic
    2,030       2,180       2,081       2,400  
Effect of dilutive common stock equivalents
     52          67        50       68  
Adjusted weighted average shares outstanding - diluted
    2,082       2,247       2,131       2,468  
                                 
Basic earnings per share
  $ 0.31     $ 0.31     $ 0.96     $ 1.04  
Diluted earnings per share
  $ 0.31     $ 0.30     $ 0.94     $ 1.01  

For the three months ended March 31, 2014 and 2013, there were outstanding options to purchase 236,935 and 275,162 shares, respectively, at a weighted average exercise price of $13.90 and $13.25 respectively, per share, and for the nine months ended March 31, 2014 and 2013, there were outstanding options to purchase 243,964 and 294,533 shares, respectively, at a weighted average exercise price of $13.85 and $13.20 per share, respectively. For the quarter and nine months ended March 31, 2014, 51,356 and 49,551 options, respectively were included in the computation of diluted earnings per share.
 
 
 
 
 
 
18

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
5.           Earnings Per Share (continued)

The following table presents the components of weighted average outstanding shares for purposes of calculating earnings per share:

   
Three Months Ended
March 31,
   
Nine Months Ended
March 31,
 
   
2014
   
2013
   
2014
   
2013
 
   
(In Thousands)
 
Average common shares issued
    3,062       3,062       3,062       3,062  
Average unearned ESOP shares
    (160 )     (171 )     (163 )     (174 )
Average unearned RRP shares
    (55 )     (69 )     (61 )     (75 )
Average treasury shares
    (817 )     (642 )     (757 )     (413 )
                                 
Weighted average shares outstanding
    2,030       2,180       2,081       2,400  

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 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 nine months ended March 31, 2014, 561 shares vested and were released from the 2005 Recognition Plan Trust and 1,125 shares remained in the 2005 Recognition Plan Trust at March 31, 2014.

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.  At March 31, 2014, 50,124 shares 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 nine months ended March 31, 2014, the Company recognized $157,000 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.  Both incentive stock options and non-qualified stock options may be granted under the 2005 Option Plan.  As of March 31, 2014, 49,041 options were outstanding under the 2005 Option Plan and 2,133 were available for future grant.
 
 
 
 
 
19

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Stock Option Plan (continued)

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.  As of March 31, 2014, 169,234 options had been granted under the 2011 Option Plan of which 3,516 options had been exercised 3,112 had been forfeited and 28,400 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 $2.5 million and $2.2 million at March 31, 2014 and June 30, 2013, respectively.

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.
 
 
 
 
20

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

                Mortgage Loans Held-for-Sale
Because these loans are normally disposed of within ninety days of origination, their carrying value closely approximates the fair value of such loans.

Loans Receivable
 
For variable-rate loans that re-price frequently and with no significant changes in credit risk, fair value approximates the carrying value.  Fair values for other loans are estimated using the discounted value of expected future cash flows. Interest rates used are those being offered currently for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest receivable approximates its fair value.

Deposit Liabilities
The fair values for demand deposit accounts are, by definition, equal to the amount payable on demand at the reporting date, that is, their carrying amounts.  Fair values for other deposit accounts are estimated using the discounted value of expected future cash flows. The discount rate is estimated using the rates currently offered for deposits of similar maturities.

Advances from Federal Home Loan Bank
The carrying amount of short-term borrowings approximates their fair value.  The fair value of long-term debt is estimated using discounted cash flow analyses based on current incremental borrowing rates for similar borrowing arrangements.

Off-Balance Sheet Credit-Related Instruments
Fair values for outstanding mortgage loan commitments to lend are based on fees currently charged to enter into similar agreements, taking into account the remaining term of the agreements, customer credit quality, and changes in lending rates.

The fair value of interest rate floors and caps contained in some loan servicing agreements and variable rate mortgage loan contracts are considered immaterial within the context of fair value disclosure requirements.  Accordingly, no fair value estimate is provided for these instruments.

