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Home Federal Bancorp, Inc. of Louisiana - Quarter Report: 2019 March (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:
March 31, 2019
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)

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock (par value $.01 per share)
HFBL
Nasdaq Stock Market, LLC
 
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 every Interactive Data File required to be submitted 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 such files). [X] Yes  [  ] No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
[  ]
Accelerated filer
[  ]
Non-accelerated filer  
[X]
Smaller reporting company
[X]
 
 
Emerging growth company
[  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [  ]

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 May 14, 2019: The registrant had 1,849,990 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
  6
     
 
Notes to Consolidated Financial Statements
  8
     
Item 2:
Management's Discussion and Analysis of Financial Condition and Results of Operations
30
     
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
38
     
Item 4:
Controls and Procedures
38
     
PART II
OTHER INFORMATION
 
     
Item 1:
Legal Proceedings
38
     
Item 1A:
Risk Factors
38
     
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
38
     
Item 3:
Defaults Upon Senior Securities
39
     
Item 4:
Mine Safety Disclosures
39
     
Item 5:
Other Information
39
     
Item 6:
Exhibits
39
     
SIGNATURES
   
 


HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

   
March 31, 2019
   
June 30, 2018
 
   
(In Thousands)
 
             
ASSETS
           
 Cash and Cash Equivalents (Includes Interest-Bearing Deposits with Other Banks of $5,234 and $11,974 for
   March 31, 2019 and June 30, 2018, Respectively)
 
$
11,413
   
$
15,867
 
Securities Available-for-Sale
   
43,113
     
29,324
 
Securities Held-to-Maturity (Fair Value of $25,553 and $27,818, Respectively)
   
25,967
     
28,888
 
Loans Held-for-Sale
   
5,457
     
6,762
 
  Loans Receivable, Net of Allowance for Loan Losses of $3,580 and $3,425, Respectively
   
323,783
     
317,493
 
Accrued Interest Receivable
   
1,289
     
1,146
 
Premises and Equipment, Net
   
13,538
     
12,243
 
Bank Owned Life Insurance
   
6,913
     
6,808
 
Deferred Tax Asset
   
1,044
     
1,102
 
Foreclosed Assets
   
1,200
     
1,177
 
Other Assets
   
640
     
840
 
                 
Total Assets
 
$
434,357
   
$
421,650
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
LIABILITIES
               
Deposits
 
$
382,108
   
$
360,260
 
Advances from Borrowers for Taxes and Insurance
   
459
     
725
 
Short-term Federal Home Loan Bank advances
   
292
     
5,282
 
Long-term Federal Home Loan Bank advances
   
1,134
     
6,355
 
Other Borrowings
   
--
     
300
 
Other Accrued Expenses and Liabilities
   
1,381
     
1,691
 
 
Total Liabilities
   
385,374
     
374,613
 
                 
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; 1,854,990 and 1,894,081 Shares Issued and
      Outstanding at March 31, 2019 and June 30, 2018, Respectively
   
23
     
23
 
Additional Paid-in Capital
   
35,794
     
35,057
 
Unearned ESOP Stock
   
(1,013
)
   
(1,100
)
Unearned RRP Trust Stock
   
2
     
(22
)
Retained Earnings
   
14,818
     
14,125
 
Accumulated Other Comprehensive Loss
   
(641
)
   
(1,046
)
                 
Total Stockholders’ Equity
   
48,983
     
47,037
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
434,357
   
$
421,650
 


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
March 31,
   
For the Nine Months Ended
March 31,
 
   
2019
   
2018
   
2019
   
2018
 
   
(In Thousands, Except per Share Data)
 
INTEREST INCOME
                       
Loans, Including Fees
 
$
4,530
   
$
4,179
   
$
13,593
   
$
12,743
 
Investment Securities
   
16
     
12
     
45
     
35
 
Mortgage-Backed Securities
   
396
     
298
     
1,012
     
826
 
Other Interest-Earning Assets
   
60
     
19
     
234
     
84
 
Total Interest Income
   
5,002
     
4,508
     
14,884
     
13,688
 
                                 
INTEREST EXPENSE
                               
Deposits
   
1,149
     
768
     
3,108
     
2,213
 
     Federal Home Loan Bank Borrowings
   
17
     
92
     
127
     
352
 
Other Borrowings
   
2
     
2
     
6
     
4
 
Total Interest Expense
   
1,168
     
862
     
3,241
     
2,569
 
Net Interest Income
   
3,834
     
3,646
     
11,643
     
11,119
 
                                 
PROVISION FOR LOAN LOSSES
   
100
     
350
     
450
     
850
 
Net Interest Income after Provision for Loan Losses
   
3,734
     
3,296
     
11,193
     
10,269
 
                                 
NON-INTEREST INCOME
                               
Gain on Sale of Loans
   
305
     
285
     
1,071
     
1,320
 
(Loss) Gain on Sale of Real Estate and Fixed Assets
   
(117
)
   
--
     
(345
)
   
1
 
Gain on Sale of Securities
   
--
     
--
     
--
     
94
 
Income on Bank Owned Life Insurance
   
35
     
35
     
105
     
105
 
Service Charges on Deposit Accounts
   
246
     
223
     
712
     
660
 
Other Income
   
14
     
13
     
49
     
41
 
Total Non-Interest Income
   
483
     
556
     
1,592
     
2,221
 
                                 
NON-INTEREST EXPENSE
                               
Compensation and Benefits
   
1,632
     
1,565
     
4,795
     
4,860
 
Occupancy and Equipment
   
323
     
345
     
971
     
1,017
 
Data Processing
   
108
     
165
     
405
     
497
 
Audit and Examination Fees
   
62
     
67
     
189
     
194
 
Franchise and Bank Shares Tax
   
97
     
96
     
295
     
296
 
Advertising
   
89
     
47
     
232
     
117
 
Legal Fees
   
136
     
107
     
433
     
396
 
Loan and Collection
   
83
     
53
     
209
     
205
 
     Real Estate Owned Valuation Adjustment
   
--
     
--
     
75
     
--
 
Deposit Insurance Premium
   
7
     
27
     
59
     
95
 
Other Expense
   
184
     
201
     
556
     
582
 
Total Non-Interest Expense
   
2,721
     
2,673
     
8,219
     
8,259
 
 Income Before Income Taxes
   
1,496
     
1,179
     
4,566
     
4,231
 
                                 
PROVISION FOR INCOME TAX EXPENSE
   
307
     
158
     
984
     
1,840
 
Net Income
 
$
1,189
   
$
1,021
   
$
3,582
   
$
2,391
 
EARNINGS PER COMMON SHARE:
                               
Basic
 
$
0.68
   
$
0.57
   
$
2.02
   
$
1.33
 
Diluted
 
$
0.63
   
$
0.54
   
$
1.88
   
$
1.26
 
DIVIDENDS DECLARED
 
$
0.14
   
$
0.12
   
$
0.42
   
$
0.36
 




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
March 31,
   
For the Nine Months Ended
March 31,
 
   
2019
   
2018
   
2019
   
2018
 
   
(In Thousands)
   
(In Thousands)
 
Net Income
 
$
1,189
   
$
1,021
   
$
3,582
   
$
2,391
 
                                 
Other Comprehensive Income (Loss), Net of Tax
                               
   Unrealized Holding Gain /(Loss) on Securities Available-for-Sale,
     Net of Tax of $64 and $106 in 2019 and $179 and $270 in 2018
   
242
     
(473
)
   
405
     
(712
)
                                 
        Total Comprehensive Income
 
$
1,431
   
$
548
   
$
3,987
   
$
1,679
 































See accompanying notes to unaudited consolidated financial statements.

3

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE AND NINE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
Three Months Ended

   
Common Stock
   
Additional
Paid-in
Capital
   
Unearned
ESOP
Stock
   
Unearned
RRP
Trust
Stock
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Stockholders’
Equity
 
                     
(In Thousands)
             
BALANCE – December 31, 2017
 
$
23
   
$
34,874
   
$
(1,158
)
 
$
(22
)
 
$
12,806
   
$
(591
)
 
$
45,932
 
                                                         
Net Income
   
--
     
--
     
--
     
--
     
1,021
     
--
     
1,021
 
                                                         
Changes in Unrealized Loss
    on Securities Available-for-
    Sale, Net of Tax Effects
   
--
     
--
     
--
     
--
     
116
     
(473
)
   
(357
)
                                                         
RRP Shares Earned
   
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                         
Stock Options Vested
   
--
     
34
     
--
     
--
     
--
     
--
     
34
 
                                                         
Common Stock Issuance for Stock
    Option Exercises
   
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                         
ESOP Compensation Earned
   
--
     
55
     
29
     
--
     
--
     
--
     
84
 
                                                         
Company Stock Purchased
   
--
     
--
     
--
     
--
     
(75
)
   
--
     
(75
)
                                                         
Dividends Declared
   
--
     
--
     
--
     
--
     
(229
)
   
--
     
(229
)
                                                         
BALANCE – March 31, 2018
 
$
23
   
$
34,963
   
$
(1,129
)
 
$
(22
)
 
$
13,639
   
$
(1,064
)
 
$
46,410
 
                                                         
BALANCE – December 31, 2018
 
$
23
   
$
35,586
   
$
(1,042
)
 
$
2
   
$
14,952
   
$
(883
)
 
$
48,638
 
                                                         
Net Income
   
--
     
--
     
--
     
--
     
1,189
     
--
     
1,189
 
                                                         
Changes in Unrealized Loss
    on Securities Available-for-
    Sale, Net of Tax Effects
   
--
     
--
     
--
     
--
     
--
     
242
     
242
 
                                                         
Share Awards Earned
   
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                         
RRP Shares Earned
   
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                         
Stock Options Vested
   
--
     
37
     
--
     
--
     
--
     
--
     
37
 
                                                         
Common Stock Issuance for Stock
    Option Exercises
   
--
     
111
     
--
     
--
     
--
     
--
     
111
 
                                                         
ESOP Compensation Earned
   
--
     
60
     
29
     
--
     
--
     
--
     
89
 
                                                         
Company Stock Purchased
   
--
     
--
     
--
     
--
     
(1,060
)
   
