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EX-31.1 - EXHIBIT 31.1 - Home Federal Bancorp, Inc. of Louisianaexh311.htm
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EX-31.2 - EXHIBIT 31.2 - Home Federal Bancorp, Inc. of Louisianaexh312.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended:
March 31, 2011
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)
 
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   [X]    No   [   ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).         Yes     [   ]    No     [   ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
Large accelerated filer                                [   ]                                                   Accelerated filer          [   ]
Non-accelerated filer                                  [   ]                                                   Smaller reporting company                        [X]
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  [  ]     No  [   ] 
 
Shares of common stock, par value $.01 per share, outstanding as of May 12, 2011: The registrant had 3,045,913 shares of common stock outstanding.
 
 
 
 

 
 
INDEX


PART I
--
FINANCIAL INFORMATION
Page
 
Item 1:
Financial Statements (Unaudited)
 
 
 
Consolidated Statements of Financial Condition
1
 
 
Consolidated Statements of Income
2
 
 
Consolidated Statements of Changes in Stockholders' Equity
3
 
 
Consolidated Statements of Cash Flows
4
 
 
Notes to Consolidated Financial Statements
6
 
Item 2:
Management's Discussion and Analysis of Financial Condition and Results of Operations
17
 
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
23
     
Item 4:
Controls and Procedures
23
     
PART II - OTHER INFORMATION
 
Item 1:
Legal Proceedings
 23
 
Item 1A:
Risk Factors
 23
 
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
 23
 
Item 3:
Defaults Upon Senior Securities
 23
 
Item 4:
[Removed and Reserved]
 23
 
Item 5:
Other Information
 23
 
Item 6:
Exhibits
 24
 
SIGNATURES
 
 
 
 

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
 
      March 31, 2011         June 30, 2010  
       (In Thousands, Except Share Data)  
ASSETS
               
Cash and Cash Equivalents (Includes Interest-Bearing                
Deposits with Other Banks of $4,742 and $4,698 for                
March 31, 2011 and June 30, 2010, Respectively)
  $ 10,602     $  8,837  
Securities Available-for-Sale
    80,178       63,688  
Securities Held-to-Maturity
    5,723       2,138  
Loans Held-for-Sale
    1,080       13,403  
Loans Receivable, Net of Allowance for Loan Losses of $748 and $489, respectively
    114,755       93,056  
Accrued Interest Receivable
    779       560  
Premises and Equipment, Net
    3,994       3,049  
Other Assets
    479       414  
                 
Total Assets
  $ 217,590     $ 185,145  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
       
                 
LIABILITIES
               
Deposits
  $ 142,079       117,722  
Advances from Borrowers for Taxes and Insurance
    132       205  
Advances from Federal Home Loan Bank of Dallas
    23,947       31,507  
Other Accrued Expenses and Liabilities
    770       1,425  
Deferred Tax Liability
    251       921  
Total Liabilities
     167,179       151,780  
                 
STOCKHOLDERS’ EQUITY
               
Preferred Stock – No Par Value; 10,000,000 Shares
    --       --  
Authorized; None Issued and Outstanding                
Common Stock – 40,000,000 Shares of $.01 Par Value                
Authorized; 3,045,913 Shares Issued; 3,045,913 Shares                
and 3,050,244 Shares Outstanding at March 31, 2011 and                
June 30, 2010, Respectively (1)
        32           14  
Additional Paid-in Capital
    30,881       13,655  
Treasury Stock, at Cost – none at March 31, 2011;                
 191,967 Shares at June 30, 2010 (1)
    --       (2,094 )
Unearned ESOP Stock
    (1,936 )     (826 )
Unearned RRP Trust Stock
    (29 )     (145 )
Retained Earnings
    20,486       20,665  
Accumulated Other Comprehensive Income
    977       2,096  
                 
Total Stockholders’ Equity
    50,411       33,365  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 217,590     $ 185,145  
_______________________
(1)
Prior period per shares issued and outstanding figures were adjusted for comparability using the conversion ratio of 0.9110 due to completion of second step offering on December 22, 2010.
 
See accompanying notes to consolidated financial statements.
 
