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Home Federal Bancorp, Inc. of Louisiana - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended:
September 30, 2015
or
 
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from
 
to
 
 
Commission file number:
001-35019
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
(Exact name of registrant as specified in its charter)
 
Louisiana
 
02-0815311
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
624 Market Street, Shreveport, Louisiana
 
71101
(Address of principal executive offices)
 
(Zip Code)
 
(318) 222-1145
(Registrant's telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   [X] Yes    [  ]  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       [X] Yes   [  ] No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):
 
Large accelerated filer                               [   ]                                                        Accelerated filer                                      [   ]
Non-accelerated filer                                [   ]                                                        Smaller reporting company                     [X]
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[   ] Yes     [X] No
 
Shares of common stock, par value $.01 per share, outstanding as of November 9, 2015: The registrant had 2,086,561 shares of common stock outstanding.
 
 
 

INDEX

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

 

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
   
September 30, 2015
   
June 30, 2015
 
         
ASSETS
       
Cash and Cash Equivalents (Includes Interest-Bearing
Deposits with Other Banks of $19,001 and $16,105 for
September 30, 2015 and June 30, 2015, Respectively)
 
$
22,780
   
$
21,166
 
Securities Available-for-Sale
   
41,549
     
44,885
 
Securities Held-to-Maturity (Fair Value of $1,502 and
      $2,010, Respectively)
   
1,502
     
2,010
 
Loans Held-for-Sale
   
10,948
     
14,203
 
Loans Receivable, Net of Allowance for Loan Losses
of $2,613 and $2,515, Respectively
   
268,982
     
268,427
 
Accrued Interest Receivable
   
949
     
927
 
Premises and Equipment, Net
   
11,375
     
10,188
 
Bank Owned Life Insurance
   
6,405
     
6,365
 
Deferred Tax Asset
   
889
     
824
 
Other Real Estate Owned
   
--
     
40
 
Other Assets
   
765
     
798
 
                 
Total Assets
 
$
366,144
   
$
369,833
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
LIABILITIES
               
Deposits
 
$
293,274
   
$
286,238
 
Advances from Borrowers for Taxes and Insurance
   
744
     
578
 
Advances from Federal Home Loan Bank of Dallas
   
26,351
     
38,411
 
Other Accrued Expenses and Liabilities
   
1,756
     
1,220
 
 
Total Liabilities
   
322,125
     
326,447
 
                 
STOCKHOLDERS' EQUITY
               
Preferred Stock – $.01 Par Value; 10,000,000 Shares
Authorized; None Issued and Outstanding
   
--
     
--
 
Common Stock – $.01 Par Value; 40,000,000 Shares
      Authorized; 2,100,241 and 2,109,606 Shares Issued and Outstanding at
      September 30, 2015 and June 30, 2015, Respectively
   
25
     
25
 
Additional Paid-in Capital
   
33,502
     
33,375
 
Unearned ESOP Stock
   
(1,417
)
   
(1,445
)
Unearned RRP Trust Stock
   
(278
)
   
(333
)
Retained Earnings
   
12,137
     
11,664
 
Accumulated Other Comprehensive Income
   
50
     
100
 
                 
Total Stockholders' Equity
   
44,019
     
43,386
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
366,144
   
$
369,833
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
1

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
   
For the Three Months Ended
September 30,
 
   
2015
   
2014
 
   
(In Thousands, Except per Share Data)
 
INTEREST INCOME
       
Loans, Including Fees
 
$
3,636
   
$
3,307
 
Investment Securities
   
6
     
1
 
Mortgage-Backed Securities
   
195
     
244
 
Other Interest-Earning Assets
   
8
     
3
 
Total Interest Income
   
3,845
     
3,555
 
                 
INTEREST EXPENSE
               
Deposits
   
605
     
535
 
Federal Home Loan Bank Borrowings
   
62
     
45
 
Total Interest Expense
   
667
     
580
 
Net Interest Income
   
3,178
     
2,975
 
                 
PROVISION FOR LOAN LOSSES
   
65
     
40
 
Net Interest Income after
Provision for Loan Losses
   
3,113
     
2,935
 
                 
NON-INTEREST INCOME
               
Gain on Sale of Loans
   
725
     
472
 
Income on Bank Owned Life Insurance
   
40
     
41
 
     Service Charges on deposit accounts
   
134
     
101
 
Other Income
   
13
     
15
 
Total Non-Interest Income
   
912
     
629
 
                 
NON-INTEREST EXPENSE
               
Compensation and Benefits
   
1,708
     
1,500
 
Occupancy and Equipment
   
239
     
229
 
Data Processing
   
130
     
119
 
Audit and Examination Fees
   
50
     
53
 
Franchise and Bank Shares Tax
   
91
     
73
 
Advertising
   
61
     
75
 
Legal Fees
   
66
     
69
 
Loan and Collection
   
83
     
66
 
Deposit Insurance Premium
   
60
     
31
 
Other Expense
   
145
     
122
 
Total Non-Interest Expense
   
2,633
     
2,337
 
Income Before Income Taxes
   
1,392
     
1,227
 
                 
PROVISION FOR INCOME TAX EXPENSE
   
451
     
404
 
Net Income
 
$
941
   
$
823
 
EARNINGS PER COMMON SHARE:
               
Basic
 
$
0.49
   
$
0.41
 
Diluted
 
$
0.47
   
$
0.40
 
DIVIDENDS DECLARED
 
$
0.08
   
$
0.07
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
2

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
   
For the Three Months Ended
September 30,
 
   
2015
   
2014
 
   
(In Thousands)
 
         
Net Income
 
$
941
   
$
823
 
                 
Other Comprehensive Loss, Net of Tax
               
   Unrealized Holding Loss on Securities Available-for-Sale,
     Net of Tax of $26 in 2015 and $81 in 2014
   
(50
)
   
(158
)
                 
        Total Comprehensive Income
 
$
891
   
$
665
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
3

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(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, 2014
 
$
34
   
$
32,853
   
$
(1,561
)
 
$
(609
)
 
$
27,588
   
$
(15,698
)
 
$
172
   
$
42,779
 
                                                                 
Net Income
   
--
     
--
     
--
     
--
     
823
     
--
     
--
     
823
 
                                                                 
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
   
--
     
--
     
--
     
--
     
--
     
--
     
(158
)
   
(158
)
                                                                 
RRP Shares Earned
   
--
     
--
     
--
     
10
     
--
     
--
     
--
     
10
 
                                                                 
Stock Options Vested
   
--
     
43
     
--
     
--
     
--
     
--
     
--
     
43
 
                                                                 
Common Stock Issuance for Stock
    Option Exercises
   
--
     
17
     
--
     
--
     
--
     
--
     
--
     
17
 
                                                                 
ESOP Compensation Earned
   
--
     
27
     
29
     
--
     
--
     
--
     
--
     
56
 
                                                                 
Company Stock Purchased
   
--
     
--
     
--
     
--
     
--
     
(756
)
   
--
     
(756
)
                                                                 
Dividends Declared
   
--
     
--
     
--
     
--
     
(156
)
   
--
     
--
     
(156
)
                                                                 
BALANCE – September 30, 2014
 
$
34
   
$
32,940
   
$
(1,532
)
 
$
(599
)
 
$
28,255
   
$
(16,454
)
 
$
14
   
$
42,658
 
                                                                 
BALANCE – June 30, 2015
 
$
25
   
$
33,375
   
$
(1,445
)
 
$
(333
)
 
$
11,664
   
$
--
   
$
100
   
$
43,386
 
                                                                 
Net Income
   
--
     
--
     
--
     
--
     
941
     
--
     
--
     
941
 
                                                                 
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
   
--
     
--
     
--
     
--
     
--
     
--
     
(50
)
   
(50
)
                                                                 
