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Home Federal Bancorp, Inc. of Louisiana - Quarter Report: 2023 September (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM 10-Q
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: 
September 30, 2023
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 $0.01 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.  ☒ 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).  ☒ 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. (Check One):

Large accelerated filer
Accelerated filer
Non-accelerated filer 
Smaller reporting company
☒ 
 
 
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  
☒   No
 
Shares of common stock, par value $0.01 per share, outstanding as of November 9, 2023: The registrant had 3,133,351 shares of common stock outstanding.



INDEX

   
Page
PART I
FINANCIAL INFORMATION
 
     
Item 1:
Financial Statements (Unaudited)
 
     
 
1
     
 
2
     
 
3
     
 
4
     
 
5
     
 
7
     
Item 2:
33
     
Item 3:
40
     
Item 4:
40
     
PART II
OTHER INFORMATION
 
     
Item 1:
41
     
Item 1A:
41
     
Item 2:
41
     
Item 3:
41
     
Item 4:
41
     
Item 5:
41
     
Item 6:
41
     
   42

HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2023 (Unaudited) June 30, 2023 (Audited) (In thousands except share and per share data)

   
September 30, 2023
   
June 30, 2023
 
    (Unaudited)     (Audited)  
ASSETS
           
             
Cash and Cash Equivalents (Includes Interest-Bearing Deposits with Other Banks of $1,557 and $22,215 September 30, 2023 and June 30, 2023, Respectively)
 
$
8,878
   
$
24,765
 
Securities Available-for-Sale (amortized cost September 30, 2023: $44,736; June 30, 2023: $42,910, Respectively)
   
40,409
     
39,551
 
Securities Held-to-Maturity (fair value September 30, 2023: $57,557; June 30, 2023: $61,222, Respectively)
   
72,806
     
74,423
 
Loans Held-for-Sale
   
589
     
4
 
Loans Receivable, Net of Allowance for Credit Losses (September 30, 2023: $5,102; June 30, 2023: $5,173, Respectively)
   
506,599
     
489,493
 
Accrued Interest Receivable
   
1,907
     
1,790
 
Premises and Equipment, Net
   
16,978
     
16,561
 
Bank Owned Life Insurance
   
6,725
     
6,700
 
Goodwill
    2,990       2,990  
Core Deposit Intangible
    1,439       1,533  
Deferred Tax Asset
   
1,460
     
1,313
 
Real Estate Owned
   
561
     
368
 
Other Assets
   
1,261
     
1,424
 
                 
Total Assets
 
$
662,602
   
$
660,915
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
LIABILITIES
               
                 
Deposits:
               
Non-interest bearing
 
$
146,057
   
$
145,553
 
Interest-bearing
   
446,448
     
451,808
 
Total Deposits
   
592,505
     
597,361
 
Advances from Borrowers for Taxes and Insurance
   
715
     
554
 
Short-term Federal Home Loan Bank Advances
   
4,600
     
-
 
Other Borrowings
   
8,850
     
8,550
 
Other Accrued Expenses and Liabilities
   
5,459
     
3,908
 
                 
Total Liabilities
   
612,129
     
610,373
 
                 
STOCKHOLDERS’ EQUITY
               
                 
Preferred Stock - $0.01 Par Value; 10,000,000 Shares Authorized; None Issued and Outstanding
    -
     
-
 
Common Stock - $0.01 Par Value; 40,000,000 Shares Authorized: 3,133,351 Shares Issued and Outstanding at September 30, 2023 and June 30, 2023
   
31
     
31
 
Additional Paid-in Capital
   
41,057
     
40,981
 
Unearned ESOP Stock
   
(495
)
   
(523
)
Retained Earnings
   
13,346
     
12,707
 
Accumulated Other Comprehensive Loss
   
(3,466
)
   
(2,654
)
                 
Total Stockholders’ Equity
   
50,473
     
50,542
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
662,602
   
$
660,915
 

See accompanying notes to unaudited consolidated financial statements.

1

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (In thousands except share and per share data)

   
Three Months Ended
September 30,
 
   
2023
   
2022
 
             
INTEREST INCOME
           
Loans, including fees
 
$
7,274
   
$
5,028
 
Investment securities
   
150
     
2
 
Mortgage-backed securities
   
473
     
489
 
Other interest-earning assets
   
177
     
262
 
Total interest income
   
8,074
     
5,781
 
INTEREST EXPENSE
               
Deposits
   
2,592
     
400
 
Federal Home Loan Bank borrowings
   
15
     
10
 
Other bank borrowings
   
183
     
66
 
Total interest expense
   
2,790
     
476
 
Net interest income
   
5,284
     
5,305
 
                 
PROVISION FOR CREDIT LOSSES
   
-
     
418
 
Net interest income after provision for credit losses
   
5,284
     
4,887
 
                 
NON-INTEREST INCOME
               
     Gain on sale of loans
   
38
     
175
 
     Loss on sale of real estate and fixed assets
    (34 )     -  
Income on bank owned life insurance
   
26
     
26
 
Service charges on deposit accounts
   
391
     
335
 
Other income
   
13
     
10
 
                 
Total non-interest income
   
434
     
546
 
                 
NON-INTEREST EXPENSE
               
Compensation and benefits
   
2,356
     
2,282
 
Occupancy and equipment
   
549
     
501
 
Data processing
   
245
     
181
 
Audit and examination fees
   
102
     
75
 
Franchise and bank shares tax
   
156
     
119
 
Advertising
   
143
     
74
 
Professional fees
   
160
     
126
 
Loan and collection
   
60
     
52
 
     Amortization core deposit intangible
    94       -  
Deposit insurance premium
   
91
     
47
 
Other expenses
   
232
     
296
 
                 
Total non-interest expense
   
4,188
     
3,753
 
                 
Income before income taxes
   
1,530
     
1,680
 
PROVISION FOR INCOME TAX EXPENSE
   
310
     
9
 
                 
NET INCOME
 
$
1,220
   
$
1,671
 
                 
EARNINGS PER SHARE
               
Basic
 
$
0.40
   
$
0.55
 
Diluted
 
$
0.39
   
$
0.52
 

See accompanying notes to unaudited consolidated financial statements.

2

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

   
For the Three Months Ended
September 30,
 
   
2023
   
2022
 
   
(In Thousands)
 
             
Net Income
 
$
1,220
   
$
1,671
 
                 
Other Comprehensive Loss, Net of Tax
               
   Investment securities available-for-sale:
               
      Net unrealized losses
   
(1,028
)
   
(1,109
)
      Income tax effect
   
216
     
231
 
Other Comprehensive Loss
   
(812
)
   
(878
)
         Total Comprehensive Income   $ 408     $ 793  

See accompanying notes to unaudited consolidated financial statements.

3

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)

   
Common
Stock
   
Additional
Paid-in
Capital
   
Unearned
ESOP
Stock
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Stockholders’
Equity
 
               
(In Thousands)
             
BALANCE – June 30, 2022
 
$
34
   
$
40,145
   
$
(639
)
 
$
14,506
   
$
(1,699
)
 
$
52,347
 
                                                 
Net Income
   
-
     
-
     
-
     
1,671
     
-
     
1,671
 
                                                 
Changes in Unrealized Loss on Securities Available-for-Sale, Net of Tax Effects
   
-
     
-
     
-
     
-
     
(878
)
   
(878
)
                                                 
Stock Options Vested
   
-
     
26
     
-
     
-
     
-
     
26
 
                                                 
Common Stock Issuance for Stock Option Exercises
   
-
     
147
     
-
     
-
     
-
     
147
 
                                                 
ESOP Compensation Earned
   
-
     
82
     
29
     
-
     
-
     
111
 
                                                 
Company Stock Purchased
   
(3
)
   
-
     
-
     
(5,889
)
   
-
     
(5,892
)
                                                 
Dividends Declared ($0.12 per share)
   
-
     
-
     
-
     
(407
)
   
-
     
(407
)
                                                 
BALANCE – September 30, 2022
 
$
31
   
$
40,400
   
$
(610
)
 
$
9,881
   
$
(2,577
)
 
$
47,125
 
                                                 
BALANCE – June 30, 2023
 
$
31
   
$
40,981
   
$
(523
)
 
$
12,707
   
$
(2,654
)
 
$
50,542
 
                                                 
Cumulative Effect of Change in Accounting Principle - ASU 2016-13
    -       -       -       (189 )     -       (189 )
                                                 
Net Income
   
-
     
-
     
-
     
1,220
     
-
     
1,220
 
                                                 
Changes in Unrealized Loss on Securities Available-for-Sale, Net of Tax Effects
   
-
     
-
     
-
     
-
     
(812
)
   
(812
)
                                                 
Stock Options Vested
   
-
     
23
     
-
     
-
     
-
     
23
 
                                                 
ESOP Compensation Earned
   
-
     
53
     
28
     
-
     
-
     
81
 
                                                 
Dividends Declared ($0.13 per share)
   
-
     
-
     
-
     
(392
)
   
-
     
(392
)
                                                 
BALANCE – September 30, 2023
 
$
31
   
$
41,057
   
$
(495
)
 
$
13,346
   
$
(3,466
)
 
$
50,473
 

See accompanying notes to unaudited consolidated financial statements.

