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 nine full service branch offices located in Shreveport, Bossier City and Minden, Louisiana. The Company’s primary market area is the Shreveport-Bossier
City-Minden combined statistical area.
Critical Accounting Policies
Allowance for Loan Losses. The Company has identified the calculation of the allowance for loan losses as a critical accounting policy, due to the higher degree of judgment and
complexity than its other significant accounting policies. Provisions for loan losses are based upon management’s periodic valuation and assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current
economic conditions, and other relevant factors in order to maintain the allowance for loan losses at a level believed by management to represent all known and inherent losses in the portfolio that are both probable and reasonably estimable. Although
management uses the best information available, the level of the allowance for loan losses remains an estimate which is subject to significant judgment and short-term change.
Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various assets and liabilities and gives current recognition to changes in tax rates and laws. The realization of our deferred tax
assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances, if our
judgments change.
Business Combinations
Acquisition Accounting
Acquisitions are accounted for under the acquisition method of accounting. The acquisition method of accounting requires the Company as the acquirer to recognize the
fair value of assets acquired and liabilities assumed at the acquisition date, as well as recognize goodwill. If the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the
estimated fair value of the liabilities assumed in an acquisition, goodwill is recognized. The Company records provisional amounts of fair value at the time of acquisition. The provisional fair values are subject to modification for up to one year
after the acquisition.
Acquired Loans
Purchased loans acquired are recorded at their fair value. Discounts are included in the determination of the fair value. As such, an allowance for loan loss is not
recorded at the acquisition date. Acquired loans are evaluated at acquisition and classified as either purchased credit impaired or purchased performing loans. Purchased credit impaired loans reflect credit deterioration since origination and as such
at the date of acquisition the Company will not be able to collect all contractually required payments. The Company accounts for acquired impaired loans in
accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). Purchased credit impaired loans are accounted for individually. The Company estimates the amount and timing of undiscounted expected
cash flows for each loan. The excess of the cash flows expected to be collected over a loan's carrying value is considered to be the accretable yield, which is recognized as interest income over the estimated life of the loan. The excess of the
undiscounted contractual balances due over the cash flows expected to be collected is considered to be the nonaccretable difference. Over the life of the loan, expected cash flows continue to be estimated. If the expected cash flows decrease, a
provision for loan loss is recorded. If the expected cash flows increase, it is recognized as part of future income. Purchased performing loans are accounted for under ASC 310-20, Nonrefundable Fees and Other Costs (“ASC 310-20”), with the related discount or premium being recognized as an adjustment to yield over the life of the loan.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired. Goodwill has an indefinite useful life and is
evaluated for impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired.
Core Deposit Intangible
Core deposit intangibles represent the estimated value of long-term deposit relationships acquired in business combinations. The Company’s policy is to
amortize these intangibles on a straight-line basis over their estimated useful life, which the estimated useful lives are periodically reviewed for reasonableness. Core deposit
intangibles are tested for impairment if events and circumstances indicate the carrying amount of the asset may not be recoverable from future cash flows.
Discussion of Financial Condition Changes from June 30, 2022 to March 31, 2023
General
At March 31, 2023, the Company reported total assets of $686.0 million, an increase of $95.5 million, or 16.2%, compared to total assets of $590.5 million at June 30, 2022. The increase in assets was comprised
primarily of increases in loans receivable, net of $98.5 million, or 25.4%, from $387.9 million at June 30, 2022 to $486.4 million at March 31, 2023, investment securities of $12.5 million, or 11.6%, from $108.0 million at June 30, 2022 to $120.6
million at March 31, 2023, goodwill of $3.0 million from none at June 30, 2022 to $3.0 million at March 31, 2023, core deposit intangible of $1.6 million, from none at June 30, 2022 to $1.6 million at March 31, 2023, accrued interest receivable of
$496,000, or 44.1%, from $1.1 million at June 30, 2022 to $1.6 million at March 31, 2023, premises and equipment of $349,000, or 2.1%, from $16.2 million June 30, 2022 to $16.6 million at March 31, 2023, real estate owned of none at June 30, 2022 to
$311,000 at March 31, 2023, and bank owned life insurance of $77,000, or 1.2%, from $6.6 million at June 30, 2022 to $6.7 million at March 31, 2023. The increases were partially offset by decreases in cash and cash equivalents of $18.5 million, or
28.9%, from $64.1 million at June 30, 2022 to $45.6 million at March 31, 2023, loans-held-for-sale of $2.8 million, or 70.8%, from $4.0 million at June 30, 2022 to $1.2 million at March 31, 2023, and deferred tax asset of $47,000, or 4.1%, from $1.1
million at June 30, 2022 to $1.0 million at March 31, 2023. The decrease in cash and cash equivalents was primarily due to funding of additional loan growth and purchase of securities. The increase in loans receivable, net, was primarily due to an
increase of $53.3 million in loans acquired from the acquisition of First National Bank of Benton. The decrease in loans-held-for-sale primarily reflected a reduction in loans originated for sale during the nine months ended March 31, 2023 due
mainly to a decrease in mortgage refinance activity likely attributable to the increase in interest rates. The increase in investment securities was primarily due to acquisition of $13.5 million in securities from FNBB.