The carrying amount and estimated fair values of the Company’s financial instruments were as follows:

   
March 31, 2014
   
June 30, 2013
 
   
Carrying
   
Estimated
   
Carrying
   
Estimated
 
   
Value
   
Fair Value
   
Value
   
Fair Value
 
   
(In Thousands)
 
Financial Assets
                       
   Cash and Cash Equivalents
  $ 6,649     $ 6,649     $ 3,685     $ 3,685  
   Securities Available-for-Sale
    40,094       40,094       47,961       47,961  
   Securities to be Held-to-Maturity
    1,113       1,113       1,465       1,465  
   Loans Held-for-Sale
    6,795       6,795       3,464       3,464  
   Loans Receivable
    218,731       221,859       206,079       206,055  
                                 
Financial Liabilities
                               
   Deposits
    229,246       226,770       211,922       211,130  
   Advances from FHLB
    17,454       17,770       21,662       22,045  
                                 
Off-Balance Sheet Items
                               
   Mortgage Loan Commitments
    249       249       291       291  
 
 
 
 
21

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

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.  SFAS No. 157 was issued to establish a uniform definition of fair value.  The definition of fair value is market-based as opposed to company-specific, and includes the following:

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

·
Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date;

·
Nullifies the guidance in EITF 02-3, which required the deferral of profit at inception of a transaction involving a derivative financial instrument in the absence of observable data supporting the valuation technique;

·
Eliminates large position discounts for financial instruments quoted in active markets and requires consideration of the company’s creditworthiness when valuing liabilities; and

·
Expands disclosures about instrument that are measured at fair value.

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.

 
 
 
 
22

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Fair values of assets and liabilities measured on a recurring basis at March 31, 2014 and June 30, 2013 are as follows:

   
Fair Value Measurements Using:
       
March 31, 2014
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
Total
 
         
(In Thousands)
       
Available-for-Sale
                 
Debt Securities
                 
   FHLMC Mortgage-Backed Certificates
  $ --     $ 338     $ 338  
   FNMA Mortgage-Backed Certificates
    --       16,064       16,064  
   GNMA Mortgage-Backed Certificates
    --       23,692       23,692  
                         
Total
  $ --     $ 40,094     $ 40,094  


   
Fair Value Measurements Using:
       
June 30, 2013
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
Total
 
         
(In Thousands)
       
Available-for-Sale
                 
Debt Securities
                 
   FHLMC Mortgage-Backed Certificates
  $ --     $ 416     $ 416  
   FNMA Mortgage-Backed Certificates
    --       11,960       11,960  
   GNMA Mortgage-Backed Certificates
    --       35,585       35,585  
                         
Total
  $  --     $ 47,961     $ 47,961  


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23

 
 
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, the Company’s wholly owned subsidiary. 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 and three 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 March 31, 2013, the Bank determined to relocate its agency office from leased property to a building at 222 Florida Street, Shreveport, Louisiana that had been held for sale.  The agency office relocation was completed during the quarter ended December 31, 2013.  The Bank completed its purchase of a parcel of land during the quarter ended December 31, 2013, located at 7964 East Texas Street, Bossier City, Louisiana, which will serve as the site of a future branch office.

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, 2013 to March 31, 2014

General

At March 31, 2014, the Company reported total assets of $289.5 million, an increase of $12.4 million, or 4.5%, compared to total assets of $277.2 million at June 30, 2013. The increase in assets was comprised primarily of increases in loans receivable, net of $12.7 million, or 6.1%, from $206.1 million at June 30, 2013, to $218.7 million at March 31, 2014, loans held-for-sale of $3.3 million, or 96.2%, from $3.5 million at June 30, 2013, to $6.8 million at March 31, 2014, cash and cash equivalents of $3.0 million, or 80.4%, from $3.7 million at June 30, 2013 to $6.6 million at March 31, 2014, and an increase in premises and equipment, net of $1.3 million, or 19.1%, from $6.6 million at June 30, 2013 to $7.8 million at March 31, 2014. These increases were partially offset by a decrease in investment securities of $8.2 million, or 16.6%, from $49.4 million at June 30, 2013, to $41.2 million at March 31, 2014. The increase in loans held-for-sale results primarily from an increase at March 31, 2014 in receivables from financial institutions purchasing the Company’s loans held-for-sale.

