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Home Federal Bancorp, Inc. of Louisiana - Quarter Report: 2020 December (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:
December 31, 2020
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 February 11, 2021: The registrant had 1,689,527 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
39
     
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)

   
December 31, 2020
   
June 30, 2020
 
   
(In Thousands)
 
             
ASSETS
           
 Cash and Cash Equivalents (Includes Interest-Bearing Deposits with Other Banks of $75,195 and $50,417
 December 31, 2020 and June 30, 2020, Respectively)
 
$
79,795
   
$
54,871
 
Securities Available-for-Sale
   
33,060
     
42,060
 
Securities Held-to-Maturity (Fair Value of $32,222 and $21,879, Respectively)
   
31,309
     
20,858
 
Loans Held-for-Sale
   
27,904
     
14,798
 
  Loans Receivable, Net of Allowance for Loan Losses of $3,790 and $4,081, Respectively
   
336,363
     
359,927
 
Accrued Interest Receivable
   
1,406
     
1,860
 
Premises and Equipment, Net
   
14,838
     
13,235
 
Bank Owned Life Insurance
   
7,154
     
7,087
 
Deferred Tax Asset
   
787
     
757
 
Foreclosed Assets
   
750
     
950
 
Other Assets
   
2,028
     
1,817
 
                 
Total Assets
 
$
535,394
   
$
518,220
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
LIABILITIES
               
Deposits:
               
    Non-interest bearing
 
$
106,883
   
$
103,422
 
    Interest-bearing
   
370,976
     
357,388
 
Total Deposits
   
477,859
     
460,810
 
Advances from Borrowers for Taxes and Insurance
   
333
     
522
 
Short-term Federal Home Loan Bank Advances
   
57
     
193
 
Long-term Federal Home Loan Bank Advances
   
850
     
867
 
Other Borrowings
   
2,500
     
2,300
 
Other Accrued Expenses and Liabilities
   
2,333
     
2,993
 
                 
Total Liabilities
   
483,932
     
467,685
 
                 
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; 1,689,527 and 1,724,512 Shares Issued and
Outstanding at December 31, 2020 and June 30, 2020, Respectively
   
22
     
22
 
Additional Paid-in Capital
   
36,970
     
36,531
 
Unearned ESOP Stock
   
(812
)
   
(870
)
Retained Earnings
   
14,629
     
13,937
 
Accumulated Other Comprehensive Income
   
653
     
915
 
                 
Total Stockholders’ Equity
   
51,462
     
50,535
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
535,394
   
$
518,220
 

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
December 31,
   
For the Six Months Ended
December 31,
 
   
2020
   
2019
   
2020
   
2019
 
   
(In Thousands, Except per Share Data)
 
INTEREST INCOME
                       
Loans, Including Fees
 
$
5,074
   
$
4,632
   
$
9,721
   
$
9,284
 
Investment Securities
   
1
     
15
     
4
     
31
 
Mortgage-Backed Securities
   
281
     
427
     
597
     
817
 
Other Interest-Earning Assets
   
24
     
88
     
42
     
198
 
Total Interest Income
   
5,380
     
5,162
     
10,364
     
10,330
 
                                 
INTEREST EXPENSE
                               
Deposits
   
877
     
1,360
     
1,848
     
2,695
 
      Other Borrowings
   
17
     
13
     
30
     
17
 
Federal Home Loan Bank Borrowings
   
11
     
14
     
23
     
30
 
Total Interest Expense
   
905
     
1,387
     
1,901
     
2,742
 
Net Interest Income
   
4,475
     
3,775
     
8,463
     
7,588
 
                                 
PROVISION FOR LOAN LOSSES
   
600
     
950
     
1,300
     
1,125
 
Net Interest Income after Provision for Loan Losses
   
3,875
     
2,825
     
7,163
     
6,463
 
                                 
NON-INTEREST INCOME
                               
Gain on Sale of Loans
   
1,207
     
580
     
2,618
     
1,147
 
Gain on Sale of Real Estate
   
--
     
--
     
--
     
80
 
Income on Bank Owned Life Insurance
   
33
     
35
     
67
     
71
 
Service Charges on Deposit Accounts
   
253
     
291
     
500
     
564
 
Other Income
   
15
     
11
     
28
     
20
 
Total Non-Interest Income
   
1,508
     
917
     
3,213
     
1,882
 
                                 
NON-INTEREST EXPENSE
                               
Compensation and Benefits
   
2,138
     
1,890
     
4,352
     
3,696
 
Occupancy and Equipment
   
393
     
356
     
769
     
728
 
Data Processing
   
201
     
131
     
395
     
291
 
Audit and Examination Fees
   
63
     
57
     
129
     
114
 
Franchise and Bank Shares Tax
   
89
     
122
     
198
     
237
 
Advertising
   
47
     
65
     
73
     
212
 
Legal Fees
   
134
     
153
     
264
     
262
 
Loan and Collection
   
83
     
50
     
177
     
169
 
Deposit Insurance Premium
   
38
     
--
     
68
     
--
 
     Valuation Adjustment Real Estate Owned
   
200
     
--
     
200
     
--
 
Other Expense
   
204
     
183
     
388
     
375
 
Total Non-Interest Expense
   
3,590
     
3,007
     
7,013
     
6,084
 
Income Before Income Taxes
   
1,793
     
735
     
3,363
     
2,261
 
                                 
PROVISION FOR INCOME TAX EXPENSE
   
390
     
147
     
713
     
426
 
Net Income
 
$
1,403
   
$
588
   
$
2,650
   
$
1,835
 
EARNINGS PER COMMON SHARE:
                               
Basic
 
$
0.87
   
$
0.35
   
$
1.63
   
$
1.07
 
Diluted
 
$
0.83
   
$
0.32
   
$
1.58
   
$
1.00
 
DIVIDENDS DECLARED
 
$
0.165
   
$
0.16
   
$
0.33
   
$
0.32
 

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
December 31,
   
For the Six Months Ended
December 31,
 
   
2020
   
2019
   
2020
   
2019
 
   
(In Thousands)
   
(In Thousands)
 
                         
Net Income
 
$
1,403
   
$
588
   
$
2,650
   
$
1,835
 
                                 
Other Comprehensive (Loss) Income, Net of Tax
                               
   Investment securities available-for-sale:
                               
      Net unrealized (Losses)/Gains
   
(75
)
   
(197
)
   
(331
)
   
(114
)
      Income Tax Effect
   
15
     
41
     
69
     
24
 
      Reclassification adjustments for net (gains) losses realized in net income
   
--
     
--
     
--
     
--
 
      Income tax effect
   
--
     
--
     
--
     
--
 
Other Comprehensive (Loss) Income
   
(60
)
   
(156
)
   
(262
)
   
(90
)
        Total Comprehensive Income
 
$
1,343
   
$
432
   
$
2,388
   
$
1,745
 











See accompanying notes to unaudited consolidated financial statements.
3

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Unaudited)


   
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 – September 30, 2019
 
$
23
   
$
36,043
   
$
(956
)
 
$
--
   
$
14,541
   
$
86
   
$
49,737
 
                                                         
Net Income
   
--
     
--
     
--
     
--
     
588
     
--
     
588
 
                                                         
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
   
--
     
--
     
--
     
--
     
--
     
(156
)
   
(156
)
                                                         
Share Awards Earned
   
--
     
134
     
--
     
--
     
--
     
--
     
134
 
                                                         
RRP Shares Earned
   
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                         
Stock Options Vested
   
--
     
34
     
--
     
--
     
--
     
--
     
34
 
                                                         
Common Stock Issuance for Stock
    Option Exercises
   
--
     
46
     
--
     
--
     
--
     
--
     
46
 
                                                         
ESOP Compensation Earned
   
--
     
70
     
29
     
--
     
--
     
--
     
99
 
                                                         
Company Stock Purchased
   
--
     
--
     
--
     
--
     
(222
)
   
--
     
(222
)
                                                         
Dividends Declared
   
--
     
--
     
--
     
--
     
(286
)
   
--
     
(286
)
                                                         
BALANCE – December 31, 2019
 
$
23
   
$
36,327
   
$
(927
)
 
$
--
   
$
14,621
   
$
(70
)
 
$
49,974
 
                                                         
BALANCE – September 30, 2020
 
$
22
   
$
36,643
   
$
(841
)
 
$
--
   
$
14,515
   
$
713
   
$
51,052
 
                                                         
Net Income
   
--
     
--
     
--
     
--
     
1,403
     
--
     
1,403
 
                                                         
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
   
--
     
--
     
--
     
--
     
--
     
(60
)
   
(60
)
                                                         
Share Awards Earned
   
--
     
134
     
--
     
--
     
--
     
--
     
134
 
                                                         
RRP Shares Earned
   
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                         
Stock Options Vested
   
--
     
21
     
--
     
--
     
--
     
--
     
21
 
                                                         
Common Stock Issuance for Stock
    Option Exercises
   
--
     
126
     
--
     
--
     
--
     
--
     
126
 
                                                         
ESOP Compensation Earned
   
--
     
46
     
29
     
--
     
--
     
--
     
75
 
                                                         
Company Stock Purchased
   
--
     
--
     
--
     
--
     
(1,006
)
   