RRP Shares Earned
   
--
     
--
     
--
     
55
     
--
     
--
     
--
     
55
 
                                                                 
Stock Options Vested
   
--
     
44
     
--
     
--
     
--
     
--
     
--
     
44
 
                                                                 
Common Stock Issuance for Stock
    Option Exercises
   
--
     
50
     
--
     
--
     
--
     
--
     
--
     
50
 
                                                                 
ESOP Compensation Earned
   
--
     
33
     
28
     
--
     
--
     
--
     
--
     
61
 
                                                                 
Company Stock Purchased
   
--
     
--
     
--
     
--
     
(299
)
   
--
     
--
     
(299
)
                                                                 
Dividends Declared
   
25
     
--
     
--
     
--
     
(169
)
   
--
     
--
     
(169
)
                                                                 
BALANCE – September 30, 2015
 
$
25
   
$
33,502
   
$
(1,417
)
 
$
(278
)
 
$
12,137
   
$
--
   
$
50
   
$
44,019
 

 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
4

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Three Months Ended
September 30,
 
   
2015
   
2014
 
         
CASH FLOWS FROM OPERATING ACTIVITIES
       
Net Income
 
$
941
   
$
823
 
Adjustments to Reconcile Net Income to Net
               
Cash Provided by (Used in) Operating Activities
               
Bad Debt Recovery
   
33
     
--
 
Net Amortization and Accretion on Securities
   
6
     
3
 
Gain on Sale of Loans
   
(725
)
   
(472
)
Amortization of Deferred Loan Fees
   
(20
)
   
(76
)
Depreciation of Premises and Equipment
   
98
     
84
 
ESOP Expense
   
61
     
56
 
Stock Option Expense
   
44
     
44
 
Recognition and Retention Plan Expense
   
59
     
57
 
Deferred Income Tax
   
(39
)
   
29
 
Provision for Loan Losses
   
65
     
40
 
Increase in Cash Surrender Value on Bank Owned Life Insurance
   
(40
)
   
(41
)
Changes in Assets and Liabilities:
               
Loans Held-for-Sale – Originations and Purchases
   
(27,007
)
   
(23,062
)
Loans Held-for-Sale – Sale and Principal Repayments
   
30,986
     
21,874
 
Accrued Interest Receivable
   
(22
)
   
(21
)
Other Operating Assets
   
73
     
(40
)
Other Operating Liabilities
   
532
     
435
 
                 
Net Cash Provided by (Used In) Operating Activities
   
5,045
     
(267
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Loan Originations and Purchases, Net of Principal Collections
   
(635
)
   
(8,714
)
Deferred Loan Fees Collected
   
1
     
4
 
Acquisition of Premises and Equipment
   
(1,284
)
   
(1,624
)
Activity in Available-for-Sale Securities:
               
Principal Payments on Mortgage-Backed Securities
   
3,255
     
2,540
 
Purchases of Securities
   
--
     
(9,843
)
Activity in Held-to-Maturity Securities:
               
Redemption Proceeds
   
509
     
128
 
Purchases of Securities
   
(2
)
   
(762
)
                 
Net Cash Provided by (Used in) Investing Activities
   
1,844
     
(18,271
)
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
5

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
(Unaudited)
 
 
   
Three Months Ended
 
   
September 30,
 
   
2015
   
2014
 
   
(In Thousands)
 
CASH FLOWS FROM FINANCING ACTIVITIES
   
Net Increase (Decrease) in Deposits
 
$
7,037
   
$
(20,284
)
Proceeds from Federal Home Loan Bank Advances
   
44,000
     
349,750
 
Repayments of Advances from Federal Home Loan Bank
   
(56,060
)
   
(319,058
)
Net Increase in Advances from Borrowers for Taxes and Insurance
   
166
     
186
 
Dividends Paid
   
(169
)
   
(156
)
Company Stock Purchased
   
(299
)
   
(756
)
Proceeds from Stock Options Exercised
   
50
     
17
 
                 
Net Cash (Used in) Provided by Financing Activities
   
(5,275
)
   
9,699
 
                 
NET INCREASE (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
   
1,614
     
(8,839
)
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
   
21,166
     
13,633
 
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
 
$
22,780
   
$
4,794
 
                 
SUPPLEMENTARY CASH FLOW INFORMATION
               
Interest Paid on Deposits and Borrowed Funds
 
$
665
   
$
571
 
Income Taxes Paid
   
1
     
1
 
Market Value Adjustment for Loss on Securities Available-for-Sale
   
(75
)
   
(240
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
6

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.            Summary of Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Home Federal Bancorp, Inc. of Louisiana (the "Company") and its subsidiary, Home Federal Bank ("Home Federal Bank" or the "Bank").  These consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three month period ended September 30, 2015, are not necessarily indicative of the results which may be expected for the fiscal year ending June 30, 2016.

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

In accordance with the subsequent events topic of the ASC, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements.  The effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of September 30, 2015.  In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued.

Use of Estimates

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

Nature of Operations

Home Federal Bancorp, Inc. of Louisiana, a Louisiana corporation, is the fully public stock holding company for Home Federal Bank located in Shreveport, Louisiana.  The Bank is a federally chartered, stock savings and loan association and is subject to federal regulation by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.  The Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. Services are provided to the Bank's customers by five full-service banking offices and one administrative office, located in Caddo and Bossier Parishes, Louisiana.  The area served by the Bank is primarily the Shreveport-Bossier City metropolitan area; however, loan and deposit customers are found dispersed in a wider geographical area covering much of northwest Louisiana. As of September 30, 2015, the Bank had one wholly-owned subsidiary, Metro Financial Services, Inc., which previously engaged in the sale of annuity contracts and does not currently engage in a meaningful amount of business.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, balances due from banks, and federal funds sold, all of which mature within ninety days.
 
 
 
 
 
7

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Securities

The Company classifies its debt and equity investment securities into one of three categories:  held-to-maturity, available-for-sale, or trading.  Investments in nonmarketable equity securities and debt securities, in which the Company has the positive intent and ability to hold to maturity, are classified as held-to-maturity and carried at amortized cost.  Investments in debt securities that are not classified as held-to-maturity and marketable equity securities that have readily determinable fair values are classified as either trading or available-for-sale securities.  Securities that are acquired and held principally for the purpose of selling in the near term are classified as trading securities.  Investments in securities not classified as trading or held-to-maturity are classified as available-for-sale.

Trading account and available-for-sale securities are carried at fair value.  Unrealized holding gains and losses on trading securities are included in earnings while net unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported in other comprehensive income.  Purchase premiums and discounts are recognized in interest income using the interest method over the term of the securities.  Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.  In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Loans Held-for-Sale

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

Loans

Loans receivable are stated at unpaid principal balances, less allowances for loan losses and unamortized deferred loan fees.  Net nonrefundable fees (loan origination fees, commitment fees, discount points) and costs associated with lending activities are being deferred and subsequently amortized into income as an adjustment of yield on the related interest earning assets using the interest method.  Interest income on contractual loans receivable is recognized on the accrual method.  Unearned discount on property improvement and automobile loans is deferred and amortized on the interest method over the life of the loan.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of the underlying collateral and prevailing economic conditions.  The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
 
 
 
 
 
8

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Allowance for Loan Losses (continued)

A loan is considered impaired when, based on current information or events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.  When a loan is impaired, the measurement of such impairment is based upon the present value of expected future cash flows or the fair value of the collateral of the loan.  If the present value of expected future cash flows or fair value of the collateral is less than the recorded investment in the loan, the Bank will recognize the impairment by creating a valuation allowance with a corresponding charge against earnings.

An allowance is also established for uncollectible interest on loans classified as substandard.  The allowance is established by a charge to interest income equal to all interest previously accrued and income is subsequently recognized only to the extent that cash payments are received.  When, in management's judgment, the borrower's ability to make periodic interest and principal payments is back to normal, the loan is returned to accrual status.

