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EX-31.1 - EXHIBIT 31.1 - Home Federal Bancorp, Inc. of Louisianaexh311.htm
EX-23.0 - EXHIBIT 23.0 - Home Federal Bancorp, Inc. of Louisianaexh230.htm
EX-31.2 - EXHIBIT 31.2 - Home Federal Bancorp, Inc. of Louisianaexh312.htm
EX-32.0 - EXHIBIT 32.0 - Home Federal Bancorp, Inc. of Louisianaexh320.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]          Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended June 30, 2011
OR
[  ]          Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Commission File Number 001-35019
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
(Exact name of registrant as specified in its charter)
 
Louisiana
 
02-0815346
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification Number)
 
624 Market Street, Shreveport, Louisiana
 
71101
(Address of Principal Executive Offices)
 
(Zip Code)
 
Registrant's telephone number, including area code:
(318) 222-1145
 
Securities registered pursuant to Section 12(b) of the Act:
     
 
Title of each class
 
Name of each exchange on which registered
                           Common Stock (par value $.01 per share)                                                                             Nasdaq Stock Market, LLC
 
Securities registered pursuant to Section 12(g) of the Act:
       None                 
       
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes [  ]   No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes [  ]   No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 5(d) of the Securities and 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 Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                                                                    [X]
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.
Large accelerated filer               [  ]                            
Accelerated filer                      [   ]                         
Non-accelerated filer                 [  ] (Do not check if a smaller reporting company)
Smaller reporting company    [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [  ]   No [X]
The aggregate value of the 2,655,075 shares of Common Stock of the Registrant issued and outstanding on December 31, 2010, which excludes an aggregate of 390,754 shares held by all directors and executives officers of the Registrant, the Registrant's Employee Stock Ownership Plan ("ESOP"), the Recognition and Retention Plan (“RRP”) and Employees' Savings and Profit Sharing Plan ("401(k) Plan") as a group, was approximately $30.5 million.  This figure is based on the closing sales price of $11.50 per share of the Registrant's Common Stock on December 31, 2010, the last business day of the Registrant’s second fiscal quarter.  Although directors and executive officers, the ESOP, RRP and 401(k) Plan were assumed to be "affiliates" of the Registrant for purposes of this calculation, the classification is not to be interpreted as an admission of such status.
Number of shares of Common Stock outstanding as of September 26, 2011:  3,051,881
DOCUMENTS INCORPORATED BY REFERENCE
Set forth below are the documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated.
(1)  Portions of the Annual Report to Shareholders are incorporated into Part II, Items 5 through 8 and Part IV, Item 15 of this Form 10-K.
(2)  Portions of the Definitive Proxy Statement for the 2011 Annual Meeting of Shareholders are incorporated into Part III, Items 10 through 14.
 
 
 

 
 
Home Federal Bancorp Inc. of Louisiana
Form 10-K
For the Year Ended June 30, 2011
 
PART I.
     
Item 1.
Business                                                                                                           
1
     
Item 1A.
Risk Factors                                                                                                           
26
     
Item 1B.
Unresolved Staff Comments                                                                                                           
26
     
Item 2.
Properties                                                                                                           
26
     
Item 3.
Legal Proceedings                                                                                                           
26
     
Item 4.
Submission of Matters to a Vote of Security Holders                                                                                                           
26
 
PART II.
     
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities                                                                                                           
27
     
Item 6.
Selected Financial Data                                                                                                           
28
     
Item 7.
Management's Discussion and Analysis of Financial Condition and
    Results of Operations                                                                                                           
29
     
Item 7A.
Quantitative and Qualitative Disclosure About Market Risk                           
38
     
Item 8.
Financial Statements and Supplementary Data                                                                                                           
39
     
Item 9.
Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure                                                                                                           
83
     
Item 9A.
Controls and Procedures                                                                                                           
83
     
Item 9B.
Other Information                                                                                                           
83
 
PART III.
     
Item 10.
Directors, Executive Officers and Corporate Governance                                                                                                           
84
     
Item 11.
Executive Compensation                                                                                                           
84
     
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters                                                                                                           
84
     
Item 13.
Certain Relationships and Related Transactions and Director Independence
85
     
Item 14.
Principal Accountant Fees and Services                                                                                                           
85
     
PART IV.
   