--
     
(1,006
)
                                                         
Dividends Declared
   
--
     
--
     
--
     
--
     
(283
)
   
--
     
(283
)
                                                         
BALANCE – December 31, 2020
 
$
22
   
$
36,970
   
$
(812
)
 
$
--
   
$
14,629
   
$
653
   
$
51,462
 

See accompanying notes to unaudited consolidated financial statements.
4

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Unaudited)

   
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, 2019
 
$
23
   
$
35,914
   
$
(985
)
 
$
--
   
$
15,370
   
$
20
   
$
50,342
 
                                                         
Net Income
   
--
     
--
     
--
     
--
     
1,835
     
--
     
1,835
 
                                                         
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
   
--
     
--
     
--
     
--
     
--
     
(90
)
   
(90
)
                                                         
Share Awards Earned
   
--
     
134
     
--
     
--
     
--
     
--
     
134
 
                                                         
RRP Shares Earned
   
--
     
24
     
--
     
--
     
--
     
--
     
24
 
                                                         
Stock Options Vested
   
--
     
69
     
--
     
--
     
--
     
--
     
69
 
                                                         
Common Stock Issuance for Stock
    Option Exercises
   
--
     
50
     
--
     
--
     
--
     
--
     
50
 
                                                         
ESOP Compensation Earned
   
--
     
136
     
58
     
--
     
--
     
--
     
194
 
                                                         
Company Stock Purchased
   
--
     
--
     
--
     
--
     
(2,005
)
   
--
     
(2,005
)
                                                         
Dividends Declared
   
--
     
--
     
--
     
--
     
(579
)
   
--
     
(579
)
                                                         
BALANCE – December 31, 2019
 
$
23
   
$
36,327
   
$
(927
)
 
$
--
   
$
14,621
   
$
(70
)
 
$
49,974
 
                                                         
BALANCE – June 30, 2020
 
$
22
   
$
36,531
   
$
(870
)
 
$
--
   
$
13,937
   
$
915
   
$
50,535
 
                                                         
Net Income
   
--
     
--
     
--
     
--
     
2,650
     
--
     
2,650
 
                                                         
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
   
--
     
--
     
--
     
--
     
--
     
(262
)
   
(262
)
                                                         
Share Awards Earned
   
--
     
134
     
--
     
--
     
--
     
--
     
134
 
                                                         
RRP Shares Earned
   
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                         
Stock Options Vested
   
--
     
55
     
--
     
--
     
--
     
--
     
55
 
                                                         
Common Stock Issuance for Stock
    Option Exercises
   
--
     
164
     
--
     
--
     
--
     
--
     
164
 
                                                         
ESOP Compensation Earned
   
--
     
86
     
58
     
--
     
--
     
--
     
144
 
                                                         
Company Stock Purchased
   
--
     
--
     
--
     
--
     
(1,393
)
   
--
     
(1,393
)
                                                         
Dividends Declared
   
--
     
--
     
--
     
--
     
(565
)
   
--
     
(565
)
                                                         
BALANCE – December 31, 2020
 
$
22
   
$
36,970
   
$
(812
)
 
$
--
   
$
14,629
   
$
653
   
$
51,462
 


See accompanying notes to unaudited consolidated financial statements.
5

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Six Months Ended
 
   
December 31,
 
   
2020
   
2019
 
   
(In Thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Income
 
$
2,650
   
$
1,835
 
Adjustments to Reconcile Net Income to Net
               
Cash (Used in) Provided by Operating Activities
               
Bad Debt Recovery
   
55
     
5
 
Federal Home Loan Bank stock certificate
   
(3
)
   
31
 
Net Amortization and Accretion on Securities
   
68
     
51
 
Gain on Sale of Real Estate
   
--
     
(80
)
Gain on Sale of Loans
   
(2,618
)
   
(1,147
)
Amortization of Deferred Loan Fees
   
(881
)
   
(76
)
Depreciation of Premises and Equipment
   
333
     
323
 
ESOP Expense
   
144
     
194
 
Stock Option Expense
   
55
     
69
 
Recognition and Retention Plan Expense
   
--
     
2
 
Deferred Income Tax
   
(30
)
   
(45
)
Valuation Adjustment Real Estate Owned
   
200
     
--
 
Provision for Loan Losses
   
1,300
     
1,125
 
Increase in Cash Surrender Value on Bank Owned Life Insurance
   
(67
)
   
(71
)
Share Awards Expense
   
62
     
74
 
Changes in Assets and Liabilities:
               
Loans Held-for-Sale – Originations and Purchases
   
(114,889
)
   
(50,982
)
Loans Held-for-Sale – Sale and Principal Repayments
   
104,401
     
46,944
 
Accrued Interest Receivable
   
454
     
62
 
Other Operating Assets
   
(211
)
   
(135
)
Other Operating Liabilities
   
(660
)
   
(283
)
                 
Net Cash Used in Operating Activities
   
(9,637
)
   
(2,104
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Loan Originations and Purchases, Net of Principal Collections
   
23,016
     
121
 
Deferred Loan Fees Collected
   
82
     
107
 
Acquisition of Premises and Equipment
   
(1,936
)
   
(653
)
Proceeds Sale of Land
   
--
     
796
 
Activity in Available-for-Sale Securities:
               
Principal Payments on Mortgage-Backed Securities
   
13,698
     
5,735
 
Purchases of Securities
   
(5,077
)
   
(21,250
)
Activity in Held-to-Maturity Securities:
               
Principal Payments on Mortgage-Backed Securities
   
3,500
     
2,943
 
Sale/Redemptions of Securities
   
2,437
         
Purchase of Securities
   
(16,406
)
   
--
 
                 
Net Cash Provided by (Used in) Investing Activities
   
19,314
     
(12,201
)


See accompanying notes to unaudited consolidated financial statements.

6

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
(Unaudited)
 
   
   
Six Months Ended
 
   
December 31,
 
   
2020
   
2019
 
   
(In Thousands)
 
CASH FLOWS FROM FINANCING ACTIVITIES
     
Net Increase in Deposits
 
$
17,049
   
$
13,201
 
Repayments of Advances from Federal Home Loan Bank
   
(153
)
   
(146
)
Repayments of Other Borrowings
   
(1,500
)
   
(450
)
Net Decrease in Advances from Borrowers for Taxes and Insurance
   
(189
)
   
(312
)
Dividends Paid
   
(565
)
   
(579
)
Company Stock Purchased
   
(1,393
)
   
(2,005
)
Proceeds from Stock Options Exercised
   
164
     
50
 
Proceeds from Other Bank Borrowings
   
1,700
     
1,200
 
Plan Share Distributions
   
134
     
134
 
                 
Net Cash Provided by Financing Activities
   
15,247
     
11,093
 
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
24,924
     
(3,212
)
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
 
$
54,871
   
$
18,108
 
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
 
$
79,795
   
$
14,896
 
                 
SUPPLEMENTAL CASH FLOW INFORMATION
               
Interest Paid on Deposits and Borrowed Funds
 
$
1,968
   
$
1,887
 
Income Taxes Paid
   
925
     
580
 
Market Value Adjustment for Unrealized Gain (Loss) on Debt Securities Available- for-Sale
   
(331
)
   
(115
)



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 six month period ended December 31, 2020 are not necessarily indicative of the results which may be expected for the fiscal year ending June 30, 2021.

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 December 31, 2020.  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 seven full-service banking offices and home office, located in Caddo and Bossier Parishes, Louisiana.  The area served by the Bank is primarily the Shreveport-Bossier City metropolitan area; however, loan and deposit customers are found dispersed in a wider geographical area covering much of northwest Louisiana. As of December 31, 2020, 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

1. Summary of Accounting Policies (continued)

Securities

Securities are being accounted for in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320’s, Investments which requires the classification of securities into one of three categories: Trading, Available-for-Sale, or Held-to-Maturity.  Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates this classification periodically.

Investments in non-marketable 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 cost, adjusted for amortization of the related premiums, and accretion of discounts, using the interest method.  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 debt securities are excluded from earnings and reported in other comprehensive income.  

The Company held no trading securities as of December 31, 2020 and June 30, 2020.

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 Company 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.

9

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 

1. Summary of Accounting Policies (continued)

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. 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


10

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

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.

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 $73,000 and $212,000 for the six months ended December 31, 2020 and 2019, 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 six months ended December 31, 2020 and 2019, 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 debt 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 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, 2022, including interim periods with those fiscal years.  The extent of the impact upon adoption is not known and will depend on the characteristics of the Company’s loan portfolio and economic conditions on that date as well as forecasted conditions thereafter.

In December 2019, the FASB issued ASU No. 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)." The amendments in this ASU simplified the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improved the consistent application of and simplified GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in the ASU are effective for fiscal years and interim periods beginning after December 15, 2020. The Company does not expect the adoption of this ASU to impact the consolidated financial statements.