It should be understood that estimates of future loan losses involve an exercise of judgment.  While it is possible that in particular periods the Company may sustain losses which are substantial relative to the allowance for loan losses, it is the judgment of management that the allowance for loan losses reflected in the accompanying statements of condition is adequate to absorb possible losses in the existing loan portfolio.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Bank has entered into commitments to extend credit.  Such financial instruments are recorded when they are funded.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are held-for-sale and are transferred to other real estate owned at the lower of cost or current fair value minus estimated cost to sell as of the date of foreclosure.  Cost is defined as the lower of the fair value of the property or the recorded investment in the loan.  Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.

Premises and Equipment

Land is carried at cost.  Buildings and equipment are carried at cost less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets.

Income Taxes

The Company and its wholly-owned subsidiary file a consolidated Federal income tax return on a fiscal year basis.  Each entity pays its pro-rata share of income taxes in accordance with a written tax-sharing agreement.

The Company accounts for income taxes on the asset and liability method.  Deferred tax assets and liabilities are recorded based on the difference between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, computed using enacted tax rates.  A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years.  Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized.  Current taxes are measured by applying the provisions of enacted tax laws to taxable income to determine the amount of taxes receivable or payable.

 
 
 
 
 
9

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Income Taxes (continued)

While the Bank is exempt from Louisiana income tax, it is subject to the Louisiana Ad Valorem Tax, commonly referred to as the Louisiana Shares Tax, which is based on stockholders' equity and net income.

Comprehensive Income

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the Consolidated Statements of Financial Condition, such items, along with net income, are components of comprehensive income.

Stockholders' Equity

On January 1, 2015, the Louisiana Business Corporation Act (the Act) became effective.  Under the provisions of the Act, there is no concept of "Treasury Shares".  Rather, shares purchased by the Company constitute authorized but unissued shares.  Under Accounting Standards Codification (ASC) 505-30, Treasury Stock, accounting for treasury stock shall conform to state law.  Accordingly, the Company's Consolidated Statements of Financial Condition as of June 30, 2015 and September 30, 2015 reflect this change.  The cost of shares purchased by the Company has been allocated to Common Stock and Retained Earnings balances.
 
Recent Accounting Pronouncements

In August 2014, the FASB issued ASU 2014-13, Consolidation (Topic 810):  Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity.  The amendments of ASU 2014-13 allow for a reporting entity that consolidates a collateralized financing entity within the scope of the guidance to elect to measure the financial assets and the financial liabilities of that collateralized financing entity using the measurement alternative.  Under the measurement alternative, the reporting entity should  measure both the financial assets and the financial liabilities of that collateralized financing entity in its consolidated financial statements using the more observable of  the  fair value of the financial assets and the fair value of the financial liabilities.   The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015.   The adoption of this guidance is not expected to have a material effect on the Company's financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40).  The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:  (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.  The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  This Update did not have a significant impact on the Company's financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20):  Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.   The amendments of ASU 2015-01 eliminate from Generally Accepted Accounting Principles the concept of extraordinary items.  The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.
 
 
 
10

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
2.    Securities
 
The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:

   
September 30, 2015
 
       
Gross
   
Gross
     
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale
               
                 
Debt Securities
               
  FHLMC Mortgage-Backed Certificates
 
$
257
   
$
16
   
$
--
   
$
273
 
  FNMA Mortgage-Backed Certificates
   
25,368
     
603
     
170
     
25,801
 
  GNMA Mortgage-Backed Certificates
   
15,847
     
4
     
376
     
15,475
 
                                 
          Total Debt Securities
   
41,472
     
623
     
546
     
41,549
 
                                 
    Total Securities Available-for-Sale
 
$
41,472
   
$
623
   
$
546
   
$
41,549
 
                                 
Securities Held-to-Maturity
                               
                                 
Equity Securities (Non-Marketable)
                               
  12,520 Shares – Federal Home Loan Bank
 
$
1,252
   
$
--
   
$
--
   
$
1,252
 
  630 Shares – First National Bankers
    Bankshares, Inc.
   
250
     
--
     
--
     
250
 
                                 
          Total Equity Securities
   
1,502
     
--
     
--
     
1,502
 
                                 
    Total Securities Held-to-Maturity
 
$
1,502
   
$
--
   
$
--
   
$
1,502
 

   
June 30, 2015
 
       
Gross
   
Gross
     
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale
   
                 
Debt Securities
               
  FHLMC Mortgage-Backed Certificates
 
$
267
   
$
17
   
$
--
   
$
284
 
  FNMA Mortgage-Backed Certificates
   
27,263
     
605
     
61
     
27,807
 
  GNMA Mortgage-Backed Certificates
   
17,203
     
5
     
414
     
16,794
 
                                 
          Total Debt Securities
   
44,733
     
627
     
475
     
44,885
 
                                 
          Total Securities Available-for-Sale
 
$
44,733
   
$
627
   
$
475
   
$
44,885
 
                                 
Securities Held-to-Maturity
                               
                                 
Equity Securities (Non-Marketable)
                               
  17,600 shares – Federal Home Loan Bank
 
$
1,760
   
$
--
   
$
--
   
$
1,760
 
  630 Shares – First National Bankers
    Bankshares, Inc.
   
250
     
--
     
--
     
250
 
                                 
          Total Equity Securities
   
2,010
     
--
     
--
     
2,010
 
                                 
          Total Securities Held-to-Maturity
 
$
2,010
   
$
--
   
$
--
   
$
2,010
 

11

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

The amortized cost and fair value of securities by contractual maturity at September 30, 2015, follows:

   
Available-for-Sale
   
Held-to-Maturity
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
   
(In Thousands)
 
                 
Debt Securities
               
    Within One Year or Less
 
$
1
   
$
1
   
$
--
   
$
--
 
    One through Five Years
   
169
     
172
     
--
     
--
 
    After Five through Ten Years
   
90
     
94
     
--
     
--
 
    Over Ten Years
   
41,212
     
41,282
     
--
     
--
 
     
41,472
     
41,549
     
--
     
--
 
                                 
Other Equity Securities
   
--
     
--
     
1,502
     
1,502
 
                                 
   Total
 
$
41,472
   
$
41,549
   
$
1,502
   
$
1,502
 

There were no sales of available-for-sale securities during the three months ended September 30, 2015.

The following tables show information pertaining to gross unrealized losses on securities available-for-sale at September 30, 2015 and June 30, 2015 aggregated by investment category and length of time that individual securities have been in a continuous loss position.

   
September 30, 2015
 
   
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
 
$
--
   
$
--
   
$
546
   
$
25,028
 
Marketable Equity Securities
   
--
     
--
     
--
     
--
 
                                 
        Total Securities Available-for-Sale
 
$
--
   
$
--
   
$
546
   
$
25,028
 
                                 

   
June 30, 2015
 
   
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
 
$
61
   
$
10,345
   
$
414
   
$
16,683
 
Marketable Equity Securities
   
--
     
--
     
--
     
--
 
                                 
        Total Securities Available-for-Sale
 
$
61
   
$
10,345
   
$
414
   
$
16,683
 

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

 
12

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

At September 30, 2015, securities with a carrying value of $1.7 million were pledged to secure public deposits, and securities and mortgage loans with a carrying value of $167.9 million were pledged to secure FHLB advances.