--
     
(1,060
)
                                                         
Dividends Declared
   
--
     
--
     
--
     
--
     
(263
)
   
--
     
(263
)
                                                         
BALANCE – March 31, 2019
 
$
23
   
$
35,794
   
$
(1,013
)
 
$
2
   
$
14,818
   
$
(641
)
 
$
48,983
 





See accompanying notes to unaudited consolidated financial statements.
4

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE AND NINE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
Nine Months Ended
   
Common
Stock
   
Additional
Paid-in
Capital
   
Unearned
ESOP
Stock
   
Unearned
RRP
Trust
Stock
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Stockholders’
Equity
 
                     
(In Thousands)
             
BALANCE – June 30, 2017
 
$
23
   
$
34,516
   
$
(1,215
)
 
$
(46
)
 
$
13,320
   
$
(352
)
 
$
46,246
 
                                                         
Net Income
   
--
     
--
     
--
     
--
     
2,391
     
--
     
2,391
 
                                                         
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
   
--
     
--
     
--
     
--
     
116
     
(712
)
   
(596
)
                                                         
RRP Shares Earned
   
--
     
--
     
--
     
24
     
--
     
--
     
24
 
                                                         
Stock Options Vested
   
--
     
102
     
--
     
--
     
--
     
--
     
102
 
                                                         
Common Stock Issuance for Stock
    Option Exercises
   
--
     
191
     
--
     
--
     
--
     
--
     
191
 
                                                         
ESOP Compensation Earned
   
--
     
154
     
86
     
--
     
--
     
--
     
240
 
                                                         
Company Stock Purchased
   
--
     
--
     
--
     
--
     
(1,493
)
   
--
     
(1,493
)
                                                         
Dividends Declared
   
--
     
--
     
--
     
--
     
(695
)
   
--
     
(695
)
                                                         
BALANCE – March 31, 2018
 
$
23
   
$
34,963
   
$
(1,129
)
 
$
(22
)
 
$
13,639
   
$
(1,064
)
 
$
46,410
 
                                                         
BALANCE – June 30, 2018
 
$
23
   
$
35,057
   
$
(1,100
)
 
$
(22
)
 
$
14,125
   
$
(1,046
)
 
$
47,037
 
                                                         
Net Income
   
--
     
--
     
--
     
--
     
3,582
     
--
     
3,582
 
                                                         
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
   
--
     
--
     
--
     
--
     
--
     
405
     
405
 
                                                         
Share Awards Earned
   
--
     
135
     
--
     
--
     
--
     
--
     
135
 
                                                         
RRP Shares Earned
   
--
     
--
     
--
     
24
     
--
     
--
     
24
 
                                                         
Stock Options Vested
   
--
     
105
     
--
     
--
     
--
     
--
     
105
 
                                                         
Common Stock Issuance for Stock
    Option Exercises
   
--
     
309
     
--
     
--
     
--
     
--
     
309
 
                                                         
ESOP Compensation Earned
   
--
     
188
     
87
     
--
     
--
     
--
     
275
 
                                                         
Company Stock Purchased
   
--
     
--
     
--
     
--
     
(2,097
)
   
--
     
(2,097
)
                                                         
Dividends Declared
   
--
     
--
     
--
     
--
     
(792
)
   
--
     
(792
)
                                                         
BALANCE – March 31, 2019
 
$
23
   
$
35,794
   
$
(1,013
)
 
$
2
   
$
14,818
   
$
(641
)
 
$
48,983
 






See accompanying notes to unaudited consolidated financial statements.
5

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

        
Nine Months Ended
 
        
March 31,
 
   
2019
   
2018
 
        
(In Thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Income
 
$
3,582
   
$
2,391
 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
               
Bad Debt Recovery
   
2
     
25
 
Net Amortization and Accretion on Securities
   
79
     
130
 
Loss/(Gain) on Sale of Real Estate
   
345
     
(1
)
Gain on Sale of Loans
   
(1,071
)
   
(1,320
)
Gain on Sale of Securities
   
--
     
(94
)
Amortization of Deferred Loan Fees
   
(147
)
   
(115
)
Depreciation of Premises and Equipment
   
363
     
378
 
ESOP Expense
   
275
     
240
 
Stock Option Expense
   
105
     
102
 
Recognition and Retention Plan Expense
   
21
     
21
 
Deferred Income Tax
   
(58
)
   
444
 
Valuation Adjustment Real Estate Owned
   
75
     
60
 
Provision for Loan Losses
   
450
     
850
 
Increase in Cash Surrender Value on Bank Owned Life Insurance
   
(105
)
   
(105
)
Share Awards Expense
   
102
     
101
 
Changes in Assets and Liabilities:
               
Loans Held-for-Sale – Originations and Purchases
   
(42,338
)
   
(58,068
)
Loans Held-for-Sale – Sale and Principal Repayments
   
44,713
     
67,631
 
Accrued Interest Receivable
   
(143
)
   
(81
)
Other Operating Assets
   
200
     
374
 
Other Operating Liabilities
   
(310
)
   
(428
)
                 
Net Cash Provided by Operating Activities
   
6,140
     
12,535
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Loan Originations and Purchases, Net of Principal Collections
   
(6,977
)
   
(2,953
)
Deferred Loan Fees Collected
   
89
     
221
 
Acquisition of Premises and Equipment
   
(2,412
)
   
(178
)
Proceeds from Sale of Real Estate
   
469
     
--
 
Activity in Available-for-Sale Securities:
               
Principal Payments on Mortgage-Backed Securities
   
5,154
     
6,262
 
Sale of Securities
   
--
     
3,555
 
Purchases of Securities
   
(18,496
)
   
(7,717
)
Activity in Held-to-Maturity Securities:
               
Principal Payments on Mortgage-Backed Securities
   
2,952
     
2,217
 
Purchase of Securities
   
--
     
(1,174
)
                 
Net Cash (Used in) Provided by Investing Activities
   
(19,221
)
   
233
 
                 


See accompanying notes to unaudited consolidated financial statements.
6

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
(Unaudited)
 
   
   
Nine Months Ended
 
   
March 31,
 
   
2019
   
2018
 
   
(In Thousands)
 
CASH FLOWS FROM FINANCING ACTIVITIES
     
Net Increase in Deposits
 
$
21,848
   
$
18,149
 
Proceeds from Federal Home Loan Bank Advances
   
--
     
183,775
 
Repayments of Advances from Federal Home Loan Bank
   
(10,210
)
   
(215,976
)
Repayments of Other Borrowings
   
(750
)
   
(350
)
Net Decrease in Advances from Borrowers for Taxes and Insurance
   
(266
)
   
(183
)
Dividends Paid
   
(792
)
   
(695
)
Company Stock Purchased
   
(2,097
)
   
(1,493
)
Proceeds from Stock Options Exercised
   
309
     
191
 
Proceeds from Other Bank Borrowings
   
450
     
350

Plan Share Distributions
   
135
     
--
 
                 
Net Cash Provided by (Used in) Financing Activities
   
8,627
     
(16,232
)
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
   
(4,454
)
   
(3,464
)
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
   
15,867
     
11,905
 
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
 
$
11,413
   
$
8,441
 
                 
SUPPLEMENTARY CASH FLOW INFORMATION
               
Interest Paid on Deposits and Borrowed Funds
 
$
2,603
   
$
2,407
 
Income Taxes Paid
   
1,068
     
1,236
 
Market Value Adjustment for Gain (Loss) on Securities Available-for-Sale
   
513
     
(814
)













See accompanying notes to unaudited consolidated financial statements.

7


HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.          Summary of Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Home Federal Bancorp, Inc. of Louisiana (the “Company”) and its subsidiary, Home Federal Bank (“Home Federal Bank” or the “Bank”).  These consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the nine month period ended March 31, 2019 are not necessarily indicative of the results which may be expected for the fiscal year ending June 30, 2019.

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

In accordance with the subsequent events topic of the ASC, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements.  The effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of March 31, 2019.  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 nine full-service banking offices and home office, located in Caddo and Bossier Parishes, Louisiana.  The Bank opened its seventh full-service banking office during the quarter ended March 31, 2019.  The area served by the Bank is primarily the Shreveport-Bossier City metropolitan area; however, loan and deposit customers are found dispersed in a wider geographical area covering much of northwest Louisiana. As of March 31, 2019, 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.






8

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 as 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 uncollectability of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

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







9

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 fair value of the collateral of the loan.  If the fair value of the collateral is less than the recorded investment in the loan, the Bank will recognize the impairment by creating a valuation allowance with a corresponding charge against earnings.  A loan is considered a troubled debt restructuring (“TDR”) if the Company, for economic or legal reasons related to a debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.  Concessions granted under a TDR typically involve a temporary or permanent reduction in payments or interest rate or an extension of a loan’s stated maturity date at less than a current market rate of interest.  Loans identified as TDRs are designated as impaired.

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

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

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. Estimated useful lives are as follows:

 
Buildings and Improvements
10 - 40 Years
 
 
Furniture and Equipment
  3 - 10 Years
 
                 
Bank-Owned Life Insurance

The Company has purchased life insurance contracts on the lives of certain key employees.  The Bank is the beneficiary of these policies.  These contracts are reported at their cash surrender value, and changes in the cash surrender value are included in non-interest income.







10


HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.          Summary of Accounting Policies (continued)

Allowance for Loan Losses (continued)

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 basis 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.

The Company follows the provisions of the Income Taxes Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740.  ASC 740 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest, penalties, and disclosures required.  The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

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

Earnings per Share

Earnings per share are computed based upon the weighted average number of common shares outstanding during the period.

Non-Direct Response Advertising

The Company expenses all advertising costs, except for direct-response advertising, as incurred.  Non-direct response advertising costs were $232,000 and $117,000 for the nine months ended March 31, 2019 and 2018, respectively.