     
Item 15.
Exhibits and Financial Statement Schedules                                                                                                           
85

 
 

 
 
PART I

Item 1. Business

On December 22, 2010, Home Federal Bank (“Home Federal Bank” or the “Bank”) completed its second step conversion from the mutual holding company form of organization to the stock holding company form of organization pursuant to a Plan of Conversion and Reorganization.  Upon completion of the conversion, Home Federal Bancorp, Inc. of Louisiana, a newly formed Louisiana chartered corporation (“Home Federal Bancorp” or the “Company”), became the holding company for Home Federal Bank and Home Federal Mutual Holding Company of Louisiana and the former Home Federal Bancorp, Inc. of Louisiana, a federal corporation, ceased to exist.  As part of the conversion and in accordance with the Plan of Conversion and Reorganization, all outstanding shares of the former Home Federal Bancorp, Inc. of Louisiana common stock (other than those owned by Home Federal Mutual Holding Company) were converted into the right to receive 0.9110 of a share of the newly formed Home Federal Bancorp, Inc. of Louisiana common stock resulting in approximately 1,100,609 shares issued in the exchange and cash in lieu of fractional shares. In addition, a total of 1,945,220 shares of common stock, par value $0.01 per share, of Home Federal Bancorp, Inc. of Louisiana were sold in subscription, community and syndicated community offerings to certain depositors and borrowers of the Bank, the Bank's Employee Stock Ownership Plan and other investors for $10.00 per share, or $19.5 million in the aggregate.  Treasury stock held was cancelled.  The net proceeds of the offering were approximately $18.0 million, after offering expenses.

Home Federal Bank is a federally chartered stock savings bank originally organized in 1924 as Home Federal Savings and Loan Association of Shreveport.  The Bank reorganized into the mutual holding company structure in January 2005 and changed its name to “Home Federal Bank” in 2009 as part of its business strategy to be recognized as a community bank.  Home Federal Bank’s headquarters and main office, three full service branch offices and agency office are located in Shreveport and Bossier City, Louisiana and serve the Shreveport-Bossier City metropolitan area.  Home Federal Bank’s business primarily consists of attracting deposits from the general public and using those funds to originate loans.  At our agency office, we offer security brokerage and advisory services through a third party provider. Home Federal Bank’s market area is Caddo Parish, Louisiana, which includes the city of Shreveport, and neighboring communities in Bossier Parish, Louisiana.

Home Federal Bancorp’s only business activities are to hold all of the outstanding common stock of Home Federal Bank. Home Federal Bancorp is authorized to pursue other business activities permitted by applicable laws and regulations for savings and loan holding companies, which may include the issuance of additional shares of common stock to raise capital or to support mergers or acquisitions and borrowing funds for reinvestment in Home Federal Bank.

Home Federal Bancorp does not own or lease any property, but instead uses the premises, equipment and furniture of Home Federal Bank. At the present time, Home Federal Bancorp employs only persons who are officers of Home Federal Bank to serve as officers of Home Federal Bancorp and may also use the support staff of Home Federal Bank from time to time. These persons are not separately compensated by Home Federal Bancorp.

Pursuant to the regulations under Sections 23A and 23B of the Federal Reserve Act, Home Federal Bank and Home Federal Bancorp have entered into an expense sharing agreement. Under this agreement, Home Federal Bancorp will reimburse Home Federal Bank for the time that employees of Home Federal Bank devote to activities of Home Federal Bancorp, the portion of the expense of the annual independent audit attributable to Home Federal Bancorp and all expenses attributable to Home Federal Bancorp’s public filing obligations under the Securities Exchange Act of 1934. If Home Federal Bancorp commences any significant activities other than holding all of the outstanding common stock of Home Federal Bank, Home Federal Bancorp and Home Federal Bank will amend the expense sharing agreement to provide for the equitable sharing of all expenses of such other activities that may be attributable to Home Federal Bancorp.

Market Area

The primary market area of Home Federal Bancorp for loans and deposits is in northwest Louisiana, particularly Caddo Parish and neighboring communities in Bossier Parish, which are located in the Shreveport-Bossier City metropolitan statistical area.