Cash and Cash Equivalents
Cash and cash equivalents decreased $18.5 million, or 28.9%, from $64.1 million at June 30, 2022 to $45.6 million at March 31, 2023. The decrease in cash and cash equivalents was
primarily due to an increase in commercial loan originations and security purchases.
Loans Receivable, Net
Loans receivable, net, increased by $98.5 million, or 25.4%, to $486.4 million at March 31, 2023 compared to $387.9 million at June 30, 2022. FNBB loans totaled $53.3 million at March 31, 2023. Loan portfolio
increases not including FNBB loans were primarily due to growth in commercial real estate loans and one-to-four-family loans.
Loans Held-for-Sale
Loans held-for-sale decreased $2.8 million, or 70.8%, from $4.0 million at June 30, 2022 to $1.2 million at March 31, 2023. The decrease in loans held-for-sale resulted primarily from the decrease in the origination
volume during the first nine months of fiscal year end 2023.
Investment Securities
Investment securities amounted to $120.6 million at March 31, 2023 compared to $108.0 million at June 30, 2022, an increase of $12.5 million, or 11.6%. The increase in investment securities was primarily due to
acquisition of $13.5 million in securities from FNBB. FNBB securities were composed of $13.3 million in US Treasury securities along with $205,000 in mortgage-backed-securities.
Premises and Equipment, Net
Premises and equipment, net, increased $349,000, or 2.1%, to $16.6 million at March 31, 2023 compared to $16.2 million at June 30, 2022. The increase in premises and equipment was primarily due to acquisition of
premises and equipment of $685,000 from the FNBB acquisition.
Asset Quality
At March 31, 2023, the Company had $2.7 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 $2.2 million on non-performing
assets at June 30, 2022, consisting of fourteen single-family residential loans, one land loan, one commercial loan, and one single family residence in other real estate owned at March 31, 2023, compared to nine single-family residential loans and one
line of credit loan at June 30, 2022. At March 31, 2023 the Company had thirteen single family residential loans, two commercial real estate loans, three commercial loans, two consumer loans, and one land loan classified as substandard compared to
five single family residential loans and two commercial real estate loans classified as substandard at June 30, 2022. There were no loans classified as doubtful at March 31, 2023 or June 30, 2022.
Discussion of Financial Condition Changes from June 30, 2022 to March 31, 2023 (continued)
Total Liabilities
Total liabilities increased $97.7 million, or 18.2%, from $538.1 million at June 30, 2022 to $635.9 million at March 31, 2023 primarily due to increases in total deposits of $82.4 million (deposits acquired in the
acquisition of FNBB totaled $77.9 million), or 15.5%, to $614.4 million at March 31, 2023 compared to $532.0 million at June 30, 2022, advances from FHLB of $9.2 million, or 1,101.9%, to $10.0 million at March 31, 2023 compared to $832,000 at June 30,
2022, other borrowings of $5.9 million, or 251.1%, to $8.3 million at March 31, 2023 compared to $2.4 million at June 30,2022, and other accrued expenses and liabilities of $356,000, or 13.7%, to $3.0 million at March 31, 2023 compared to $2.6 million
at June 30, 2022, partially offset by an decrease in advances for borrowers taxes and insurance of $78,000, or 22.0%, to $276,000 at March 31, 2023 compared to $354,000 at June 30, 2022. The increase in deposits was primarily due to a $81.3 million,
or 101.3%, increase in certificates of deposits from $80.3 million at June 30, 2022 to $161.6 million at March 31, 2023, a $31.7 million, or 32.2%, increase in money market deposits from $98.6 million at June 30, 2022 to $130.3 million at March 31,
2023, a $7.3 million, or 12.4%, increase in NOW accounts from $59.0 million at June 30, 2022 to $66.3 million at March 31, 2023, and a increase of $2.5 million, or 1.5%, in non-interest bearing deposits from $161.1 million at June 30, 2022 to $163.6
million at March 31, 2023, partially offset by a decrease of $40.4 million, or 30.4%, in savings deposits from $133.0 million at June 30, 2022 to $92.6 million at March 31, 2023. The Company had $3.0 million in brokered deposits at March 31, 2023
compared to $6.0 million at June 30, 2022. The increase in advances from the Federal Home Loan Bank was primarily due to an advance with an overnight maturity for $10.0 million.