1

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF INCOME
 
(Unaudited)
 
   
   
Three Months Ended
March 31,
   
Nine Months Ended
March 31,
 
   
2011
   
2010
   
2011
   
2010
 
   
(In Thousands, Except Per Share Data)
 
INTEREST INCOME
     
Loans, Including Fees
  $ 1,847     $ 1,304     $ 5,539     $ 3,532  
Investment Securities
    42       17       66       53  
Mortgage-Backed Securities
    610       933       1,963       3,090  
Other Interest-Earning Assets
    8       3       19       7  
Total Interest Income
    2,507       2,257       7,587       6,682  
                                 
INTEREST EXPENSE
                               
Deposits
    555       544       1,694       1,678  
Federal Home Loan Bank Borrowings
    216        298       711       941  
Total Interest Expense
    771        842       2,405       2,619  
Net Interest Income
    1,736       1,415       5,182       4,063  
                                 
PROVISION FOR LOAN LOSSES
    36       --       259       --  
Net Interest Income after
Provision for Loan Losses
     1,700        1,415        4,923        4,063  
                                 
NON-INTEREST INCOME (LOSS)
                               
Gain on Sale of Loans
    352       193       1,382       322  
Gain on Sale of Investments
    --       308       311       494  
Impairment charge on investment securities
    --       (627 )     --       (627 )
Other Income
    79       15       352       39  
Total Non-Interest Income (loss)
    431       (111 )     2,045       228  
                                 
NON-INTEREST EXPENSE
                               
Compensation and Benefits
    1,026       921       3,027       2,350  
Occupancy and Equipment
    149       111       393       291  
Data Processing
    57       31       145       77  
Audit and Professional Fees
    109       132       291       309  
Franchise and Bank Shares Tax
    74       38       159       113  
Other Expense
    242       199       742       520  
Total Non-Interest Expense
    1,657       1,432       4,757       3,660  
Income (loss) Before Income Taxes
    474       (128 )     2,211       631  
                                 
PROVISION FOR INCOME TAX EXPENSE
    161       164       751       422  
Net Income (loss)
  $ 313     $ (292 )   $ 1,460     $ 209  
EARNINGS (LOSS) PER COMMON SHARE(1):
                               
Basic
  $ 0.11     $ (0.10 )   $ 0.49     $ 0.07  
Diluted
  $ 0.11     $ (0.10 )   $ 0.49     $ 0.07  
DIVIDENDS DECLARED
  $ 0.06     $ 0.06     $ 0.18     $ 0.18  
____________________
(1)
Prior period earnings per share and weighted average shares outstanding figures were adjusted for comparability using the conversion ratio of 0.9110 due to completion of second step offering on December 22, 2010.
 
 
 
See accompanying notes to consolidated financial statements.
 
 
2

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED MARCH 31, 2011 AND 2010
(Unaudited)

   
Common Stock
   
Additional
Paid-in
Capital
   
Unearned
ESOP
Stock
   
Unearned RRP
Trust
Stock
   
Retained
Earnings
   
Treasury Stock
   
Accumulated
Other
Comprehensive
Income
   
Total
Stockholders’
Equity
 
                     
(In Thousands)
                   
                                           
BALANCE – June 30, 2009
  $ 14     $ 13,608     $ (883 )   $ (269 )   $ 20,288     $ (1,887 )   $ 439     $ 31,310  
                                                                 
Net Income
    --       --       --       --       209       --       --       209  
Other Comprehensive Income:
                                                               
   Changes in Unrealized Gain
      on Securities Available-for-
      Sale, Net of Tax Effects
      --         --         --         --         --         --         794         794  
                                                                 
RRP Shares Earned
    --       --       --       124       --       --       --       124  
                                                                 
Stock Options Vested
    --       43       --       --       --       --       --       43  
                                                                 
ESOP Compensation Earned
    --       (8 )     43       --       --       --       --       35  
                                                                 
Dividends Declared
    --       --       --       --       (220 )     --       --       (220 )
                                                                 
Acquisition Treasury Stock
    --       --       --       --       --       (207 )     --       (207 )
                                                                 
BALANCE – March 31, 2010
  $ 14     $ 13,643     $ (840 )  
 $           (145
)   $ 20,277     $ (2,094 )   $ 1,233     $ 32,088  
                                                                 
                                                                 
BALANCE – June 30, 2010
  $ 14     $ 13,655     $ (826 )   $ (145 )   $ 20,665     $ (2,094 )   $ 2,096     $ 33,365  
                                                                 