4

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

        
Three Months Ended
 
        
September 30,
 
   
2023
   
2022
 
        
(In Thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Income
 
$
1,220
   
$
1,671
 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
               
Gain on Sale of Loans
   
(38
)
   
(175
)
Net Amortization and Accretion on Securities
   
107
     
3
 
Amortization of Deferred Loan Fees
   
(33
)
   
(194
)
Amortization of Purchased Loans
    (419 )     -  
Provision for Credit Losses
   
-
     
418
 
Depreciation of Premises and Equipment
   
224
     
218
 
Loss on Sales of Real Estate and Fixed Assets
   
34
     
-
 
ESOP Compensation Expense
   
81
     
111
 
Stock Option Expense
   
23
     
26
 
Deferred Income Tax Benefit
   
(147
)
   
(323
)
Federal Home Loan Bank Stock Dividend
   
17
     
1
 
Share Awards Expense
   
28
     
31
 
Increase in Cash Surrender Value on Bank Owned Life Insurance
   
(26
)
   
(26
)
Bad Debt Recovery
    362       1  
Loans Held-for-Sale – Originations and Purchases
    (1,807 )     (9,932 )
Loans Held-for-Sale – Sale and Principal Repayments
    1,222       12,097  
Changes in Assets and Liabilities:
               
Accrued Interest Receivable
   
(117
)
   
(126
)
Other Operating Assets
    163       103  
Other Operating Liabilities    
1,551
     
431
 
                 
Net Cash Provided by Operating Activities
   
2,445
     
4,335
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Loan Originations and Purchases, Net of Principal Collections
   
(17,659
)
   
(18,717
)
Deferred Loan Fees Collected
   
16
     
93
 
Acquisition of Premises and Equipment
   
(656
)
   
(106
)
Proceeds from Sale of Real Estate and Fixed Assets
    276       -  
Improvements to Real Estate Owned Prior to Disposition
    (38 )     -  
Activity in Available-for-Sale Securities:
               
Principal Payments on Securities
    952       1,610  
Purchase of Municipals
   
-
     
(570
)
Purchase of Mortgage-Backed Securities
   
(2,667
)
   
(4,806
)
Purchase of US Treasury Notes
    -       -  
Activity in Held-to-Maturity Securities:
               
Purchase of Securities
   
-
     
-
 
Purchases of FHLB Stock
    -       -  
Principal Payments on Mortgage-Backed Securities
    1,631       1,870  
                 
Net Cash Used in Investing Activities
   
(18,145
)
   
(20,626
)

See accompanying notes to unaudited consolidated financial statements.  

5

HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

   
Three Months Ended
 
   
September 30,
 
   
2023
   
2022
 
   
(In Thousands)
 
CASH FLOWS FROM FINANCING ACTIVITIES
     
Net Decrease in Deposits
 
$
(4,856
)
 
$
(8,231
)
Proceeds from Advances from Federal Home Loan Bank     77,100       -  
Repayments of Advances from Federal Home Loan Bank
   
(72,500
)
   
(9
)
Dividends Paid     (392 )     (407 )
Company Stock Purchased
   
-
     
(5,892
)
Net Increase in Advances from Borrowers for Taxes and Insurance
   
161
     
136
 
Proceeds from Other Bank Borrowings
   
300
     
4,000
 
Proceeds from Stock Options Exercised
    -       147  
                 
Net Cash Used in Financing Activities
   
(187
)
   
(10,256
)
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
   
(15,887
)
   
(26,547
)
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
 
$
24,765
   
$
64,078
 
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
 
$
8,878
   
$
37,531
 
                 
SUPPLEMENTARY CASH FLOW INFORMATION
               
Interest Paid on Deposits and Borrowed Funds
 
$
2,772
   
$
468
 
Market Value Adjustment for Loss on Securities Available-for-Sale     (812 )     (1,109 )
Transfer from Loans to Other Real Estate Owned
   
465
     
93
 

See accompanying notes to unaudited consolidated financial statements.

6

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Home Federal Bancorp, Inc. of Louisiana (the “Company”) and its subsidiary, Home Federal Bank (“Home Federal Bank” or the “Bank”). These consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three month period ended September 30, 2023 are not necessarily indicative of the results which may be expected for the fiscal year ending June 30, 2024.

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 statement of financial condition date for potential recognition in the consolidated financial statements. The effect of all subsequent events that provide additional evidence of conditions that existed at the statement of financial condition date are recognized in the consolidated financial statements as of September 30, 2023.  In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred through the date these consolidated 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 credit 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 ten full-service banking offices and home office, located in Caddo, Bossier and Webster Parishes, Louisiana. The area served by the Bank is primarily the Shreveport-Bossier City-Minden combined statistical area; however, loan and deposit customers are found dispersed in a wider geographical area covering much of northwest Louisiana. As of September 30, 2023, the Bank had one wholly-owned subsidiary, Metro Financial Services, Inc., which previously engaged in the sale of annuity contracts and does not currently engage in a meaningful amount of business.

Cash and Cash Equivalents

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

7

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Securities

The discussion that follows describes the methodology for determining the allowance for credit loss (“ACL”) for investments under the ASU 2016-13 model that was adopted effective July 1, 2023. The allowance methodology for prior periods is disclosed in the Company’s 2023 Annual Report on Form 10-K.

Securities are being accounted for in accordance with FASB 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 September 30, 2023 and June 30, 2023.

Purchase premiums and discounts are recognized in interest income using the interest method over the term of the securities. Securities are periodically reviewed for impairment. For debt securities in an unrealized loss position, the Company evaluates  the securities to determine whether the decline is in the fair value below amortized cost basis (impairment) is due to credit or non-credit related factors.  Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes.  For available for sale investments, credit related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds to the fair value, with a corresponding adjustment to earnings. For held to maturity investments, credit related impairment is recognized as an ACL on the balance sheet, for the entire amount of credit loss, with a corresponding adjustment to earnings.   Both the ACL and the adjustment to net income may be reversed if conditions change.  However, if the Company intends to sell an impaired available for sale security, or more likely than not will be required to sell such security before recovering the amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis.  Because the security’s amortized cost basis is adjusted to fair value, there is no ACL is such situation.  Accrued interest is receivable is excluded from the estimate of credit losses.

In evaluating securities in unrealized loss positions, for impairment and the criteria regarding intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by federal governments or its agencies, whether downgrades  by bond rating agencies have occurred, and the results of reviews of the issuer’s financial conditions, among other factors.

The Bank has invested in Federal Home Loan Bank (“FHLB”) stock, and other similar correspondent banks, which is reflected at cost in these consolidated financial statements. As a member of the FHLB System, the Bank is required to purchase and maintain stock in an amount determined by the FHLB. The FHLB stock is redeemable at par value at the discretion of the FHLB.

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.

8

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

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

Allowance for Credit Losses

The discussion that follows describes the methodology for determining the ACL under the new current expected credit loss (“CECL”) model that was implemented effective July 1, 2023 in accordance with ASU No. 2016-13 and subsequent ASUs issued to amend ASC Topic 326. The allowance methodology for prior periods is disclosed in the Company’s 2023 Annual Report on Form 10-K.

The Company has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.

The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for expected credit losses. The ACL also includes certain qualitative adjustments to the ASU 2016-13 model.

Loans Evaluated Collectively. Homogeneous loans are evaluated collectively for expected credit losses. The loan pools/segments with similar risk characteristics were determined by Call Report codes.

Loans Evaluated Individually. Loans evaluated individually for expected credit losses could include loans on non-accrual status.

Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.

Loans evaluated individually may have specific allocations assigned if the measured value of the loan using one of the noted techniques is less than its current carrying value. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate.

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. For all loans, an internal risk rating process is used. The Company believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk rating categories is a significant component of the ACL methodology for these loans, which bases the probability of default on this migration. Assigning risk ratings involves judgment. Risk ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan.

9

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Allowance for Credit Losses (continued)

The following is a summary of the Company’s internal risk rating categories:

Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.

Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak.

Substandard or Lower: These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.

The allocation of the ACL is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Company considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type.

Qualitative and Other Adjustments to Allowance for Credit Losses: In addition to the quantitative credit loss estimates for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. These include changes in lending policy, the nature and volume of the portfolio, overall business conditions in the economy, credit concentrations, competition, model imprecision, and legal and regulatory requirements. Qualitative adjustments are judgmental and are based on Management’s knowledge of the portfolio and the markets in which the Company operates. Qualitative adjustments are evaluated and approved on a quarterly basis. Additionally, the ACL includes other allowance categories that are not directly incorporated in the quantitative results. These include but are not limited to loans-in-process, trade acceptances and overdrafts.

Off Balance Sheet Credit Exposures. The ACL for off balance sheet credit exposures is recorded in other liabilities on the Consolidated Balance Sheet. This ACL represents management’s estimate of expected losses in its unfunded loan commitments and other off balance sheet credit exposures, such as letters of credit and credit recourse on sold residential mortgage loans. The allowance for credit losses specific to unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). The ACL for off balance sheet credit exposures is increased or decreased by charges or reductions to expense, through the provision for credit losses.  In addition to the ACL on loans held for investment, CECL requires a balance sheet liability for unfunded commitments, which is recognized if both of the following conditions are met: (1) the Company has a present contractual obligation to extend credit; and (2) the obligation is not unconditionally cancellable by the Company. Based on the language within the standard loan documents prepared for each HFB commitment, all unfunded commitments are considered unconditionally cancellable and thus no CECL ACL is allocated for the quarter.

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 costs 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.