Stockholders’ Equity
Shareholders’ equity decreased $2.2 million, or 4.2%, to $50.1 million at March 31, 2023 from $52.3 million at June 30, 2022. The primary reasons for the changes in shareholders’ equity from June 30, 2022 were the
repurchase of Company stock of $6.0 million, a decrease in the Company’s accumulated other comprehensive income of $275,000, and dividends paid totaling $1.1 million, partially offset by net income of $4.4 million, the vesting of restricted stock
awards, stock options, and the release of employee stock ownership plan shares totaling $516,000, and proceeds from the issuance of common stock from the exercise of stock options of $217,000.
The Company repurchased 291,000 shares of its common stock during the nine months ended March 31, 2023 at an average price per share of $19.99. On February 16, 2022, the Company announced that its Board of Directors
approved an eleventh stock repurchase program for the repurchase of up to 170,000 shares. The eleventh stock repurchase program was completed on August 2, 2022.
Regulatory Capital
The Bank is required to meet minimum capital standards promulgated by the Office of the Comptroller of the Currency (“OCC”). At March 31, 2023, Home Federal Bank’s regulatory capital was well in excess of the minimum
capital requirements. At March 31, 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 8.43%, 11.73%, 8.43%, and 12.91%, respectively.
Comparison of Operating Results for the Three and Nine Months Ended March 31, 2023 and 2022
General
The decrease in net income for the three months ended March 31, 2023, as compared to the prior year quarter resulted primarily from a $940,000, or 26.4%, increase in non-interest expense, a decrease of $328,000, or
39.2%, in non-interest income, a $150,000 increase in provision for loan losses, and a $2,000, or 0.7%, increase in provision for income taxes, partially offset by an increase of $1.2 million, or 28.2%, in net interest income. The increase in the
provision for loan losses for the three months ended March 31, 2023, was primarily due to loan growth of $14.0 million exclusive of the loans acquired from FNBB. The increase in net income for the nine months ended March 31, 2023 resulted primarily
from a $3.4 million, or 27.0%, increase in net interest income, a decrease of $199,000, or 21.6%, in provision for income taxes, partially offset by a decrease of $1.3 million, or 44.8% in non-interest income, an increase of $1.0 million, or 9.6%, in
non-interest expense, and an increase of $657,000, or 1,077.0%, in provision for loan losses. The increase in the provision for loan losses for the nine-month period was primarily due to loan growth.
Comparison of Operating Results for the Three and Nine Months Ended March 31, 2023 and 2022 (continued)
Net Interest Income
The increase in net interest income for the three months ended March 31, 2023, was primarily due to a $2.3 million, or 49.5%, increase in total interest income, partially offset by an increase of $1.1 million, or 263.2%
in total interest expense. The Company’s average interest rate spread was 3.15% for the three months ended March 31, 2023, compared to 3.13% for the three months ended March 31, 2022. The Company’s net interest margin was 3.56% for the three months
ended March 31, 2023, compared to 3.27% for the three months ended March 31, 2022.
The increase in net interest income for the nine-month period was primarily due to a $4.7 million, or 33.4%, increase in total interest income, partially offset by an increase of $1.3 million, or 88.6%, in total interest
expense. The Company’s average interest rate spread was 3.55% for the nine months ended March 31, 2023, compared to 3.03% for the nine months ended March 31, 2022. The Company’s net interest margin was 3.84% for the nine months ended March 31, 2023,
compared to 3.19% for the nine months ended March 31, 2022.