In the event the Company incurs expense for material direct-response advertising, it will be amortized over the estimated benefit period.  Direct-response advertising consists of advertising whose primary purpose is to elicit sales to customers who could be shown to have responded specifically to the advertising and results in probable future benefits.  For the nine months ended March 31, 2019 and 2018, the Company did not incur any amount of direct-response advertising.

Stock-Based Compensation

GAAP requires all share-based payments to employees, including grants of employee stock options and recognition and retention share awards, to be recognized as expense in the statement of operations based on their fair values.  The amount of compensation is measured at the fair value of the options or recognition and retention share awards when granted, and this cost is expensed over the required service period, which is normally the vesting period of the options or recognition and retention awards.







11

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Reclassification

Certain financial statement balances included in the prior year consolidated financial statements have been reclassified to conform to the current period presentation.

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 balance sheets along with net income, they are components of comprehensive income (loss).

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The amendments in ASU 2014-09 supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance.  The general principle of ASU 2014-09 requires an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration of which the entity expects to be entitled in exchange for those goods or services.  The guidance sets forth a five step approach to be utilized for revenue recognition.  In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 making it effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.  In April 2016, the FASB issued ASU 2016-10 which does not change the core principle of the guidance in Topic 606.  The amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas.  In May 2016, the FASB issued ASU 2016-12 which does not change the core principle of the guidance in Topic 606.  The amendments in this Update affect only certain narrow aspects of Topic 606.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments.  The amendments in this Update supersede the guidance to classify equity securities with readily determinable fair values into different categories and require equity securities to be measured at fair value with changes in the fair value recognized through net income.  The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of impairment.  The amendments in this Update also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period.  In addition, the amendments in this Update exempt all entities that are not public business entities from disclosing fair value information for financial instruments measured at amortized cost.  In addition, for public business entities, the amendments supersede the requirement to disclose the methods and significant assumptions used in calculating the fair value of financial instruments required to be disclosed for financial instruments measured at amortized cost on the balance sheet.  The amendments in this Update require public business entities that are required to disclose fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion consistent with Topic 820, Fair Value Measurement.

The provisions within this Update require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option.  This amendment excludes from net income gains or losses that the entity may not realize because those financial liabilities are not usually transferred or settled at their fair values before maturity.  The amendments in this Update require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or in the accompanying notes to the financial statements.






12


HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.          Summary of Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases.  From the lessee’s perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting pattern of expense recognition in the income statement for a lessee.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available.  The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  For public business entities that are SEC filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods with those fiscal years.  The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20).  This Update was issued in response to diversity in practice in the amortization period for premiums of callable debt securities and in how the potential for exercise of a call is factored into current impairment assessments.  As such, these amendments reduce the amortization period for certain callable debt securities carried at a premium and require the premium to be amortized over the period not to exceed the earliest call date.  These amendments do not apply to securities carried at a discount.  The effective date of this Update is for fiscal years beginning on or after December 15, 2018. The Company does not expect ASU 2017-08 to have a material impact on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718).  The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in FASB ASC 718.  The effective date of this Update is for fiscal years beginning after December 15, 2018.  Early adoption is permitted, including adoption in an interim period.  The Company does not expect ASU 2017-09 to have a material impact on its consolidated financial statements.

In November 2017, the FASB issued ASU 2017-14, Income Statement – Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) (SEC Update).  This Update adds, amends, and supersedes SEC paragraphs of the ASC pursuant to Staff Accounting Bulletin No. 116 and SEC Release 33-10403.  This ASU is effective upon issuance.










13

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Recent Accounting Pronouncements (continued)

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220):  Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.  On December 22, 2017, the U.S. Federal Government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act). The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.  Consequently, the amendments in this Update eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users.  However, because the amendments in this Update only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.  The amendments in this Update are affective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption of this Update is permitted, including adoption in any interim period (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance.  The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2018, the FASB issued ASU 2018-06, Codification Improvements to Topic 942, Financial Services – Depository and Lending.  The amendments in this Update supersede the guidance in Subtopic 942-740, Financial Services – Depository and Lending – Income Taxes, that is related to Circular 202 because that guidance has been rescinded by the Office of the Comptroller of the Currency (OCC) and is no longer relevant.  This ASU is effective upon issuance.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718):  Improvements to Nonemployee Share-Based Payment Accounting.  Topic 718 improves several areas of nonemployee share-based payment accounting.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.  Early adoption is permitted, but no earlier than an entity’s adoption on Topic 606.  The Company does expect ASU 2018-07 to have a material impact on its consolidated financial statements.
















14

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:
   
March 31, 2019
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 

 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale                        
                         
Debt Securities
                       
  FHLMC Mortgage-Backed Certificates
 
$
8,508
   
$
14
   
$
310
   
$
8,212
 
  FNMA Mortgage-Backed Certificates
   
26,384
     
88
     
343
     
26,129
 
  GNMA Mortgage-Backed Certificates
   
9,033
     
1
     
262
     
8,772
 
                                 
          Total Debt Securities
   
43,925
     
103
     
915
     
43,113
 
                                 
          Total Securities Available-for-Sale
 
$
43,925
   
$
103
   
$
915
   
$
43,113
 
                                 
Securities Held-to-Maturity
                               
                                 
Debt Securities
                               
  GNMA Mortgage-Backed Certificates
 
$
1,141
   
$
--
   
$
28
   
$
1,113
 
  FNMA Mortgage-Backed Certificates
   
21,935
   
--
     
386
     
21,549
 
                                 
          Total Debt Securities
   
23,076
     
--
     
414
     
22,662
 
                                 
Equity Securities (Non-Marketable)
                               
  26,408 Shares – Federal Home Loan Bank
   
2,641
     
--
     
--
     
2,641
 
  630 Shares – First National Bankers Bankshares, Inc.
   
250
     
--
     
--
     
250
 
                                 
          Total Equity Securities
   
2,891
     
--
     
--
     
2,891
 
                                 
          Total Securities Held-to-Maturity
 
$
25,967
   
$
--
   
$
414
   
$
25,553
 

   
June 30, 2018
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 

 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale                        
                         
Debt Securities
                       
  FHLMC Mortgage-Backed Certificates
 
$
7,601
   
$
2
   
$
518
   
$
7,085
 
  FNMA Mortgage-Backed Certificates
   
12,465
     
1
     
554
     
11,912
 
  GNMA Mortgage-Backed Certificates
   
10,581
     
2
     
256
     
10,327
 
                                 
          Total Debt Securities
   
30,647
     
5
     
1,328
     
29,324
 
                                 
          Total Securities Available-for-Sale
 
$
30,647
   
$
5
   
$
1,328
   
$
29,324
 
                                 
Securities Held-to-Maturity
                               
                                 
Debt Securities
                               
  GNMA Mortgage-Backed Securities
 
$
1,160
   
$
--
   
$
45
   
$
1,115
 
  FNMA Mortgage-Backed Securities
   
24,882
     
--
     
1,025
     
23,857
 
                                 
          Total Debt Securities
   
26,042
     
--
     
1,070
     
24,972
 
                                 
Equity Securities (Non-Marketable)
                               
  25,959 Shares – Federal Home Loan Bank
   
2,596
     
--
     
--
     
2,596
 
  630 Shares – First National Bankers Bankshares, Inc.
   
250
     
--
     
--
     
250
 
                                 
          Total Equity Securities
   
2,846
     
--
     
--
     
2,846
 
                                 
          Total Securities Held-to-Maturity
 
$
28,888
   
$
--
   
$
1,070
   
$
27,818
 

15


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 March 31, 2019 follows:

   
Available-for-Sale
   
Held-to-Maturity
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
   
(In Thousands)
 
Debt Securities
                       
    Within One Year or Less
 
$
35
   
$
36
   
$
--
   
$
--
 
    One through Five Years
   
15,538
     
15,227
     
--
     
--
 
    After Five through Ten Years
   
17,507
     
16,941
     
--
     
--
 
    Over Ten Years
   
10,845
     
10,909
     
23,076
     
22,662
 
     
43,925
     
43,113
     
23,076
     
22,662
 
                                 
Other Equity Securities
   
--
     
--
     
2,891
     
2,891
 
                                 
   Total
 
$
43,925
   
$
43,113
   
$
25,967
   
$
25,553
 

Securities available-for-sale totaling $18.5 million were purchased during the nine months ended March 31, 2019.

The following tables show information pertaining to gross unrealized losses on securities available-for-sale at March 31, 2019 and June 30, 2018 aggregated by investment category and length of time that individual securities have been in a continuous loss position.

   
March 31, 2019
 
   
Less Than Twelve Months
   
Over Twelve Months
 
   
Gross
         
Gross
       
   
Unrealized
   
Fair
   
Unrealized
   
Fair
 
   
Losses
   
Value
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale
                       
                         
Mortgage-Backed Securities
 
$
126
   
$
4,265
   
$
789
   
$
20,839
 
                                 
        Total Securities Available-for-Sale
 
$
126
   
$
4,265
   
$
789
   
$
20,839
 
                                 

   
June 30, 2018
 
   
Less Than Twelve Months
   
Over Twelve Months
 
   
Gross
         
Gross
       
   
Unrealized
   
Fair
   
Unrealized
   
Fair
 
   
Losses
   
Value
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale
                       
                         
Mortgage-Backed Securities
 
$
71
   
$
4,709
   
$
1,257
   
$
24,547
 
                                 
        Total Securities Available-for-Sale
 
$
71
   
$
4,709
   
$
1,257
   
$
24,547
 









16


HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.          Securities (continued)

The unrealized losses on the Company’s investment in mortgage-backed securities at March 31, 2019 and June 30, 2018 were caused by interest rate changes.  The contractual cash flows of these investments are guaranteed by agencies of the U.S. Government.  Accordingly, it is expected that these securities would not be settled at a price less than the amortized cost of the Company’s investment.  Because the decline in market value is attributable to changes in interest rates and not credit quality and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2019.

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

At March 31, 2019, securities with a carrying value of $2.4 million were pledged to secure public deposits, and securities and mortgage loans with a carrying value of $149.1 million were pledged to secure FHLB advances.