3.            Loans Receivable

Loans receivable are summarized as follows:

   
 
September 30, 2015
   
June 30, 2015
 
     
(In Thousands)
 
Loans Secured by Mortgages on Real Estate
       
One- to Four-Family Residential
 
$
106,924
   
$
103,332
 
Commercial
   
60,283
     
62,080
 
Multi-Family Residential
   
15,135
     
15,246
 
 Land
   
19,057
     
19,866
 
Construction
   
17,804
     
17,620
 
Equity and Second Mortgage
   
2,247
     
2,460
 
Equity Lines of Credit
   
21,656
     
22,187
 
Total Mortgage Loans
   
243,106
     
242,791
 
                 
Commercial Loans
   
28,348
     
28,019
 
Consumer Loans
               
Loans on Savings Accounts
   
206
     
209
 
Automobile and Other Consumer Loans
   
104
     
110
 
Total Consumer and Other Loans
   
310
     
319
 
Total Loans
   
271,764
     
271,129
 
                 
Less:   Allowance for Loan Losses
   
(2,613
)
   
(2,515
)
     Unamortized Loan Fees
   
(169
)
   
(187
)
Net Loans Receivable
 
$
268,982
   
$
268,427
 

Following is a summary of changes in the allowance for loan losses:

   
Three Months Ended September 30,
 
 
 
2015
   
2014
 
   
(In Thousands)
 
         
Balance - Beginning of Period
 
$
2,515
   
$
2,396
 
Provision for Loan Losses
   
65
     
40
 
Loan Charge-Offs
   
--
     
(151
)
Recoveries
   
33
     
--
 
Balance - End of Period
 
$
2,613
   
$
2,285
 

Credit Quality Indicators

The Company segregates loans into risk categories based on the pertinent information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans according to credit risk.  Loans classified as substandard or identified as special mention are reviewed quarterly by management to evaluate the level of deterioration, improvement, and impairment, if any, as well as assign the appropriate risk category.
 
 
13

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

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

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

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

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

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

The following tables present the grading of loans, segregated by class of loans, as of September 30, 2015 and June 30, 2015:

 
September 30, 2015
  Pass    
Special
Mention
    Substandard     Doubtful     Total  
            (In Thousands)          
Real Estate Loans:
                   
  One- to Four-Family Residential
 
$
106,591
   
$
218
   
$
115
   
$
--
   
$
106,924
 
  Commercial
   
59,719
     
346
     
218
     
--
     
60,283
 
  Multi-Family Residential
   
15,135
     
--
     
--
     
--
     
15,135
 
  Land
   
19,057
     
--
     
--
     
--
     
19,057
 
  Construction
   
17,804
     
--
     
--
     
--
     
17,804
 
  Equity and Second Mortgage
   
2,247
     
--
     
--
     
--
     
2,247
 
  Equity Lines of Credit
   
21,656
     
--
     
--
     
--
     
21,656
 
Commercial Loans
   
28,348
     
--
     
--
     
--
     
28,348
 
Consumer Loans
   
310
     
--
     
--
     
--
     
310
 
     Total
 
$
270,867
   
$
564
   
$
333
   
$
--
   
$
271,764
 
                                         
 
 
 
 
 
 
 
 
 
 
 
 
14

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
3. Loans Receivable (continued)
 
Credit Quality Indicators (continued)
             
             
June 30, 2015
 
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
   
(In Thousands)
 
Real Estate Loans:
                   
  One- to Four-Family Residential
 
$
103,207
   
$
112
   
$
13
   
$
--
   
$
103,332
 
  Commercial
   
61,542
     
538
     
--
     
--
     
62,080
 
  Multi-Family Residential
   
15,246
     
--
     
--
     
--
     
15,246
 
  Land
   
19,866
     
--
     
--
     
--
     
19,866
 
  Construction
   
17,620
     
--
     
--
     
--
     
17,620
 
  Equity and Second Mortgage
   
2,460
     
--
     
--
     
--
     
2,460
 
  Equity Lines of Credit
   
22,163
     
--
     
24
     
--
     
22,187
 
Commercial Loans
   
28,019
     
--
     
--
     
--
     
28,019
 
Consumer Loans
   
319
     
--
     
--
     
--
     
319
 
                                         
     Total
 
$
270,442
   
$
650
   
$
37
   
$
--
   
$
271,129
 

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when contractually due.  Loans that experience insignificant payment delays or payment shortfalls are generally not classified as impaired.  On a case-by-case basis, management determines the significance of payment delays and payment shortfalls, taking into consideration all of the circumstances related to the loan, including:  the length of the payment delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
 
The following tables present an aging analysis of past due loans, segregated by class of loans, as of September 30, 2015 and June 30, 2015:

 
 
 
 
September 30, 2015
 
 30-59 Days
Past Due
   
 60-89
Days Past
Due
   
 Greater
Than 90
Days
   
 Tota
Past Due
     Current    
 Total
Loans
Receivable
   
 Recorded
Investment
> 90 Days
and
Accruing
 
                       (In Thousands)                    
                                           
Real Estate Loans:
                           
  One- to Four-Family
     Residential
 
$
1,954
   
$
1,178
   
$
289
   
$
3,421
   
$
103,503
   
$
106,924
   
$
276
 
  Commercial
   
--
     
--
     
--
     
--
     
60,283
     
60,283
     
--
 
  Multi-Family Residential
   
--
     
--
     
--
     
--
     
15,135
     
15,135
     
--
 
  Land
   
570
     
--
     
--
     
570
     
18,487
     
19,057
     
--
 
  Construction
   
--
     
--
     
--
     
--
     
17,804
     
17,804
     
--
 
  Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
2,247
     
2,247
     
--
 
  Equity Lines of Credit
   
--
     
--
     
--
     
--
     
21,656
     
21,656
     
--
 
Commercial Loans
   
--
     
--
     
--
     
--
     
28,348
     
28,348
     
--
 
Consumer Loans
   
--
     
--
     
--
     
--
     
310
     
310
     
--
 
     Total
 
$
2,524
   
$
1,178
   
$
289
   
$
3,991
   
$
267,773
   
$
271,764
   
$
276
 
 
 
 
 
 
 
 
 
15

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

 June 30, 2015
 
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
 
$
2,137
   
$
1,100
   
$
80
   
$
3,317
   
$
100,015
   
$
103,332
   
$
67
 
  Commercial
   
--
     
--
     
--
     
--
     
62,080
     
62,080
     
--
 
  Multi-Family Residential
   
--
     
--
     
--
     
--
     
15,246
     
15,246
     
--
 
  Land
   
--
     
--
     
--
     
--
     
19,866
     
19,866
     
--
 
  Construction
   
--
     
--
     
--
     
--
     
17,620
     
17,620
     
--
 
  Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
2,460
     
2,460
     
--
 
  Equity Lines of Credit
   
--
     
--
     
--
     
--
     
22,187
     
22,187
     
--
 
Commercial Loans
   
--
     
--
     
--
     
--
     
28,019
     
28,019
     
--
 
Consumer Loans
   
3
     
--
     
--
     
3
     
316
     
319
     
--
 
                                                         
     Total
 
$
2,140
   
$
1,100
   
$
80
   
$
3,320
   
$
267,809
   
$
271,129
   
$
67
 

Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings and designated as impaired.  There were no troubled debt restructurings as of September 30, 2015 or June 30, 2015.

The change in the allowance for loan losses by loan portfolio class and recorded investment in loans for the three months ended September 30, 2015 was as follows:

   
Real Estate Loans
             
 
 
 
 
September 30, 2015
 
1-4 Family
Residential
   
Commercial
   
Multi-
Family
   
Land
   
Construction
   
Home
Equity
Loans
and Lines
of Credit
   
Commercial
Loans
   
Consumer
Loans
   
Total
 
               
(In Thousands)
             
Allowance for loan losses:
                           
Beginning Balances
 
$
1,195
   
$
415
   
$
103
   
$
154
   
$
146
   
$
192
   
$
305
   
$
5
   
$
2,515
 
Charge-Offs
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
Recoveries
   
33
     
--
     
--
     
--
     
--
     
--
     
--
     
--
     
33
 
Current Provision
   
129
     
6
     
(30
)
   
(6
)
   
(29
)
   
(55
)
   
51
     
(1
)
   
65
 
Ending Balances
 
$
1,357
   
$
421
   
$
73
   
$
148
   
$
117
   
$
137
   
$
356
   
$
4
   
$
2,613
 
                                                                         
Evaluated for Impairment:
                                                                       
   Individually
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
   Collectively
   
1,357
     
421
     
73
     
148
     
117
     
137
     
356
     
4
     
2,613
 
                                                                         
Loans Receivable:
                                                                       