COMMON STOCK ISSUANCE
    20       18,034       (1,167 )                                     16,887  
                                                                 
Net Income
    --       --       --       --       1,460       --       --       1,460  
Other Comprehensive Loss:
                                                               
   Changes in Unrealized Gain
      on Securities Available-for-
      Sale, Net of Tax Effects
      --         --         --         --         --         --       (1,119 )     (1,119 )
                                                                 
RRP Shares Earned
    --       --       --       116       --       --       --       116  
                                                                 
Stock Options Vested
    --       14               --       --       --       --       14  
                                                                 
ESOP Compensation Earned
    --       5       57       --       --       --       --       62  
                                                                 
Dividends Declared
    --       --       --       --       (328 )     --       --       (328 )
                                                                 
TREASURY STOCK RETIREMENT
    (2 )     (827 )     --       --       (1,311 )     2,140       --       --  
                                                                 
Acquisition Treasury Stock
    --       --       --       --       --       (46 )     --       (46 )
                                                                 
BALANCE – March 31, 2011
  $ 32     $ 30,881     $ (1,936 )     $ (29 )   $ 20,486     $ --     $  977     $ 50,411  
                                                                 
                                                                 
 
 
 
 
 
 

See accompanying notes to consolidated financial statements.
 
3

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
   
   
Nine Months Ended
 
   
March 31,
 
   
2011
   
2010
 
   
(In Thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Income
  $ 1,460     $ 209  
Adjustments to Reconcile Net Income to Net
               
Cash Provided by (Used in) Operating Activities
               
Net Amortization and Accretion on Securities
    (151 )     (259 )
Gain on Sale of Securities
    (311 )     (494 )
Gain on Sale of Loans
    (1,382 )     (322 )
Amortization of Deferred Loan Fees
    (117 )     (166 )
Impairment charge on investment securities
    --       627  
Depreciation of Premises and Equipment
    131       82  
ESOP Expense
    63       35  
Stock Option Expense
    14       43  
Recognition and Retention Plan Expense
    18       93  
Deferred Income Tax
    (93 )     (18 )
Provision for Loan Losses
    259       --  
Changes in Assets and Liabilities:
               
Loans Held-for-Sale – Originations and Purchases
    (89,334 )     (40,003 )
Loans Held-for-Sale – Sale and Principal Repayments
    103,039       38,150  
Accrued Interest Receivable
    (219 )     2  
Other Operating Assets
    (65 )     (208 )
Other Operating Liabilities
    (556 )     238  
                 
Net Cash Provided by (Used in) Operating Activities
     12,756       (1,991 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Loan Originations and Purchases, Net of Principal Collections
    (21,961 )     (29,711 )
Deferred Loan Fees Collected
    120       204  
Acquisition of Premises and Equipment
    (1,076 )     (2,187 )
Activity in Available-for-Sale Securities:
               
Proceeds from Sales of Securities
    6,805       12,997  
Principal Payments on Mortgage-Backed Securities
    12,401       11,791  
Purchases of Securities
    (36,932 )     --  
Activity in Held-to-Maturity Securities:
               
Redemption Proceeds
    558       --  
Principal Payments on Mortgage-Backed Securities
    83       60  
Purchases of Securities
    (4,225 )     (32 )
                 
Net Cash Used in Investing Activities
  $ (44,227 )   $ (6,878 )
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
4

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
 
   
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
(Unaudited)
 
   
   
Nine Months Ended
 
   
March 31,
 
   
2011
   
2010
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
(In Thousands)
 
       
Net Increase in Deposits
  $ 24,356     $ 16,657  
Proceeds from Federal Home Loan Bank Advances
    --       19,500  
Repayments of Advances from Federal Home Loan Bank
    (7,560 )     (21,462 )
Net Decrease in Mortgage-Escrow Funds
    (73 )     (22 )
Dividends Paid
    (328 )     (220 )
Acquisition of Treasury Stock
    (46 )     (207 )
Gross Proceeds from Stock Issuance
    18,285       --  
Stock Issuance Expenses Paid
    (1,398 )     --  
                 
Net Cash Provided by Financing Activities
    33,236       14,246  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    1,765       5,377  
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
    8,837       10,007  
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
  $ 10,602     $ 15,384  
                 