12

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


   
December 31, 2020
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 

 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale                        

                       
Debt Securities
                       
  FHLMC Mortgage-Backed Certificates
 
$
3,184
   
$
74
   
$
--
   
$
3,258
 
  FNMA Mortgage-Backed Certificates
   
21,425
     
822
     
--
     
22,247
 
  GNMA Mortgage-Backed Certificates
   
7,624
     
2
     
71
     
7,555
 
Debt Securities
                               
          Total Debt Securities
   
32,233
     
898
     
71
     
33,060
 
                                 
          Total Securities Available-for-Sale
 
$
32,233
   
$
898
   
$
71
   
$
33,060
 
                                 
Securities Held-to-Maturity
                               
                                 
Debt Securities
                               
  GNMA Mortgage-Backed Certificates
 
$
944
   
$
16
   
$
--
   
$
960
 
  FNMA Mortgage-Backed Certificates
   
5,005
     
--
     
32
     
4,973
 
  FHLMC Mortgage-Backed Certificates
   
23,465
     
922
     
--
     
24,387
 
                                 
          Total Debt Securities
   
29,414
     
938
     
32
     
30,320
 
                                 
Municipals
   
1,369
     
7
     
--
     
1,376
 
                                 
Equity Securities (Non-Marketable)
                               
  276 Shares – Federal Home Loan Bank
   
276
     
--
     
--
     
276
 
  630 Shares – First National Bankers Bankshares, Inc.
   
250
     
--
     
--
     
250
 
                                 
          Total Equity Securities
   
526
     
--
     
--
     
526
 
                                 
          Total Securities Held-to-Maturity
 
$
31,309
   
$
945
   
$
32
   
$
32,222
 


13

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Securities (continued)

   
June 30, 2020
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 

 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale
                       

                       
Debt Securities
                       
  FHLMC Mortgage-Backed Certificates
 
$
5,018
   
$
141
   
$
--
   
$
5,159
 
  FNMA Mortgage-Backed Certificates
   
30,820
     
1,032
     
--
     
31,852
 
  GNMA Mortgage-Backed Certificates
   
5,064
     
23
     
38
     
5,049
 
                                 
          Total Debt Securities
   
40,902
     
1,196
     
38
     
42,060
 
                                 
          Total Securities Available-for-Sale
 
$
40,902
   
$
1,196
   
$
38
   
$
42,060
 
                                 
Securities Held-to-Maturity
                               
                                 
Debt Securities
                               
  GNMA Mortgage-Backed Securities
 
$
1,109
   
$
20
   
$
--
   
$
1,129
 
  FNMA Mortgage-Backed Securities
   
16,546
     
997
     
--
     
17,543
 
                                 
          Total Debt Securities
   
17,655
     
1,017
     
--
     
18,672
 
                                 
Municipals
   
243
     
4
     
--
     
247
 
                                 
Equity Securities (Non-Marketable)
                               
  27,094 Shares – Federal Home Loan Bank
   
2,710
     
--
     
--
     
2,710
 
  630 Shares – First National Bankers Bankshares, Inc.
   
250
     
--
     
--
     
250
 
                                 
          Total Equity Securities
   
2,960
     
--
     
--
     
2,960
 
                                 
          Total Securities Held-to-Maturity
 
$
20,858
   
$
1,021
   
$
--
   
$
21,879
 

The amortized cost and fair value of securities by contractual maturity at December 31, 2020 follows:

   
Available-for-Sale
   
Held-to-Maturity
       
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
   
(In Thousands)
       
Debt Securities
                       
    Within One Year or Less
 
$
665
   
$
652
   
$
--
   
$
--
 
    One through Five Years
   
7,385
     
7,606
     
--
     
--
 
    After Five through Ten Years
   
19,170
     
19,820
     
--
     
--
 
    Over Ten Years
   
5,013
     
4,982
     
29,414
     
30,320
 
     
32,233
     
33,060
     
29,414
     
30,320
 
                                 
Municipals
   
--
     
--
     
1,370
     
1,377
 
                                 
Other Equity Securities
   
--
     
--
     
525
     
525
 
                                 
   Total
 
$
32,233
   
$
33,060
   
$
31,309
   
$
32,222
 
                                 



14


HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Securities (continued)

Securities available-for-sale totaling $5.1 million were purchased during the six months ending December 31, 2020.  Securities held-to-maturity totaling $16.4 million were purchased during the six months ending December 31, 2020.

The following tables show information pertaining to gross unrealized losses on securities available-for-sale at December 31, 2020 and June 30, 2020 aggregated by investment category and length of time that individual securities have been in a continuous loss position.

   
December 31, 2020
 
   
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
 
$
31
   
$
4,982
   
$
40
   
$
1,969
 
                                 
   Total Securities Available-for-Sale
 
$
31
   
$
4,982
   
$
40
   
$
1,969
 

   
June 30, 2020
 
   
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
 
$
--
   
$
--
   
$
38
   
$
2,816
 
                                 
   Total Securities Available-for-Sale
 
$
--
   
$
--
   
$
38
   
$
2,816
 

The unrealized losses on the Company’s investment in mortgage-backed securities at December 31, 2020 and June 30, 2020 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 December 31, 2020.

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 December 31, 2020, securities with a carrying value of $1.3 million were pledged to secure public deposits, and securities and mortgage loans with a carrying value of $189.8 million were pledged to secure FHLB advances.


15

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Loans Receivable

Loans receivable are summarized as follows:

   
 
December 31, 2020
   
June 30, 2020
 
     
(In Thousands)
 
              Loans Secured by Mortgages on Real Estate
           
            One-to-Four Family Residential
 
$
103,703
   
$
108,146
 
            Commercial
   
86,406
     
87,088
 
            Multi-Family Residential
   
45,714
     
47,432
 
             Land
   
15,553
     
18,068
 
            Construction
   
11,672
     
8,159
 
            Equity and Second Mortgage
   
1,442
     
1,410
 
            Equity Lines of Credit
   
10,493
     
12,252
 
                 
           Total Mortgage Loans
   
274,983
     
282,555
 
                 
             Commercial Loans
   
64,890
     
81,909
 
             Consumer Loans
               
            Loans on Savings Accounts
   
350
     
364
 
            Other Consumer Loans
   
568
     
615
 
                 
           Total Consumer Other Loans
   
918
     
979
 
           Total Loans
   
340,791
     
365,443
 
                 
             Less:  Allowance for Loan Losses
   
(3,790
)
   
(4,081
)
                  Unamortized Loan Fees
   
(638
)
   
(1,435
)
                 
            Net Loans Receivable
 
$
336,363
   
$
359,927
 

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

   
Six Months Ended December 31,
 
 
 
2020
   
2019
 
   
(In Thousands)
 
Balance - Beginning of Period
 
$
4,081
   
$
3,452
 
Provision for Loan Losses
   
1,300
     
1,125
 
Loan Charge-Offs
   
(1,646
)
   
(1,084
)
Recoveries
   
55
     
4
 
Balance - End of Period
 
$
3,790
   
$
3,497
 

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:


16

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Loans Receivable (continued)

Credit Quality Indicators (continued)

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.

The following tables present the grading of loans, segregated by class of loans, as of December 31, 2020 and June 30, 2020:

December 31, 2020
 
Pass and
Pass Watch
   
Special
Mention
    Substandard     Dboubtful
    Total
 
   
(In Thousands)
 
Real Estate Loans:
                             
  One-to-Four Family Residential
 
$
102,704
   
$
360
   
$
639
   
$
     
$
103,703
 
  Commercial
   
83,309
     
--
     
3,097
     
--
     
86,406
 
  Multi-Family Residential
   
45,714
     
--
     
--
     
--
     
45,714
 
  Land
   
13,479
     
--
     
2,074
     
--
     
15,553
 
  Construction
   
11,672
     
--
     
--
     
--
     
11,672
 
  Equity and Second Mortgage
   
1,442
     
--
     
--
     
--
     
1,442
 
  Equity Lines of Credit
   
10,493
     
--
     
--
     
--
     
10,493
 
Commercial Loans
   
64,890
     
--
     
--
     
--
     
64,890
 
Consumer Loans
   
918
     
--
     
--
     
--
     
918
 
     Total
 
$
334,621
   
$
360
   
$
5,810
   
$
--
   
$
340,791
 
                                         


17

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

June 30, 2020
 
Pass and
Pass Watch
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
                 (In Thousands)
 
Real Estate Loans:
                             