Ending Balances – Total
 
$
106,924
   
$
60,283
   
$
15,135
   
$
19,057
   
$
17,804
   
$
23,903
   
$
28,348
   
$
310
   
$
271,764
 
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                       
   Individually
   
333
     
564
     
--
     
--
     
--
     
--
     
--
     
--
     
897
 
   Collectively
 
$
106,591
   
$
59,719
   
$
15,135
   
$
19,057
   
$
17,804
   
$
23,903
   
$
28,348
   
$
310
   
$
270,867
 
 
 
 
 
 
 
 
16

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

The change in the allowance for loan losses by loan portfolio class and recorded investment in loans for the year ended June 30, 2015 and three months ended September 30, 2014, was as follows:

   
Real Estate Loans
             
June 30, 2015
 
1-4 Family
Residential
   
Commercial
   
Multi-Family
   
Land
   
Construction
   
Home
Equity
Loans
And
Lines
of Credit
   
Commercial Loans
   
Consumer Loans
   
Total
 
   
(In Thousands)
 
Allowance for loan losses:
                                   
Beginning Balances
 
$
1,224
   
$
464
   
$
128
   
$
168
   
$
105
   
$
99
   
$
202
   
$
6
   
$
2,396
 
Charge-Offs
   
(181
)
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
(181
)
Recoveries
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
Current Provision
   
152
     
(49
)
   
(25
)
   
(14
)
   
41
     
93
     
103
     
(1
)
   
300
 
Ending Balances
 
$
1,195
   
$
415
   
$
103
   
$
154
   
$
146
   
$
192
   
$
305
   
$
5
   
$
2,515
 
                                                                         
Evaluated for Impairment:
                                                                       
  Individually
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
  Collectively
   
1,195
     
415
     
103
     
154
     
146
     
192
     
305
     
5
     
2,515
 
                                                                         
Loans Receivable:
                                                                       
Ending Balances - Total
 
$
103,332
   
$
62,080
   
$
15,246
   
$
19,866
   
$
17,620
   
$
24,647
   
$
28,019
   
$
319
   
$
271,129
 
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                       
  Individually
   
125
     
537
     
--
     
--
     
--
     
25
     
--
     
--
     
687
 
  Collectively
 
$
103,207
   
$
61,543
   
$
15,246
   
$
19,866
   
$
17,620
   
$
24,622
   
$
28,019
   
$
319
   
$
270,442
 

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

 
 
 
 
17

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

The following tables present loans individually evaluated for impairment, segregated by class of loans, as of September 30, 2015 and June 30, 2015:
 
September 30, 2015
 
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
 
$
333
   
$
333
   
$
--
   
$
333
   
$
--
   
$
347
 
  Commercial
   
564
     
564
     
--
     
564
     
--
     
587
 
  Multi-Family Residential
   
--
     
--
     
--
     
--
     
--
     
--
 
  Land
   
--
     
--
     
--
     
--
     
--
     
--
 
  Construction
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity Lines of Credit
   
--
     
--
     
--
     
--
     
--
     
--
 
Commercial Loans
   
--
     
--
     
--
     
--
     
--
     
--
 
Consumer Loans
   
--
     
--
     
--
     
--
     
--
     
--
 
                                                 
Total
 
$
897
   
$
897
   
$
--
   
$
897
   
$
--
   
$
934
 

June 30, 2015
 
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
 
$
125
   
$
125
   
$
--
   
$
125
   
$
--
   
$
133
 
  Commercial
   
537
     
537
     
--
     
537
     
--
     
556
 
  Multi-Family Residential
   
--
     
--
     
--
     
--
     
--
     
--
 
  Land
   
--
     
--
     
--
     
--
     
--
     
--
 
  Construction
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity Lines of Credit
   
25
     
25
     
--
     
25
     
--
     
25
 
Commercial Loans
   
--
     
--
     
--
     
--
     
--
     
--
 
Consumer Loans
   
--
     
--
     
--
     
--
     
--
     
--
 
                                                 
          Total
 
$
687
   
$
687
   
$
--
   
$
687
   
$
--
   
$
714
 

The Bank has no commitments to loan additional funds to borrowers whose loans were previously in non-accrual status.

There was no interest income recognized on non-accrual loans during the three months ended September 30, 2015 or year ended June 30, 2015. If the non-accrual loans had been accruing interest at their original contracted rates, gross interest income that would have been recorded for the three months ended September 30, 2015 and year ended June 30, 2015 was approximately $286 and $1,058, respectively.

4.            Deposits

Deposits at September 30, 2015 and June 30, 2015 consist of the following classifications:

   
September 30, 2015
   
June 30, 2015
 
   
(In Thousands)
 
Non-Interest Bearing
 
$
44,252
   
$
45,024
 
NOW Accounts
   
34,489
     
31,214
 
Money Markets
   
47,206
     
45,593
 
Passbook Savings
   
20,938
     
18,435
 
     
146,885
     
140,266
 
                 
Certificates of Deposit
   
146,389
     
145,972
 
                 
     Total Deposits
 
$
293,274
   
$
286,238
 
 
 
 
18

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Basic earnings per common share are computed based on the weighted average number of shares outstanding.  Diluted earnings per share is computed based on the weighted average number of shares outstanding and common share equivalents that would arise from the exercise of dilutive securities. Earnings per share for the three months ended September 30, 2015 and 2014 were calculated as follows:

   
Three Months Ended
September 30,
 
   
2015
   
2014
 
   
(In Thousands, Except Per Share Data)
 
         
Net income
 
$
941
   
$
823
 
                 
Weighted average shares outstanding - basic
   
1,927
     
2,006
 
Effect of dilutive common stock equivalents
   
64
     
52
 
Adjusted weighted average shares outstanding - diluted
   
1,991
     
2,058
 
                 
Basic earnings per share
 
$
0.49
   
$
0.41
 
Diluted earnings per share
 
$
0.47
   
$
0.40
 

For the three months ended September 30, 2015 and 2014, there were outstanding options to purchase 204,137 and 228,259 shares, respectively, at a weighted average exercise price of $15.07 and $14.68 per share, respectively. For the quarter ended September 30, 2015, 63,662 options, were included in the computation of diluted earnings per share.

The following table presents the components of weighted average outstanding shares for purposes of calculating earnings per share:
 
   
Three Months Ended
September 30,
 
   
2015
   
2014
 
   
(In Thousands)
 
Average common shares issued
   
2,106
     
3,062
 
Average unearned ESOP shares
   
(143
)
   
(154
)
Average unearned RRP shares
   
(36
)
   
(50
)
Average treasury shares
   
--
     
(852
)
                 
Weighted average shares outstanding
   
1,927
     
2,006
 

6.            Stock-Based Compensation

Recognition and Retention Plan

On August 10, 2005, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2005 Recognition and Retention Plan and Trust Agreement (the "2005 Recognition Plan") as an incentive to retain personnel of experience and ability in key positions.  The aggregate number of shares of the Company's common stock subject to award under the 2005 Recognition Plan totaled 63,547 shares (as adjusted for the exchange ratio of 0.9110 on December 22, 2010).  As the shares were acquired for the 2005 Recognition Plan, the purchase price of these shares was recorded as a contra equity account.  As the shares are distributed, the contra equity account is reduced.  The 2005 Recognition Plan terminated on June 8, 2015 and the remaining 564 shares vested on August 19, 2015.
 
 
 
 
 
 
 
 
19

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Recognition and Retention Plan (continued)

On December 23, 2011, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2011 Recognition and Retention Plan and Trust Agreement (the "2011 Recognition Plan", together with the 2005 Recognition  Plan, the  "Recognition  Plan") as  an  incentive  to  retain  personnel  of  experience and ability in key positions.  The aggregate number of shares of the Company's common stock available for award under the 2011 Recognition Plan totaled 77,808 shares, all of which were awarded as of September 30, 2015.