SUPPLEMENTARY CASH FLOW INFORMATION
               
Interest Paid on Deposits and Borrowed Funds
  $ 2,425     $ 2,649  
Income Taxes Paid
    915       177  
Market Value Adjustment for Gain (Loss) on Securities
               
Available-for-Sale
    (1,697 )     1,203  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
5

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.           Summary of Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Home Federal Bancorp, Inc. of Louisiana (the “Company”) and its subsidiary, Home Federal Bank (the “Bank”).  These consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the nine month period ended March 31, 2011, is not necessarily indicative of the results which may be expected for the fiscal year ending June 30, 2011. Certain items previously reported have been reclassified to conform with the current reporting period’s format.  Prior period earnings per share and weighted average shares outstanding figures were adjusted for comparability using the conversion ratio of 0.9110 due to completion of second step offering on December 22, 2010.

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

In accordance with the subsequent events topic of the ASC, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements.  The effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of March 31, 2011.  In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued.

Use of Estimates

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

Nature of Operations

On December 22, 2010, Home Federal Bancorp, Inc. of Louisiana, completed its conversion and reorganization from the mutual holding company form of organization to the fully public stock holding structure and formed Home Federal Bancorp, Inc. of Louisiana, a Louisiana corporation (the “Company”) to serve as the stock holding company for the Bank.  In connection with the conversion and reorganization, the Company sold 1,945,220 shares of its common stock in a subscription and community offering and syndicated community offering at a price of $10.00 per share.  The Company also issued 1,100,693 shares of common stock in exchange for shares of the former holding company, other than shares held by Home Federal Mutual Holding Company of Louisiana, which were cancelled. The Company received net proceeds of $16.9 million, after offering expenses. 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 Thrift Supervision.  Services are provided to its customers by four full-service banking offices and one agency office, which are located in the Caddo and Bossier Parishes, Louisiana.  The area served by the Bank is primarily the Shreveport-Bossier City metropolitan area; however, loan and deposit customers are found dispersed in a wider geographical area covering much of northwest Louisiana. As of March 31, 2011, the Bank had one wholly-owned subsidiary, Metro Financial Services, Inc., which is currently inactive.
 
 
 
 
 
 
6

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

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.

Securities

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

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

Loans Held-for-Sale

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

Loans

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

Allowance for Loan Losses

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

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated
 
 
 
7

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Allowance for Loan Losses (continued)

value of the underlying collateral and prevailing economic conditions.  The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

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

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

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

Off-Balance Sheet Credit Related Financial Instruments

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

Foreclosed Assets

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

Premises and Equipment

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

Income Taxes

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

The Company accounts for income taxes on the asset and liability method.  Deferred tax assets and liabilities are recorded based on the difference between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, computed using enacted tax rates.  A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years.  Although realization is not assured, management believes it is more likely
 
 
8

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Income Taxes (continued)

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.

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

Comprehensive Income

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

2.           Securities

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

   
March 31, 2011
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
Securities Available-for-Sale
 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Debt Securities
                       
  FHLMC Mortgage-Backed Certificates
  $ 1,935     $ 79     $ --     $ 2,014  
  FNMA Mortgage-Backed Certificates
    38,485       1,392       --       39,877  
  GNMA Mortgage-Backed Certificates
    106       1       --       107  
  FHLB Notes
    3,149       5       --       3,154  
  FHMC Notes
    21,517       2       14       21,505  
  FNDB Notes
    12,216       3       6       12,213  
                                 
          Total Debt Securities
    77,408       1,482       20       78,870  
                                 
Equity Securities
                               
  176,612 Shares, AMF ARM Fund
    1,291       17       --       1,308  
                                 
    Total Securities Available-for-Sale
  $ 78,699     $ 1,499     $ 20     $ 80,178  
                                 
Securities Held-to-Maturity
                               
                                 
Debt Securities
                               
  GNMA Mortgage-Backed Certificates
  $ 151     $ 22     $ --     $ 173  
  FNMA Mortgage-Backed Certificates
    4,011       2       160       3,853  
  FHLMC Mortgage-Backed Certificates
    23       1       --       24  
                                 
          Total Debt Securities
    4,185       25       160       4,050  
                                 
Equity Securities (Non-Marketable
                               
630 Shares – First National Bankers
  Bankshares, Inc.
    250       --       --       250  
12,883 Shares – Federal Home Loan Bank
     1,288        --        --        1,288  
                                 