One-to-Four Family Residential
 
$
106,886
   
$
475
   
$
785
   
$
--
   
$
108,146
 
Commercial
   
83,376
     
1,915
     
1,797
     
--
     
87,088
 
Multi-Family Residential
   
47,432
     
--
     
--
     
--
     
47,432
 
Land
   
15,087
     
--
     
2,981
     
--
     
18,068
 
Construction
   
8,159
     
--
     
--
     
--
     
8,159
 
Equity and Second Mortgage
   
1,410
     
--
     
--
     
--
     
1,410
 
Equity Lines of Credit
   
12,235
     
17
     
--
     
--
     
12,252
 
Commercial Loans
   
81,452
     
--
     
457
     
--
     
81,909
 
Consumer Loans
   
979
     
--
     
--
     
--
     
979
 
                                         
     Total
 
$
357,016
   
$
2,407
   
$
6,020
   
$
--
   
$
365,443
 

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when contractually due.  Loans that experience insignificant payment delays or payment shortfalls are generally not classified as impaired.  On a case-by-case basis, management determines the significance of payment delays and payment shortfalls, taking into consideration all of the circumstances related to the loan, including the length of the payment delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The following tables present an aging analysis of past due loans, segregated by class of loans, as of December 31, 2020 and June 30, 2020:

 



December 31, 2020
 
30-59 Days
Past Due
   
 60-89 Days
Past Due
   
 90 Days or
More
   
 Total
Past Due
     current    
 Total Loans
Receivable
   
 Recorded
Investment
>90 Days
and
Accruing
 
    (In Thousands)
 
Real Estate Loans:
                                         
One-to-Four Family Residential
 
$
220
   
$
374
   
$
841
   
$
1,435
   
$
102,268
   
$
103,703
   
$
174
 
Commercial
   
--
     
--
     
1,183
     
1,183
     
85,223
     
86,406
     
--
 
Multi-Family Residential
   
--
     
--
     
--
     
--
     
45,714
     
45,714
     
--
 
Land
   
--
     
--
     
2,074
     
2,074
     
13,479
     
15,553
     
--
 
Construction
   
--
     
--
     
--
     
--
     
11,672
     
11,672
     
--
 
Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
1,442
     
1,442
     
--
 
Equity Lines of Credit
   
120
     
--
     
--
     
120
     
10,373
     
10,493
     
--
 
Commercial Loans
   
--
     
--
     
--
     
--
     
64,890
     
64,890
     
--
 
Consumer Loans
   
--
     
--
     
--
     
--
     
918
     
918
     
--
 
                                                         
     Total
 
$
340
   
$
374
   
$
4,098
   
$
4,812
   
$
335,979
   
$
340,791
   
$
174
 


18

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

 June 30, 2020
 
30-59 Days
Past Due
   
60-89 Days
Past Due
   
90 Days or
More
   
Total
Past Due
   
Current
   
Total
Loans
Receivable
   
Recorded
Investment
> 90 Days
and Accruing
 
   
(In Thousands)
 
Real Estate Loans:
                                         
  One-to-Four Family
    Residential
 
$
1,312
   
$
557
   
$
1,003
   
$
2,872
   
$
105,274
   
$
108,146
   
$
319
 
  Commercial
   
--
     
--
     
1,797
     
1,797
     
85,291
     
87,088
     
--
 
  Multi-Family Residential
   
--
     
--
     
--
     
--
     
47,432
     
47,432
     
--
 
  Land
   
--
     
--
     
2,981
     
2,981
     
15,087
     
18,068
     
--
 
  Construction
   
--
     
--
     
--
     
--
     
8,159
     
8,159
     
--
 
  Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
1,410
     
1,410
     
--
 
  Equity Lines of Credit
   
--
     
--
     
--
     
--
     
12,252
     
12,252
     
--
 
Commercial Loans
   
--
     
--
     
457
     
457
     
81,452
     
81,909
     
--
 
Consumer Loans
   
--
     
--
     
--
     
--
     
979
     
979
     
--
 
                                                         
     Total
 
$
1,312
   
$
557
   
$
6,238
   
$
8,107
   
$
357,336
   
$
365,443
   
$
319
 

There was no interest income recognized on non-accrual loans during the six months ended December 31, 2020 or year ended June 30, 2020. If the non-accrual loans had been accruing interest at their original contracted rates, gross interest income that would have been recorded for the six months ended December 31, 2020 and the year ended June 30, 2020 was approximately $113,000 and $464,000, respectively.

The change in the allowance for loan losses by loan portfolio class and recorded investment in loans for the six months ended December 31, 2020 and year ended June 30, 2020 was as follows:

   
Real Estate Loans
                   
 
 
 
 
December 31, 2020
 
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
 
$
966
   
$
568
   
$
364
   
$
1,024
   
$
80
   
$
126
   
$
949
   
$
4
   
$
4,081
 
Charge-Offs
   
(41
)
   
(698
)
   
--
     
(907
)
   
--
     
--
     
--
     
--
     
(1,646
)
Recoveries
   
1
     
--
     
--
     
--
     
--
     
5
     
49
     
--
     
55
 
Current Provision
   
1
     
679
     
134
     
(19
)
   
30
     
30
     
446
     
(1
)
   
1,300
 
Ending Balances
 
$
927
   
$
549
   
$
498
   
$
98
   
$
110
   
$
161
   
$
1,444
   
$
3
   
$
3,790
 
                                                                         
Evaluated for Impairment:
                                                                       
   Individually
   
14
     
--
     
--
     
--
     
--
     
--
     
--
     
--
     
14
 
   Collectively
   
913
     
549
     
498
     
98
     
110
     
161
     
1,444
     
3
     
3,776
 
                                                                         
Loans Receivable:
                                                                       
Ending Balances – Total
 
$
103,703
   
$
86,406
   
$
45,714
   
$
15,553
   
$
11,672
   
$
11,935
   
$
64,890
   
$
918
   
$
340,791
 
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                       
   Individually
   
1,026
     
3,098
     
--
     
2,074
     
--
     
--
     
--
     
--
     
6,198
 
   Collectively
 
$
102,677
   
$
83,308
   
$
45,714
   
$
13,479
   
$
11,672
   
$
11,935
   
$
64,890
   
$
918
   
$
334,593
 



19

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Loans Receivable (continued)

Credit Quality Indicators (continued)

   
Real Estate Loans
                   
 
 
 
 
June 30, 2020
 
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
 
$
1,017
   
$
508
   
$
338
   
$
100
   
$
115
   
$
144
   
$
1,227
   
$
3
   
$
3,452
 
Charge-Offs
   
(40
)
   
(100
)
   
--
     
--
     
--
     
(107
)
   
(1,135
)
   
--
     
(1,382
)
Recoveries
   
2
     
--
     
--
     
--
     
--
     
9
     
109
     
--
     
120
 
Current Provision
   
(13
)
   
160
     
26
     
924
     
(35
)
   
80
     
748
     
1
     
1,891
 
Ending Balances
 
$
966
   
$
568
   
$
364
   
$
1,024
   
$
80
   
$
126
   
$
949
   
$
4
   
$
4,081
 
                                                                         
Evaluated for Impairment:
                                                                       
   Individually
   
34
     
23
     
--
     
907
     
--
     
--
     
--
     
--
     
964
 
   Collectively
   
932
     
545
     
364
     
117
     
80
     
126
     
949
     
4
     
3,117
 
                                                                         
Loans Receivable:
                                                                       
Ending Balances – Total
 
$
108,146
   
$
87,088
   
$
47,432
   
$
18,068
   
$
8,159
   
$
13,662
   
$
81,909
   
$
979
   
$
365,443
 
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                       
   Individually
   
1,260
     
3,712
     
--
     
2,981
     
--
     
17
     
457
     
--
     
8,427
 
   Collectively
 
$
106,886
   
$
83,376
   
$
47,432
   
$
15,087
   
$
8,159
   
$
13,645
   
$
81,452
   
$
979
   
$
357,016
 

The following table’s present loans individually evaluated for impairment, segregated by class of loans, as of December 31, 2020 and June 30, 2020:

December 31, 2020
 
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
 
$
1,026
   
$
1,026
   
$
--
   
$
1,026
   
$
--
   
$
1,047
 
  Commercial
   
3,098
     
3,098
     
--
     
3,098
     
--
     
3,692
 
  Multi-Family Residential
   
--
     
--
     
--
     
--
     
--
     
--
 
  Land
   
2,074
     
2,074
     
--
     
2,074
     
--
     
2,868
 
  Construction
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity Lines of Credit
   
--
     
--
     
--
     
--
     
--
     
--
 
Commercial Loans
   
--
     
--
     
--
     
--
     
--
     
--
 
Consumer Loans
   
--
     
--
     
--
     
--
     
--
     
--
 
                                                 
Total
 
$
6,198
   
$
6,198
   
$
--
   
$
6,198
   
$
--
   
$
7,607
 

June 30, 2020
 
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
 
$
1,260
   
$
1,260
   
$
--
   
$
1,260
   
$
--
   
$
1,271
 
  Commercial
   
3,712
     
3,712
     
--
     
3,712
     
--
     
5,108
 
  Multi-Family Residential
   
--
     
--
     
--
     
--
     
--
     
--
 
  Land
   
2,981
     
--
     
2,981
     
2,981
     
907
     
2,981
 
  Construction
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity and Second Mortgage
   
--
     
--
     
--
     
--
     
--
     
--
 
  Equity Lines of Credit
   
17
     
17
     
--
     
17
     
--
     
17
 
Commercial Loans
   
457
     
457
     
--
     
457
     
--
     
457
 
Consumer Loans
   
--
     
--
     
--
     
--
     
--
     
--
 
                                                 
          Total
 
$
8,427
   
$
5,446
   
$
2,981
   
$
8,427
   
$
907
   
$
9,834
 


20

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):

 
December 31, 2020
 
 
Current
 
Past Due Greater
Than 30 Days
 
Nonaccrual
TDRs
 
Total TDRs
 
Commercial business 
 
$
--
   
$
--
   
$
--
   
$
--
 
1-4 Family Residential
   
--
     
--
     
--
     
--
 
Commercial real estate
   
--
     
1,183
     
1,183
     
1,183
 
                                 
 
June 30, 2020
 
 
Current
 
Past Due Greater
Than 30 Days
 
Nonaccrual
TDRs
 
Total TDRs
 
Commercial business 
 
$
--
   
$
457
   
$
457
   
$
457
 
1-4 Family Residential
   
--
     
76
     
76
     
76
 
Commercial real estate
   
--
     
1,797
     
1,797
     
1,797
 

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 December 31, 2020, there were no commitments to lend additional funds to debtors owing sums to the Company whose terms have been modified in TDRs.