Recognition Plan shares are earned by recipients at a rate of 20% of the aggregate number of shares covered by the Recognition Plan award over five years.  Generally, if the employment of an employee or service as a non-employee director is terminated prior to the fifth anniversary of the date of grant of Recognition Plan share award, the recipient shall forfeit the right to any shares subject to the award that have not been earned.  In the case of death or disability of the recipient or a change in control of the Company, the Recognition Plan awards will be vested and shall be distributed as soon as practicable thereafter.

The Recognition Plan cost is recognized over the five year vesting period. During the three months ended September 30, 2015, the Company recognized $59,000 in expense related to the Recognition Plans.

Stock Option Plan

On August 10, 2005, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2005 Stock Option Plan (the "2005 Option Plan") for the benefit of directors, officers, and other key employees.  The aggregate number of shares of common stock reserved for issuance under the 2005 Option Plan totaled 158,868 (as adjusted for the exchange ratio).  Both incentive stock options and non-qualified stock options may be granted under the 2005 Option Plan.  The 2005 Stock Option Plan terminated on June 8, 2015, however outstanding stock options will remain in effect for the remainder of their original ten year terms.

On December 23, 2011, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2011 Stock Option Plan (the "2011 Option Plan", together with the 2005 Option Plan, the "Option 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, all of which were awarded as of September 30, 2015.  Both incentive stock options and non-qualified stock options may be granted under the 2011 Option Plan.

On August 18, 2005, the Company granted 158,858 options (as adjusted for the conversion described in Note 1) to directors and employees.  Under the Option Plan, the exercise price of each option cannot be less than the fair market value of the underlying common stock as of the date of the option grant, which was $10.82 (as adjusted), and the maximum term is ten years.  As of August 18, 2015 all of the awards were either exercised or forfeited.  On August 19, 2010 and July 31, 2014, the Company granted 21,616 options and 2,133 options, respectively, under the 2005 Option Plan that were previously forfeited (as adjusted for the conversion), at an exercise price of $10.93 and $18.92 per share, respectively.  On January 31, 2012 and July 31, 2014, 165,344 options and 29,178 options, respectively, were granted to directors and employees at an exercise price of $14.70 and $18.92 per share, respectively, under the 2011 Option Plan.  As of September 30, 2015 there were no stock options available for future grant under the 2005 Option Plan or the 2011 Option Plan.

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.
 
 
 
20

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Stock Incentive Plan

On November 12, 2014, the shareholders of the Company approved the adoption of the Company's 2014 Stock Incentive Plan (the "Stock Incentive Plan") for the benefit of employees and non-employee directors as an incentive to contribute to the success of the Company and reward employees for outstanding performance and the attainment of targeted goals.  There are undetermined amount of unawarded shares under the 2014 Stock Incentive Plan.  The  Stock  Incentive  Plan  covers  a  total  of  150,000  shares, of which no more than 37,500 shares, or 25% of the plan, may be share rewards.  The balance of the plan is reserved for stock option awards which would total 112,500 stock options assuming all the share awards are issued. All incentive stock options granted under the Stock Incentive Plan are intended to comply with the requirements of Section 422 of the Internal Revenue Code.  As of September 30, 2015, there were no share awards or stock options granted pursuant to the Stock Incentive Plan.  On October 26, 2015, the Company granted a total of 34,500 plan share awards and 103,500 stock options to directors, officers, and other key employees.

7.            Related Party Transactions

Certain directors and executive officers were indebted to the Bank in the approximate aggregate amounts of $3.7 million and $3.8 million at September 30, 2015 and June 30, 2015, 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.

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.
 
 
21

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

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:

   
September 30, 2015
   
June 30, 2015
 
   
Carrying
   
Estimated
   
Carrying
   
Estimated
 
   
Value
   
Fair Value
   
Value
   
Fair Value
 
   
(In Thousands)
 
Financial Assets
               
   Cash and Cash Equivalents
 
$
22,780
   
$
22,780
   
$
21,166
   
$
21,166
 
   Securities Available-for-Sale
   
41,549
     
41,549
     
44,885
     
44,885
 
   Securities to be Held-to-Maturity
   
1,502
     
1,502
     
2,010
     
2,010
 
   Loans Held-for-Sale
   
10,948
     
10,948
     
14,203
     
14,203
 
   Loans Receivable
   
268,982
      267,717      
268,427
     
267,157
 
                                 
Financial Liabilities
                               
   Deposits
   
293,374
      272,950      
286,238
     
266,412
 
   Advances from FHLB
   
26,351
      26,578      
38,411
     
38,751
 
                                 
Off-Balance Sheet Items
                               
   Mortgage Loan Commitments
    320       320      
290
     
290
 

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

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

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

 

22

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

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.
 
 
 
 
 
 
 
 
 
 
 
 
23

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 September 30, 2015 and June 30, 2015 are as follows:

   
Fair Value Measurements Using:
     
September 30, 2015
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
 
Unobservable
Inputs
(Level 3)
   
 
 
 
Total
 
   
(In Thousands)
 
Available-for-Sale
               
Debt Securities
               
   FHLMC
 
$
--
   
$
273
   
$
--
   
$
273
 
   FNMA
   
--
     
25,801
     
--
     
25,801
 
   GNMA
   
--
     
15,475
     
--
     
15,475
 
                                 
Total
 
$
--
   
$
41,549
   
$
--
   
$
41,549
 


   
Fair Value Measurements Using:
     
June 30, 2015
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
 
Unobservable
Inputs
(Level 3)
   
 
 
 
Total
 
       
(In Thousands)  
     
Available-for-Sale
               
Debt Securities
               
   FHLMC
 
$
--
   
$
284
   
$
--
   
$
284
 
   FNMA
   
--
     
27,807
     
--
     
27,807
 
   GNMA
   
--
     
16,794
     
--
     
16,794
 
                                 
Total
 
$
--
   
$
44,885
   
$
--
   
$
44,885
 


9.            Subsequent Events

In accordance with FASB ASC 855, Subsequent Events, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements.  The effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of September 30, 2015.  In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued.



 
 
 
 
 
 
 
 
 
 
 
24

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

General

The Company's results of operations are primarily dependent on the results of the Bank, which became a wholly owned subsidiary upon completion of the second-step conversion and reorganization of the Bank on December 22, 2010. The Bank's results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings.  Results of operations are also affected by provisions for loan losses and loan sale activities.  Non-interest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing and other expense.  Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities.  Future changes in applicable law, regulations or government policies may materially impact our financial conditions and results of operations.

Home Federal Bank operates from its main office in Shreveport, Louisiana, four full service branch offices and an administrative 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.

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, 2015 to September 30, 2015

General

At September 30, 2015, total assets amounted to $366.1 million compared to $369.8 million at June 30, 2015, a decrease of approximately $3.7 million, or 1.0%. The decrease in assets was comprised primarily of decreases in investment securities of $3.8 million, or 8.2%, from $46.9 million at June 30, 2015, to $43.1 million at September 30, 2015, and a decrease in loans held-for-sale of $3.3 million, or 22.9%, from $14.2 million at June 30, 2015 to $10.9 million at September 30, 2015.  These decreases were partially offset by increases in cash and cash equivalents of $1.6 million, or 7.6%, from $21.2 million at June 30, 2015 to $22.8 million at September 30, 2015, premises and equipment, net of $1.2 million, or 11.7%, from $10.2 million at June 30, 2015 to $11.4 million at September 30, 2015, and an increase in loans receivable, net of $555,000, or 0.2%, from $268.4 million at June 30, 2015 to $269.0 million at September 30, 2015.
 
 
 
 
 
 
25

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Discussion of Financial Condition Changes from June 30, 2015 to September 30, 2015 (continued)

Cash and Cash Equivalents

Cash and cash equivalents increased $1.6 million, or 7.6%, from $21.2 million at June 30, 2015 to $22.8 million at September 30, 2015. The $1.6 million increase in cash and cash equivalents was due in large part to normal fluctuations in cash balances.