          Total Equity Securities
    1,538        --       --       1,538  
                                 
          Total Securities Held-to-Maturity
  $ 5,723     $ 25     $ 160     $ 5,588  
 
 
 
9

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

   
June 30, 2010
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
Securities Available-for-Sale
 
Cost
   
Gains
   
Losses
   
Value
 
   
(In Thousands)
 
Debt Securities
                       
  FHLMC Mortgage-Backed Certificates
  $ 3,031     $ 175     $ --     $ 3,206  
  FNMA Mortgage-Backed Certificates
    55,828       2,980               58,808  
  GNMA Mortgage-Backed Certificates
    115       1       1       115  
                                 
          Total Debt Securities
    58,974       3,156       1       62,129  
                                 
Equity Securities
                               
  210,350 Shares, AMF ARM Fund
    1,538       21       --       1,559  
                                 
    Total Securities Available-for-Sale
  $ 60,512     $ 3,177     $ 1     $ 63,688  
                                 
Securities Held-to-Maturity
                               
                                 
Debt Securities
                               
  GNMA Mortgage-Backed Certificates
  $ 196     $ 22     $ --     $ 218  
  FNMA Mortgage-Backed Certificates
    75       2       --       77  
  FHLMC Mortgage-Backed Certificates
    27       1       --       28  
                                 
          Total Debt Securities
    298       25       --       323  
                                 
Equity Securities (Non-Marketable)
                               
  18,402 Shares – Federal Home Loan Bank
    1,840       --       --       1,840  
                                 
        Total Securities Held-to- Maturity
  $ 2,138     $ 25     $ --     $ 2,163  

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2011, follows:
 
   
Available-for-Sale
   
Held-to-Maturity
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
   
(In Thousands)
 
       
Within One Year or Less
  $ --     $ --     $ --     $ --  
One through Five Years
    36,884       36,875       13       13  
After Five through Ten Years
    643       655       107       115  
Over Ten Years
    39,881       41,340        4,065       3,922  
                                 
   Total
  $ 77,408     $ 78,870     $ 4,185     $ 4,050  
 
For the nine months ended March 31, 2011 and 2010, proceeds from the sale of securities available-for-sale amounted to $6.8 million and $13.0 million, respectively. Gross realized gains amounted to $311,000 and $494,000 for the nine months ended March 31, 2011 and 2010, respectively.
 
 
 
 
 
 
 
 
 
10

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.Securities (continued)

The following tables show information pertaining to gross unrealized losses on securities available-for-sale and held-to-maturity at March 31, 2011 and June 30, 2010, aggregated by investment category and length of time that individual securities have been in a continuous loss position.  There were no unrealized losses on securities held-to-maturity at June 30, 2010.

   
March 31, 2011
 
   
Less than Twelve Months
   
Over Twelve Months
 
   
Gross
         
Gross
       
   
Unrealized
   
Fair
   
Unrealized
   
Fair
 
   
Losses
   
Value
   
Losses
   
Value
 
   
(In Thousands)
 
Securities Available-for-Sale:
                       
                         
Debt Securities
                       
    Mortgage-Backed Securities
  $ --     $ --     $ --     $ --  
    Federal Agency Notes
    20       21,311       --       --  
                                 
Marketable Equity Securities
    --       --       --       --  
                                 
        Total Securities Available-for-Sale
  $ 20     $ 21,311     $ --     $ --  
                                 
Securities Held-to-Maturity:
                               
                                 
Debt Securities
                               
    Mortgage-Backed Securities
  $ 160     $ 3,947     $ --     $ --  
                                 
Non-Marketable Equity Securities
    --       --       --       --  
                                 
        Total Securities Held-to-Maturity
  $ 160     $ 3,947     $ --     $ --  


   
June 30, 2010
 
   
Less than Twelve Months
   
Over Twelve Months
 
   
Gross
         
Gross
       
   
Unrealized
   
Fair
   
Unrealized
   
Fair
 
   
Losses
   
Value
   
Losses
   
Value
 
   
(In Thousands)
 
Debt Securities
                       
    Mortgage-Backed Securities
  $ --     $ --     $ 1     $ 89  
                                 
Marketable Equity Securities
    --       --       --       --  
                                 
        Total Securities Available-for-Sale
  $ --     $ --     $ 1     $ 89  


The Company’s investment in equity securities consists primarily of shares of an adjustable rate mortgage loan mutual fund.  During the year ended June 30, 2010, the Company made a determination that the impairment of this investment was other-than-temporary based upon conditions which indicated that a significant recovery in fair value of this investment would not occur.  Accordingly, the Company recognized an impairment charge against earnings in the amount of $627,000. No impairment charges were recognized during the nine months ended March 31, 2011.