Loan Modifications/Troubled Debt Restructurings. Under the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring (“TDR”), and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Home Federal Bank has made that election. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief will not be considered TDRs.

Prior to the enactment of the CARES Act, the banking regulatory agencies provided guidance as to how certain short-term modifications would not be considered TDRs, and have subsequently confirmed that such guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act.

The Bank handles loan payment modification requests on a case-by-case basis considering the effects of the COVID-19 pandemic, related economic slow-down and stay-at-home orders on our customer and their current and projected cash flows through the term of the loan. Through December 31, 2020, we modified 10 loans with principal balances totaling $5.9 million representing 1.7% of our loans outstanding as of December 31, 2020. A majority of deferrals are three-month payment deferrals of principal and interest, with payments after deferral increased to collect amounts deferred. It is too early to determine if these modified loans will perform in accordance with their modified terms.

21

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Loans Receivable (continued)

Credit Quality Indicators (continued)

increased to collect amounts deferred. It is too early to determine if these modified loans will perform in accordance with their modified terms.

Details with respect to actual loan modifications are as follows:

   
Number of Covid-19
Remaining Deferments at
December 31, 2020
   
Balance
(in thousands)
   

Percent of Total Loans at
December 31, 2020
 
One-to-Four family residential
   
2
   
$
2,314
     
2.4
%
Commercial real estate
   
2
     
2,937
     
3.4
 
Multi-family residential
   
--
     
--
     
--
 
Land
   
--
     
--
     
--
 
Construction
   
--
     
--
     
--
 
Equity and second mortgage
   
--
     
--
     
--
 
Equity lines of credit
   
2
     
228
     
2.2
 
Commercial business
   
4
     
465
     
0.7
 
Consumer
   
--
     
--
     
--
 
Total
   
10
   
$
5,944
     
1.7
%



   
Number of Covid-19
Deferments Year Ended
June 30, 2020
   
Balance
(in thousands)
   

Percent of Total Loans at
June 30, 2020
 
One-to-Four family residential
   
101
   
$
27,705
     
25.6
%
Commercial real estate
   
40
     
28,278
     
32.5
 
Multi-family residential
   
9
     
18,046
     
38.0
 
Land
   
7
     
1,190
     
6.6
 
Construction
   
1
     
680
     
8.3
 
Equity and second mortgage
   
--
     
--
     
--
 
Equity lines of credit
   
19
     
1,586
     
12.9
 
Commercial business
   
39
     
6,609
     
8.1
 
Consumer
   
--
     
--
     
--
 
Total
   
216
   
$
84,094
     
23.0
%


22

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Deposits

Deposits at December 31, 2020 and June 30, 2020 consist of the following classifications:

   
December 31, 2020
   
June 30, 2020
 
   
(In Thousands)
 
Non-Interest Bearing
 
$
106,883
   
$
103,422
 
NOW Accounts
   
46,704
     
41,365
 
Money Markets
   
76,070
     
74,637
 
Passbook Savings
   
108,264
     
83,797
 
     
337,921
     
303,221
 
                 
Certificates of Deposit
   
139,938
     
157,589
 
                 
     Total Deposits
 
$
477,859
   
$
460,810
 

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 six months ended December 31, 2020 and 2019 were calculated as follows:

   
Three Months Ended
December 31,
   
Six Months Ended
December 31,
 
   
2020
   
2019
   
2020
   
2019
 
   
(In Thousands, Except Per Share Data)
 

       
             
Net income
 
$
1,403
   
$
588
   
$
2,650
   
$
1,835
 
                                 
Weighted average shares outstanding – basic
   
1,617
     
1,699
     
1,624
     
1,707
 
Effect of dilutive common stock equivalents
   
67
     
133
     
57
     
129
 
Adjusted weighted average shares outstanding – diluted
   
1,684
     
1,832
     
1,681
     
1,836
 
                                 
Basic earnings per share
 
$
0.87
   
$
0.35
   
$
1.63
   
$
1.07
 
Diluted earnings per share
 
$
0.83
   
$
0.32
   
$
1.58
   
$
1.00
 

For the three months ended December 31, 2020 and 2019, there were outstanding options to purchase 309,783 and 274,294 shares, respectively, at a weighted average exercise price of $19.83 and $18.04 per share, respectively and for the six months ended December 31, 2020 and 2019, there were outstanding options to purchase 288,254 and 274,963 shares, respectively, at a weighted average exercise price of $19.83 and $18.04 per share, respectively. For the quarter ended December 31, 2020 and 2019, 67,300 options and 133,516 options, respectively, were included in the computation of diluted earnings per share. For the six month period ended December 31, 2020 and 2019, 56,768 options and 128,785 options, respectively, were included in the computation of diluted earnings per share.


23

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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

   
Three Months Ended
December 31,
   
Six Months Ended
December 31,
 
   
2020
   
2019
   
2020
   
2019
 
   
(In Thousands)
 

     
Average common shares issued
   
3,062
     
3,062
     
3,062
     
3,062
 
Average unearned ESOP shares
   
(82
)
   
(94
)
   
(84
)
   
(95
)
Average unearned RRP shares
   
--
     
--
     
--
     
(1
)
Average Company stock purchased
   
(1,363
)
   
(1,269
)
   
(1,354
)
   
(1,259
)
                                 
Weighted average shares outstanding
   
1,617
     
1,699
     
1,624
     
1,707
 

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 vested as of July 31, 2019 such that there are no shares remaining in the Recognition Plan.

The cost associated with the Recognition Plan is based on the 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 was recognized over the five year vesting period ending July 31, 2019.

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).  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, the 433 outstanding options as of December 31, 2020 will remain in effect for the remainder of their original ten year terms.

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

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 December 31, 2020, 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.

24

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock-Based Compensation (continued)

Stock Incentive Plan

On November 12, 2014, the shareholders of the Company approved the adoption of the Company’s 2014 Stock Incentive Plan (the “2014 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 2014 Stock Incentive Plan covers a total of 150,000 shares, of which no more than 37,500 shares, or 25% of the plan, may be share rewards.  The balance of the plan is reserved for stock option awards which would total 112,500 stock options, assuming all the share awards are issued. All incentive stock options granted under the 2014 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. On February 5, 2019, the Company granted a total of 3,000 plan share awards and 13,500 stock options (which includes 4,500 stock options forfeited from the October 26, 2015 grants) to key employees vesting ratably over five years.

On November 13, 2019, the shareholders of the Company approved the adoption of the Company’s 2019 Stock Incentive Plan (the “2019 Stock Incentive Plan,” together with the 2014 Stock Incentive Plan, the “Stock Incentive Plans”) which provides for a total of 125,000 shares reserved for future issuance as stock awards or stock options. No more than 31,250 shares, or 25%, may be granted as stock awards.  The balance of the plan is reserved for stock option awards. On November 11, 2020, the Company granted a total of 31,250 plan share awards and 93,750 stock options to directors, officers and other key employees vesting ratably over five years. The Stock Incentive Plans costs are recognized over the five year vesting period.  As of December 31, 2020, there are no plan share awards or stock options available for future grants under the Stock Incentive Plans.

Compensation expense pertaining to the 2011 Recognition Plan and the share awards under the Stock Incentive Plans was approximately $134,000 and $158,000 for the six months ended December 31, 2020 and 2019, respectively. For the six months ended December 31, 2020 and 2019, compensation expense charged to operations for stock options granted under the 2011 Option Plan and the Stock Incentive Plans was $55,000 and $69,000, respectively.

7. Related Party Transactions

Certain directors and executive officers were indebted to the Bank in the approximate aggregate amounts of $4.0 million and $3.8 million at December 31, 2020 and June 30, 2020, 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.



25

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Fair Value Disclosures (continued)

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.

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.