10

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Premises and Equipment

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

Buildings and Improvements
 
10 - 40 Years
Furniture and Equipment 
 
  3 - 10 Years

Bank-Owned Life Insurance

The Bank 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 FASB 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 Company 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. The Company’s basic and diluted earnings per share were $0.40 and $0.39, respectively, for the three months ended September 30, 2023 compared to basic and diluted earnings per share of $0.55 and $0.52, respectively, for the three months ended September 30, 2022.

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 consolidated statements of income 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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 statements of financial conditions along with net income, they are components of comprehensive income.

Critical Accounting Policies

During the quarter ended September 30, 2023, the Company implemented CECL accounting policies, procedures, and controls as part of its adoption of ASU No. 2016-13 and subsequent ASUs issued to amend ASC Topic 326. There were no other changes made to the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Recent Accounting Pronouncements

ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In June 2016, the FASB issued ASU 2016-13 which requires earlier measurement of credit losses and enhances disclosures. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company formed a cross-functional working group, who have worked through an implementation plan which includes assessment, review and documentation of various aspects of the implementation plan. After significant evaluation of approved methodologies, the Company determined to utilize a third-party vendor model, in which a weighted average remaining maturity methodology was appropriate for the size and complexity of the Company.  ASU 2016-13 is effective for the Company for annual and interim periods beginning on July 1, 2023. The Company adopted ASU 2016-13 in the first quarter of fiscal 2024. The adoption of the ASU 2016-13 resulted in an increase in the allowance for loan losses as a result of changing from an incurred loss model, which encompasses allowances for current known and inherent losses within the portfolio, to an expected loss model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The amount determined from adoption was recognized as a cumulative effective to the July 1, 2023 retained earnings.

Accounting Standards Update 2022-02 (“ASU 2022-02”), “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” In March 2022, the FASB issued ASU 2022-02 which eliminates the TDR recognition and measurement guidance and instead requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. ASU 2022-02 also enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these amendments require that an entity disclose current period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. ASU 2022-02 is effective for the Company for annual and interim periods beginning on July 1, 2023. The adoption of ASU 2022-02 did not have a significant impact on the Company’s consolidated financial statements other than the required disclosures.

12

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

The Company adopted ASU 2016-13 using the weighted average maturity method (WARM) for all financial assets measured at amortized cost, net of investments in leases and off balance sheet credit exposures. Results for reporting periods beginning after July 1, 2023 are presented under ASU 2016-13, while prior period results are reported in accordance with the previously applicable incurred loss methodology.


The following table presents the impact of adopting ASU 2016-13 on July 1, 2023 (in thousands):

Allowance for credit losses – loans:
 
Beginning Balance
June 30,
2023
   
Impact of
ASU 2016-13 Adoption
   
Provision for Credit Losses
   
Charge-offs
   
Recoveries
   
Ending Balance September 30, 2023
 
Real Estate Loans:
                                   
1-4 Family residential
 
$
1,900
   
$
688
   
$
-
   
$
(428
)
 
$
1
   
$
2,161
 
Commercial
   
1,673
     
(119
)
   
-
     
-
     
-
     
1,554
 
Multi-Family
   
228
     
(139
)
   
-
     
-
     
-
     
89
 
Land
   
274
     
(85
)
   
-
     
-
     
-
     
189
 
Construction
   
254
     
(44
)
   
-
     
-
     
-
     
210
 
Home Equity Loans and Lines of Credit
   
251
     
30
     
-
     
-
     
2
     
283
 
Commercial Loans
   
588
     
24
     
-
     
-
     
-
     
612
 
Consumer Loans
   
5
     
4
     
-
     
(5
)
   
-
     
4
 
Total allowance for credit losses
 
$
5,173
   
$
359
   
$
-
   
$
(433
)
 
$
3
   
$
5,102
 


13

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. Securities

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

   
September 30, 2023
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
Securities Available-for-Sale  
Cost
   
Gains
   
Losses
   
Value
 
          (In Thousands)        
Debt Securities
                       
FHLMC Mortgage-Backed Certificates
 
$
11,869
   
$
-
   
$
1,376
   
$
10,493
 
FNMA Mortgage-Backed Certificates
   
14,844
     
-
     
2,022
     
12,822
 
GNMA Mortgage-Backed Certificates
   
4,414
     
-
     
959
     
3,455
 
                               
Total Debt Securities
   
31,127
     
-
     
4,357
     
26,770
 
                                 
US Treasury Securities     9,876       136       4       10,008  
Municipals     3,733       2       104       3,631  
                                 
Total Securities Available-for-Sale
 
$
44,736
   
$
138
   
$
4,465
   
$
40,409
 
                                 
Securities Held-to-Maturity
                               
                                 
Debt Securities
                               
GNMA Mortgage-Backed Certificates
 
$
619
   
$
-
   
$
80
   
$
539
 
FHLMC Mortgage-Backed Certificates
   
29,312
     
-
     
6,572
     
22,740
 
FNMA Mortgage-Backed Certificates
   
40,010
     
-
     
8,493
     
31,517
 
                                 
Total Debt Securities
   
69,941
     
-
     
15,145
     
54,796
 
                                 
Municipals
   
1,305
     
-
     
104
     
1,201
 
                                 
Equity Securities (Non-Marketable)
                               
13,098 Shares – Federal Home Loan Bank
   
1,310
     
-
     
-
     
1,310
 
630 Shares – First National Bankers Bankshares, Inc.
   
250
     
-
     
-
     
250
 
                                 
Total Equity Securities
   
1,560
     
-
      -      
1,560
 
                                 
Total Securities Held-to-Maturity
 
$
72,806
   
$
-
   
$
15,249
   
$
57,557
 

14

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

 
 
June 30, 2023
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
Securities Available-for-Sale
 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Debt Securities
                       
FHLMC Mortgage-Backed Certificates
  $ 12,167     $ 1     $ 1,012     $ 11,156  
FNMA Mortgage-Backed Certificates
    15,318       -       1,604       13,714  
GNMA Mortgage-Backed Certificates
    4,578       -       814       3,764  
                                 
Total Debt Securities
    32,063       1       3,430       28,634  
                                 
US Treasury Securities
    9,779       68       6       9,841  
Municipal Bonds
    1,068       11       3       1,076  
                                 
Total Securities Available-for-Sale
  $ 42,910     $ 80     $ 3,439     $ 39,551  
                                 
Securities Held-to-Maturity
                               
                                 
Debt Securities
                               
GNMA Mortgage-Backed Certificates
 
$
623
   
$
-
   
$
63
   
$
560
 
FHLMC Mortgage-Backed Certificates
    29,921       -       5,781       24,140  
FNMA Mortgage-Backed Certificates
   
41,024
     
-
     
7,277
     
33,747
 
                                 
Total Debt Securities
   
71,568
     
-
     
13,121
     
58,447
 
                                 
Municipals
   
1,311
     
-
     
80
     
1,231
 
                                 
Equity Securities (Non-Marketable)
                               
12,935 Shares – Federal Home Loan Bank
   
1,294
     
-
     
-
     
1,294
 
630 Shares – First National Bankers Bankshares, Inc.
   
250
     
-
     
-
     
250
 
                                 
Total Equity Securities
    1,544       -       -       1,544  
                                 
Total Securities Held-to-Maturity
 
$
74,423
   
$
-
   
$
13,201
   
$
61,222
 

15

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

The amortized cost and fair value of securities by contractual maturity at September 30, 2023 follows:

   
Available-for-Sale
   
Held-to-Maturity
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
          (In Thousands)        
                         
Debt Securities
                       
Within One Year or Less
  $ -     $ -     $ -     $ -  
One through Five Years
    1       1       -       -  
After Five through Ten Years
    1,725       1,613       582       538  
Over Ten Years
    29,401       25,156       69,359       54,258  
      31,127       26,770       69,941       54,796  
                                 
US Treasury Securities                                
   Within One Year or Less   $ 7,877     $ 8,008     $ -     $ -  
   One through Five Years     1,999       2,000       -       -  
After Five through Ten Years
    -       -       -       -  
Over Ten Years
    -       -       -       -  
      9,876       10,008       -       -  
                                 
Municipals
                               
Within One Year or Less
  $ -     $ -     $ -     $ -  
One through Five Years
    365       364       219       207  
After Five through Ten Years
    -       -       -       -  
Over Ten Years
    3,368       3,267       1,086       994  
      3,733       3,631       1,305       1,201  
                                 
Other Equity Securities
    -       -       1,560       1,560  
                                 
Total
 
$
44,736
   
$
40,409
   
$
72,806
   
$
57,557
 

Securities available-for-sale totaling $2.7 million were purchased during the three months ended September 30, 2023. There were no securities sold during the three months ended September 30, 2023.

16

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

The following tables show information pertaining to gross unrealized losses on securities available-for-sale and held-to-maturity at September 30, 2023 and June 30, 2023 aggregated by investment category and length of time that individual securities have been in a continuous loss position.

 
September 30, 2023
 
 
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
 
$
951
   
$
9,150
   
$
3,406
   
$
17,614
 
                                 
Municipals
    104
      2,293
      -
      -
 
US Treasury Securities
    4       688       -       -  
Total Securities Available-for-Sale
 
$
1,059
   
$
12,131
   
$
3,406
   
$
17,614
 

   
September 30, 2023
 
   
Less Than Twelve Months
   
Over Twelve Months
 
   
Gross
         
Gross
       
   
Unrealized
   
Fair
   
Unrealized
   
Fair
 
   
Losses
   
Value
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Held-to-Maturity
                       
                         
Mortgage-Backed Securities
 
$
-
   
$
-
   
$
15,145
   
$
54,796
 
                                 
Municipals
    -       -       104       1,201  
                                 
Total Securities Held-to-Maturity
 
$
-
   
$
-
   
$
15,249
   
$
55,997
 

The number of debt securities in an unrealized loss position was 65 at September 30, 2023.