 
 
 
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Discussion of Financial Condition Changes from June 30, 2013 to March 31, 2014 (continued)

Cash and Cash Equivalents

Cash and cash equivalents increased $3.0 million, or 80.4%, from $3.7 million at June 30, 2013 to $6.6 million at March 31, 2014. The $3.0 million increase in cash and cash equivalents was due to normal increases in demand deposit accounts, partially offset by a decrease in federal funds balances.

Loans Receivable, Net

Loans receivable, net, increased by $12.7 million, or 6.1%, to $218.7 million at March 31, 2014 compared to $206.1 million at June 30, 2013.  During the nine months ended March 31, 2014, our total loan originations amounted to $169.8 million compared to $180.8 million for the nine months ended March 31, 2013.  The increase in loans receivable, net, was primarily due to increases in one- to four-family residential loans of $9.1 million, commercial business loans of $5.5 million and land loans of $2.0 million, partially offset by decreases in residential construction loans of $3.5 million and commercial real estate loans of $1.3 million.

Loans Held-for-Sale

Loans held-for-sale increased $3.3 million, or 96.2%, from $3.5 million at June 30, 2013 to $6.8 million at March 31, 2014.  The increase in loans held-for-sale resulted primarily from an increase at March 31, 2014 in receivables from financial institutions purchasing the Company’s loans held-for-sale.

Investment Securities

Investment securities amounted to $41.2 million at March 31, 2014 compared to $49.4 million at June 30, 2013, a decrease of $8.2 million, or 16.6%. The decrease in investment securities was primarily due to the sale of mortgage backed securities in the amount of $13.0 million, and by principal payments on securities of $8.0 million, partially offset by the acquisition of $13.3 million of mortgage-backed securities.

Premises and Equipment, Net

Premises and equipment, net, increased $1.3 million, to $7.8 million at March 31, 2014, compared to $6.6 million at June 30, 2013, primarily due to improvements to the new agency office and main office and the acquisition of real estate for future branch office locations.

Asset Quality

At March 31, 2014, the Company had $294,000 of non-performing assets compared to $649,000 at June 30, 2013. Our non-performing assets at both March 31, 2014 and June 30, 2013 consisted of four single family residential loans, two of which were purchased from a local mortgage originator secured by property in our market area that are 90 days or more past due and accruing interest, one single family residential loan we originated that was 90 days or more past due and on non-accrual status, one single family residential loan less than 90 days past due and accruing, and a line of credit totaling $27,000 that was on non-accrual status. Following the expansion of the Company’s mortgage lending operations, the Company has not purchased mortgage loans since fiscal 2008. At March 31, 2014, the Company had one residential mortgage loan classified as substandard in the amount of 71,000 compared to one commercial real estate loan, two commercial business loans and one residential mortgage loan in the aggregate amount of $5.3 million at June 30, 2013. The Company had one line of credit classified as doubtful in the amount of $27,000 at both March 31, 2014 and June 30, 3013.
 
 
 
 
 
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Discussion of Financial Condition Changes from June 30, 2013 to March 31, 2014 (continued)

Total Liabilities

The Company’s total liabilities amounted to $247.5 million at March 31, 2014, an increase of approximately $12.4 million, or 5.3%, compared to total liabilities of $235.2 million at June 30, 2013.  The primary reason for the increase in liabilities was due to an increase in deposits of $17.3 million, or 8.2%, from $211.9 million at June 30, 2013 to $229.2 million at March 31, 2014, partially offset by a decrease in advances from the Federal Home Loan Bank of $4.2 million, or 19.4%, to $17.5 million at March 31, 2014 from $21.7 million at June 30, 2013. Non-interest bearing accounts increased $6.4 million, or 24.8%, and passbook savings accounts increased $2.3 million or 24.4%, at March 31, 2014 compared to June 30, 2013. Certificates of Deposit increased $2.0 million, or 1.8%, from $112.3 million at June 30, 2013 to $114.2 million at March 31, 2014. Interest bearing NOW accounts increased $2.4 million, or 9.6%, from $24.6 million at June 30, 2013 to $27.0 million at March 31, 2014. 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, all of which have maturity dates greater than twelve months, are callable by Home Federal Bank after twelve months pursuant to early redemption provisions.  At both March 31, 2014 and June 30, 2013, the Company had $12.7 million in brokered deposits.