 
1

 
Shreveport and Bossier City are located in northern Louisiana on Interstate 20, approximately fifteen miles from the Texas state border and 185 miles east of Dallas Texas.  Our primary market area has a diversified economy with employment in services, government and wholesale/retail trade constituting the basis of the local economy, with service jobs being the largest component.  The majority of the services are health care related as Shreveport has become a regional hub for health care.  The casino gaming industry also supports a significant number of the service jobs.  The energy sector has a prominent role in the regional economy, resulting from oil and gas exploration and drilling.

The Shreveport-Bossier City metropolitan statistical area is considered the economic and healthcare center for northwest Louisiana, east Texas and southwest Arkansas.  The primary employers in our market area are the Louisiana Department of Civil Service, Barksdale Air Force Base, Louisiana State University Medical Center and the Willis-Knighton Health System.  The gaming industry also supports service sector employment.

Competition.  We face significant competition both in attracting deposits and in making loans. Our most direct competition for deposits has come historically from commercial banks, credit unions and other savings institutions located in our primary market area, including many large financial institutions which have greater financial and marketing resources available to them. In addition, we face significant competition for investors’ funds from short-term money market securities, mutual funds and other corporate and government securities. We do not rely upon any individual group or entity for a material portion of our deposits. Our ability to attract and retain deposits depends on our ability to generally provide a rate of return, liquidity and risk comparable to that offered by competing investment opportunities.

Our competition for real estate loans comes principally from mortgage banking companies, commercial banks, other savings institutions and credit unions. We compete for loan originations primarily through the interest rates and loan fees we charge, and the efficiency and quality of services we provide borrowers. Factors which affect competition include general and local economic conditions, current interest rate levels and volatility in the mortgage markets. Competition may increase as a result of the continuing reduction of restrictions on the interstate operations of financial institutions.

Lending Activities

General.  At June 30, 2011, our net loan portfolio amounted to $125.4 million, representing approximately 53.7% of total assets at that date. Historically, our principal lending activity was the origination of one- to four-family residential loans. At June 30, 2011, one- to four-family residential loans amounted to $45.6 million, or 36.0% of the total loan portfolio. As part of our desire to diversify the loan portfolio, we began to offer commercial real estate loans and commercial business loans in fiscal 2009, which amounted to $32.8 million and $10.2 million, respectively, at June 30, 2011.

The types of loans that we may originate are subject to federal and state laws and regulations. Interest rates charged on loans are affected principally by the demand for such loans and the supply of money available for lending purposes and the rates offered by our competitors. These factors are, in turn, affected by general and economic conditions, the monetary policy of the federal government, including the Federal Reserve Board, legislative and tax policies, and governmental budgetary matters.

A savings institution generally may not make loans to one borrower and related entities in an amount which exceeds 15% of its unimpaired capital and surplus, although loans in an amount equal to an additional 10% of unimpaired capital and surplus may be made to a borrower if the loans are fully secured by readily marketable securities. In addition, upon application the Office of the Comptroller of the Currency permits a savings institution to lend up to an additional 15% of unimpaired capital and surplus to one borrower to develop domestic residential housing units. At June 30, 2011, our regulatory limit on loans-to-one borrower was $6.2 million and the five largest loans or groups of loans-to-one borrower, including related entities, aggregated $4.6 million, $4.4 million, $4.1 million, $4.0 million and $3.9 million. Each of our five largest loans or groups of loans was originated with strong guarantor support to known borrowers in our market area and performing in accordance with its terms at June 30, 2011. The $4.6 million group of loans is to a limited partnership established by the Housing Authority of Bossier City, Louisiana. The loans are secured by a first mortgage lien on real estate and low to moderate income rental units in Bossier City, Louisiana as well as a conditional assignment of rents.

 
2

 
Loans to or guaranteed by general obligations of a state or political subdivision are not subject to the foregoing lending limits.

Loan Portfolio Composition.  The following table shows the composition of our loan portfolio by type of loan at the dates indicated.