17

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

 
June 30, 2023
 
 
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
 
$
618
   
$
9,109
   
$
2,811
   
$
18,892
 
                                 
Municipals
    3       561       -       -  
                                 
US Treasury Securities
    8       2,186       -
      -  
                                 
Total Securities Available-for-Sale
 
$
629
   
$
11,856
   
$
2,811
   
$
18,892
 

 
June 30, 2023
 
 
Less Than Twelve Months
 
Over Twelve Months
 
 
Gross
     
Gross
     
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
 
Losses
 
Value
 
Losses
 
Value
 
 
(In Thousands)
 
Securities Held-to-Maturity
               
                 
Mortgage-Backed Securities
 
$
215
   
$
1,859
   
$
12,907
   
$
56,587
 
                                 
Municipals
    -       -       80     $
1,231  
                                 
Total Securities Held-to-Maturity
 
$
215
   
$
1,859
   
$
12,987
   
$
57,818
 

The unrealized losses on the Company’s investment in mortgage-backed securities at September 30, 2023 and June 30, 2023 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 have an allowance for credit losses for these investments at September 30, 2023.

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 September 30, 2023, securities with a carrying value of $10.6 million were pledged to secure public deposits and securities and mortgage loans with a carrying value of $198.1 million were pledged to secure FHLB advances.

18

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. Loans Receivable

Loans receivable are summarized as follows:

   
 
September 30, 2023
   
June 30, 2023
 
     
(In Thousands)
 
Loans Secured by Mortgages on Real Estate
           
One-to-Four Family Residential
 
$
186,002
   
$
179,579
 
Commercial
   
147,971
     
148,441
 
Multi-Family Residential
   
28,781
     
28,849
 
Land
   
30,473
     
26,841
 
Construction
   
33,984
     
28,035
 
Equity and Second Mortgage
   
2,488
     
2,450
 
Equity Lines of Credit
   
24,371
     
23,817
 
                 
Total Mortgage Loans
   
454,070
     
438,012
 
                 
Commercial Loans
   
56,328
     
55,364
 
Consumer Loans
               
Loans on Savings Accounts
   
367
     
372
 
Other Consumer Loans
   
1,082
     
1,082
 
                 
Total Consumer Other Loans
   
1,449
     
1,454
 
Total Loans
   
511,847
     
494,830
 
                 
Less:  Allowance for Credit Losses
   
(5,102
)
   
(5,173
)
Unamortized Loan Fees
   
(146
)
   
(164
)
                 
Net Loans Receivable
 
$
506,599
   
$
489,493
 

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

   
Three Months Ended
   
Three Months Ended
 
 
 
September 30, 2023
   
June 30, 2023
 
   
(In Thousands)
 
             
Balance - Beginning of Period
 
$
5,173
   
$
4,451
 
Impact of ASU 2016-13     359       -  
Provision for Credit Losses
   
-
     
868
 
Loan Charge-Offs
   
(433
)
   
(237
)
Recoveries
   
3
     
91
 
                 
Balance - End of Period
 
$
5,102
   
$
5,173
 

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. Once a loan has been classified as substandard or identified as special mention, management will conduct a quarterly review to evaluate the level of deterioration, improvement, and impairment, if any, as well as assign the appropriate risk category. The delinquent loan report is monitored monthly to determine if any loan needs to be evaluated for classification or impairment.



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. All loans greater than 90 days past due are generally placed on nonaccrual status. The Company uses the following definitions for risk ratings:

19

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 costs 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 Bank’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 Bank 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 table summarizes designated internal risk categories by portfolio segment and loan class, by origination year, as of September 30, 2023:


   
Term Loans Amortized Cost by Origination Year
   
   
 
As of September 30, 2023
 
2023
   
2022
   
2021
   
2020
   
2019
   
Prior
   
Revolving
Lines
   
Total
 
   
(In Thousands)
 
One-to-four family residential
                                               
Risk rating
                                               
Pass
  $ 71,365     $ 39,132     $ 37,026     $ 20,890     $ 2,421     $ 12,478    
$
41
    $ 183,353  
Special mention
    971       -       -       -       -       322      
-
      1,293  
Substandard
    297       136       -       768       -       155      
-
      1,356  
Doubtful
    -       -       -       -       -       -      
-
      -  
    Total one-to-four family residential
  $ 72,633     $ 39,268     $ 37,026     $ 21,658     $ 2,421     $ 12,955    
$
41
    $ 186,002  
    Current period gross charge-offs
  $ -     $ 428     $ -     $ -     $ -     $ -    
$
-
    $ 428  
                                                                 
Commercial
                                                               
Risk rating
                                                               
Pass
 
$
23,431
    $ 43,795     $ 44,350     $ 20,007     $ 1,900     $ 1,013    
$
11,560
    $ 146,056  
Special mention
   
331
     
-
     
-
     
-
     
-
     
-
     
-
     
331
 
Substandard
   
975
     
-
     
-
     
609
     
-
     
-
     
-
     
1,584
 
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
    Total commercial
 
$
24,737
    $ 43,795     $ 44,350     $ 20,616     $ 1,900     $ 1,013    
$
11,560
    $ 147,971  
Current period gross charge-offs
 
$
-    
$
-    
$
-    
$
-    
$
-    
$
-    
$
-     $ -  

20

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)


 
Term Loans Amortized Cost by Origination Year
   
   
 
As of September 30, 2023
 
2023
   
2022
   
2021
   
2020
   
2019
   
Prior
   
Revolving
Lines
   
Total
 
   
(In Thousands)
 
Multi-family residential
                                               
Risk rating
                                               
Pass
  $ 2,118     $ 4,051     $ 2,291     $ 7,168     $ 6,006     $ 5,873    
$
1,274
    $ 28,781  
Special mention
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Substandard
   
-
     
-
     
-
     
-
     
-
      -      
-
      -  
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Total multi-family residential
  $ 2,118     $ 4,051     $ 2,291     $ 7,168     $ 6,006     $ 5,873    
$
1,274
    $ 28,781  
Current period gross charge-offs
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-  
                                                                 
Land
                                                               
Risk rating
                                                               
Pass
  $ 9,086     $ 6,581     $ 4,972     $ 1,257     $ 96     $ 341     $ 7,782     $ 30,115  
Special mention
   
50
     
308
     
-
     
-
     
-
     
-
     
-
     
358
 
Substandard
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Total land
  $ 9,136     $ 6,889     $ 4,972     $ 1,257     $ 96     $ 341     $ 7,782     $ 30,473  
Current period gross charge-offs
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
    $ -  
                                                                 
Construction
                                                               
Risk rating
                                                               
Pass
  $ 7,251     $ 3,753     $ -     $ -    
$
-
   
$
-
   
$
22,980
    $ 33,984  
Special mention
   
-
     
-
     
-
     
-
     
-
      -      
-
      -  
Substandard
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Total construction
  $ 7,251     $ 3,753     $ -     $ -    
$
-
    $ -    
$
22,980
    $ 33,984  
Current period gross charge-offs
 
$
-    
$
-    
$
-    
$
-    
$
-    
$
-    
$
-    
$
-  
                                                                 
Equity loans and lines of credit
                                                               
Risk rating
                                                               
Pass
  $ 6,733     $ 2,106    
$
4,354
   
$
583
   
$
26
    $ 1,793     $ 11,201     $ 26,796  
Special mention
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Substandard
   
63
     
-
     
-
     
-
     
-
     
-
     
-
     
63
 
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Total home equity and lines of credit
  $ 6,796     $ 2,106    
$
4,354
   
$
583
   
$
26
    $ 1,793     $ 11,201     $ 26,859  
Current period gross charge-offs
  $ -     $ -    
$
-    
$
-    
$
-    
$
-    
$
-    
$
-  
                                                                 
Commercial loans
                                                               
Risk rating
                                                               
Pass
  $ 15,582     $ 9,888     $ 7,758     $ 6,193     $ 2,012     $ 11     $ 12,091     $ 53,535  
Special mention
   
1,198
      -       402      
19
     
-
     
-
      990       2,609  
Substandard
   
137
     
5
      42      
-
      -       -      
-
      184  
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Total commercial loans
  $ 16,917     $ 9,893     $ 8,202     $ 6,212     $ 2,012     $ 11     $ 13,081     $ 56,328  
Current period gross charge-offs
 
$
-
   
$
-
    $ -     $ -    
$
-
   
$
-
   
$
-
    $ -  
                                                                 
Consumer loans
                                                               
Risk rating
                                                               
Pass
  $ 1,040    
$
53
   
$
-
   
$
270
   
$
46
   
$
-
   
$
19
    $ 1,428  
Special mention
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Substandard
   
21
     
-
     
-
     
-
     
-
     
-
     
-
     
21
 
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Total consumer loans
  $ 1,061    
$
53
   
$
-
   
$
270
   
$
46
   
$
-
   
$
19
    $ 1,449  
Current period gross charge-offs
 
$
5
   
$
-    
$
-
   
$
-    
$
-
   
$
-    
$
-    
$
5  
                                                                 
Total
                                                               
Pass
  $ 136,606     $ 109,359     $ 100,751     $ 56,368     $ 12,507     $ 21,509     $ 66,948     $ 504,048  
Special mention
   