At March 31, 2011, securities with a carrying value of $3.3 million were pledged to secure public deposits, and securities and mortgage loans with a carrying value of $54.8 million were pledged to secure FHLB advances.
 
 
 
 
 
11

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Basic earnings per common share are computed based on the weighted average number of shares outstanding.  Diluted earnings per share is computed based on the weighted average number of shares outstanding and common share equivalents that would arise from the exercise of dilutive securities. Prior period share amounts were adjusted for comparability using the conversion ratio of 0.9110 due to completion of second step offering on December 22, 2010. Earnings per share for the three and nine months ended March 31, 2011 and 2010 were calculated as follows:

   
Three Months Ended
March 31, 2011
   
Three Months Ended
March 31, 2010
 
   
Basic
   
Diluted
   
Basic
   
Diluted
 
    (In Thousands, Except Share Data)  
       
Net income (loss)
  $  313     $  313     $ (292 )   $ (292 )
Weighted average shares outstanding
    2,966,904       2,966,904       2,953,027       2.953,027  
Effect of unvested common stock awards
     --        10,537        --       --  
Adjusted weighted average shares used in
  earnings per share computation
      2,966,904         2,977,441       2,953,027       2,953,027  
Earnings (loss) per share
  $ 0.11     $ 0.11     $ (0.10 )   $ (0.10 )

   
Nine Months Ended
March 31, 2011
   
Nine Months Ended
March 31, 2010
 
   
Basic
   
Diluted
   
Basic
   
Diluted
 
    (In Thousands, Except Share Data)  
       
Net income
  $ 1,460     $ 1,460     $ 209     $ 209  
Weighted average shares outstanding
    2,963,622       2,963,622       2,958,749       2,958,749  
Effect of unvested common stock awards
    --       10,537       --       --  
Adjusted weighted average shares used in
  earnings per share computation
    2,963,622        2,974,159        2,958,749       2,958,749  
 
Earnings per share
  $ 0.49     $ 0.49     $ 0.07     $ 0.07  

For the three months ended March 31, 2011 and 2010, there were outstanding options to purchase 174,389 and 158,134 shares, respectively, at a weighted average exercise price of $9.86 per share and for the nine months ended March 31, 2011 and 2010, there were weighted-average outstanding options to purchase 170,380 and 158,134 shares, respectively, at $9.86 per share. For the quarter and nine months ended March 31, 2011, 10,537 options were included in the computation of diluted earnings per share.

4.           Recognition and Retention Plan

On August 10, 2005, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2005 Recognition and Retention Plan and Trust Agreement (the “Recognition Plan”) as an incentive to retain personnel of experience and ability in key positions.  The aggregate number of shares of the Company’s common stock subject to award under the Recognition Plan totaled 63,547 shares (as adjusted).  As the shares were acquired for the Recognition Plan, the purchase price of these shares was recorded as a contra equity account.  As the shares are distributed, the contra equity account is reduced.  During the nine months ended March 31, 2011, 13,567 shares vested and were released from the Recognition Plan Trust and no shares remained in the Recognition Plan Trust at March 31, 2011.

Recognition Plan shares are earned by recipients at a rate of 20% of the aggregate number of shares covered by the Recognition Plan award over five years.  Generally, if the employment of an employee or service as a non-employee director is terminated prior to the fifth anniversary of the date of grant of Recognition Plan share award, the recipient shall forfeit the right to any shares subject to the award that have not been earned.  In the case of death or disability of the recipient or a change in control of the Company, the Recognition Plan awards will be vested and shall be distributed as soon as practicable thereafter.
 
 
 
12

 

HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.           Recognition and Retention Plan (continued)

The present cost associated with the Recognition Plan is based on share prices of $10.82 and $10.93, which represent the market price of the Company’s stock on August 18, 2005 and August 19, 2010, the dates on which the Recognition Plan shares were granted, as adjusted for the exchange ratio of 0.9110 on December 22, 2010.  The cost is recognized over the five year vesting period.