Provision for Loans Losses
Based on an analysis of historical experience, the volume and type of lending conducted by Home Federal Bank, the status of past due principal and interest payments, general economic conditions, particularly as such
conditions relate to our market area, and other factors related to the collectability of Home Federal Bank’s loan portfolio, the provision for loan losses was $150,000 and $718,000 for the three and nine months ended March 31, 2023, compared to none
and $61,000 in provisions made during the three and nine months ended March 31, 2022. The allowance for loan losses was $4.9 million, or 1.00% of total loans receivable, at March 31, 2023 compared to $4.2 million, or 1.14% of total loans receivable, at
March 31, 2022. At March 31, 2023, Home Federal Bank had $2.4 million in non-performing loans and $311,000 in other real estate owned which totaled $2.7 million in non-performing assets.
Non-interest Income
The $328,000 decrease in non-interest income for the three months ended March 31, 2023, compared to the prior year quarterly period, was primarily due to a decrease of $240,000 in gain on sale of loans, a $229,000
decrease in other non-interest income, and a $2,000 decrease in income from bank owned life insurance, partially offset by an increase of $91,000 in service charges on deposit accounts and a $52,000 decrease in loss on sale of fixed assets and real
estate owned.
The $1.3 million decrease in non-interest income for the nine months ended March 31, 2023, compared to the prior year nine-month period was primarily due to a decrease of $1.3 million in gain on sale of loans, a decrease
of $234,000 in other non-interest income, and a $5,000 decrease in income from bank owned life insurance, partially offset by a $236,000 increase in service charges on deposit accounts and a $52,000 decrease in loss on sake of fixed assets and real
estate owned. The decreases in gain on sale of loans for both the quarter and nine-month periods were primarily due to a decrease in refinance activity causing a decrease in mortgage loan originations. The Company sells most of its long-term fixed
rate residential mortgage loan originations primarily in order to manage interest rate risk.
Non-interest Expense
The $940,000 increase in non-interest expense for the three months ended March 31, 2023, compared to the same period in 2022, is primarily attributable to increases of $750,000 in professional fees which were due to
acquisition costs of FNBB, $125,000 in compensation and benefits expense, $92,000 in occupancy and equipment expense, $71,000 in amortization of core deposit intangible expense related to the acquisition of FNBB, $14,000 in data processing expense,
$13,000 in franchise and bank shares tax expense, $11,000 in deposit insurance premium expense, and $9,000 in advertising expense. The increases were partially offset by decreases of $115,000 in other non-interest expense, $20,000 in audit and
examination expense, and $10,000 in loan and collection expense.
Comparison of Operating Results for the Three and Nine Months Ended March 31, 2023 and 2022 (continued)
The $1.0 million increase in non-interest expense for the nine months ended March 31, 2023, compared to the same nine-month period in 2022, is primarily attributable to increases of $627,000 in professional fees which
were due to acquisition costs of FNBB, $220,000 in occupancy and equipment expense, $161,000 in other non-interest expense, $71,000 in amortization of core deposit intangible expense related to the acquisition of FNBB, $36,000 in deposit insurance
premium expense, $30,000 in data processing expense, and $5,000 in advertising expense. The increases were partially offset by decreases $50,000 in audit and examination fees, $36,000 in loan and collection expense, $17,000 in franchise and bank
shares tax expense, and $16,000 in compensation and benefits expense. The increase in professional fees for both the three and nine months ended March 31, 2023 was primarily due to the acquisition of FNBB in February 2023.
The Louisiana bank shares tax is assessed on the Bank’s equity and earnings. For the three and nine months ended March 31, 2023, the Company recognized franchise and bank shares tax expense of $145,000 and $386,000,
respectively, compared to $132,000 and $403,000 for the same periods in 2022.
Income Taxes
Income taxes amounted to $271,000 and $723,000 for the three and nine months ended March 31, 2023, respectively, resulting in an effective tax rate of 20.3% and 14.0%. Income taxes amounted to $269,000 and $922,000 for
the three and nine months ended March 31, 2022, respectively. The decrease in provision for income taxes was due to an adjustment in taxes related to stock option exercises.