3.          Loans Receivable

Loans receivable are summarized as follows:

   
 
March 31, 2019
   
June 30, 2018
 
     
(In Thousands)
 
Loans Secured by Mortgages on Real Estate
           
One-to-Four Family Residential
 
$
120,144
   
$
121,257
 
Commercial
   
81,732
     
74,416
 
Multi-Family Residential
   
46,150
     
38,079
 
Land
   
18,908
     
20,474
 
Construction
   
10,116
     
11,921
 
Equity and Second Mortgage
   
1,289
     
1,541
 
Equity Lines of Credit
   
16,521
     
17,387
 
                 
Total Mortgage Loans
   
294,860
     
285,075
 
                 
Commercial Loans
   
32,043
     
35,458
 
Consumer Loans
               
Loans on Savings Accounts
   
461
     
462
 
Other Consumer Loans
   
203
     
185
 
                 
Total Consumer Loans
   
664
     
647
 
Total Loans
   
327,567
     
321,180
 
                 
Less:   Allowance for Loan Losses
   
(3,580
)
   
(3,425
)
     Unamortized Loan Fees
   
(204
)
   
(262
)
                 
Net Loans Receivable
 
$
323,783
   
$
317,493
 





17



HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.          Loans Receivable (continued)

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

   
Nine Months Ended March 31,
 
 
 
2019
   
2018
 
   
(In Thousands)
 
Balance - Beginning of Period
 
$
3,425
   
$
3,729
 
Provision for Loan Losses
   
450
     
850
 
Loan Charge-Offs
   
(297
)
   
(911
)
Recoveries
   
2
     
25
 
Balance - End of Period
 
$
3,580
   
$
3,693
 

Credit Quality Indicators

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

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

Pass - Loans classified as pass are well protected by the current net worth or paying capacity of the obligor or by the fair value, less cost to acquire and sell the underlying collateral in a timely manner.

Pass Watch - Loans are considered marginal, meaning some weakness has been identified which could cause future impairment of repayment. However, these relationships are currently protected from any apparent loss by collateral.

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

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

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

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.





18


HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.          Loans Receivable (continued)

Credit Quality Indicators (continued)

The following tables present the grading of loans, segregated by class of loans, as of March 31, 2019 and June 30, 2018:

           Special                    
 March 31, 2019
   Pass      Mention     Substandard
    Doubtful
    Total
 
      (In Thousands)
 
Real Estate Loans:
                             
  One-to-Four Family Residential
 
$
119,530
   
$
18
   
$
596
   
$
--
   
$
120,144
 
  Commercial
   
78,422
     
--
     
3,310
     
--
     
81,732
 
  Multi-Family Residential
   
46,150
     
--
     
--
     
--
     
46,150
 
  Land
   
15,638
     
--
     
2,980
     
290
     
18,908
 
  Construction
   
10,116
     
--
     
--
     
--
     
10,116
 
  Equity and Second Mortgage
   
1,197
     
62
     
30
     
--
     
1,289
 
  Equity Lines of Credit
   
16,521
     
--
     
--
     
--
     
16,521
 
Commercial Loans
   
31,464
     
--
     
579
     
--
     
32,043
 
Consumer Loans
   
664
     
--
     
--
     
--
     
664
 
                                         
     Total
 
$
319,702
   
$
80
   
$
7,495
   
$
290
   
$
327,567
 

 
June 30, 2018
 
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
   
(In Thousands)
 
Real Estate Loans:
                             
  One-to-Four Family Residential
 
$
120,317
   
$
652
   
$
996
   
$
--
   
$
121,257
 
  Commercial
   
74,416
     
--
     
4,060
     
--
     
74,416
 
  Multi-Family Residential
   
38,079
     
--
     
--
     
--
     
38,079
 
  Land
   
20,474
     
--
     
--
     
--
     
20,474
 
  Construction
   
11,921
     
--
     
--
     
--
     
11,921
 
  Equity and Second Mortgage
   
1,541
     
--
     
--
     
--
     
1,541
 
  Equity Lines of Credit
   
17,300
     
--
     
87
     
--
     
17,387
 
Commercial Loans
   
29,817
     
--
     
873
     
--
     
35,458
 
Consumer Loans
   
647
     
--
     
--
     
--
     
647
 
                                         
     Total
 
$
314,512
   
$
652
   
$
6,016
   
$
--
   
$
321,180
 

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.








19


HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.          Loans Receivable (continued)

Credit Quality Indicators (continued)
                    
The following tables present an aging analysis of past due loans, segregated by class of loans, as of March 31, 2019 and June 30, 2018:

March 31, 2019
 
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
 
$
2,238
   
$
1,495
   
$
1,230
   
$
4,963
   
$
115,181
   
$
120,144
   
$
296
 
Commercial
   
--
     
--
     
--
     
--
     
81,732
     
81,732
     
--
 
Multi-Family Residential
   
--
     
--
     
--
     
--
     
46,150
     
46,150
     
--
 
Land
   
--
     
--
     
3,270
     
3,270
     
15,638
     
18,908
     
3,270
 
Construction
   
--
     
--
     
--
     
--
     
10,116
     
10,116
     
--
 
Equity and Second Mortgage
   
46
     
--
     
--
     
46
     
1,243
     
1,289
     
--
 
Equity Lines of Credit
   
32
     
49
     
--
     
81
     
16,440
     
16,521
     
--
 
Commercial Loans
   
87
     
--
     
171
     
258
     
31,785
     
32,043
     
49
 
Consumer Loans
   
--
     
--
     
--
     
--
     
664
     
664
     
--
 
                                                         
Total
 
$
2,403
   
$
1,544
   
$
4,671
   
$
8,618
   
$
318,949
   
$
327,567
   
$
3,615
 
           

 June 30, 2018
 
30-59 Days
Past Due
   
60-89 Days
Past Due
   
Greater Than
90 Days
   
Total
 Past Due
    Current
   
Total
Loans
Receivable
   
Recorded
Investment
>90 Days
and
Accruing
 
                       (In Thousands)
                   
Real Estate Loans:
                                         
One-to-Four Family
Residential
 
$
1,481
   
$
230
   
$
1,954
   
$
3,665
   
$
117,592
   
$
121,257
   
$
680
 
Commercial
   
--
     
--
     
--
     
--
     
74,416
     
74,416
     
--
 
Multi-Family Residential
   
--
     
--
     
--
     
--
     
38,079
     
38,079
     
--
 
Land
   
--
     
--
     
--
     
--
     
20,474
     
20,474
     
--
 
Construction
   
--
     
--
     
--
     
--
     
11,921
     
11,921
     
--
 
Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
1,541
     
1,541
     
--
 
Equity Lines of Credit
   
134
     
59
     
117
     
310
     
17,077
     
17,387
     
30
 
Commercial Loans
   
--
     
--
     
416
     
416
     
35,042
     
35,458
     
--
 
Consumer Loans
   
--
     
--
     
--
     
--
     
647
     
647
     
--
 
                                                         
 Total
 
$
1,615
   
$
289
   
$
2,487
   
$
4,391
   
$
316,789
   
$
321,180
   
$
710
 

There was no interest income recognized on non-accrual loans during the nine months ended March 31, 2019 or year ended June 30, 2018. If the non-accrual loans had been accruing interest at their original contracted rates, gross interest income that would have been recorded for the nine months ended March 31, 2019 and the year ended June 30, 2018 was approximately $19,000 and $126,000, respectively.





20


HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.          Loans Receivable (continued)

Credit Quality Indicators (continued)

The change in the allowance for loan losses by loan portfolio class and recorded investment in loans for the nine months ended March 31, 2019 was as follows:

                    Real Estate Loans
                   
                                 
Home
                   
                                 
Equity
                   
                                 
Loans and
                   
   
1-4 Family
         
Multi-
               
Lines of
   
Commercial
   
Consumer
       
March 31, 2019
 
Residential
   
Commercial
   
Family
   
Land
   
Construction
   
Credit
   
Loans
   
Loans
   
Total
 
   
(In Thousands)
 
Allowance for loan losses:
                                                     
Beginning Balances
 
$
1,166
   
$
436
   
$
256
   
$
161
   
$
163
   
$
311
   
$
929
   
$
3
   
$
3,425
 
Charge-Offs
   
(277
)
   
--
     
--
     
--
     
--
     
(20
)
   
--
     
--
     
(297
)
Recoveries
   
--
     
--
     
--
     
--
     
--
     
2
     
--
     
--
     
2
 
Current Provision
   
125
     
125
     
87
     
316
     
(49
)
   
(141
)
   
(13
)
   
--
     
450
 
Ending Balances
 
$
1,014
   
$
561
   
$
343
   
$
477
   
$
114
   
$
152
   
$
916
   
$
3
   
$
3,580
 
                                                                         
Evaluated for Impairment:
                                                                       
   Individually
   
--
     
238
     
--
     
--
     
--
     
--
     
--
     
--
     
238
 
   Collectively
   
1,014
     
323
     
343
     
477
     
114
     
152
     
916
     
3
     
3,342
 
                                                                         
Loans Receivable:
                                                                       
Ending Balances - Total
 
$
120,144
   
$
81,732
   
$
46,150
   
$
18,908
   
$
10,116
   
$
17,810
   
$
32,043
   
$
664
   
$
327,567
 
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                       
   Individually
   
614
     
3,310
     
--
     
3,270
     
--
     
92
     
579
     
--
      7,865
 
   Collectively
 
$
119,580
   
$
78,422
   
$
46,150
   
$
15,638
   
$
10,116
   
$
17,718
   
$
31,464
   
$
664
   
$
319,702
 

The change in the allowance for loan losses by loan portfolio class and recorded investment in loans for the year ended June 30, 2018 was as follows:

   
Real Estate Loans
                   
June 30, 2018
 
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
 
$
1,822
   
$
353
   
$
73
   
$
203
   
$
147
   
$
142
   
$
979
   
$
10
   
$
3,729
 
Charge-Offs
   
(797
)
   
--
     
--
     
(109
)
   