5.           Stock Option Plan

On August 10, 2005, the shareholders of the Company approved the establishment of the Home Federal Bancorp, Inc. of Louisiana 2005 Stock Option Plan (the “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 Option Plan totaled 158,868 (as adjusted).  Both incentive stock options and non-qualified stock options may be granted under the Option Plan.

On August 18, 2005, the Company granted 158,868 (as adjusted) options to directors and employees.  Under the Option Plan, the exercise price of each option cannot be less than the fair market value of the underlying common stock as of the date of the option grant, which was $10.82 (as adjusted), and the maximum term is ten years.  On August 19, 2010, 21,616 options, which had been forfeited, were granted at an exercise price of $10.93 per share. Incentive stock options and non-qualified stock options granted under the Option Plan 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.  As of March 31, 2011, 2,121 stock options were available for future grant.  In the event of the death or disability of an employee or director or change in control of the Company, the unvested options shall become vested and exercisable.  The Company accounts for the Option Plan under the guidance of FASB ASC Topic 718, Compensation – Stock Compensation.

6.   Fair Value of Financial Instruments

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 Bank in estimating fair values of financial instruments:

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

 
Securities to be Held-to-Maturity and Available-for-Sale
Fair values for investment securities, including mortgage-backed securities, are based on quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.  The carrying values of restricted or non-marketable equity securities approximate their fair values.  The carrying amount of accrued investment income approximates its fair value.
 
 
 
 
 
13

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.           Fair Value of Financial Instruments (continued)

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

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

Deposit Liabilities
The fair values for demand deposit accounts are, by definition, equal to the amount payable on demand at the reporting date, that is, their carrying amounts.  Fair values for other deposit accounts are estimated using the discounted value of expected future cash flows. The discount rate is estimated using the rates currently offered for deposits of similar maturities.

Advances from Federal Home Loan Bank
The carrying amount of short-term borrowings approximates their fair value.  The fair value of long-term debt is estimated using discounted cash flow analyses based on current incremental borrowing rates for similar borrowing arrangements.

Off-Balance Sheet Credit-Related Instruments
Fair values for outstanding mortgage loan commitments to lend are based on fees currently charged to enter into similar agreements, taking into account the remaining term of the agreements, customer credit quality, and changes in lending rates.

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

The carrying amount and estimated fair values of the Bank’s financial instruments were as follows:

   
March 31, 2011
   
June 30, 2010
 
   
Carrying
   
Estimated
   
Carrying
   
Estimated
 
   
Value
   
Fair Value
   
Value
   
Fair Value
 
Financial Assets
 
(In Thousands)
 
       
   Cash and Cash Equivalents
  $ 10,602     $ 10,602     $ 8,837     $ 8,837  
   Securities Available-for-Sale
    80,178       80,178       63,688       63,688  
   Securities to be Held-to-Maturity
    5,723       5,588       2,138       2,163  
   Loans Held-for-Sale
    1,080       1,080       13,403       13,403  
   Loans Receivable
    114,755       125,772       93,056       109,322  
                                 
Financial Liabilities
                               
   Deposits
    142,079       155,292       117,722       120,460  
   Advances from FHLB
    23,947       25,000       31,507       33,175  
                                 
Off-Balance Sheet Items
                               
   Mortgage Loan Commitments
    --       147       --       142  

The estimated fair values presented above could be materially different than net realizable value and are only indicative of the individual financial instrument’s fair value.  Accordingly, these estimates should not be considered an indication of the fair value of the Bank taken as a whole.
 
 
 
 
 
14

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.Fair Value Accounting

On July 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurement, now codified in 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.  SFAS No. 157 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 instrument that are measured at fair value.

ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements.  The valuation hierarchy favors the transparency of inputs to the valuation of an asset or liability as of the measurement date.  The three levels are defined as follows:
 
 
 Level 1 – Fair value is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets in which the Company can 
 participate.
 
  
 
 
Level 2 – Fair value is based upon (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly; (c) inputs other than quoted prices that are observable for the asset or liability or (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

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

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
 
 
 
 
 
 
 
15

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.Fair Value Accounting (continued)

Fair values of assets and liabilities measured on a recurring basis at March 31, 2011 and June 30, 2010 are as follows:

   
Fair Value Measurements Using:
       
March 31, 2011
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)