26

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Fair Value Disclosures (continued)

At December 31, 2020 and June 30, 2020, the carrying amount and estimated fair values of the Company’s financial instruments were as follows:

   
December 31, 2020
   
June 30, 2020
 
   
Carrying
   
Estimated
   
Carrying
   
Estimated
 
   
Value
   
Fair Value
   
Value
   
Fair Value
 
   
(In Thousands)
 
Financial Assets
                       
   Cash and Cash Equivalents
 
$
79,795
   
$
79,795
   
$
54,871
   
$
54,871
 
   Securities Available-for-Sale
   
33,060
     
33,060
     
42,060
     
42,060
 
   Securities to be Held-to-Maturity
   
31,309
     
32,222
     
20,858
     
21,879
 
   Loans Held-for-Sale
   
27,904
     
27,904
     
14,798
     
14,798
 
   Loans Receivable
   
336,363
   
$
333,962
     
359,927
   
$
359,581
 
                                 
Financial Liabilities
                               
   Deposits
 
$
477,859
   
$
472,465
   
$
460,810
   
$
458,994
 
   Advances from FHLB
   
907
     
980
     
1,060
     
1,150
 
                                 
Off-Balance Sheet Items
                               
   Mortgage Loan Commitments
 
$
8,388
   
$
8,388
   
$
8,536
   
$
8,536
 

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

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

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

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

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

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

Expands disclosures about 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.



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

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 six months ended December 31, 2020.

Fair values of assets and liabilities measured on a recurring basis at December 31, 2020 and June 30, 2020 are as follows:

   
Fair Value Measurements Using:
       
December 31, 2020
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   

Unobservable
Inputs
(Level 3)
   



Total
 
   
(In Thousands)
 
Available-for-Sale
                       
 Debt Securities
                       
   FHLMC
 
$
--
   
$
3,258
   
$
--
   
$
3,258
 
   FNMA
   
--
     
22,247
     
--
     
22,247
 
   GNMA
   
--
     
7,555
     
--
     
7,555
 
                                 
Total
 
$
--
   
$
33,060
   
$
--
   
$
33,060
 

   
Fair Value Measurements Using:
       
June 30, 2020
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   

Unobservable
Inputs
(Level 3)
   



Total
 
         
(In Thousands)
       
Available-for-Sale
                       
Debt Securities
                       
   FHLMC
 
$
--
   
$
5,159
   
$
--
   
$
5,159
 
   FNMA
   
--
     
31,852
     
--
     
31,852
 
   GNMA
   
--
     
5,059
     
--
     
5,049
 
                                 
Total
 
$
--
   
$
42,060
   
$
--
   
$
42,060
 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
9. Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On July 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches with terms extending through 2058. Substantially all of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated statements of condition. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated statements of condition as right-of-use (“ROU”) assets and corresponding lease liabilities.

(In Thousands)
   
December 31, 2020
   
June 30, 2020
 
Lease Right-of-Use Assets
Classification
           
   Operating lease right-of-use assets
   Other Assets
 
$
866
   
$
877
 
Total Lease Right-of-Use Assets
   
$
866
   
$
877
 
                   
Lease Liabilities
                 
   Operating lease liabilities
Other Accrued Expenses and Liabilities
 
$
878
   
$
887
 
Total Lease Liabilities
   
$
878
   
$
887
 
                   

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to July 1, 2019, the rate for the remaining lease term as of July 1, 2019, was the Company’s only finance lease, the Company utilized its incremental borrowing rate at lease inception.

 
                        December 31, 2020
June 30, 2020
Weighted-average remaining lease term
     
   Operating leases
37.9 years
38.4 years
         
Weighted-average discount rate
     
   Operating leases
                                      3.00%
3.00%

10. 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 Home Federal Bank (the “Bank”), its wholly owned subsidiary. The Bank’s results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings.  Results of operations are also affected by provisions for loan losses and loan sale activities.  Non-interest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing, and other 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.

The Bank operates from its main 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.

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, 2020 to December 31, 2020

General

At December 31, 2020, the Company reported total assets of $535.4 million, an increase of $17.2 million, or 3.3%, compared to total assets of $518.2 million at June 30, 2020. The increase in assets was comprised primarily of increases in cash and cash equivalents of $24.9 million, or 45.4%, from $54.9 million at June 30, 2020 to $79.8 million at December 31, 2020, loans held-for-sale of $13.1 million, or 88.6%, from $14.8 million at June 30, 2020 to $27.9 million at December 31, 2020, premises and equipment of $1.6 million, or 12.1%, from $13.2 million at June 30, 2020 to $14.8 million at December 31, 2020, investment securities of $1.5 million, or 2.3%, from $62.9 million at June 30, 2020 to $64.4 million at December 31, 2020, other assets of $211,000, or 11.6%, from $1.8 million at June 30, 2020 to $2.0 million at December 31, 2020, bank owned life insurance of $67,000, or 0.9%, from$7.1 million at June 30, 2020 to $7.2 million at December 31, 2020, and deferred tax assets of $30,000, or 4.0%, from $757,000 at June 30, 2020 to $787,000 at December 31, 2020. These increases were partially offset by decreases in loans receivable, net of $23.6 million, or 6.5%, from $359.9 million at June 30, 2020 to $336.4 million at December 31, 2020, accrued interest receivable of $454,000, or 24.4%, from $1.9 million at June 30,2020 to $1.4 million at December 31, 2020, and foreclosed assets of $200,000, or 21.1%. from $950,000 at June 30, 2020 to $750,000 at December 31, 2020. The increase in investment securities was primarily due to security purchases of $21.5 million offset by principal repayments on mortgage backed securities of $17.2 million and a redemption of FHLB stock for $2.4 million.  The increase in loans held-for-sale resulted primarily from an increase in loans originated for sale during the six months ended December 31, 2020.  The decrease in loans receivable was primarily due to $20.2 million of SBA PPP loans being forgiven and paid off.


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Discussion of Financial Condition Changes from June 30, 2020 to December 31, 2020 (continued)

Cash and Cash Equivalents

Cash and cash equivalents increased $24.9 million, or 45.4%, from $54.9 million at June 30, 2020 to $79.8 million at December 31, 2020. The $24.9 million increase in cash and cash equivalents was primarily due to deposit growth and principal payoffs on loans.

Loans Receivable, Net

Loans receivable, net, decreased by $23.6 million, or 6.5%, to $336.4 million at December 31, 2020 compared to $359.9 million at June 30, 2020.  The decrease in loans receivable, net was primarily due to decreases in commercial non-real estate loans of $17.0 million, one-to-four-family residential loans of $4.4 million, land loans of $2.5, equity line-of-credit loans of $1.8 million, multi-family residential loans of $1.7 million, commercial real estate loans of $682,000 and consumer loans of $61,000, partially offset by increases in construction loans of $3.5 million, and equity and second mortgage loans of $32,000.

Loans Held-for-Sale

Loans held-for-sale increased $13.1 million, or 88.6%, from $14.8 million at June 30, 2020 to $27.9 million at December 31, 2020.  The increase in loans held-for-sale results primarily from an increase in the origination volume during the first six months of fiscal 2021.

Investment Securities

Investment securities amounted to $64.4 million at December 31, 2020 compared to $62.9 million at June 30, 2020, an increase of $1.5 million, or 2.3%.  The increase in investment securities was primarily due to security purchases of $21.5 million offset by principal repayments on mortgage backed securities of $17.2 million and a redemption of FHLB stock for $2.4 million

Premises and Equipment, Net

Premises and equipment, net increased $1.6, or 12.1%, to $14.8 million at December 31, 2020 compared to $13.2 million at June 30, 2020.  The increase in premises and equipment was primarily due to the relocation of the Company’s Mansfield Road Branch which was a leased property to a new location in Southern Hills in December 2020.

Asset Quality

At December 31, 2020, the Company had $4.8 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 $7.2 million of non-performing assets at June 30, 2020, consisting of six commercial real estate loans to one borrower, five single-family residential loans, one lot loan, one land loan, and two commercial real estate properties in other real estate owned at December 31, 2020, compared to five single-family residential loans, five commercial real estate loans to one borrower, one lot loan, one land loan and two commercial real estate properties in other real estate owned at June 30, 2020.  The decrease in non-performing assets from $7.2 million at June 30, 2020 to $4.8 million at December 31, 2020 was primarily due to a write-down of $907,000 on a lot loan, a write-down of $698,000 on a commercial real estate loan, and the paydown of a portion of the collateral on the same commercial real estate loan totaling $449,000.  At December 31, 2020, the Company had four single family residential loans, two commercial land and lot development loans to one borrower, six commercial real estate loans to one borrower, and two commercial real estate loans to one borrower classified as substandard compared to four single family residential loans, two commercial land and lot development loans, and six commercial real estate loans to one borrower classified as substandard at June 30, 2020. There were no loans classified as doubtful at December 31, 2020 or June 30, 2020.