   
June 30,
 
   
2011
       
2010
 
         
Percent of
               
Percent of
 
   
Amount
   
Total Loans
       
Amount
     
Total Loans
 
 
            (Dollars in thousands)
 
Real estate loans:
                             
     One- to four-family residential(1)
$
45,567
   
36.02
%
 
 
$
36,257
     
38.65
%
     Commercial-real estate secured:
                             
          Owner occupied
 
32,763
   
25.90
       
14,550
     
15.51
 
          Non-owner occupied
 
       --
   
--
       
    872
     
0.93
 
               Total commercial-real estate secured
 
 32,763
   
25.90
       
15,422
     
16.44
 
     Multi-family residential
 
8,360
   
6.61
       
9,079
     
9.68
 
     Land
 
11,254
   
8.90
       
8,442
     
9.00
 
     Construction
 
10,325
   
8.16
       
7,793
     
8.31
 
     Home equity loans and second mortgage loans
 
1,519
   
1.20
       
2,963
     
3.16
 
     Equity lines of credit
 
   5,974
   
    4.73
       
  4,069
     
  4.33
 
          Total real estate loans
 
 115,762
   
  91.52
       
84,025
     
89.57
 
Commercial business
 
10,237
   
8.09
       
9,454
     
10.08
 
Consumer non-real estate loans:
                             
     Savings accounts
 
328
   
0.26
       
285
     
0.30
 
     Automobile and other consumer loans
 
    163
   
    0.13
       
        48
     
   0.05
 
          Total non-real estate loans
 
    491
   
     0.39
       
      333
     
   0.35
 
               Total loans
 
 126,490
   
  100.00
%
 
   
93,812
     
100.00
%
Less:
                             
     Allowance for loan losses
 
(842
)
           
(489
)
       
     Deferred loan fees
 
(277
)
           
(267
)
       
          Net loans receivable(1)
$
 125,371
           
$
93,056
         
                               
 
 _________________
(1)
Does not include loans held-for-sale amounting to $6.7 million and $13.4 million at June 30, 2011 and June 30, 2010, respectively.

Origination of Loans.  Our lending activities are subject to the written underwriting standards and loan origination procedures established by the board of directors and management. Loan originations are obtained through a variety of sources, primarily from existing customers and referrals from existing customers. Written loan applications are taken by one of our loan officers. The loan officer also supervises the procurement of credit reports, appraisals and other documentation involved with a loan. As a matter of practice, we obtain independent outside appraisals on substantially all of our loans although we may prepare an in-house valuation depending on the characteristics of the loan and the profile of the borrower. Under our lending policy, a title opinion must be obtained for each real estate loan. We also require fire and extended coverage casualty insurance in order to protect the properties securing the real estate loans. Borrowers must also obtain flood insurance policies when the property is in a flood hazard area.

Our loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan and the value of the property that will secure the loan. Residential loans up to $417,000, the Fannie Mae conforming loan limit for single-family mortgage loans for 2011, must be approved by our Residential Loan Committee which currently consists of Home Federal Bank's Chief Executive Officer, the President, the Chief Financial Officer, the Senior Vice President Mortgage Lending and the Vice President of Lending. Residential loans in excess of $417,000 must be approved by the board of directors. Commercial real estate secured loans and lines of credit and commercial business loans up to $1.0 million must be approved by the President or the Chief Executive Officer, up to $2.0 million by both the President and the Chief Executive Officer, up to $3.0 million by the Commercial Loan Committee and in excess of $3.0 million by the Executive Loan Committee. In accordance with past practice, all loans are ratified by our board of directors.

 
3

 
Historically, we purchased loans from a mortgage originator secured by single-family housing primarily located in predominantly rural areas of Texas and to a lesser extent, Tennessee, Arkansas, Alabama, Louisiana and Mississippi. No such mortgage loans were purchased during fiscal 2010 or fiscal 2011. The loans were generally secured by rural properties and the seller retained servicing rights. Although the loans were originated with fixed-rates, Home Federal Bank receives an adjustable-rate of interest equal to the Federal Housing Finance Board rate, with rate floors and ceilings of approximately 5.0% and 8.0%, respectively. Under the terms of the loan agreements, the seller must repurchase any loan that becomes more than 90 days delinquent. At June 30, 2011, we had approximately $8.8 million of such loans in our portfolio with an average age of approximately eight years.