2,550
      308       402      
19
     
-
      322       990       4,591  
Substandard
   
1,493
     
141
      42      
1,377
      -       155      
-
      3,208  
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Total
  $ 140,649     $ 109,808     $ 101,195     $ 57,764     $ 12,507     $ 21,986     $ 67,938     $ 511,847  
Current period gross charge-offs
 
$
5
   
$
428
   
$
-
   
$
-    
$
-    
$
-    
$
-    
$
433  

21

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

The information presented in the table above is not required for periods prior to the adoption of ASU 2016-13. The following table presents the most comparable required information for the prior period, internal credit risk ratings for the indicated loan class segments as of June 30, 2023:

June 30, 2023
 
Pass and
Pass Watch
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
    (In Thousands)  
Real Estate Loans:
                             
One-to-Four Family Residential
 
$
176,536
   
$
810
   
$
2,233
   
$
-
   
$
179,579
 
Commercial
   
146,787
     
-
     
1,654
     
-
     
148,441
 
Multi-Family Residential
   
28,849
     
-
     
-
     
-
     
28,849
 
Land
   
26,841
     
-
     
-
     
-
     
26,841
 
Construction
   
28,035
     
-
     
-
     
-
     
28,035
 
Equity and Second Mortgage
   
2,381
     
-
     
69
     
-
     
2,450
 
Equity Lines of Credit
   
23,817
     
-
     
-
     
-
     
23,817
 
Commercial Loans
   
53,025
     
2,339
     
-
     
-
     
55,364
 
Consumer Loans
   
1,432
     
1
     
21
     
-
     
1,454
 
                                         
Total
 
$
487,703
   
$
3,150
   
$
3,977
   
$
-
   
$
494,830
 

22

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)
 
The following tables present an aging analysis of past due loans, segregated by class of loans, as of September 30, 2023 and June 30, 2023:

September 30, 2023
 
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
 
$
216
   
$
257
   
$
914
   
$
1,387
   
$
184,615
   
$
186,002
   
$
-
 
Commercial
   
-
     
-
     
-
     
-
     
147,971
     
147,971
     
-
 
Multi-Family Residential
   
-
     
-
     
-
     
-
     
28,781
     
28,781
     
-
 
Land
   
308
     
-
     
-
     
308
     
30,165
     
30,473
     
-
 
Construction
   
-
     
-
     
-
     
-
     
33,984
     
33,984
     
-
 
Equity and Second Mortgage
   
-
     
-
     
-
     
-
     
2,488
     
2,488
     
16
 
Equity Lines of Credit
   
116
     
110
     
16
     
242
     
24,129
     
24,371
     
-
 
Commercial Loans
   
108
     
43
     
47
     
198
     
56,130
     
56,328
     
47
 
Consumer Loans
   
1
     
4
     
5
     
10
     
1,439
     
1,449
     
5
 
                                                         
Total
 
$
749
   
$
414
   
$
982
   
$
2,145
   
$
509,702
   
$
511,847
   
$
68
 

June 30, 2023
 
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
 
$
177
   
$
750
   
$
1,174
   
$
2,101
   
$
177,478
   
$
179,579
   
$
-
 
Commercial
   
-
     
-
     
-
     
-
     
148,441
     
148,441
     
-
 
Multi-Family Residential
   
-
     
-
     
-
     
-
     
28,849
     
28,849
     
-
 
Land
   
36
     
-
     
-
     
36
     
26,805
     
26,841
     
-
 
Construction
   
-
     
-
     
-
     
-
     
28,035
     
28,035
     
-
 
Equity and Second Mortgage
   
54
     
-
     
-
     
54
     
2,396
     
2,450
     
-
 
Equity Lines of Credit
   
-
     
-
     
-
     
-
     
23,817
     
23,817
     
-
 
Commercial Loans
   
63
     
-
     
-
     
63
     
55,301
     
55,364
     
-
 
Consumer Loans
   
-
     
-
     
-
     
-
     
1,454
     
1,454
     
-
 
                                                         
Total
 
$
330
   
$
750
   
$
1,174
   
$
2,254
   
$
492,576
   
$
494,830
   
$
-
 

There was no interest income recognized on non-accrual loans during the three months ended September 30, 2023 or the year ended June 30, 2023. If the non-accrual loans had been accruing interest at their original contracted rates, gross interest income that would have been recorded for the three months ended September 30, 2023 and the year ended June 30, 2023 was approximately $102,000 and $182,000, respectively.
 
23

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

The change in the allowance for credit losses by loan portfolio class and recorded investment in loans for the three months ended September 30, 2023 and year ended June 30, 2023 was as follows:

   
Real Estate Loans
                   
 
September 30, 2023
 
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 credit losses:
                                         
Beginning Balances
 
$
1,900
   
$
1,673
   
$
228
   
$
274
   
$
254
   
$
251
   
$
588
   
$
5
   
$
5,173
 
Impact of ASU 2016-13     688       (119 )     (139 )     (85 )     (44 )     30       24       4       359  
Charge-Offs
   
(428
)
   
-
     
-
     
-
     
-
     
-
     
-
     
(5
)
   
(433
)
Recoveries
   
1
     
-
     
-
     
-
     
-
     
2
     
-
     
-
     
3
 
Current Provision(1)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Ending Balances
 
$
2,161
   
$
1,554
   
$
89
   
$
189
   
$
210
   
$
283
   
$
612
   
$
4
   
$
5,102
 


(1)
Current provision included in the table only includes the portion related to loans receivable.

   
Real Estate Loans
                   
 
 
June 30, 2023
 
Residential
   
Commercial
   
Multi-
Family
   
Land
   
Construction
   
Home
Equity
Loans and
Lines of
Credit
   
Commercial
Loans
   
Consumer
Loans
   
Total
 
                     
(In Thousands)
                   
Allowance for credit losses:
                                         
Beginning Balances
  $ 1,367     $ 1,295     $ 357     $ 305     $ 282    
$
197
   
$
646
   
$
2
   
$
4,451
 
Charge-Offs
    (41 )     -       -       -       -      
(26
)
   
(170
)
   
-
     
(237
)
Recoveries
    4       -       -       -       -      
5
     
82
     
-
     
91
 
Current Provision
    570       378       (129 )     (31 )     (28 )     75       30       3       868  
Ending Balances
  $ 1,900     $ 1,673     $ 228     $ 274     $ 254    
$
251
   
$
588
   
$
5
   
$
5,173
 
                                                                         
Evaluated for Impairment:
                                                                       
Individually
    495       100       -       -       -      
4
     
29
     
-
     
628
 
Collectively
    1,405       1,573       228       274       254      
247
     
559
     
5
     
4,545
 
                                                                         
Loans Receivable:
                                                                       
Ending Balances – Total
  $ 179,579     $ 148,441     $ 28,849     $ 26,841     $ 28,035    
$
26,267
   
$
55,364
   
$
1,454
   
$
494,830
 
Ending Balances:
                                                                       
Evaluated for Impairment:
                                                                       
Individually
    3,043       1,654       -       -       -      
69
     
2,339
     
22
     
7,127
 
Collectively
  $ 176,536     $ 146,787     $ 28,849     $ 26,841     $ 28,035    
$
26,198
   
$
53,025
   
$
1,432
   
$
487,703
 

24

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

The following tables present loans individually evaluated for impairment, segregated by class of loans, as of September 30, 2023 and June 30, 2023:


September 30, 2023
 
Loan Balance
   
Specific Allocations
 
   
(In Thousands)
 
Real Estate Loans:
           
  One-to-Four Family Residential
 
$
3,536
   
$
127
 
  Commercial
   
-
     
-
 
  Multi-Family Residential
   
-
     
-
 
  Land
   
171
     
6
 
  Construction
   
69
     
2
 
  Equity and Second Mortgage
   
-
     
-
 
  Equity Lines of Credit
   
-
     
-
 
Commercial Loans
   
7,840
     
8
 
Consumer Loans
   
346
     
5
 
                 
     Total
 
$
11,962
   
$
148
 

The balances of loans individually evaluated for impairment were similar at July 1, 2023 and September 30, 2023.

June 30, 2023
 
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
 
$
2,559
   
$
156
   
$
2,403
   
$
2,559
   
$
495
   
$
3,644
 
Commercial
   
1,617
     
-
     
1,617
     
1,617
     
100
     
1,675
 
Multi-Family Residential
   
-
     
-
     
-
     
-
     
-
     
-
 
Land
   
-
     
-
     
-
     
-
     
-
     
-
 
Construction
   
-
     
-
     
-
     
-
     
-
     
-
 
Equity and Second Mortgage
   
-
     
-
     
-
     
-
     
-
     
63
 
Equity Lines of Credit
   
-
     
-
     
-
     
-
     
-
     
-
 
Commercial Loans
   
2,197
     
37
     
2,160
     
2,197
     
29
     
2,659
 
Consumer Loans
   
-
     
-
     
-
     
-
     
-
     
23
 
Purchased Credit Impaired
    754       685       69       754       4       754  
                                                 
Total
 
$
7,127
   
$
878
   
$
6,249
   
$
7,127
   
$
628
   
$
8,818
 

The Bank has no commitments to loan additional funds to borrowers whose loans were previously in non-accrual status. As of September 30, 2023, there were no residential loans in the process of foreclosure.

Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered TDRs. At June 30, 2023, the Company had one loan totaling $10,000 that was identified as a troubled debt restructuring. This loan was performing in accordance with its modified terms as of June 30, 2023.