Comparison of Operating Results for the Three and Nine Months Ended March 31, 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 March 31,
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
Yield/
|
|
|
Average
|
|
|
|
|
|
Average
Yield/
|
|
|
|
(Dollars In Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
476,721
|
|
|
$
|
6,151
|
|
|
|
5.23
|
%
|
|
$
|
365,277
|
|
|
$
|
4,277
|
|
|
|
4.75
|
%
|
Investment securities
|
|
|
120,852
|
|
|
|
592
|
|
|
|
1.99
|
|
|
|
102,549
|
|
|
|
380
|
|
|
|
1.50
|
|
Interest-earning deposits
|
|
|
25,867
|
|
|
|
270
|
|
|
|
4.22
|
|
|
|
61,733
|
|
|
|
35
|
|
|
|
0.23
|
|
Total interest-earning assets
|
|
|
623,440
|
|
|
|
7,013
|
|
|
|
4.56
|
|
|
$
|
529,559
|
|
|
|
4,692
|
|
|
|
3.59
|
%
|
Non-interest-earning assets
|
|
|
43,545
|
|
|
|
|
|
|
|
|
|
|
|
41,840
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
666,985
|
|
|
|
|
|
|
|
|
|
|
$
|
571,399
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
99.252
|
|
|
|
75
|
|
|
|
0.31
|
%
|
|
$
|
138,742
|
|
|
|
96
|
|
|
|
0.28
|
%
|
NOW accounts
|
|
|
70,064
|
|
|
|
44
|
|
|
|
0.26
|
|
|
|
53,980
|
|
|
|
14
|
|
|
|
0.11
|
|
Money market accounts
|
|
|
121,256
|
|
|
|
380
|
|
|
|
1.27
|
|
|
|
94,986
|
|
|
|
28
|
|
|
|
0.12
|
|
Certificate accounts
|
|
|
141,358
|
|
|
|
843
|
|
|
|
2.42
|
|
|
|
80,850
|
|
|
|
256
|
|
|
|
1.29
|
|
Total interest-bearing deposits
|
|
|
431,930
|
|
|
|
1,342
|
|
|
|
1.26
|
|
|
|
368,558
|
|
|
|
394
|
|
|
|
0.43
|
|
Other Borrowings
|
|
|
7,513
|
|
|
|
146
|
|
|
|
7.88
|
|
|
|
2,400
|
|
|
|
20
|
|
|
|
3.35
|
|
FHLB advances
|
|
|
4,313
|
|
|
|
52
|
|
|
|
4.89
|
|
|
|
844
|
|
|
|
10
|
|
|
|
4.90
|
|
Total interest-bearing liabilities
|
|
$
|
443,756
|
|
|
|
1,540
|
|
|
|
1.41
|
%
|
|
$
|
371,802
|
|
|
|
424
|
|
|
|
0.46
|
%
|
Non-interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing demand accounts
|
|
|
167,516
|
|
|
|
|
|
|
|
|
|
|
|
144,523
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,031
|
|
|
|
|
|
|
|
|
|
|
|
2,659
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
614,303
|
|
|
|
|
|
|
|
|
|
|
|
518,984
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity(1)
|
|
|
52,682
|
|
|
|
|
|
|
|
|
|
|
|
52,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
666,985
|
|
|
|
|
|
|
|
|
|
|
$
|
571,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets
|
|
$
|
179,684
|
|
|
|
|
|
|
|
|
|
|
$
|
157,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income; average interest rate spread(2)
|
|
|
|
|
|
$
|
5,473
|
|
|
|
3.15
|
%
|
|
|
|
|
|
$
|
4,268
|
|
|
|
3.13
|
%
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
3.56
|
%
|
|
|
|
|
|
|
|
|
|
|
3.27
|
%
|
Average interest-earning assets to average
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
140.49
|
%
|
|
|
|
|
|
|
|
|
|
|
142.43
|
%
|
(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.