Shareholders’ Equity

Shareholders’ equity was $42.0 million at both March 31, 2014 and June 30, 2013. The primary changes within shareholders’ equity from June 30, 2013, were dividends paid of $417,000, acquisition of treasury stock of $2.3 million, and a decrease in the Company’s accumulated other comprehensive income of $63,000. These decreases in shareholders’ equity were partially offset by net income of $2.0 million, proceeds from the issuance of common stock from the exercise of stock options of $272,000, and the vesting of restricted stock awards, stock options and release of employee stock ownership plan shares totaling $527,000.

The Bank is required to meet minimum capital standards promulgated by the Office of the Comptroller of the Currency (“OCC”).  At March 31, 2014, Home Federal Bank’s regulatory capital was well in excess of the minimum capital requirements.

Comparison of Operating Results for the Three and Nine month Periods Ended March 31, 2014 and 2013

General

Net income amounted to $638,000 for the three months ended March 31, 2014 compared to $676,000 for the same period in 2013, a decrease of $38,000 or 5.6%.  The decrease was primarily due to a $143,000 or 18.6%, decrease in non-interest income, a $97,000 or 4.4%, increase in non-interest expense and a $3,000, or 0.1% decrease in net interest income, partially offset by a $184,000 or 86.0% decrease in the provision for loan losses, and a $21,000 or 6.5% decrease in income tax expense for the 2014 period compared to the same period in 2013.

Net income amounted to $2.0 million for the nine months ended March 31, 2014 compared to net income of $2.5 million for the same period in 2013, a decrease of $499,000, or 20.0%.  The decrease was primarily due to an $822,000, or 31.4%, decrease in non-interest income, and a $310,000, or 4.8%, increase in non-interest expense, partially offset by a $323,000, or 73.2%, decrease in the provision for loan losses, an increase of $34,000, or 0.4%, in net interest income and a $276,000 or 22.4% decrease in income tax expense.

 
 
 
 
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Comparison of Operating Results for the Three and Nine month Periods Ended March 31, 2014 and 2013 (continued)

Net Interest Income

Net interest income for the three months ended March 31, 2014 was $2.6 million, a decrease of $3,000, or 0.1%, in comparison to $2.7 million for the three months ended March 31, 2013.  The decrease in net interest income for the three months ended March 31, 2014, was primarily due to a $64,000, or 2.0%, decrease in total interest income, partially offset by a decrease of $61,000, or 9.8%, in aggregate interest expense on borrowings and deposits primarily due to an overall decrease in rates paid on interest-bearing liabilities.  The Company’s average interest rate spread was 3.71% for the three months ended March 31, 2014, compared to 3.80% for the three months ended March 31, 2013. The Company’s net interest margin was 3.92% for the three months ended March 31, 2014, compared to 4.03% for the quarter ended March 31, 2013. The decrease in the average interest rate spread on a comparative quarterly basis was primarily the result of a decrease of 22 basis points in average yield on interest-earning assets. The decrease in net interest margin was primarily the result of a higher average volume of interest earning assets for the quarter ended March 31, 2014 compared to the prior year quarterly period.