As of September 30, 2023, there were no loans whose terms were modified for borrowers who may be experiencing financial difficulties.

At September 30, 2023 and June 30, 2023, accrued interest receivable on loans was $1.7 million and $1.6 million, respectively, and included within accrued interest receivable on the consolidated balance sheets.

25

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Deposits

Deposits at September 30, 2023 and June 30, 2023 consist of the following classifications:

   
September 30, 2023
   
June 30, 2023
 
   
(In Thousands)
 
Non-Interest Bearing
 
$
146,057
   
$
145,553
 
NOW Accounts
   
63,613
     
65,335
 
Money Markets
   
104,580
     
114,195
 
Passbook Savings
   
75,747
     
81,895
 
     
389,997
     
406,978
 
                 
Certificates of Deposit
   
202,508
     
190,383
 
                 
Total Deposits
 
$
592,505
   
$
597,361
 

5. Earnings Per Share

Basic earnings per common share is computed based on the weighted average number of shares outstanding.  Diluted earnings per share is computed based on the weighted average number of shares outstanding and common share equivalents that would arise from the exercise of dilutive securities. Earnings per share for the three months ended September 30, 2023 and 2022 were calculated as follows:

 

 
Three Months Ended
September 30,
 
   
2023
   
2022
 
   
(In Thousands, Except Per Share Data)
 
             
Net income
 
$
1,220
   
$
1,671
 
                 
Weighted average shares outstanding – basic
   
3,029
     
3,066
 
Effect of dilutive common stock equivalents
   
79
     
162
 
Adjusted weighted average shares outstanding – diluted
   
3,108
     
3,228
 
                 
Basic earnings per share
 
$
0.40
   
$
0.55
 
Diluted earnings per share
 
$
0.39
   
$
0.52
 

For the three months ended September 30, 2023 and 2022, there were outstanding options to purchase 364,916 and 389,616 shares, respectively, at a weighted average exercise price of $11.65 and $11.81 per share, respectively. For the quarter ended September 30, 2023 and 2022, 79,237 options and 161,866 options, respectively, were included in the computation of diluted earnings per share.

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

   
Three Months Ended
September 30,
 
   
2023
   
2022
 
   
(In Thousands)
 
       
Average common shares issued
   
6,125
     
6,125
 
Average unearned ESOP shares
   
(102
)
   
(125
)
Average Company stock purchased
   
(2,994
)
   
(2,934
)
                 
Weighted average shares outstanding
   
3,029
     
3,066
 

26

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. Stock-Based Compensation

Stock Option Plans

On August 10, 2005, the stockholders 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 317,736 (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 4,266 outstanding options as of September 30, 2023 will remain in effect for the remainder of their original ten year terms.

On December 23, 2011, the stockholders 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 389,044 (as adjusted). The 2011 Option Plan terminated on December 23, 2021; however, the 37,350 outstanding options as of September 30, 2023 will remain in effect for the remainder of their original ten year term.

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.

Stock Incentive Plans

On November 12, 2014, the stockholders 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 300,000 shares (as adjusted), of which no more than 74,000 shares (as adjusted), or 25% of the plan, may be share rewards. The balance of the plan is reserved for stock option awards which would total 225,000 stock options (as adjusted), 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 November 13, 2019, the stockholders 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 250,000 shares (as adjusted) reserved for future issuance as stock awards or stock options. No more than 62,500 shares (as adjusted), 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 62,500 plan share awards and 187,500 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 September 30, 2023, there are 1,600 plan share awards and 23,000 stock options available for future grants under the Stock Incentive Plans.


For both the three months ended September 30, 2023 and 2022, compensation expense charged to operations for stock options granted under the 2011 Option Plan and the Stock Incentive Plans was $26,000.

7. Related Party Transactions

Certain directors and executive officers were indebted to the Bank in the approximate aggregate amounts of $4.2 million and $4.4 million at September 30, 2023 and June 30, 2023, respectively.

27

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. Fair Value Disclosures

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

ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. These disclosures should not be interpreted as representing an aggregate measure of the underlying value of the Company.

The following methods and assumptions were used by the Company in estimating fair values of financial instruments:


Cash and Cash Equivalents

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

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


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

Loans Receivable

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

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.

28

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

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

At September 30, 2023 and June 30, 2023, the carrying amount and estimated fair values of the Company’s financial instruments were as follows:

   
September 30, 2023
   
June 30, 2023
 
   
Carrying
   
Estimated
   
Carrying
   
Estimated
 
   
Value
   
Fair Value
   
Value
   
Fair Value
 
   
(In Thousands)
 
Financial Assets
                       
   Cash and Cash Equivalents
 
$
8,878
   
$
8,878
   
$
24,765
   
$
24,765
 
   Securities Available-for-Sale
   
40,409
     
40,409
     
39,551
     
39,551
 
   Securities to be Held-to-Maturity
   
72,806
     
57,557
     
74,423
     
61,222
 
   Loans Held-for-Sale
   
589
     
589
     
4
     
4
 
   Loans Receivable
   
506,599
     
465,463
     
489,493
     
444,117
 
                                 
Financial Liabilities
                               
   Deposits
 
$
592,505
   
$
500,015
   
$
597,361
   
$
481,055
 
   Advances from FHLB
   
4,600
     
4,600
     
-
     
-
 
   Other Borrowings
    8,850       8,850       8,550       8,550  
                                 
Off-Balance Sheet Items
                               
   Mortgage Loan Commitments
 
$
13,127
   
$
13,127
   
$
13,277
   
$
13,277
 

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.

29

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 three months ended September 30, 2023.

Fair values of assets and liabilities measured on a recurring basis at September 30, 2023 and June 30, 2023 are as follows:

   
Fair Value Measurements
 
September 30, 2023
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
   
(In Thousands)
 
Available-for-Sale
                       
Debt Securities
                       
FHLMC
 
$
-
   
$
10,493
   
$
-
   
$
10,493
 
FNMA
   
-
     
12,822
     
-
     
12,822
 
GNMA
   
-
     
3,455
     
-
     
3,455
 
US Treasury Notes
    -       10,008       -       10,008  
Municipal Bonds
    -       3,631       -       3,631  
                                 
Total
 
$
-
   
$
40,409
   
$
-
   
$
40,409
 

   
Fair Value Measurements
 
June 30, 2023
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
   
(In Thousands)
 
Available-for-Sale
                       
Debt Securities
                       
FHLMC
 
$
-
   
$
11,156
   
$
-
   
$
11,156
 
FNMA
   
-
     
13,714
     
-
     
13,714
 
GNMA
   
-
     
3,764
     
-
     
3,764
 
US Treasury Notes
    -       9,841       -       9,841  
Municipal Bonds
    -       1,076       -       1,076  
                                 
Total
 
$
-
   
$
39,551
   
$
-
   
$
39,551
 

30

HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Fair values of assets and liabilities measured on a non-recurring basis at September 30, 2023 and June 30, 2023 are as follows:

   
Fair Value Measurements
 
September 30, 2023
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
   
(In Thousands)
 
Assets:
                       
   Impaired Loans,
                       
       Net of Allowance
 
$
-
   
$
-
   
$
11,814
   
$
11,814
 
                                 
        Other Real Estate Owned,
                               
             Net of Allowance
 
$
-
   
$
-
   
$
562
   
$
562
 
                                 
Total
 
$
-
   
$
-
   
$
12,376
   
$
12,376
 
               

   
Fair Value Measurements
 
June 30, 2023
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
   
(In Thousands)
 
Assets:
                       
   Impaired Loans,
                       
       Net of Allowance
 
$
-
   
$
-
   
$
701
   
$
701
 
                                 
        Other Real Estate Owned,
                               
             Net of Allowance
  $
-
    $
-
   
$
330
   
$
330
 
                                 
Total
  $
-
    $
-
   
$
1,031
   
$
1,031
 

31

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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. 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. Right-of-use (“ROU”) assets and corresponding lease liabilities are recognized on the consolidated statements of condition under other assets and other accrued expenses and liabilities, respectively.

At September 30, 2023 and June 30, 2023, the carrying amounts of the ROU assets and corresponding lease liabilities were as follows.

(In Thousands)
   
September 30, 2023
    June 30, 2023  
Lease Right-of-Use Assets
Classification
           
Operating lease right-of-use assets
Other Assets
 
$
829
    $ 829  
Total Lease Right-of-Use Assets
    $ 829     $ 829  
                   
Lease Liabilities
                 
Operating lease liabilities
Other Accrued Expenses and Liabilities
  $ 866     $ 866  
Total Lease Liabilities
    $ 866     $ 866  

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.

   
September 30, 2023
    June 30, 2023  
Weighted-average remaining lease term
           
Operating leases
  35.1 years
    35.4 years
 
   

   

 
Weighted-average discount rate
               
Operating leases
    3.00 %     3.00
%

32

HOME FEDERAL BANCORP, INC. OF LOUISIANA

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The Company’s results of operations are primarily dependent on the results of 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 condition and results of operations.

The Bank operates from its main office in Shreveport, Louisiana and ten full-service branch offices located in Shreveport, Bossier City, Benton and Minden, Louisiana.  The Company’s primary market area is the Shreveport-Bossier City-Minden combined statistical area.

Critical Accounting Policies

The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. Critical accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results.  These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

During the quarter ended September 30, 2023, the Company implemented new current expected credit loss (“CECL”) accounting policies, procedures, and controls as part of its adoption of ASU No. 2016-13 and subsequent ASUs issued to amend ASC Topic 326. There were no other changes made to the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Allowance for Credit Losses.  The Company has identified the calculation of the allowance for credit losses as a critical accounting policy, due to the higher degree of judgment and complexity than its other significant accounting policies.