--
     
(217
)
   
(250
)
   
(7
)
   
(1,380
)
Recoveries
   
5
     
--
     
--
     
20
     
--
     
1
     
--
     
--
     
26
 
Current Provision
   
136
     
83
     
183
     
47
     
16
     
385
     
200
     
--
     
1,050
 
Ending Balances
 
$
1,166
   
$
436
   
$
256
   
$
161
   
$
163
   
$
311
   
$
929
   
$
3
   
$
3,425
 
                                                                         
Evaluated for Impairment:
                                                                       
  Individually
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
  Collectively
   
1,166
     
436
     
256
     
161
     
163
     
311
     
929
     
3
     
3,425
 
                                                                         
Loans Receivable:
                                                                       
Ending Balances - Total
 
$
121,257
   
$
74,416
   
$
38,079
   
$
20,474
   
$
11,921
   
$
18,928
   
$
35,458
   
$
647
   
$
321,180
 
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                       
  Individually
   
1,648
     
4,060
     
--
     
--
     
--
     
87
     
873
     
--
     
6,668
 
  Collectively
 
$
119,609
   
$
70,356
   
$
38,079
   
$
20,474
   
$
11,921
   
$
18,841
   
$
34,585
   
$
647
   
$
314,512
 






21


HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.          Loans Receivable (continued)

Credit Quality Indicators (continued)

The change in the allowance for loan losses by loan portfolio class and recorded investment in loans for the nine months ended March 31, 2018 was as follows:

   
Real Estate Loans
                   
 



March 31, 2018
 
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
 
$
1,822
   
$
353
   
$
73
   
$
203
   
$
147
   
$
142
   
$
979
   
$
10
   
$
3,729
 
Charge-Offs
   
--
     
--
     
--
     
(109
)
   
--
     
(5
)
   
(797
)
   
--
     
(911
)
Recoveries
   
5
     
--
     
--
     
20
     
--
     
--
     
--
     
--
     
25
 
Current Provision
   
(735
)
   
146
     
99
     
41
     
67
     
58
     
1,181
     
(7
)
   
850
 
Ending Balances
 
$
1,092
   
$
499
   
$
172
   
$
155
   
$
214
   
$
195
   
$
1,363
   
$
3
   
$
3,693
 
                                                                         
Evaluated for Impairment:
                                                                       
   Individually
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
   Collectively
   
1,092
     
499
     
172
     
155
     
214
     
195
     
1,363
     
3
     
3,693
 
                                                                         
Loans Receivable:
                                                                       
Ending Balances – Total
 
$
123,555
   
$
75,029
   
$
34,092
   
$
19,690
   
$
10,264
   
$
21,104
   
$
33,810
   
$
618
   
$
318,162
 
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                       
   Individually
   
1,225
     
4,212
     
--
     
--
     
--
     
172
     
2,061
     
--
     
7,700
 
   Collectively
 
$
122,300
   
$
70,817
   
$
34,092
   
$
19,690
   
$
10,264
   
$
20,932
   
$
31,749
   
$
618
   
$
310,462
 

The following tables present loans individually evaluated for impairment, segregated by class of loans, as of March 31, 2019 and June 30, 2018:

March 31, 2019
 
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
 
$
614
   
$
538
   
$
76
   
$
614
   
$
--
   
$
619
 
  Commercial
   
3,310
     
--
     
3,310
     
3,310
     
238
     
3,877
 
  Multi-Family Residential
   
--
     
--
     
--
     
--
     
--
     
--
 
  Land
   
3,270
     
--
     
3,270
     
3,270
     
--
     
2,952
 
  Construction
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity Lines of Credit
   
92
     
92
     
--
     
92
     
--
     
73
 
Commercial Loans
   
579
     
--
     
579
     
579
     
--
     
640
 
Consumer Loans
   
--
     
--
     
--
     
--
     
--
     
--
 
                                                 
Total
 
$
7,865
   
$
630
   
$
7,235
   
$
7,865
   
$
238
   
$
8,161
 

June 30, 2018
 
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
 
$
1,648
   
$
1,648
   
$
--
   
$
1,648
   
$
--
   
$
1,687
 
  Commercial
   
4,060
     
4,060
     
--
     
4,060
     
--
     
4,186
 
  Multi-Family Residential
   
--
     
--
     
--
     
--
     
--
     
--
 
  Land
   
--
     
--
     
--
     
--
     
--
     
--
 
  Construction
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity Lines of Credit
   
87
     
87
     
--
     
87
     
--
     
87
 
Commercial Loans
   
873
     
873
     
--
     
873
     
--
     
877
 
Consumer Loans
   
--
     
--
     
--
     
--
     
--
     
--
 
                                                 
    Total
 
$
6,668
   
$
6,668
   
$
--
   
$
6,668
   
$
--
   
$
6,837
 


22


HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

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

A troubled debt restructuring (“TDR”) is a restructuring of a debt made by the Company to a debtor for economic or legal reasons related to the debtor’s financial difficulties that it would not otherwise consider.  The Company grants the concession in an attempt to protect as much of its investment as possible.

Information about the Company’s TDRs is as follows (in thousands):

   
March 31, 2019
 
         
Past Due Greater
   
Nonaccrual
       
   
Current
   
Thank 30 Days
   
TDRs
   
Total TDRs
 
Commercial business
 
$
457
   
$
122
   
$
122
   
$
579
 
1-4 Family Residential
   
76
     
--
     
--
     
76
 
Commercial real estate
   
3,310
     
--
     
--
     
3,310
 
                                 
   
June 30, 2018
 
           
Past Due Greater
   
Nonaccrual
         
   
Current
   
Than 30 Days
   
TDRs
   
Total TDRs
 
Commercial business
 
$
4,943
   
$
416
   
$
416
   
$
5,359
 
1-4 Family Residential
   
1,943
     
--
     
--
     
1,943
 

For purposes of the determination of an allowance for loan losses on these TDRs, as an identified TDR, the Company considers a loss probable on the loan and, as a result, the loan is reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology.  If it is determined losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans.  As of March 31, 2019, there were no commitments to lend additional funds to debtors owing sums to the Company whose terms have been modified in TDRs.

4.          Deposits

Deposits at March 31, 2019 and June 30, 2018 consist of the following classifications:

   
March 31, 2019
   
June 30, 2018
 
   
(In Thousands)
 
Non-Interest Bearing
 
$
58,979
   
$
58,001
 
NOW Accounts
   
29,678
     
34,576
 
Money Markets
   
73,318
     
70,175
 
Passbook Savings
   
34,030
     
36,241
 
     
196,005
     
198,993
 
                 
Certificates of Deposit
   
186,103
     
161,267
 
                 
     Total Deposits
 
$
382,108
   
$
360,260
 








23

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 and nine months ended March 31, 2019 and 2018 were calculated as follows:

   
Three Months Ended
March 31,
   
Nine Months Ended
March 31,
 
   
2019
   
2018
   
2019
   
2018
 
   
(In Thousands, Except Per Share Data)
 
Net income
 
$
1,189
   
$
1,021
   
$
3,582
   
$
2,391
 
                                 
Weighted average shares outstanding – basic
   
1,761
     
1,793
     
1,774
     
1,804
 
Effect of dilutive common stock equivalents
   
126
     
102
     
117
     
100
 
Adjusted weighted average shares outstanding – diluted
   
1,887
     
1,895
     
1,891
     
1,904
 
                                 
Basic earnings per share
 
$
0.68
   
$
0.57
   
$
2.02
   
$
1.33
 
Diluted earnings per share
 
$
0.63
   
$
0.54
   
$
1.88
   
$
1.26
 

For the three months ended March 31, 2019 and 2018, there were outstanding options to purchase 279,916 and 296,551 shares, respectively, at a weighted average exercise price of $18.06 and $17.88 per share, respectively and for the nine months ended March 31, 2019 and 2018, there were average outstanding options to purchase 287,231 and 296,551 shares, respectively, at a weighted average exercise price of $18.06 and $17.88 per share, respectively.  For the quarter ended March 31, 2019 and 2018, 126,239 options and 102,413 options were included in the computation of diluted earnings per share.  For the nine month period ended March 31, 2019 and 2018, 117,473 options and 100,363 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
March 31,
   
Nine Months Ended
March 31,
 
   
2019
   
2018
   
2019
   
2018
 
   
(In Thousands)
 
Average common shares issued
   
3,062
     
3,062
     
3,062
     
3,062
 
Average unearned ESOP shares
   
(103
)
   
(114
)
   
(105
)
   
(116
)
Average unearned RRP shares
   
(1
)
   
(3
)
   
(2
)
   
(3
)
Average Company stock purchased
   
(1,197
)
   
(1,152
)
   
(1,181
)
   
(1,139
)
                                 
Weighted average shares outstanding
   
1,761
     
1,793
     
1,774
     
1,804
 

6.          Stock-Based Compensation

Recognition and Retention Plan

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 “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 Recognition Plan totaled 77,808 shares, all of which were awarded as of March 31, 2019.





24

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.          Stock-Based Compensation (continued)

Recognition and Retention Plan (continued)

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 will 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 cost associated with the Recognition Plan is based on a share price of $18.92 on July 31, 2014, which represents the fair market price of the Company’s stock on the date on which the Recognition Plan shares were granted. The cost of the Recognition Plan is being recognized over the five year vesting period.  Compensation expense pertaining to the Recognition Plan was $21,000 for both the nine months ended March 31, 2019 and 2018.

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. As of March 31, 2019, there were 12,705 options outstanding under the 2005 Option Plan.

On December 23, 2011, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2011 Stock Option Plan (the “2011 Option Plan”, together with the 2005 Option Plan, the “Option Plans”) for the benefit of directors, officers, and other key employees.  The aggregate number of shares of common stock reserved for issuance under the 2011 Option Plan totaled 194,522.  Both incentive stock options and non-qualified stock options may be granted under the 2011 Option Plan.

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 March 31, 2019, there were 389 stock options available for future grant under the 2011 Option Plan.