Loans Receivable, Net

Loans receivable, net, increased by $555,000, or 0.2%, to $269.0 million at September 30, 2015 compared to $268.4 million at June 30, 2015.  During the three months ended September 30, 2015, our total loan originations amounted to $56.7 million compared to $71.9 million for the three months ended September 30, 2014.  The increase in loans receivable, net, was primarily due to increases in one- to four-family residential loans of $3.6 million, commercial business loans of $329,000, and residential construction loans of $184,000, partially offset by decreases in commercial real estate loans of $1.8 million, land loans of $809,000, home equity lines of credit of $531,000, equity and second mortgage loans of $213,000, multi-family residential loans of $111,000, and consumer and other loans of $9,000.

Loans Held-for-Sale

Loans held-for-sale decreased $3.3 million, or 22.9%, from $14.2 million at June 30, 2015 to $10.9 million at September 30, 2015The decrease in loans held-for-sale results primarily from a decrease at September 30, 2015 in receivables from financial institutions purchasing the Company's loans held-for-sale and a decrease in the origination volume during the first quarter of fiscal 2016.

Investment Securities

Investment securities amounted to $43.1 million at September 30, 2015 compared to $46.9 million at June 30, 2015, a decrease of $3.8 million, or 8.2%. The decrease in investment securities was primarily due to principal payments on mortgage backed securities of $3.3 million and Federal Home Loan Bank stock redemptions of $509,000.

Premises and Equipment, Net

Premises and equipment, net, increased $1.2 million, or 11.7%, to $11.4 million at September 30, 2015, compared to $10.2 million at June 30, 2015, primarily due to the completion costs on a new branch building in Bossier City and the acquisition of real estate for a future branch location in the North Shreveport area.

Asset Quality

At September 30, 2015, the Company had $289,000 of non-performing assets compared to $80,000 of non-performing assets at June 30, 2015, consisting of four single-family residential loans at September 30, 2015, compared to two single family residential loans at June 30, 2015.  We had $333,000 of loans classified as substandard at September 30, 2015, consisting of two single-family residential loans in the amount of $115,000 and one commercial real estate loan in the amount of $218,000, compared to $37,000 of loans classified as substandard at June 30, 2015, consisting of one single-family residential loan in the amount of $13,000 and one line of credit in the amount of $24,000.  The Company had no loans classified as doubtful at September 30, 2015 or June 30, 2015.

 
 
 
 
 
 
 
 
 
26

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Discussion of Financial Condition Changes from June 30, 2015 to September 30, 2015 (continued)

Total Liabilities

Total liabilities decreased $4.3 million, or 1.3%, from $326.4 million at June 30, 2015, to $322.1 million at September 30, 2015, primarily due to a decrease in advances from the Federal Home Loan Bank of Dallas of $12.1 million, or 31.4%, to $26.4 million at September 30, 2015, compared to $38.4 million at June 30, 2015, partially offset by an increase in total deposits of $7.0 million, or 2.5%, to $293.3 million at September 30, 2015, compared to $286.2 million at June 30, 2015.  The increase in deposits was primarily due to a $3.3 million, or 10.5%, increase in NOW accounts from $31.2 million at June 30, 2015 to $34.5 million at September 30, 2015, a $2.5 million, or 13.6%, increase in savings deposits from $18.4 million at June 30, 2015 to $20.9 million at September 30, 2015, a $1.6 million, or 3.5%, increase in money market deposits from $45.6 million at June 30, 2015 to $47.2 million at September 30, 2015, and a $417,000, or 0.3%, increase in certificates of deposit from $146.0 million at June 30, 2015 to $146.4 million at September 30, 2015, partially offset by a decrease of $772,000, or 1.7%, in non-interest bearing demand deposits from $45.0 million at June 30, 2015 to $44.3 million at September 30, 2015.  At both September 30, 2015 and June 30, 2015, the Company had $12.7 million in brokered deposits. The Company utilizes brokered certificates of deposit as a component of its strategy for lowering Home Federal Bank's overall cost of funds. The brokered certificates of deposit which have maturity dates greater than twelve months are callable by Home Federal Bank after twelve months pursuant to early redemption provisions.
 
Shareholders' Equity

Shareholders' equity increased $633,000, or 1.5%, to $44.0 million at September 30, 2015, from $43.4 million at June 30, 2015.  The primary reasons for the increase in shareholders' equity from June 30, 2015, were net income of $941,000, the vesting of restricted stock awards, stock options and the release of employee stock ownership plan shares totaling $160,000 and proceeds from the issuance of common stock from the exercise of stock options of $50,000.  These increases in shareholders' equity were partially offset by dividends paid totaling $169,000, acquisition of Company stock of $299,000 and a decrease in the Company's accumulated other comprehensive income of $50,000.  The Company's book value per share increased from $20.57 at June 30, 2015 to $20.96 at September 30, 2015 based on shares outstanding of 2,100,241 and 2,109,606, respectively.

The Bank is required to meet minimum capital standards promulgated by the Office of the Comptroller of the Currency ("OCC").  At September 30, 2015, Home Federal Bank's regulatory capital was well in excess of the minimum capital requirements.

Comparison of Operating Results for the Three Month Periods Ended September 30, 2015 and 2014

General

Net income amounted to $941,000 for the three months ended September 30, 2015 compared to $823,000 for the same period in 2014, an increase of $118,000 or 14.3%.  The increase was primarily due to a $203,000, or 6.8%, increase in net interest income, and a $283,000, or 45.0%, increase in non-interest income, partially offset by an increase of $296,000, or 12.7%, in non-interest expense, a $47,000, or 11.6%, increase in income tax expense and a $25,000, or 62.5%, increase in the provision of loan losses for the 2015 period compared to the same period in 2014.

The increase in net interest income for the three months ended September 30, 2015 was primarily due to an increase in total interest income, partially offset by an increase in the Company's cost of funds for the three months ended September 30, 2015, compared to the prior year period.  The increase in non-interest expense was primarily due to increases in compensation and benefit expense, deposit insurance premiums, other non-interest expense, franchise and bank shares tax expense, loan and collection expense, data processing expense, and occupancy and equipment expense, partially offset by decreases in advertising expense, audit and examination fees, and legal fees.
 
 
 
 
 
 
27

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Comparison of Operating Results for the Three Month Periods Ended September 30, 2015 and 2014 (continued)

Net Interest Income

Net interest income for the three months ended September 30, 2015 was $3.2 million, an increase of $203,000, or 6.8%, in comparison to $3.0 million for the three months ended September 30, 2014.  This increase was primarily due to an increase of $290,000, or 8.2%, in total interest income, partially offset by an increase of $87,000, or 15.0%, in the Company's cost of funds. The cost of funds from Federal Home Loan Bank borrowings increased $17,000, or 37.8%, compared to the prior year three month period while interest paid on deposits increased $70,000, or 13.1%, compared to the prior year three month period.

The Company's average interest rate spread was 3.45% for the three months ended September 30, 2015, compared to 3.63% for the three months ended September 30, 2014.  The Company's net interest margin was 3.65% for the three months ended September 30, 2015 compared to 3.83% for the three months ended September 30, 2014.  The decreases in net interest margin and average interest rate spread for the three month period are attributable primarily to a higher volume of average interest-earning assets and a decrease of 16 basis points in the weighted-average yield on interest-earning assets.

Provision for Losses on Loans

Based on an analysis of historical experience, the volume and type of lending conducted by Home Federal 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 $65,000 was made during the three months ended September 30, 2015, compared to a $40,000 provision made during the three months ended September 30, 2014. The allowance for loan losses was $2.6 million, or 0.96% of total loans receivable, at September 30, 2015 compared to $2.3 million, or 0.91%, of total loans receivable at September 30, 2014.  At September 30, 2015, Home Federal Bank had four non-performing loans in the aggregate amount of $289,000 and no other non-performing assets or troubled-debt restructurings. At June 30, 2015, Home Federal had two non-performing loans in the amount of $80,000. There can be no assurance that the loan loss allowance will be sufficient to cover losses on non-performing assets in the future.