In recent periods, we have originated and sold substantially all of our fixed-rate conforming mortgages to correspondent banks. For the year ended June 30, 2011, we originated $123.0 million of one- to four-family residential loans and sold $116.5 million of such loans. Our residential loan originations primarily consist of rural development, FHA and VA loans.

The following table shows total loans originated, sold and repaid during the periods indicated.
 
   
 
 
    2011       2010  
   
 
 
Loan originations:
             
     One- to four-family residential                                                                                                     
$
              122,981
   
$
113,753
 
     Commercial — real estate secured (owner occupied and non-owner occupied)
 
20,575
     
8,645
 
     Multi-family residential                                                                                                     
 
3,964
     
7,780
 
     Commercial business                                                                                                     
 
14,034
     
12,877
 
     Land                                                                                                     
 
6,400
     
7,561
 
     Construction                                                                                                     
 
15,367
     
11,569
 
     Home equity loans and lines of credit and other consumer     
 
    10,688
     
       6,488
 
          Total loan originations                                                                                                     
 
194,009
     
168,673
 
Loans purchased                                                                                                      
 
             --
     
             --
 
Total loan originations and loans purchased                                                                                                      
 
194,009
     
168,673
 
Loans sold                                                                                                      
 
(116,503
)
   
(71,554
)
Loan principal repayments                                                                                                     
 
    (44,828
)
   
   (50,844
)
Total loans sold and principal repayments                                                                                                     
 
(161,331
)
   
(122,398
)
Increase (decrease) due to other items, net(1)                                                                                                      
 
        (363
)
   
        (167
)
Net increase in loan portfolio                                                                                                      
$
           32,315
   
$
    46,108
 
 ___________________
(1)           Other items consist of deferred loan fees, the allowance for loan losses and loans held-for-sale at year end.

Although federal laws and regulations permit savings institutions to originate and purchase loans secured by real estate located throughout the United States, we concentrate our lending activity in our primary market area in Caddo Parish, Louisiana and the surrounding area. Subject to our loans-to-one borrower limitation, we are permitted to invest without limitation in residential mortgage loans and up to 400% of our capital in loans secured by non-residential or commercial real estate. We also may invest in secured and unsecured consumer loans in an amount not exceeding 35% of total assets. This 35% limitation may be exceeded for certain types of consumer loans, such as home equity and property improvement loans secured by residential real property. In addition, we may invest up to 10% of our total assets in secured and unsecured loans for commercial, corporate, business or agricultural purposes. At June 30, 2011, we were within each of the above lending limits.
 
During fiscal 2011 and 2010, we sold $116.5 million and $71.6 million of loans, respectively. We recognized gain on sale of loans of $1.8 million during fiscal 2011 and $644,000 during fiscal 2010. Loans were sold during these periods primarily to other financial institutions. Such loans were sold against forward sales commitments with servicing released and without recourse after a certain amount of time, typically 90 days. The loans sold primarily consisted of long-term, fixed rate residential real estate loans. These loans were originated during a period of historically low interest rates and were sold to reduce our interest rate risk. We will continue to sell loans in the future to the extent we believe the interest rate environment is unfavorable and interest rate risk is unacceptable.
 
 
4

 
Contractual Terms to Final Maturities.  The following table shows the scheduled contractual maturities of our loans as of June 30, 2011, before giving effect to net items. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account loan prepayments.

                                       
Home
   
                                       
Equity Loans
   
                                       
and Lines
   
   
One- to
   
Commercial
   
Multi-
                     
of Credit
   
   
Four-Family
   
Real Estate
   
Family
   
Commercial
               
and Other
   
   
Residential
   
Secured
   
Residential
   
Business
   
Land
   
Construction
   
Consumer
 
Total
   
(In thousands)
Amounts due after 
  June 30, 2011 in:
                                                           