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 death or disability of an employee or director or change in control of the Company, the unvested options shall become vested and exercisable.  The Company recognizes compensation expense during the vesting period based on the fair value of the option on the date of the grant.  For both the nine months ended March 31, 2019 and 2018, compensation expense charged to operations was $105,000.










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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.  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 awards.  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.  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 vesting ratably over five years. Of the original grant, 4,500 options were forfeited. During the quarter ended March 31, 2019, 3,000 plan share awards and 13,500 options were granted to employees. The Stock Incentive Plan cost is recognized over the five year vesting period. During the nine months ended March 31, 2019 and 2018 the Company recognized $188,000 and $102,000, respectively, in expenses related to the Stock Incentive Plan.

7.          Related Party Transactions

Certain directors and executive officers were indebted to the Bank in the approximate aggregate amounts of $2.4 million and $2.6 million at March 31, 2019 and June 30, 2018, 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.

Investment Securities
Fair values for investment securities, including mortgage-backed securities, are based on quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.  The carrying values of restricted or non-marketable equity securities approximate their fair values.  The carrying amount of accrued investment income approximates its fair value.

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

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



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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.

At March 31, 2019 and June 30, 2018, the carrying amount and estimated fair values of the Company’s financial instruments were as follows:

   
March 31, 2019
   
June 30, 2018
 
   
Carrying
   
Estimated
   
Carrying
   
Estimated
 
   
Value
   
Fair Value
   
Value
   
Fair Value
 
   
(In Thousands)
 
Financial Assets
                       
   Cash and Cash Equivalents
 
$
11,413
   
$
11,413
   
$
15,867
   
$
15,867
 
   Securities Available-for-Sale
   
43,113
     
43,113
     
29,324
     
29,324
 
   Securities to be Held-to-Maturity
   
25,967
     
25,553
     
28,888
     
27,818
 
   Loans Held-for-Sale
   
5,457
     
5,457
     
6,762
     
6,762
 
   Loans Receivable
   
323,783
     
313,551
     
317,493
     
314,724
 
                                 
Financial Liabilities
                               
   Deposits
 
$
382,108
   
$
362,026
   
$
360,260
   
$
345,347
 
   Advances from FHLB
   
1,426
     
1,305
     
11,637
     
11,517
 
                                 
Off-Balance Sheet Items
                               
   Mortgage Loan Commitments
 
$
6,939
   
$
6,939
   
$
5,827
   
$
5,827
 

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;





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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 instruments that are measured at fair value.

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

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

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

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

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

The preceding methods described may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values.  Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.  There have been no changes in the methodologies used during the nine months ended March 31, 2019.








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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.          Fair Value Disclosures (continued)

Fair values of assets and liabilities measured on a recurring basis at March 31, 2019 and June 30, 2018 are as follows:

   
Fair Value Measurements Using:
       
   
Quoted Prices in
   
Significant
             
   
Active Markets for
   
Other Observable
   
Unobservable
       
   
Identical Assets
   
Inputs
   
Inputs
       
March 31, 2019
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
   
(In Thousands)
 
Available-for-Sale Debt Securities
                       
FHLMC
 
$
--
   
$
8,212
   
$
--
   
$
8,212
 
FNMA
   
--
     
26,129
     
--
     
26,129
 
GNMA
   
--
     
8,772
     
--
     
8,772
 
                                 
Total
 
$
--
   
$
43,113
   
$
--
   
$
43,113
 


   
Fair Value Measurements Using:
       
   
Quoted Prices in
   
Significant
             
   
Active Markets for
   
Other Observable
   
Unobservable
       
   
Identical Assets
   
Inputs
   
Inputs
       
 June 30, 2018
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
   
(In Thousands)
 
Available-for-Sale Debt Securities
                       
   FHLMC
 
$
--
   
$
7,085
   
$
--
   
$
7,085
 
   FNMA
   
--
     
11,912
     
--
     
11,912
 
   GNMA
   
--
     
10,327
     
--
     
10,327
 
                                 
Total
 
$
--
   
$
29,324
   
$
--
   
$
29,324
 

9.          Subsequent Events

In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events through the date that the financial statements were available to be issued.



















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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 expenses.  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 head office in Shreveport, Louisiana and seven full service branch offices 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 basis 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, 2018 to March 31, 2019

General

At March 31, 2019, the Company reported total assets of $434.4 million, an increase of $12.7 million, or 3.0%, compared to total assets of $421.7 million at June 30, 2018. The increase in assets was comprised primarily of increases in investment securities of $10.9 million, or 18.7%, from $58.2 million at June 30, 2018 to $69.1 million at March 31, 2019, loans receivable, net, of $6.3 million, or 2.0%, from $317.5 million at June 30, 2018 to $323.8 million at March 31, 2019, premises and equipment, net, of $1.3 million, or 10.6%, from $12.2 million at June 30, 2018 to $13.5 million at March 31, 2019,  accrued interest receivable of $143,000, or 12.5%, from $1.1 million at June 30, 2018 to $1.3 million at March 31, 2019. These increases were partially offset by decreases in cash and cash equivalents of $4.5 million, or 28.1%, from $15.9 million at June 30, 2018 to $11.4 million at March 31, 2019, loans held-for-sale of $1.3 million, or 19.3%, from $6.8 million at June 30, 2018 to $5.5 million at March 31, 2019, other assets of $200,000, or 23.8%, from $840,000 at June 30, 2018 to $640,000 at  March 31, 2019, and deferred tax assets of $58,000, or 5.3%, from $1.1 million at June 30, 2018 to $1.0 million at March 31, 2019. The increase in investment securities was primarily due to the purchase $18.5 million of mortgage-backed securities offset by $8.1 million of principal repayments on mortgage-backed securities.  The decrease in loans held-for-sale resulted primarily from a decrease in loans originated for sale during the nine months ended March 31, 2019.


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Discussion of Financial Condition Changes from June 30, 2018 to March 31, 2019 (continued)

Cash and Cash Equivalents

Cash and cash equivalents decreased $4.5 million, or 28.1%, from $15.9 million at June 30, 2018 to $11.4 million at March 31, 2019. The $4.5 million decrease in cash and cash equivalents was used to help fund loan growth and pay off Federal Home Loan Bank advances.

Loans Receivable, Net

Loans receivable, net, increased by $6.3 million, or 2.0%, to $323.8 million at March 31, 2019 compared to $317.5 million at June 30, 2018.  The increase in loans receivable, net was primarily due to increases in multi-family residential loans of $8.1 million, commercial real estate loans of $7.3 million, and other consumer loans of $18,000, partially offset by decreases in commercial non-real estate loans of $3.4 million, construction loans of $1.8 million, land loans of $1.6 million, one-to-four family residential loans of $1.1 million, equity lines of credit of $866,000, equity and second mortgage loans of $252,000, and loans on savings accounts of $1,000.

Loans Held-for-Sale

Loans held-for-sale decreased $1.3 million, or 19.3%, from $6.8 million at June 30, 2018 to $5.5 million at March 31, 2019The decrease in loans held-for-sale reflects a reduced emphasis on the Company’s mortgage banking operations in recent periods and a decrease in loans originated for sale during the nine months ended March 31, 2019.

Investment Securities

Investment securities amounted to $69.1 million at March 31, 2019 compared to $58.2 million at June 30, 2018, an increase of $10.9 million, or 18.7%.  The increase in investment securities was primarily due to the purchase of $18.5 million of mortgage-backed securities offset by $8.1 million of principal repayments on mortgage-backed securities.

Premises and Equipment, Net

Premises and equipment, net increased $1.3 million, or 10.6%, to $13.5 million at March 31, 2019 compared to $12.2 million at June 30, 2018, primarily as a result of our new banking office that opened during the quarter ended March 31, 2019.

Asset Quality

At March 31, 2019, the Company had $5.9 million of non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due, and other real estate owned) compared to $3.0 million of non-performing assets at June 30, 2018, consisting of one commercial business loan, one commercial unsecured loan, two commercial land and lot development loans, six single-family residential loans, one line of credit loan, one residential lot in other real estate owned, and one single family residential loan in other real estate owned at March 31, 2019, compared to nine single-family residential loans, three line of credit loans, one commercial business loan, one residential lot in other real estate owned, and two single-family residential loans in other real estate owned at June 30, 2018. At March 31, 2019, the Company had six single-family residential loans, one line of credit loan, one commercial business loan, two commercial land and lot development loans, and five loans to one borrower consisting of two commercial real estate loans, two non-real estate loans, and one single-family residential loan classified as substandard, compared to eight single-family residential loans, two lines  of  credit loans, one commercial business loan, and five loans to one borrower, consisting of two commercial real estate loans, two non-real estate loans, and one single-family residential loan classified as substandard at June 30, 2018. There was a portion of a commercial raw land development loan that was classified as doubtful in the amount of $290,000 at March 31, 2019.


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Discussion of Financial Condition Changes from June 30, 2018 to March 31, 2019 (continued)

Total Liabilities

Total liabilities increased $10.8 million, or 2.9%, from $374.6 million at June 30, 2018 to $385.4 million at March 31, 2019 primarily due to an increase in total deposits of $21.8 million, or 6.1%, to $382.1 million at March 31, 2019 compared to $360.3 million at June 30, 2018, partially offset by a decrease of $10.2 million, or 87.7%, in advances from the Federal Home Loan Bank from $11.6 million at June 30, 2018, to $1.4 million at March 31, 2019, a decrease in other liabilities of $310,000, or 2.9%, from $1.7 million at June 30, 2018 to $1.4 million at March 31, 2019, and a decrease in other borrowings of $300,000, or 100.0%, from $300,000 at June 30, 2018 to zero at March 31, 2019. The increase in deposits was primarily due to a $24.8 million, or 15.4%, increase in certificates of deposits from $161.3 million at June 30, 2018 to $186.1 million at March 31, 2019, a $3.1 million, or 4.5%, increase in money market deposits from $70.2 million at June 30, 2018 to $73.3 million at March 31, 2019, and a $978,000, or 1.7%, increase in non-interest bearing deposits from $58.0 million at June 30, 2018 to $59.0 million at March 31, 2019, partially offset by a decrease of  $4.9 million, or 14.2%, in NOW accounts from $34.6 million at June 30, 2018 to $29.7 million at March 31, 2019, and a decrease in savings deposits of $2.2 million, or 6.1%, from $36.2 million at June 30, 2018 to $34.0 million at March 31, 2019. The Company had $8.7 million in brokered deposits at June 30, 2018 and $11.2 million at March 31, 2019.  The brokered certificates of deposit which have maturity dates greater than twelve months are callable by Home Federal Bank after twelve months pursuant to early redemption provisions.  The decrease in advances from the Federal Home Loan Bank was primarily due to growth in total deposits which replaced advances as a source of funds.