Non-interest Income

Total non-interest income amounted to $912,000 for the three months ended September 30, 2015, an increase of $283,000 or 45.0% compared to $629,000 for the same period in 2014.  The increase was due to an increase of $253,000 in gain on sale of loans and $33,000 in service charges on deposit accounts, partially offset by decreases of $2,000 in other non-interest income, and $1,000 in income on bank owned life insurance compared to the same period in 2014.

Non-interest Expense

Total non-interest expense increased $296,000, or 12.7%, for the three months ended September 30, 2015 compared to the prior year period.  The increase in non-interest expense was primarily due to increases of $208,000 in compensation and benefits expense, $29,000 in deposit insurance premiums, $23,000 in other non-interest expense, $18,000 in franchise and bank shares tax expense, $17,000 in loan collection expense, $11,000 in data processing expense, and $10,000 in occupancy and equipment expense.  These increases were partially offset by decreases of $14,000 in advertising expense, $3,000 in audit and examination fees, and $3,000 in legal fees.

The increases in compensation and benefits expense were a result of normal compensation and benefits increases, including stock option and recognition and retention plan expense, and the hiring of additional commercial and residential loan officers.  The aggregate compensation expense recognized by the Company for its Stock Option, ESOP and Recognition and Retention Plans amounted to $165,000 for the three months ended September 30, 2015, compared to $157,000 for the three months ended September 30, 2014.
 
 
 
28

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Comparison of Operating Results for the Three Month Periods Ended September 30, 2015 and 2014 (continued)

The Louisiana bank shares tax is assessed on the Bank's equity and earnings.  For the three months ended September 30, 2015, the Company recognized franchise and bank shares tax expense of $91,000 compared to $73,000 for the same period in 2014.

Income Taxes

Income taxes amounted to $451,000 for the three months ended September 30, 2015, resulting in an effective tax rate of 32.4%. Income taxes amounted to $404,000 for the three months ended September 30, 2014, resulting in an effective tax rate of 32.9%.  The decrease in the effective income tax rate for the three months ended September 30, 2015, compared to the prior year period, is primarily the result of the effect of non-taxable income and bad debt deductions resulting in a 0.5% decrease, in rate for the three months ended September 30, 2015.

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

   
Three Months Ended September 30,
 
   
2015
   
2014
 
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
 
   
(Dollars In Thousands)
 
Interest-earning assets:
                       
     Investment securities    
 
$
43,970
   
$
201
     
1.82
%
 
$
53,820
   
$
245
     
1.82
%
     Loans receivable       
   
284,158
     
3,636
     
5.12
     
252,870
     
3,307
     
5.23
 
Interest-earning deposits    
   
20,346
     
8
     
0.17
     
4,191
     
3
     
0.28
 
          Total interest-earning assets
   
348,474
     
3,845
     
4.41
     
310,881
     
3,555
     
4.57
 
Non-interest-earning assets   
   
23,154
                     
22,595
                 
          Total assets   
 
$
371,628
                   
$
333,476
                 
Interest-bearing liabilities:
                                               
     Savings accounts    
   
20,169
     
17
     
0.35
     
12,788
     
6
     
0.20
 
     NOW accounts      
   
35,172
     
77
     
0.87
     
26,227
     
45
     
0.69
 
     Money market accounts  
   
47,701
     
38
     
0.32
     
45,002
     
41
     
0.36
 
     Certificate accounts      
   
145,756
     
473
     
1.30
     
125,386
     
443
     
1.41
 
          Total deposits   
   
248,798
     
605
     
0.97
     
209,403
     
535
     
1.02
 
Other Borrowings
   
--
     
--
     
--
     
--
     
--
     
--
 
FHLB advances    
   
30,371
     
62
     
0.82
     
36,608
     
45
     
0.49
 
          Total interest-bearing liabilities
   
279,169
     
667
     
0.96
%
   
246,011
     
580
     
0.94
%
Non-interest-bearing liabilities:
                                               
     Non-interest bearing demand accounts
   
44,087
                     
38,805
                 
     Other liabilities       
   
2,520
                     
2,278
                 
          Total liabilities     
   
325,776
                     
287,094
                 
Total Stockholders' Equity(1)    
   
45,852
                     
46,382
                 
 
                                               
          Total liabilities and equity
 
$
371,628
                   
$
333,476
                 
 
                                               
Net interest-earning assets 
 
$
69,305
                   
$
64,870
                 
 
                                               
Net interest income; average interest rate spread(2)
         
$
3,178
     
3.45
%
         
$
2,975
     
3.63
%
Net interest margin(3)    
                   
3.65
%
                   
3.83
%
Average interest-earning assets to average
  interest-bearing liabilities     
                   
124.83
%
                   
126.37
%
 __________________
(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.
 
 
 
 
 
 
 
29

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
Comparison of Operating Results for the Three Month Periods Ended September 30, 2015 and 2014 (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 $1.5 million at September 30, 2015.

A significant portion of Home Federal Bank's liquidity consists of securities classified as available-for-sale and cash and cash equivalents.   Home Federal Bank's primary sources of cash are net income, principal repayments on loans and mortgage-backed securities and increases in deposit accounts.  If Home Federal Bank requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas which provides an additional source of funds.  At September 30, 2015, Home Federal Bank had $26.4 million in advances from the Federal Home Loan Bank of Dallas and had $121.1 million in additional borrowing capacity.  Additionally, at September 30, 2015, 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 $15.1 million. There were no amounts purchased under this agreement as of September 30, 2015.

At September 30, 2015, Home Federal Bank had outstanding loan commitments of $32.0 million to originate loans.  At September 30, 2015, certificates of deposit scheduled to mature in less than one year totaled $63.5 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, the cost of such deposits could be significantly higher upon renewal in a rising interest rate environment.  Home Federal Bank intends to utilize its high levels of liquidity to fund its lending activities.  If additional funds are required to fund lending activities, Home Federal Bank intends to sell its securities classified as available-for-sale as needed.

At September 30, 2015, Home Federal Bank exceeded each of its regulatory capital requirements with tangible, common equity Tier 1, core and risk-based capital ratios of 11.83%, 17.81%, 11.83% and 18.89%, respectively.

Off-Balance Sheet Arrangements

At September 30, 2015, 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.

 
 
30

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.

ITEM 3.                          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.                          CONTROLS AND PROCEDURES

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

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

PART II

ITEM 1.                          LEGAL PROCEEDINGS

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

ITEM 1A.                      RISK FACTORS

Not applicable.
 
 
 
 
 
 
 
 
 
 
 
 
31

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
 
 
 
ITEM 2.                          UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

The Company's repurchases of its common stock made during the quarter ended September 30, 2015 are set forth in the table below:
 
Period
 
Total Number of
Shares
Purchased
   
Average
Price Paid
per Share
   
Total Number of
Shares Purchased as
 Part of Publicly
Announced Plans or Programs
   
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs (a)
 
July 1, 2015 – July 31, 2015
   
--
   
$
--
     
--
     
62,905
 
August 1, 2015 – August 31, 2015
   
6,425
     
21.86
     
6,425
     
56,480
 
September 1, 2015 –September 30, 2015
   
7,000
     
21.91
     
7,000
     
49,480
 
Total
   
13,425
   
$
21.89
     
13,425
     
49,480
 
______________
Notes to this table:


(a) On February 11, 2015, the Company announced by press release a repurchase program to repurchase up to 108,000 shares, or approximately 5.0% of the Company's then outstanding shares of common stock. The repurchase program does not have an expiration date.

ITEM 3.                          DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.                          MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.                          OTHER INFORMATION

Not applicable.

ITEM 6.                          EXHIBITS

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


 
 
 
 
 
 
32

SIGNATURES


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

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
     
     
     
Date:   November 10, 2015
By:
/s/Glen W. Brown
   
Glen W. Brown
   
Senior Vice President and Chief Financial Officer
   
(Duly authorized officer and principal financial and
   
accounting officer)