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Discussion of Financial Condition Changes from June 30, 2020 to December 31, 2020 (continued)

Total Liabilities

Total liabilities increased $16.2 million, or 3.5%, from $467.7 million at June 30, 2020 to $483.9 million at December 31, 2020 primarily due to an increase in total deposits of $17.0 million, or 3.7%, to $477.9 million at December 31, 2020 compared to $460.8 million at June 30, 2020, and an increase of $200,000, or 8.7%, in other borrowings from $2.3 million at June 30, 2020 to $2.5 million at December 31, 2020, partially offset by a decrease of $660,000, or 22.1%, in other accrued expenses and liabilities from $3.0 million at June 30, 2020 to $2.3 million at December 31, 2020, and a decrease of $153,000, or 14.4%, in advances from the Federal Home Loan Bank from $1.1 million at June 30, 2020 to $907,000 at December 31, 2020.  The increase in deposits was primarily due to a $24.5 million, or 29.2%, increase in savings deposits from $83.8 million at June 30, 2020 to $108.3 million at December 31, 2020, a  $5.3 million, or 12.9%, increase in NOW accounts from $41.4 million at June 30, 2020 to $46.7 million at December 31, 2020, a $3.5 million, or 3.3%, increase in non-interest bearing deposits from $103.4 million at June 30, 2020 to $106.9 million at December 31, 2020, and a increase in money market deposits of $1.4 million, or 1.9%, from $74.6 million at June 30, 2020 to $76.1 million at December 31, 2020, partially offset by a decrease of $17.7 million, or 11.2%, in certificates of deposit from $157.6 million at June 30, 2020 to $139.9 million at December 31, 2020. The Company had $11.6 million in brokered deposits at December 31, 2020 compared to $16.1 million at June 30, 2020.  The decrease in advances from the Federal Home Loan Bank was primarily due to principal paydowns on amortizing advances.

Shareholders’ Equity

Shareholders’ equity increased $927,000, or 1.8%, to $51.5 million at December 31, 2020 from $50.5 million at June 30, 2020.  The primary reasons for the changes in shareholders’ equity from June 30, 2020 were net income of $2.7 million, the vesting of restricted stock awards, stock options, and the release of employee stock ownership plan shares totaling $333,000, and proceeds from the issuance of common stock from the exercise of stock options of $164,000, partially offset by the acquisition of Company stock of $1.4 million, dividends paid totaling $565,000, and a decrease in the Company’s accumulated other comprehensive income of $262,000.

Regulatory Capital

The Bank is required to meet minimum capital standards promulgated by the Office of the Comptroller of the Currency (“OCC”).  At December 31, 2020, Home Federal Bank’s regulatory capital was well in excess of the minimum capital requirements.

Comparison of Operating Results for the Three and Six Month Periods Ended December 31, 2020 and 2019

General

The increase in net income for the three months ended December 31, 2020, as compared to the prior year quarter resulted primarily from a $700,000, or 18.5%, increase in net interest income, an increase of $591,000, or 64.4%, in non-interest income, a decrease of $350,000, or 36.8%, in provision for loan losses, partially offset by an increase of $583,000, or 19.4%, in non-interest expense, and a $243,000, or 165.3%, increase in provision for income taxes

The increase in net income for the six months ended December 31, 2020 resulted primarily from a $1.3 million, or 70.7%, increase in non-interest income, an increase of $875,000, or 11.5%, in net interest income, partially offset by an increase of $929,000, or 15.3%, in non-interest expense, an increase of $287,000, or 67.4%, in provision for income taxes and a $175,000, or 15.6%, increase in provision for loan losses.
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Comparison of Operating Results for the Three and Six Month Periods Ended December 31, 2020 and 2019 (continued)

Net Interest Income

The increase in net interest income for the three months ended December 31, 2020 was primarily due to a $482,000, or 34.8%, decrease in total interest expense, primarily due to an decrease of 67 basis points in the average rate on interest-bearing deposits, and an increase of $218,000, or 4.2%, in total interest income. The cost of funds from Federal Home Loan Bank borrowings decreased $3,000, or 21.4%, compared to the prior year three month period and interest paid on deposits decreased $483,000, or 35.5%, compared to the prior year three month period. Interest paid on other borrowings increased $4,000, or 30.8% compared to the prior year three month period. The Company’s average interest rate spread was 3.23% for the three months ended December 31, 2020 compared to 3.18% for the three months ended December 31, 2019. The Company’s net interest margin was 3.50% for the three months ended December 31, 2020 compared to 3.52% for the three months ended December 31, 2019.

Net interest income for the six months ended December 31, 2020 was $8.5 million, an increase of $875,000, or 11.5%, in comparison to the six months ended December 31, 2019.  The increase in net interest income for the six month period was primarily due to an $841,000, or 30.7%, decrease in total interest expense, and by an increase of $34,000, or 0.3%, in total interest income.  The cost of funds from Federal Home Loan Bank borrowings decreased $7,000, or 23.3%, compared to the prior year six month period and interest paid on deposits decreased $847,000, or 31.4%, compared to the prior year six month period.  Interest paid on other borrowing increased $13,000, or 76.5% compared to the prior year six month period.  The Company’s average interest rate spread was 3.06% for the six months ended December 31, 2020, compared to 3.21% for the six months ended December 31, 2019. The Company’s net interest margin was 3.34% for the six months ended December 31, 2020, compared to 3.56% for the six months ended December 31, 2019.

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 $600,000 and $1.3 million was made during the three and six months ended December  31, 2020, respectively, compared to a $950,000 and $1.1 million provision made during the three and six months ended December 31, 2019. The allowance for loan losses was $3.8 million, or 1.11% of total loans receivable, at December 31, 2020 compared to $3.5 million, or 1.07% of total loans receivable, at December 31, 2019.  At December 31, 2020, the Company had $4.8 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 $7.2 million of non-performing assets at June 30, 2020, consisting of six commercial real estate loans to one borrower, five single-family residential loans, one lot loan, one land loan, and two commercial real estate properties in other real estate owned at December 31, 2020, compared to five single-family residential loans, five commercial real estate loans to one borrower, one lot loan, one land loan and two commercial real estate properties in other real estate owned at June 30, 2020.  The decrease in non-performing assets from $7.2 million at June 30, 2020 to $4.8 million at December 31, 2020 was primarily due to a write-down of $907,000 on a lot loan, a write-down of $698,000 on a commercial real estate loan, and the paydown of a portion of the collateral on the same commercial real estate loan totaling $449,000. At December 31, 2020, the Company had four single family residential loans, two commercial land and lot development loans to one borrower, six commercial real estate loans to one borrower, and two commercial real estate loans to one borrower classified as substandard compared to four single family residential loans, two commercial land and lot development loans, and six commercial real estate loans to one borrower classified as substandard at June 30, 2020. There were no loans classified as doubtful at December 31, 2020 or June 30, 2020.




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Comparison of Operating Results for the Three and Six Month Periods Ended December 31, 2020 and 2019 (continued)

Non-interest Income

The $591,000 increase in non-interest income for the three months ended December 31, 2020, compared to the prior year quarterly period, was primarily due to an increase of $627,000 in gain on sale of loans, and a $4,000 increase in other non-interest income, partially offset by a decrease of $38,000 in service charges on deposit accounts, and a $2,000 decrease in income from bank owned life insurance. The $1.3 million increase in non-interest income for the six months ended December 31, 2020 compared to the prior year six-month period was primarily due to an increase of $1.5 million in gain on sale of loans, and an increase of $8,000 in other non-interest income, partially offset by an $80,000 decrease in gain on sale of real estate, a $64,000 decrease in service charges on deposit accounts, and a $4,000 decrease in income from bank owned life insurance. The Company sells most of its long term fixed rate residential mortgage loan originations primarily in order to manage interest rate risk.

Non-interest Expense

The $583,000 increase in non-interest expense for the three months ended December 31, 2020, compared to the same period in 2019, is primarily attributable to increases of $248,000 in compensation and benefits expense, $200,000 in real estate owned valuation adjustment expense, $70,000 in data processing expense, $38,000 in deposit insurance premiums expense, $37,000 in occupancy and equipment expense, $33,000 in loan and collection expense, $21,000 in other non-interest expenses, and $6,000 in audit and examination fees. The increases were partially offset by decreases of $33,000 in franchise and bank shares tax expense, $19,000 in legal fees, and $18,000 in advertising expense.  The $929,000 increase in non-interest expense for the six months ended December 31, 2020, compared to the same six month period in 2019, is primarily attributable to increases of $656,000 in compensation and benefits expense, $200,000 in real estate owned valuation adjustment expense, $104,000 in data processing expense, $68,000 in deposit insurance premium expense, $41,000 in occupancy and equipment expense, $15,000 in audit and examination fees expense, $13,000 in other non-interest expenses, $8,000 in loan and collection expense, and $2,000 in legal fees, partially offset by decreases of $139,000 in advertising expense and $39,000 in franchise and bank shares tax expense.

The aggregate compensation expense recognized by the Company for its Stock Option, Share Award, ESOP, and Recognition and Retention Plans amounted to $230,000 and $333,000 for the three and six months ended December 31, 2020, respectively, compared to $267,000 and $421,000 for three and six months ended December 31, 2019, respectively.