Shareholders’ Equity

Shareholders’ equity increased $2.0 million, or 4.1%, to $49.0 million at March 31, 2019 from $47.0 million at June 30, 2018.  The primary reasons for the changes in shareholders’ equity from June 30, 2018 were net income of $3.6 million, the increase in the Company’s accumulated other comprehensive income of $405,000, the vesting of restricted stock awards, stock options, and the release of employee stock ownership plan shares totaling $539,000, and proceeds from the issuance of common stock from the exercise of stock options of $309,000. These increases in shareholders’ equity were partially offset by the acquisition of Company stock of $2.1 million, and dividends paid totaling $792,000.

The Bank is required to meet minimum capital standards promulgated by the OCC.  At March 31, 2019, Home Federal Bank’s regulatory capital was well in excess of the minimum capital requirements.

Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 2019 and 2018

General

Net income amounted to $1.2 million for the three months ended March 31, 2019 compared to $1.0 million for the same period in 2018, an increase of $168,000, or 16.5%.  The increase was primarily due to a decrease of $250,000,  or 71.4%, in provision for loan losses, and a $188,000, or 5.2%, increase in net interest income, partially offset by an increase of $149,000, or 94.3%, in provision for income taxes, a decrease of $73,000, or 13.1%, in non-interest income, and an increase of $48,000, or 1.8%, in non-interest expense.

Net income amounted to $3.6 million for the nine months ended March 31, 2019 compared to net income of $2.4 million for the same period in 2018, an increase of $1.2 million, or 49.8%. The increase was primarily due to a decrease of $856,000, or 46.5%, in the provision for income taxes, an increase of $524,000, or 4.7%, in net interest income, a decrease of $400,000, or 47.1%, in provision for loan losses, and a decrease of $40,000, or 0.5%, in non-interest expense partially offset by a decrease of $629,000, or 28.3%, in non-interest income. The decrease in the provision for income taxes for the nine months ended March 31, 2019 over the same prior year period was primarily due to the reduction in the Company’s effective tax rate for the nine months ended March 31, 2019 combined with the $642,000 re-measurement charge of the Company’s net deferred tax asset as a result of the Tax Act during the nine months ended March 31, 2018.

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Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 2019 and 2018 (continued)

Net Interest Income

The increase in net interest income for the three months ended March 31, 2019 was primarily due to a $494,000, or 11.0%, increase in total interest income, primarily due to an increase in the average yield on loans receivable, partially offset by an increase of $306,000, or 35.5%, in interest expense. The cost of funds from Federal Home Loan Bank borrowings decreased $75,000, or 81.5%, compared to the prior year three month period and interest paid on deposits increased $381,000, or 49.6%, compared to the prior year three month period. Interest paid on other borrowings was $2,000 for the current three month period as well as the prior year three month period. The Company’s average interest rate spread was 3.56% for the three months ended March 31, 2019 compared to 3.58% for the three months ended March 31, 2018. The Company’s net interest margin was 3.86% for the three months ended March 31, 2019 compared to 3.76% for the three months ended March 31, 2018. The increase in net interest margin on a comparative quarterly basis was primarily the result of an increase of 47 basis points in average yield on average balances of loans receivable for the three months ended March 31, 2019 compared to the prior quarterly period.

Net interest income for the nine months ended March 31, 2019 was $11.6 million, an increase of $524,000, or 4.7%, in comparison to the nine months ended March 31, 2018.  The increase in net interest income for the nine month period was primarily due to a $1.2 million, or 8.7%, increase in total interest income, partially offset by a $672,000, or 26.2%, increase in interest expense on borrowings and deposits.  The cost of funds from Federal Home Loan Bank borrowings decreased $225,000, or 63.9%, compared to the prior year nine month period and interest paid on deposits increased $895,000, or 40.4%, compared to the prior year nine month period.  Interest paid on other borrowing increased $2,000 compared to the prior year nine month period.  The Company’s average interest rate spread was 3.59% for the nine months ended March 31, 2019, compared to 3.55% for the nine months ended March 31, 2018. The Company’s net interest margin was 3.86% for the nine months ended March 31, 2019, compared to 3.78% for the nine months ended March 31, 2018.  The increase in the average interest rate spread is attributable primarily to an increase of 31 basis points in average yield on average balances of loans receivable.

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 $100,000 and $450,000 was made during the three and nine months ended March 31, 2019, respectively, compared to a $350,000 and $850,000 provision made during the three and nine months ended March 31, 2018, respectively. The allowance for loan losses was $3.6 million, or 1.09% of total loans receivable, at March 31, 2019 compared to $3.7 million, or 1.16% of total loans receivable, at March 31, 2018.  At March 31, 2019, Home Federal Bank had $4.1 million in non-performing loans and $1.2 million in foreclosed assets which totaled $5.3 million in non-performing assets.  At March 31, 2018, Home Federal Bank had $2.6 million in non-performing loans and $1.1 million in other real-estate owned. At March 31, 2019, the Company had five single family residential loans, one commercial business loan, two commercial land and lot development loans, and five loans to one borrower consisting of two commercial real estate loans, two non-real estate loans, and one single family residential loan classified as substandard compared to eight single family residential loans, two line of credit loans, one commercial business loan, and five loans to one borrower consisting of two commercial real estate loans, two non-real estate loans, and one single family residential loan classified as substandard at June 30, 2018.  There was a portion of a commercial raw land development loan that was classified as doubtful in the amount of $290,000 at March 31, 2019.  At March 31, 2019 the Bank had troubled debt restructurings involving one commercial loan with a balance of $122,000, and five loans to one borrower consisting of two commercial real estate loans, two non-real estate loans, and one one-to-four family residential loan totaling $3.8 million.  At March 31, 2018 the Bank had troubled debt restructurings involving nine commercial loan contracts to one borrower with a recorded investment of approximately $1.6 million along with another troubled debt restructuring at March 31, 2018 consisting of five loans to one borrower consisting of two commercial real estate loans, two non-real estate loans, and one one-to-four family residential loan totaling $4.7 million   There can be no assurance that the loan loss allowance will be sufficient to cover losses on non-performing assets in the future.


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HOME FEDERAL BANCORP, INC. OF LOUISIANA



Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 2019 and 2018 (continued)

Non-interest Income

Total non-interest income amounted to $483,000 for the three months ended March 31, 2019, a decrease of $73,000, or 13.1%, compared to $556,000 for the same period in 2018.  The $73,000 decrease in non-interest income for the three months ended March 31, 2019, compared to the prior year quarterly period, was primarily due to an increase of $117,000 in loss on sale of real estate, partially offset by an increase of $23,000 in service charges on deposit accounts, an increase of $20,000 in gain on sale of loans, and a $1,000 increase in other income.

Total non-interest income amounted to $1.6 million for the nine months ended March 31, 2019, a decrease of $629,000, or 28.3%, compared to $2.2 million for the same period in 2018.  The $629,000 decrease was primarily due to a $345,000 loss on sale of real estate, decreases of $249,000 in gain on sale of loans, and $94,000 in gain on sale of securities, partially offset by a $52,000 increase in income in service charges on deposit accounts, and an $8,000 increase in other non-interest income.  The Company sells most of its long term fixed rate residential mortgage loan originations primarily in order to manage interest rate risk.  The decrease in gain on sale of loans for the nine months ended March 31, 2019 over the same prior year period reflects a reduced emphasis on the Company’s mortgage banking operations in recent periods and fewer loans originated for sale.

Non-interest Expense

Total non-interest expense increased $48,000, or 1.8%, for the three months ended March 31, 2019 compared to the prior year period. The $48,000 increase in non-interest expense for the three months ended March 31, 2019, compared to the same period in 2018, is primarily attributable to increases of $67,000 in compensation and benefits expense, $42,000 in advertising expense, $30,000 in loan and collection expense, $29,000 in legal fees, and a $1,000 increase in franchise and bank shares tax expense.  The increases were partially offset by decreases of $57,000 in data processing expense, $22,000 in occupancy and equipment expense, $20,000 in deposit insurance premiums, $17,000 in other expense, and $5,000 in audit and examination fees.

Total non-interest expense decreased $40,000, or 0.5%, for the nine months ended March 31, 2019 compared to the same nine month period in 2018. The decrease in non-interest expense for the nine months ended March 31, 2019, compared to the same period in 2018, is primarily attributable to decreases of $92,000 in data processing expense, $65,000 in compensation and benefits expense, $46,000 in occupancy and equipment expense, $36,000 in deposit insurance premiums, $26,000 in other expense, $5,000 in audit and examination fees, and $1,000 in franchise and bank shares tax expense.  These decreases were partially offset by increases of $115,000 in advertising expense, $75,000 in real estate owned valuation adjustment expense, $37,000 in legal fees, and $4,000 in loan and collection expenses.

The aggregate compensation expense recognized by the Company for its Stock Option, Share Award, ESOP, and Recognition and Retention Plans amounted to $125,000 and $539,000 for the three and nine months ended March 31, 2019, respectively, compared to $159,000 and $464,000 for the three and nine months ended March 31, 2018, respectively.

The Louisiana bank shares tax is assessed on the Bank’s equity and earnings.  For the three and nine months ended March 31, 2019, the Company recognized franchise and bank shares tax expense of $97,000 and $295,000, respectively, compared to $96,000 and $296,000 for the same periods in 2018.