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.

33

HOME FEDERAL BANCORP, INC. OF LOUISIANA
Discussion of Financial Condition Changes from June 30, 2023 to September 30, 2023

General

At September 30, 2023, the Company reported total assets of $662.6 million, an increase of $1.7 million, or 0.3%, compared to total assets of $660.9 million at June 30, 2023. The increase in assets was comprised primarily of increases in loans receivable, net of $17.1 million, or 3.5%, from $489.5 million at June 30, 2023 to $506.6 million at September 30, 2023, loans-held-for-sale of $585,000, from $4,000 at June 30, 2023 to $589,000 at September 30, 2023, premises and equipment of $417,000, or 2.5%, from $16.6 million at June 30, 2023 to $17.0 million at September 30, 2023, real estate owned of $193,000, or 52.4% from $368,000 at June 30, 2023 to $561,000 at September 30, 2023, deferred tax asset of $147,000, or 11.2%, from $1.3 million at June 30, 2023 to $1.5 million at September 30, 2023, accrued interest receivable of $117,000, or 6.5%, from $1.8 million at June 30, 2023 to $1.9 million at September 30, 2023, and bank owned life insurance of $25,000, or 0.4%, from $6.70 million at June 30, 2023 to $6.725 million at September 30, 2023. These increases were partially offset by decreases in cash and cash equivalents of $15.9 million, or 64.2%, from $24.8 million at June 30, 2023 to $8.9 million at September 30, 2023, investment securities of $759,000, or 0.7%, from $114.0 million at June 30, 2023 to $113.2 million at September 30, 2023, other assets of $163,000, or 11.4%, from $1.4 million at June 30, 2023 to $1.3 million at September 30, 2023, and core deposit intangible of $94,000, or 6.1%, from $1.5 million at June 30, 2023 to $1.4 million at September 30, 2023.  The decrease in cash and cash equivalents was primarily due to the funding of additional loan growth.  The decrease in held to maturity securities was due to $1.6 million in principal payments.  The increase in loans held-for-sale primarily reflected an increase in loans originated for sale during the three months ended September 30, 2023.

Cash and Cash Equivalents

Cash and cash equivalents decreased $15.9 million, or 64.2%, from $24.8 million at June 30, 2023 to $8.9 million at September 30, 2023. The decrease in cash and cash equivalents was primarily due to the funding of loan originations.

Loans Receivable, Net

Loans receivable, net, increased by $17.1 million, or 3.5%, to $506.6 million at September 30, 2023 compared to $489.5 million at June 30, 2023.  The increase in loans receivable, net was primarily due to increases in one-to-four-family residential loans of $6.4 million, construction loans of $5.9 million, land loans of $3.6 million, commercial non-real estate loans of $964,000, equity line-of-credit loans of $554,000, equity and second mortgage loans of $38,000, and partially offset by decreases in commercial real estate loans of $470,000, multi-family residential loans of $68,000, and consumer loans of $5,000.

Loans Held-for-Sale

Loans held-for-sale increased $585,000, from $4,000 at June 30, 2023 to $589,000 at September 30, 2023.  The increase in loans held-for-sale results primarily from the increase in the origination volume during the first three months of fiscal year end 2024.

Investment Securities

Investment securities amounted to $113.2 million at September 30, 2023 compared to $114.0 million at June 30, 2023, a decrease of $759,000, or 0.7%.  The decrease in investment securities was primarily due to $2.6 million principal repayments on mortgage backed securities and a $967,000 increase in market value losses on available-for-sale securities, partially offset by security purchases of $2.7 million.

34

HOME FEDERAL BANCORP, INC. OF LOUISIANA
Discussion of Financial Condition Changes from June 30, 2023 to September 30, 2023 (continued)

Premises and Equipment, Net

Premises and equipment, net increased $417,000, or 2.5%, to $17.0 million at September 30, 2023 compared to $16.6 million at June 30, 2023.  The increase in premises and equipment was primarily due to construction costs of a new Minden branch that will replace an existing temporary location.

Asset Quality

At September 30, 2023, the Company had $1.8 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 $1.6 million on non-performing assets at June 30, 2023, consisting of five single-family residential loans, six commercial non-real estate loans, three consumer loans, two home equity line-of-credit loans, and three single-family residence loans in real estate owned at September 30, 2023, compared to seven single-family residential loans, three commercial non-real estate loans, one consumer loan and two single-family residences in other real estate owned at June 30, 2023.  At September 30, 2023 the Company had seven single family residential loans, seven commercial non-real-estate loans, three home-equity line-of-credit loans, two commercial real estate loans, and one auto loan compared to ten single family residential loans, three commercial non-real-estate loans, two commercial real estate loans, and three home equity line-of-credit loans classified as substandard at June 30, 2023.  There were no loans classified as doubtful at September 30, 2023 or June 30, 2023.

Total Liabilities

Total liabilities increased $1.8 million, or 0.3%, from $610.4 million at June 30, 2023 to $612.1 million at September 30, 2023. The increase in liabilities was comprised primarily of increases in advances from FHLB of $4.6 million from none at June 30, 2023, other accrued expenses and liabilities of $1.6 million, or 39.7%, to $5.5 million at September 30, 2023 compared to $3.9 million at June 30, 2023, other borrowings of $300,000, or 3.5%, to $8.9 million at September 30, 2023 compared to $8.6 million at June 30, 2023, and advances from borrowers for taxes and insurance of $161,000, or 29.1%, to $715,000 at September 30, 2023 compared to $554,000 at June 30, 2023. The increases were partially offset by a decrease in total deposits of $4.9 million, or 0.8%, to $592.5 million at September 30, 2023 compared to $597.4 million at June 30, 2023.  The decrease in deposits was primarily due to a decrease of $9.6 million, or 8.4%, in money market deposits from $114.2 million at June 30, 2023 to $104.6 million at September 30, 2023, a decrease of $6.1 million, or 7.5%, in savings deposits from $81.9 million at June 30, 2023 to $75.7 million at September 30, 2023, a decrease of $1.7 million, or 2.6%, in NOW accounts from $65.3 million at June 30, 2023 to $63.6 million at September 30, 2023, partially offset by an increase of $12.1 million, or 6.4%, in certificates of deposit from $190.4 million at June 30, 2023 to $202.5 million at September 30, 2023 and an increase of $504,000, or 0.4%, in non-interest deposits from $145.6 million at June 30, 2023 to $146.1 million at September 30, 2023. The Company had $3.0 million in brokered deposits at both September 30, 2023 and June 30, 2023.

Stockholders’ Equity

Stockholders’ equity decreased $69,000, or 0.1%, to $50.47 million at September 30, 2023 from $50.54 million at June 30, 2023. The primary reasons for the changes in stockholders’ equity from June 30, 2023 were a decrease in the Company’s accumulated other comprehensive income of $812,000, dividends paid totaling $392,000, and CECL implementation totaling $189,000, partially offset by net income of $1.2 million, and the vesting of restricted stock awards, stock options, and the release of employee stock ownership plan shares totaling $104,000.

35

HOME FEDERAL BANCORP, INC. OF LOUISIANA
Discussion of Financial Condition Changes from June 30, 2023 to September 30, 2023 (continued)

Regulatory Capital

The Bank is required to meet minimum capital standards promulgated by the Office of the Comptroller of the Currency (“OCC”).  At September 30, 2023, Home Federal Bank’s regulatory capital was well in excess of the minimum capital requirements. At September 30, 2023, 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 8.91%, 12.76%, 8.91%, and 13.87%, respectively.

Comparison of Operating Results for the Three Months Ended September 30, 2023 and 2022

General

The decrease in net income for the three months ended September 30, 2023, as compared to the prior year quarter resulted primarily from an increase of $435,000, or 11.6%, in non-interest expense, an increase of $301,000 in provision for income taxes, a decrease of $112,000, or 20.5%, in non-interest income, and a decrease of $21,000, or 0.4% in net interest income, partially offset by a decrease of $418,000, or 100.0% in the provision for credit losses.

Net Interest Income

The decrease in net interest income for the three months ended September 30, 2023, was primarily due to a $2.3 million, or 486.1%, increase in total interest expense, partially offset by an increase of $2.3 million, or 39.7%, in total interest income.  The Company’s average interest rate spread was 2.68% for the three months ended September 30, 2023, compared to 3.74% for the three months ended September 30, 2022. The Company’s net interest margin was 3.37% for the three months ended September 30, 2023, compared to 3.90% for the three months ended September 30, 2022.

Provision for Credit Losses

On July 1, 2023, the Company adopted the CECL methodology for estimating credit losses.   This resulted in a $189,000 increase to the allowance for credit losses and a one-time cumulative adjustment resulted in a $149,000, net of tax, decrease to stockholders’ equity.   For purchased credit deteriorated loans, the Company applied the guidance under CECL using the prospective transition approach.  As a result, the Company adjusted the amortized cost basis of the purchased credit deteriorated loans by $170,000 to reclassify the purchase discount to the allowance for credit losses on July 1, 2023.   The ACL account increased $359,000 from these two transactions.  No provision expense was recorded in the first quarter of 2024.  As of September 30, 2023, the ACL was $5.1 million, and the ratio of ACL to gross loans was 1.00%.  As of June 30, 2023, the ACL was $5.2 million, and the ratio of ACL to gross loans was 1.05%. No ACL was recorded for unfunded commitments due to all unfunded commitments being unconditionally cancellable.