|
Comparison of Operating Results for the Three and Nine Months Ended March 31, 2023 and 2022 (continued)
|
|
Nine Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
Yield/
|
|
|
Average
|
|
|
|
|
|
Average
Yield/
|
|
|
|
(Dollars In Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
423,451
|
|
|
$
|
16,586
|
|
|
|
5.22
|
%
|
|
$
|
355,732
|
|
|
$
|
12,985
|
|
|
|
4.86
|
%
|
Investment securities
|
|
|
111,448
|
|
|
|
1,577
|
|
|
|
1.88
|
|
|
|
95,141
|
|
|
|
1,066
|
|
|
|
1.49
|
|
Interest-earning deposits
|
|
|
23,950
|
|
|
|
719
|
|
|
|
4.00
|
|
|
|
78,223
|
|
|
|
101
|
|
|
|
0.17
|
|
Total interest-earning assets
|
|
$
|
558,849
|
|
|
|
18,882
|
|
|
|
4.50
|
%
|
|
$
|
529,096
|
|
|
|
14,152
|
|
|
|
3.56
|
%
|
Non-interest-earning assets
|
|
|
40,952
|
|
|
|
|
|
|
|
|
|
|
|
39,229
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
599,801
|
|
|
|
|
|
|
|
|
|
|
$
|
568,325
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
111,948
|
|
|
|
239
|
|
|
|
0.28
|
%
|
|
$
|
136,102
|
|
|
|
304
|
|
|
|
0.30
|
%
|
NOW accounts
|
|
|
61,509
|
|
|
|
103
|
|
|
|
0.22
|
|
|
|
49,972
|
|
|
|
41
|
|
|
|
0.11
|
|
Money market accounts
|
|
|
100,919
|
|
|
|
509
|
|
|
|
0.67
|
|
|
|
89,624
|
|
|
|
79
|
|
|
|
0.12
|
|
Certificate accounts
|
|
|
108,211
|
|
|
|
1,536
|
|
|
|
1.89
|
|
|
|
91,642
|
|
|
|
973
|
|
|
|
1.41
|
|
Total interest-bearing deposits
|
|
|
382,587
|
|
|
|
2,387
|
|
|
|
0.83
|
|
|
|
367,340
|
|
|
|
1,397
|
|
|
|
0.51
|
|
Other bank borrowings
|
|
|
6,274
|
|
|
|
321
|
|
|
|
6.82
|
|
|
|
1,892
|
|
|
|
46
|
|
|
|
3.24
|
|
FHLB advances
|
|
|
1.969
|
|
|
|
72
|
|
|
|
4.87
|
|
|
|
853
|
|
|
|
31
|
|
|
|
4.84
|
|
Total interest-bearing liabilities
|
|
$
|
390,830
|
|
|
|
2,780
|
|
|
|
0.95
|
%
|
|
$
|
370,085
|
|
|
|
1,474
|
|
|
|
0.53
|
%
|
Non-interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand accounts
|
|
|
157,356
|
|
|
|
|
|
|
|
|
|
|
|
142,661
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,245
|
|
|
|
|
|
|
|
|
|
|
|
2,852
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
551,431
|
|
|
|
|
|
|
|
|
|
|
|
515,598
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity(1)
|
|
|
48,370
|
|
|
|
|
|
|
|
|
|
|
|
52,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
599,801
|
|
|
|
|
|
|
|
|
|
|
$
|
568,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets
|
|
$
|
168,019
|
|
|
|
|
|
|
|
|
|
|
$
|
159,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income; average interest rate spread(2)
|
|
|
|
|
|
$
|
16.102
|
|
|
|
3.55
|
%
|
|
|
|
|
|
$
|
12,678
|
|
|
|
3.03
|
%
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
3.84
|
%
|
|
|
|
|
|
|
|
|
|
|
3.19
|
%
|
Average interest-earning assets to average
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
142.99
|
%
|
|
|
|
|
|
|
|
|
|
|
142.97
|
%
|
(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.
|
Comparison of Operating Results for the Three and Nine Months Ended March 31, 2023 and 2022 (continued)
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 $12.3 million at March 31, 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 March 31, 2023, the Bank had $10.0 million in advances from the Federal Home Loan Bank of Dallas and had $168.6 million in additional borrowing capacity. Additionally, at March 31, 2023, the
Bank was a party to a Master Purchase Agreement with First National Bankers Bank where-by 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 March 31, 2023. In addition, the Company had available a $10.0 million line of credit agreement at March 31, 2023 with First National Bankers Bank. At March 31, 2023, there was a $8.3 million balance in the credit line.
At March 31, 2023, the Bank had outstanding loan commitments of $76.5 million to originate loans and commitments under unused lines of credit of $13.3 million. At March 31, 2023, certificates of deposit scheduled to
mature in less than one year totaled $135.9 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. If additional funds are required to fund lending activities, Home Federal Bank intends to sell its securities
classified as available-for-sale, as needed.
At March 31, 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 8.43%, 11.73%, 8.43%, and 12.91%, respectively.
Off-Balance Sheet Arrangements
At March 31, 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.
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.