Income Taxes

Income taxes amounted to $307,000 and $984,000 for the three and nine months ended March 31, 2019, respectively, resulting in an effective tax rate of 20.52% and 21.55%.  Income taxes amounted to $158,000 and $1.8 million for the three and nine months ended March 31, 2018, respectively.  The decrease in the provision for income taxes for the nine months ended March 31, 2019 was primarily due to the Tax Cuts and Jobs Act (the “Tax Act”) signed into law on December 22, 2017, which reduced the Company’s effective tax rate for the nine months ended March 31, 2019 over the prior year nine month period combined with the $642,000 re-measurement charge of the Company’s net deferred tax asset during the nine months ended March 31, 2018.

34


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Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 2019 and 2018 (continued)

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

   
Three Months Ended March 31,
 
   
2019
   
2018
 
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
 
   
(Dollars In Thousands)
 
Interest-earning assets:
                                   
     Loans receivable 
 
$
324,522
   
$
4,530
     
5.66
%
 
$
319,163
   
$
4,179
     
5.19
%
     Investment securities 
   
68,025
     
412
     
2.46
     
60,542
     
310
     
2.03
 
     Interest-earning deposits
   
10.752
     
60
     
2.26
     
4,605
     
19
     
1.64
 
          Total interest-earning assets
 
$
403,299
     
5,002
     
5.03
%
 
$
384,310
     
4,508
     
4.65
%
Non-interest-earning assets   
   
26,421
                     
26,588
                 
          Total assets
 
$
429,720
                   
$
410,898
                 
Interest-bearing liabilities:
                                               
     Savings accounts          
 
$
34,348
     
45
     
0.53
%
 
$
36,480
     
48
     
0.52
%
     NOW accounts          
   
28,463
     
40
     
0.57
     
30,824
     
38
     
0.49
 
     Money market accounts          
   
72,227
     
212
     
1.19
     
54,205
     
80
     
0.59
 
     Certificate accounts
   
184,651
     
852
     
1.87
     
166,522
     
602
     
1.43
 
          Total interest-bearing deposits
   
319,689
     
1,149
     
1.46
     
288,031
     
768
     
1.06
 
Other bank borrowings
   
250
     
2
     
3.25
     
226
     
2
     
3.51
 
FHLB advances 
   
1,351
     
17
     
5.10
     
18,834
     
92
     
1.18
 
          Total interest-bearing liabilities
 
$
321,290
     
1,168
     
1.47
%
 
$
307,091
     
862
     
1.07
%
Non-interest-bearing liabilities:
                                               
     Non-interest bearing demand accounts
   
58,772
                     
56,302
                 
     Other liabilities 
   
1,766
                     
1,460
                 
          Total liabilities 
   
381,828
                     
364,853
                 
Total Stockholders’ Equity(1)
   
47,892
                     
46,045
                 
          Total liabilities and equity
 
$
429,720
                   
$
410,898
                 
 
                                               
Net interest-earning assets
 
$
82,009
                   
$
77,219
                 
 
                                               
Net interest income; average interest rate spread(2)
         
$
3,834
     
3.56
%
         
$
3,646
     
3.58
%
Net interest margin(3)          
                   
3.86
%
                   
3.76
%
Average interest-earning assets to average
  interest-bearing liabilities          
                   
125.52
%
                   
120.44
%
 __________________
(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.







35

HOME FEDERAL BANCORP, INC. OF LOUISIANA



Comparison of Operating Results for the Three and Nine Month Periods Ended March 31, 2019 and 2018 (continued)

   
Nine Months Ended March 31,
 
   
2019
   
2018
 
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
 
   
(Dollars In Thousands)
 
Interest-earning assets:
                                   
     Loans receivable          
 
$
326,058
   
$
13,593
     
5.55
%
 
$
323,650
   
$
12,743
     
5.24
%
     Investment securities          
   
61,416
     
1,057
     
2.29
     
59,941
     
861
     
1.91
 
     Interest-earning deposits
   
14,063
     
234
     
2.22
     
8,157
     
84
     
1.37
 
          Total interest-earning assets
 
$
401,537
     
14,884
     
4.94
%
 
$
391,748
     
13,688
     
4.65
%
Non-interest-earning assets          
   
28,289
                     
27,147
                 
          Total assets          
 
$
429,826
                   
$
418,895
                 
Interest-bearing liabilities:
                                               
     Savings accounts          
 
$
35,384
     
141
     
0.53
%
 
$
36,518
     
146
     
0.53
%
     NOW accounts          
   
30,587
     
123
     
0.54
     
32,359
     
123
     
0.51
 
     Money market accounts          
   
70,929
     
530
     
1.00
     
45,780
     
160
     
0.47
 
     Certificate accounts          
   
176,325
     
2,314
     
1.75
     
166,364
     
1,784
     
1.43
 
          Total interest-bearing deposits
   
313,225
     
3,108
     
1.32
     
281,021
     
2,213
     
1.05
 
Other bank borrowings
   
218
     
6
     
3.67
     
116
     
4
     
4.59
 
FHLB advances          
   
5,765
     
127
     
2.93
     
30,829
     
352
     
1.52
 
          Total interest-bearing liabilities
 
$
319,208
     
3,241
     
1.35
%
 
$
311,966
     
2,569
     
1.10
%
Non-interest-bearing liabilities:
                                               
     Non-interest bearing demand accounts
   
60,301
                     
58,474
                 
     Other liabilities          
   
2,508
                     
2,156
                 
          Total liabilities          
   
382,017
                     
372,596
                 
Total Stockholders’ Equity(1)          
   
47,809
                     
46,299
                 
 
                                               
          Total liabilities and equity
 
$
429,826
                   
$
418,895
                 
 
                                               
Net interest-earning assets          
 
$
82,329
                   
$
79,782
                 
 
                                               
Net interest income; average interest rate spread(2)
         
$
11,643
     
3.59
%
         
$
11,119
     
3.55
%
Net interest margin(3)          
                   
3.86
%
                   
3.78
%
Average interest-earning assets to average
  interest-bearing liabilities          
                   
125.79
%
                   
125.57
%
____________________
(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.

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 $1.2 million at March 31, 2019.


36

HOME FEDERAL BANCORP, INC. OF LOUISIANA



Liquidity and Capital Resources (continued)

A significant portion of Home Federal Bank’s liquidity consists of securities classified as available-for-sale and cash and cash equivalents.   Home Federal Bank’s primary sources of cash are net income, principal repayments on loans and mortgage-backed securities, and increases in deposit accounts.  If Home Federal Bank requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas which provides an additional source of funds.  At March 31, 2019, Home Federal Bank had $1.4 million in advances from the Federal Home Loan Bank of Dallas and had $149.1 million in additional borrowing capacity.  Additionally, at March 31, 2019, 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 $15.5 million. There were no amounts purchased under this agreement as of March 31, 2019.

At March 31, 2019, Home Federal Bank had outstanding loan commitments of $38.7 million to originate loans and commitments under unused lines of credit of $12.5 million.  At March 31, 2019, certificates of deposit scheduled to mature in less than one year totaled $100.8 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 March 31, 2019, Home Federal Bank exceeded each of its regulatory capital requirements with tangible, common equity Tier 1, core, and risk-based capital ratios of 11.41%, 16.35%, 11.41%, and 17.55%, respectively.

Off-Balance Sheet Arrangements

At March 31, 2019, the Company did not have any off-balance sheet arrangements as defined by Securities and Exchange Commission rules.

Impact of Inflation and Changing Prices

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

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

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management, as well as assumptions made by and information currently available to management.  In addition, in those and other portions of this document the words “anticipate”, “believe”, “estimate”, “except”, “intend”, “should”, and similar expressions, or the negative thereof, as they relate to the Company or the Company’s 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.




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HOME FEDERAL BANCORP, INC. OF LOUISIANA



ITEM 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.          CONTROLS AND PROCEDURES

Evaluation of Disclosures Controls and Procedures.  Under the supervision and with the participation of our management including our President and Chief Executive Officer (principal executive officer) 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 President and Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the applicable time periods specified by the Securities and Exchange Commission’s rules and forms.

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

PART II

ITEM 1.          LEGAL PROCEEDINGS

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

ITEM 1A.          RISK FACTORS

Not applicable.

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


(a)
Not applicable.

(b)
Not applicable.

(c)
Purchases of Equity Securities.

The Company’s repurchases of its common stock made during the quarter ended March 31, 2019 are set forth in the table below, including stock-for-stock option exercises:

Period
 
Total Number of
Shares
Purchased
   
Average
Price Paid
per Share
   
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
   
Maximum Number
of Shares that May
 Yet Be Purchased
Under the Plans or
Programs (a)(b)
 
January 1, 2019 – January 31, 2019
   
10,000
   
$
30.74
     
10,000
     
90,066
 
February 1, 2019 – February 28, 2019
   
22,071
     
31.02
     
22,071
     
67,995
 
March 1, 2019 – March 31, 2019
   
2,089
     
32.49
     
2,089
     
65,906
 
Total
   
34,160
   
$
31.03
     
34,160
         
______________
Notes to this table:
(a)
On October 12, 2016, the Company announced that its Board of Directors approved a seventh stock repurchase program for the repurchase of up to 97,000 shares. The seventh stock repurchase program was completed during the quarter ended March 31, 2019.

(b)
On December 12, 2018, the Company announced that its Board of Directors approved an eighth stock repurchase program for the repurchase of up to 95,000 shares to commence after the completion of the seventh stock repurchase program. The repurchase program does not have an expiration date.




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HOME FEDERAL BANCORP, INC. OF LOUISIANA



ITEM 3.          DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.          MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.          OTHER INFORMATION

Not applicable.

ITEM 6.          EXHIBITS

 
No.
 
 
Description
31.1

31.2

32.0

 
  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
 





















39


SIGNATURES


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

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
   
   
   
Date:   May 14, 2019
By:
/s/Glen W. Brown
   
Glen W. Brown
Senior Vice President and Chief Financial Officer
(Duly authorized officer and principal financial and
accounting officer)