36

HOME FEDERAL BANCORP, INC. OF LOUISIANA
Comparison of Operating Results for the Three Months Ended September 30, 2023 and 2022 (continued)

Non-interest Income

The $112,000 decrease in non-interest income for the three months ended September 30, 2023, compared to the prior year quarterly period, was primarily due to a decrease of $137,000 in gain on sale of loans, and a $34,000 increase in loss on sale of real estate and fixed assets, partially offset by a $56,000 increase in service charges on deposit accounts, and an increase of $3,000 in other non-interest income. The decrease in gain on sale of loans for the quarter ended September 30, 2023, compared to the prior year quarterly period, was primarily due to a decrease in refinance activity causing a decrease in mortgage loan originations. In addition, in recent periods the Company has increased its originations of adjustable rate mortgages for portfolio rather than for sale in the secondary market.

Non-interest Expense

The $435,000 increase in non-interest expense for the three months ended September 30, 2023, compared to the same period in 2022, is primarily attributable to increases of $94,000 in amortization of core deposit intangible expense, $74,000 in compensation and benefits expense, $69,000 in advertising expense, $64,000 in data processing expense, $48,000 in occupancy and equipment expense, $44,000 in deposit insurance premium expense, $37,000 in franchise and bank shares tax expense, $34,000 in professional fees,  $27,000 in audit and examination fees, and $8,000 in loan and collection expense. The increases were partially offset by a decrease of $64,000 in other non-interest expense.

The decrease in other non-operating expense was primarily due to communication expense, correspondent bank fees, and fraud expense related to deposit checking accounts. The aggregate compensation expense recognized by the Company for its Stock Options, Share Awards and employee stock ownership plan, amounted to $132,000 and $168,000 for the three months ended September 30, 2023 and September 30, 2022, respectively.

The Louisiana bank shares tax is assessed on the Bank’s equity and earnings. For the three months ended September 30, 2023, the Company recognized franchise and bank shares tax expense of $156,000 compared to $119,000, for the same period in 2022.

Income Taxes

Income taxes amounted to $310,000 for the three months ended September 30, 2023, resulting in an effective tax rate of 20.3%. Income taxes amounted to $9,000 for the three months ended September 30, 2022, resulting in an effective tax rate of 0.5%.  The increase in provision for income taxes was due to an adjustment in taxes related to stock option exercises for the 2022 period.

37

HOME FEDERAL BANCORP, INC. OF LOUISIANA
Comparison of Operating Results for the Three Months Ended September 30, 2023 and 2022 (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 September 30,
 
   
2023
   
2022
 
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
   
Average
Balance
   
Interest
   
Average
Yield/
Rate
 
   
(Dollars In Thousands)
 
Interest-earning assets:
                                   
Loans receivable
 
$
498,242
   
$
7,274
     
5.79
%
 
$
396,768
   
$
5,028
     
5.03
%
Investment securities
   
113,584
     
623
     
2.18
     
110,602
     
491
     
1.76
 
Interest-earning deposits
   
10,066
     
177
     
6.98
     
32,706
     
262
     
3.18
 
Total interest-earning assets
   
621,892
     
8,074
     
5.15
%
   
540,076
     
5,781
     
4.25
%
Non-interest-earning assets
   
40,584
                     
45,074
                 
Total assets
 
$
662,476
                   
$
585,150
                 
Interest-bearing liabilities:
                                               
Savings accounts
 
$
78,572
     
75
     
0.38
%
 
$
128,749
     
84
     
0.26
%
NOW accounts
   
55,900
     
67
     
0.48
     
58,658
     
17
     
0.11
 
Money market accounts
   
108,891
     
621
     
2.26
     
94,694
     
35
     
0.15
 
Certificate accounts
   
194,785
     
1,829
     
3.73
     
84,715
     
264
     
1.24
 
Total interest-bearing deposits
   
438,148
     
2,592
     
2.35
     
366,816
     
400
     
0.43
 
Other Borrowings
   
8,654
     
183
     
8.39
     
4,915
     
66
     
5.33
 
FHLB advances
   
1,138
     
15
     
5.23
     
826
     
10
     
4.80
 
Total interest-bearing liabilities
 
$
447,940
     
2,790
     
2.47
%
 
$
372,557
     
476
     
0.51
%
Non-interest-bearing liabilities:
                                               
Non-interest-bearing demand accounts
   
158,973
                     
161,907
                 
Other liabilities
   
4,384
                     
3,294
                 
Total liabilities
   
611,297
                     
537,758
                 
Total Stockholders’ Equity(1)
   
51,179
                     
47,392
                 
                                                 
Total liabilities and stockholders’ equity
 
$
662,476
                   
$
585,150
                 
                                                 
Net interest-earning assets
 
$
173,952
                   
$
167,519
                 
                                                 
Net interest income; average interest rate spread(2)
         
$
5,284
     
2.68
%
         
$
5,305
     
3.74
%
Net interest margin(3)
                   
3.37
%
                   
3.90
%
Average interest-earning assets to average
interest-bearing liabilities
                   
138.83
%
                   
144.96
%


(1)
Includes retained earnings and accumulated other comprehensive loss.
(2)
Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities.
(3)
Net interest margin is net interest income divided by net average interest-earning assets.

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HOME FEDERAL BANCORP, INC. OF LOUISIANA
Liquidity and Capital Resources

The 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. The Bank also adjusts liquidity as appropriate to meet asset and liability management objectives.

The 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, the Bank invests excess funds in short-term interest-earning accounts and other assets which provide liquidity to meet lending requirements.  The Bank’s deposit accounts with the Federal Home Loan Bank of Dallas amounted to $97,000 at September 30, 2023.

A significant portion of the Bank’s liquidity consists of securities classified as available-for-sale and cash and cash equivalents. The Bank’s primary sources of cash are net income, principal repayments on loans and mortgage-backed securities, and increases in deposit accounts.  If the Bank requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas which provides an additional source of funds.  At September 30, 2023, The Bank had $4.6 million in advances from the Federal Home Loan Bank of Dallas and had $198.1 million in additional borrowing capacity.  Additionally, at September 30, 2023, the 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 $20.4 million. There were no amounts purchased under this agreement as of September 30, 2023. In addition, the Company had available an $11.0 million line of credit agreement at September 30, 2023 with First National Bankers Bank. At September 30, 2023, there was an $8.9 million balance in the credit line.

At September 30, 2023, the Bank had outstanding loan commitments of $53.0 million to originate loans and commitments under unused lines of credit of $13.1 million. At September 30, 2023, certificates of deposit scheduled to mature in less than one year totaled $179.0 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, the cost of such deposits could be significantly higher upon renewal in a rising interest rate environment.  The Bank intends to utilize its high levels of liquidity to fund its lending activities.  If additional funds are required to fund lending activities, Home Federal Bank intends to sell its securities classified as available-for-sale, as needed.

At September 30, 2023, the Bank exceeded each of its regulatory capital requirements with tangible equity, common equity Tier 1, core, and total risk-based capital ratios of 8.91%, 12.76%, 8.91%, and 13.87%, respectively.

Off-Balance Sheet Arrangements

At September 30, 2023, the Company did not have any off-balance sheet arrangements as defined by Securities and Exchange Commission rules.

Impact of Inflation and Changing Prices

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

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

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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.

In addition to factors previously disclosed in the reports filed by the Company with the Securities and Exchange Commission and those identified elsewhere in this Form 10-Q, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: the strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations; general economic conditions; legislative and regulatory changes; monetary and fiscal policies of the federal government; changes in tax policies, rates and regulations of federal, state and local tax authorities including the effects of the Tax Reform Act; changes in interest rates, deposit flows, the cost of funds, demand for loan products and the demand for financial services, competition, changes in the quality or composition of the Company’s loans, investment and mortgage-backed securities portfolios; geographic concentration of the Company’s business; fluctuations in real estate values; the adequacy of loan loss reserves; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; changes in accounting principles, policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and fees.

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.

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HOME FEDERAL BANCORP, INC. OF LOUISIANA
PART II

ITEM 1.
LEGAL PROCEEDINGS

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

ITEM 1A.
RISK FACTORS

Not applicable.

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


(a)
Not applicable.

(b)
Not applicable.

(c)
Purchases of Equity Securities

The Company did not repurchase any of its common stock during the quarter ended September 30, 2023, 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)
 
July 1, 2023 – July 31, 2023
   
-
   
$
-
     
-
     
-
 
August 1, 2023 – August 31, 2023
   
-
     
-
     
-
     
-
 
September 1, 2023 – September 30, 2023
   
-
     
-
     
-
     
-
 
Total
   
-
   
$
-
     
-
     
-
 

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
 
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
 
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
 
Certification Pursuant to 18 U.S.C Section 1350
101.INS
 
Inline XBRL Instance Document
101.SCH
 
Inline XBRL Taxonomy Extension Schema Document
101.CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
 
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
104
 
Inline XBRL Taxonomy Extension Definitions Linkbase Document
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

41

HOME FEDERAL BANCORP, INC. OF LOUISIANA
SIGNATURES

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

 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
     
Date:   November 13, 2023
 
/s/ Glen W. Brown
 
By:
Glen W. Brown
   
Senior Vice President and Chief Financial Officer
   
(Duly authorized officer and principal financial and
   
accounting officer)

42