Net interest income for the nine months ended March 31, 2014 was $8.0 million, an increase of $34,000, or 0.4%, in comparison to the nine months ended March 31, 2013.  The increase in net interest income for the nine month period was primarily due to a $169,000, or 8.6% decrease in interest expense on borrowings and deposits due to an overall decline in the average cost of funds partially offset by a $135,000, or 1.4%, decrease in total interest income.  The Company’s average interest rate spread was 3.68% for the nine months ended March 31, 2014, compared to 3.80% for the nine months ended March 31, 2013. The Company’s net interest margin was 3.91% for the nine months ended March 31, 2014, compared to 4.08% for the nine months ended March 31, 2013.  The decrease in net interest margin and average interest rate spread on a comparative nine month basis is attributable primarily to a decrease of 29 basis points in average yield on interest earning assets for the nine months ended March 31, 2014 compared to the prior year nine month period.

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 $30,000 and $118,000 was made during the three and nine months ended March 31, 2014, respectively, compared to a $214,000 and $441,000 provision made during the three and nine months ended March 31, 2013,  respectively.   The allowance for loan losses was $2.3 million, or 1.1%  of  total  loans,  at March 31, 2014, compared to $2.1 million, or 1.1%, of total loans at March 31, 2013.  At March 31, 2014, Home Federal Bank had five non-performing loans in the aggregate amount of 294,000 and no other non-performing assets or troubled-debt restructurings.  At March 31, 2013, Home Federal had five non-performing loans in the aggregate amount of $768,000 and no other non-performing assets or troubled debt restructurings.  There can be no assurance that the loan loss allowance will be sufficient to cover losses on non-performing assets in the future.

Non-interest Income

Total non-interest income amounted to $627,000 for the three months ended March 31, 2014, a decrease of $143,000 or 18.6% compared to $770,000 for the same period in 2013.  The decrease was due to decreases of $295,000 in gain on sale of loans held for sale, partially offset by $129,000 in gain on sale of real estate and an increase of $23,000 in other non-interest income.

Total non-interest income amounted to $1.8 million for the nine months ended March 31, 2014, a decrease of $822,000, or 31.4%, compared to $2.6 million for the same period in 2013.  The decrease was primarily due to decreases of $752,000 in gain on sale of loans held for sale, $180,000 in gain on sale of investments, $10,000 in income on bank owned life insurance and $9,000 in other non-interest income, partially offset by $129,000 in gain on sale of real estate.

 
 
 
27

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 2014 and 2013 (continued)

The $129,000 gain on sale of real estate during both the three and nine month periods was due to the disposition of a lot in Bossier City, Louisiana that had been held for a possible branch location site.

Non-interest Expense

Total non-interest expense increased $97,000, or 4.4%, for the three months ended March 31, 2014 compared to the prior year period.  The increase in non-interest expense for the quarter ended March 31, 2014, compared to the same period in 2013, is primarily attributable to increases of $71,000 in compensation and benefits expense, $54,000 in occupancy and equipment expense, $26,000 in data processing expense, $7,000 in deposit insurance premiums and $5,000 in audit and examination fees. These increases were partially offset by decreases of $69,000 in legal fees and $2,000 in other non-interest expenses.

Total non-interest expense increased $310,000, or 4.8%, for the nine months ended March 31, 2014 compared to the prior year period. The increase in non-interest expense for the nine months ended March 31, 2014, compared to the same period in 2013, is primarily attributable to increases of $136,000 in compensation and benefits expense, $94,000 in occupancy and equipment expense, $40,000 in data processing, $39,000 in franchise and bank shares taxes, $94,000 in other non-interest expenses and $14,000 in advertising expense. These increases were partially offset by a decrease of $78,000 in legal fees.

The increase in compensation and benefits expense for the three and nine month periods was a result of normal compensation increases including stock options 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 $145,000 and $430,000 for the three and nine months ended March 31, 2014, compared to $147,000 and $431,000 for the three and nine months ended March 31, 2013, respectively.

The Louisiana bank shares tax is assessed on the Bank’s equity and earnings.  For the three and nine months ended March 31, 2014, the Company recognized franchise and bank shares tax expense of $85,000 and $263,000, respectively, compared to $84,000 and $224,000 for the same periods in 2013.