The Louisiana bank shares tax is assessed on the Bank’s equity and earnings.  For the three and six months ended December 31, 2020, the Company recognized franchise and bank shares tax expense of $89,000 and $198,000, respectively, compared to $122,000 and $237,000 for the same periods in 2019.

Income Taxes

Income taxes amounted to $390,000 and $713,000 for the three and six months ended December 31, 2020, respectively, resulting in an effective tax rate of 21.8% and 21.2%.  Income taxes amounted to $147,000 and $426,000 for the three and six months ended December 31, 2019, respectively.


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Comparison of Operating Results for the Three and Six Month Periods Ended December 31, 2020 and 2019 (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 December 31,
 
   
2020
   
2019
 
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
 
   
(Dollars In Thousands)
 
Interest-earning assets:
                                   
     Loans receivable 
 
$
378,516
   
$
5,074
     
5.32
%
 
$
331,368
   
$
4,632
     
5.55
%
     Investment securities 
   
60,890
     
282
     
1.84
     
72,291
     
442
     
2.43
 
Interest-earning deposits 
   
68.242
     
24
     
0.14
     
21.481
     
88
     
1.63
 
          Total interest-earning assets
 
$
507,648
     
5,380
     
4.20
%
 
$
425,140
     
5,162
     
4.82
%
Non-interest-earning assets 
   
31,566
                     
32,515
                 
          Total assets 
 
$
539,214
                   
$
457,655
                 
Interest-bearing liabilities:
                                               
     Savings accounts 
 
$
101,802
     
153
     
0.60
%
 
$
57,878
     
194
     
1.33
%
     NOW accounts 
   
43,605
     
24
     
0.22
     
31,133
     
50
     
0.64
 
     Money market accounts 
   
73,316
     
65
     
0.35
     
75,371
     
230
     
1.21
 
     Certificate accounts 
   
147,322
     
635
     
1.71
     
168,834
     
886
     
2.08
 
          Total interest bearing deposits
   
366,045
     
877
     
0.95
     
333,216
     
1,360
     
1.62
 
Other Borrowings 
   
2,043
     
17
     
3.30
     
1,063
     
13
     
4.85
 
FHLB advances 
   
933
     
11
     
4.68
     
1,233
     
14
     
4.66
 
          Total interest-bearing liabilities
 
$
369,021
     
905
     
0.97
%
 
$
335,512
     
1,387
     
1.64
%
Non-interest-bearing liabilities:
                                               
     Non-interest bearing demand accounts
   
114,983
                     
67,460
                 
     Other liabilities 
   
3,766
                     
4,340
                 
          Total interest bearing liabilities
   
487,770
                     
407,312
                 
Total Stockholders’ Equity(1) 
   
51,444
                     
50,343
                 
 
                                               
          Total liabilities and equity 
 
$
539,214
                   
$
457,655
                 
 
                                               
Net interest-earning assets 
 
$
138,627
                   
$
89,628
                 
 
                                               
Net interest income; average interest rate spread(2)
         
$
4,475
     
3.23
%
         
$
3,775
     
3.18
%
Net interest margin(3) 
                   
3.50
%
                   
3.52
%
Average interest-earning assets to average
  interest-bearing liabilities 
                   
137.57
%
                   
126.71
%
                                                 
 __________________
(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 Six Month Periods Ended December 31, 2020 and 2019 (continued)

   
Six Months Ended December 31,
 
   
2020
   
2019
 
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
 
   
(Dollars In Thousands)
 
Interest-earning assets:
                                   
     Loans receivable 
 
$
379,377
   
$
9,721
     
5.08
%
 
$
333,955
   
$
9,284
     
5.52
%
     Investment securities 
   
59,021
     
601
     
2.02
     
68,905
     
848
     
2.44
 
     Interest-earning deposits
   
64,447
     
42
     
0.13
     
20,570
     
198
     
1.91
 
          Total interest-earning assets
 
$
502,845
     
10,364
     
4.09
%
 
$
423,430
     
10,330
     
4.84
%
Non-interest-earning assets 
   
30,744
                     
27,415
                 
          Total assets 
 
$
533,589
                   
$
450,845
                 
Interest-bearing liabilities:
                                               
     Savings accounts 
 
$
98,211
     
311
     
0.63
%
 
$
52,906
     
314
     
1.18
%
     NOW accounts 
   
42,108
     
56
     
0.26
     
31,321
     
99
     
0.62
 
     Money market accounts 
   
73,248
     
141
     
0.38
     
74,889
     
459
     
1.22
 
     Certificate accounts 
   
151,821
     
1,340
     
1.75
     
172,866
     
1,823
     
2.09
 
          Total interest-bearing deposits
   
365,388
     
1,848
     
1.00
     
331,982
     
2,695
     
1.61
 
Other bank borrowings
   
1,898
     
30
     
3.24
     
703
     
17
     
4.80
 
FHLB advances 
   
971
     
23
     
4.70
     
1,270
     
30
     
4.69
 
          Total interest-bearing liabilities
 
$
368,257
     
1,901
     
1.02
%
 
$
333,955
     
2,742
     
1.63
%
Non-interest-bearing liabilities:
                                               
     Non-interest bearing demand accounts
   
113,057
                     
64,815
                 
     Other liabilities 
   
1,741
                     
2,471
                 
          Total liabilities 
   
483,055
                     
401,241
                 
Total Stockholders’ Equity(1) 
   
50,534
                     
49,604
                 
 
                                               
          Total liabilities and equity
 
$
533,589
                   
$
450,845
                 
 
                                               
Net interest-earning assets 
 
$
134,588
                   
$
89,475
                 
 
                                               
Net interest income; average interest rate spread(2)
         
$
8.463
     
3.06
%
         
$
7.588
     
3.21
%
Net interest margin(3) 
                   
3.34
%
                   
3.56
%
Average interest-earning assets to average
  interest-bearing liabilities 
                   
136.55
%
                   
126.79
%
__________________
(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.


36

HOME FEDERAL BANCORP, INC. OF LOUISIANA


Comparison of Operating Results for the Three and Six Month Periods Ended December 31, 2020 and 2019 (continued)

Liquidity and Capital Resources

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

Home Federal Bank’s primary sources of funds are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, loan sales, and earnings and funds provided from operations.  While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.  The Bank sets the interest rates on its deposits to maintain a desired level of total deposits.  In addition, Home Federal Bank invests excess funds in short-term interest-earning accounts and other assets which provide liquidity to meet lending requirements.  Home Federal Bank’s deposit accounts with the Federal Home Loan Bank of Dallas amounted to $13.0 million at December 31, 2020.

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 December 31, 2020, Home Federal Bank had $907,000 in advances from the Federal Home Loan Bank of Dallas and had $189.8 million in additional borrowing capacity.  Additionally, at December 31, 2020, 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 $19.5 million. There were no amounts purchased under this agreement as of December 31, 2020. In addition, the Company had available a $5.0 million line of credit agreement at December 31, 2020 with First National Bankers Bank. At December 31, 2020 there was a $2.5 million balance in the credit line.

At December 31, 2020, Home Federal Bank had outstanding loan commitments of $54.0 million to originate loans and commitments under unused lines of credit of $8.4 million. At December 31, 2020, certificates of deposit scheduled to mature in less than one year totaled $86.3 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 December 31, 2020, Home Federal Bank exceeded each of its regulatory capital requirements with tangible equity, common equity Tier 1, core, and total risk-based capital ratios of 9.83%, 16.23%, 9.83%, and 17.4%, respectively.

Off-Balance Sheet Arrangements

At December 31, 2020, 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.

37

HOME FEDERAL BANCORP, INC. OF LOUISIANA

Forward-Looking Statements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosures Controls and Procedures.  Under the supervision and with the participation of our management including our 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.
38

HOME FEDERAL BANCORP, INC. OF LOUISIANA


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


(a)
Not applicable.

(b)
Not applicable.

(c)
Purchases of Equity Securities

The Company’s repurchases of its common stock made during the quarter ended December 31, 2020 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)
 
October 1, 2020 – October 31, 2020
   
1,870
   
$
22.81
     
--
     
--
 
November 1, 2020 – November 30, 2020
   
40,000
   
$
24.37
     
--
     
85,000
 
December 1, 2020 – December 31, 2020
   
--
     
--
     
--
     
85,000
 
Total
   
41,870
   
$
24.30
     
--
     
85,000
 
______________
Notes to this table:


(a)
On November 18, 2020, the Company announced that its Board of Directors approved a tenth stock repurchase program for the repurchase of up to 85,000 shares, or approximately 5.0% of its outstanding shares of common stock. The repurchase program does not have an expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

 
 
No.
 
 
Description
 
31.1
 
 
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:   February 12, 2021
By:
/s/Glen W. Brown
   
Glen W. Brown
Senior Vice President and Chief Financial Officer
(Duly authorized officer and principal financial and
accounting officer)