Income Taxes

Income taxes amounted to $302,000 and $955,000 for the three and nine months ended March 31, 2014, respectively, resulting in effective tax rates of 32.1% and 32.4%, respectively. Income taxes amounted to $323,000 and $1.2 million for the three and nine months ended March 31, 2013, respectively, resulting in effective tax rates of 32.3% and 33.0%, respectively.

 
 
 
 
 
 
 
 
 
 
 
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HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 2014 and 2013 (continued)

Average Balances, Net Interest Income, Yields Earned and Rates Paid.  The following tables show 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 March 31,
 
   
2014
   
2013
 
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
 
   
(Dollars in thousands)
 
Interest-earning assets:
                                   
     Investment securities               
  $ 43,010     $ 236       2.19 %   $ 55,851     $ 388       2.78 %
     Loans receivable                  
    224,019       2,969       5.30       201,100       2,880       5.73  
Interest-earning deposits
    2,940       2       0.26       6,352       2       0.12  
          Total interest-earning assets
    269,969       3,207       4.75       263,303       3,270       4.97  
Non-interest-earning assets               
    22,069                       15,781                  
          Total assets                                                    
  $ 292,038                     $ 279,084                  
Interest-bearing liabilities:
                                               
     Savings accounts                                                    
    11,603       6       0.19       7,948       4       0.22  
     NOW accounts                                                    
    26,941       57       0.85       21,776       42       0.77  
     Money market accounts                                                    
    45,230       35       0.31       38,533       35       0.37  
     Certificate accounts                                                    
    113,963       424        1.49       110,439       462        1.67  
          Total deposits                                                    
    197,737       522       1.06       178,696       543       1.22  
FHLB advances                                                    
    17,357       37        0.85       33,567       77        0.91  
          Total interest-bearing liabilities
    215,094        559        1.04 %     212,263        620        1.17 %
Non-interest-bearing liabilities:
                                               
     Non-interest bearing demand accounts
    32,816                       23,258                  
     Other liabilities                                                    
    907                       879                  
          Total liabilities                                                    
    248,817                       236,400                  
Total Stockholders’ Equity(1)      
    43,221                       42,684                  
                                                 
          Total liabilities and equity
  $ 292,038                     $ 279,084                  
                                                 
Net interest-earning assets        
  $ 54,875                     $ 51,040                  
                                                 
Net interest income; average interest rate spread(2)
          $ 2,648        3.71 %           $ 2,650        3.80 %
                                                 
Net interest margin(3)            
                    3.92 %                     4.03 %
                                                 
Average interest-earning assets to average
  interest-bearing liabilities        
                    125.51 %                     124.05 %
_____________________
(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 and Nine Month Periods Ended March 31, 2014 and 2013 (continued)

   
Nine Months Ended March 31,
 
   
2014
   
2013
 
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
 
   
(Dollars In Thousands)
 
Interest-earning assets:
                                   
     Investment securities            
  $ 48,080     $ 784       2.17 %   $ 60,601     $ 1,334       2.94 %
     Loans receivable                      
    218,796       8,979       5.47       193,450       8,564       5.90  
Interest-earning deposits
    5,072        10       0.25       5,917        10       0.22  
          Total interest-earning assets
    271,948       9,773       4.79       259,968       9,908       5.08  
Non-interest-earning assets                
    20,336                       15,647                  
          Total assets                   
  $ 292,284                     $ 275,615                  
Interest-bearing liabilities:
                                               
     Savings accounts                        
    10,851       17       0.21       7,140       14       0.26  
     NOW accounts                      
    26,445       194       0.98       19,719       118       0.80  
     Money market accounts       
    43,617       114       0.35       40,363       131       0.43  
     Certificate accounts                
    114,022       1,328       1.55       108,357       1,430       1.76  
          Total deposits            
    194,935       1,653       1.13       175,579       1,693       1.29  
Other bank borrowings     
    333       14       5.70       --        --        --   
FHLB advances                                  
    19,060       125       0.88       28,773       267       1.24  
          Total interest-bearing liabilities
    214,328       1,792        1.11 %     204,352       1,960        1.28 %
Non-interest-bearing liabilities:
                                               
     Non-interest bearing demand accounts
    32,898                       23,691                  
     Other liabilities                                                    
    1,304                       1,352                  
          Total liabilities                                                    
    248,530                       229,395                  
Total Stockholders’ Equity(1)            
    43,754                       46,220                  
                                                 
          Total liabilities and equity
  $ 292,284                     $ 275,615                  
                                                 
Net interest-earning assets                        
  $ 57,620                     $ 55,616                  
                                                 
Net interest income; average interest rate spread(2)
          $ 7,981       3.68 %           $ 7,948       3.80 %
Net interest margin(3)    
                    3.91 %                     4.08 %
Average interest-earning assets to average
  interest-bearing liabilities    
                    126.88 %                     127.22 %
 __________________
(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.

 
 
 
 
 
 
 
30

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 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 $123,000 at March 31, 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 March 31, 2014, Home Federal Bank had $17.5 million in advances from the Federal Home Loan Bank of Dallas and had $105.9 million in additional borrowing capacity.  Additionally, at March 31, 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 $16.7 million. There were no amounts purchased under this agreement as of March 31, 2014.

At March 31, 2014, Home Federal Bank had outstanding loan commitments of $24.9 million to originate loans.  At March 31, 2014, certificates of deposit scheduled to mature in less than one year totaled $49.0 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, the cost of such deposits could be significantly higher upon renewal in a rising interest rate environment.  Home Federal Bank intends to utilize its high levels of liquidity to fund its lending activities.  If additional funds are required to fund lending activities, Home Federal Bank intends to sell its securities classified as available-for-sale as needed.

Home Federal Bank is required to maintain regulatory capital sufficient to meet tangible, core and risk-based capital ratios of at least 1.5%, 3.0% and 8.0%, respectively.  At March 31, 2014, Home Federal Bank exceeded each of its capital requirements with ratios of 14.22%, 14.22% and 23.27%, respectively.

Off-Balance Sheet Arrangements

At March 31, 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.
 
 
 
 
31

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
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.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
ITEM 3.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.                      CONTROLS AND PROCEDURES

Evaluation of Disclosures Controls and Procedures.   Under the supervision and with the participation of our management, including our Chief Executive Officer and our President and Chief Operating Officer (together, the co-principal executive officers) and our Executive Vice President and 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 Executive Vice President and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the applicable time periods specified by the Securities and Exchange Commission’s rules and forms.
 
Changes in Internal Control over Financial Reporting.  There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

ITEM 1.                      LEGAL PROCEEDINGS

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

ITEM 1A.                      RISK FACTORS

Not applicable.

ITEM 2.                      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

The Company’s repurchases of its common stock made during the quarter ended March 31, 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)(b)
 
January 1, 2014 – January 31, 2014
    6,957     $ 17.64       6,957       117,498  
February 1, 2014– February 28, 2014
    389       17.85       389       117,109  
March 1, 2014– March 31, 2014
     --       --       --       117,109  
Total
    7,346     $ 17.65       7,346       117,109  
______________
Notes to this table:
 
(a)
On January 24, 2013, the Company announced by press release a repurchase program to repurchase up to 120,000 shares, or approximately 5.0% of the Company’s outstanding shares of common stock. The repurchase program does not have an expiration date.
 
(b)
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.
 
 
 
 
33

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
ITEM 3.                      DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.                      MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.                      OTHER INFORMATION

Not applicable.

ITEM 6.                      EXHIBITS

The following Exhibits are filed as part of this report:

 
 
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.
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34

 
 
SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
  HOME FEDERAL BANCORP, INC. OF LOUISIANA
       
       
Date: May 12, 2014 By: /s/Clyde D. Patterson
     Clyde D. Patterson  
   
 Executive Vice President and Chief Financial Officer
(Duly authorized officer and principal financial and
accounting officer)