One year or less  
 
$
2,296
   
$
808
   
$
97
   
$
4,946
   
$
8,681
   
$
6,892
   
$
1,791
 
$
25,511
After one year through
  two years  
   
2,655
     
414
     
--
     
1,661
     
2,023
     
3,433
     
335
   
10,521
After two years through
  three years 
   
6,161
     
9,587
     
594
     
1,394
     
413
     
--
     
75
   
18,224
After three years through
  five years 
   
12,433
     
 
20,876
     
2,127
     
2,189
     
137
     
--
     
5,457
   
43,219
After five years through
  ten years  
   
2,542
     
 
693
     
--
     
47
     
--
     
--
     
171
   
3,453
After ten years through
  fifteen years
   
3,565
     
 
--
     
2,179
     
--
     
--
     
--
     
3
   
5,747
After fifteen years  
   
15,915
     
385
     
3,363
     
--
     
--
     
--
     
152
   
19,815
                                                             
    Total                                
 
$
45,567
   
$
32,763
   
$
8,360
   
$
10,237
   
$
11,254
   
$
10,325
   
$
7,984
 
$
126,490
                                                             
 
The following table sets forth the dollar amount of all loans, before net items, due after June 30, 2011 which have fixed interest rates or which have floating or adjustable interest rates.
 
        Floating or        
    Fixed-Rate     Adjustable-Rate      Total    
   
 
 
One- to four-family residential                                                                                   
$ 35,345   $ 10,222   $ 45,567  
Commercial — real estate secured                                                                                   
  32,763     --     32,763  
Multi-family residential                                                                                   
  8,360     --     8,360  
Commercial business                                                                                   
  10,237     --     10,237  
Land                                                                                   
  11,254     --     11,254  
Construction                                                                                   
  10,325     --     10,325  
Home equity loans and lines of credit and other consumer
   7,984     --     7,984  
                   
     Total                                                                                   
$ 116,268   $ 10,222   $ 126,490  
                   

Scheduled contractual maturities of loans do not necessarily reflect the actual expected term of the loan portfolio. The average life of mortgage loans is substantially less than their average contractual terms because of prepayments. The average life of mortgage loans tends to increase when current mortgage loan rates are higher than rates on existing mortgage loans and, conversely, decrease when rates on current mortgage loans are lower than existing mortgage loan rates (due to refinancing of adjustable-rate and fixed-rate loans at lower rates). Under the latter circumstance, the weighted average yield on loans decreases as higher yielding loans are repaid or refinanced at lower rates.

 
5

 
One- to Four-Family Residential Real Estate Loans.  At June 30, 2011, $45.6 million, or 36.0%, of the total loan portfolio, before net items, consisted of one- to four-family residential loans.

The loan-to-value ratio, maturity and other provisions of the loans made by us generally have reflected the policy of making less than the maximum loan permissible under applicable regulations, in accordance with sound lending practices, market conditions and underwriting standards established by us. Our current lending policy on one- to four-family residential loans generally limits the maximum loan-to-value ratio to 90% or less of the appraised value of the property although we will lend up to a 100% loan-to-value ratio with private mortgage insurance. These loans are amortized on a monthly basis with principal and interest due each month, with terms not in excess of 30 years and generally include “due-on-sale” clauses.

At June 30, 2011, $35.3 million, or 77.6%, of our one- to four-family residential mortgage loans were fixed-rate loans. Fixed-rate loans generally have maturities ranging from 15 to 30 years and are fully amortizing with monthly loan payments sufficient to repay the total amount of the loan with interest by the end of the loan term. Our fixed-rate loans generally are originated under terms, conditions and documentation which permit them to be sold to U.S. Government-sponsored agencies, such as the Federal Home Loan Mortgage Corporation, and other investors in the secondary mortgage market. Consistent with our asset/liability management, we have sold a significant portion of our long-term, fixed rate loans over the past two years.

Although we offer adjustable rate loans, substantially all of the single-family loan originations over the last few years have consisted of fixed-rate loans due to the low interest rate environment. The adjustable-rate loans held in portfolio typically have interest rates which adjust on an annual basis. These loans generally have an annual cap of 2% on any increase or decrease and a cap of 6% above or below the initial rate over the life of the loan. Such loans are underwritten based on the initial rate plus 2%.

Commercial Real Estate Secured Loans.  As of June 30, 2011, Home Federal Bank had outstanding $32.8 million of loans secured by commercial real estate. It is the current policy of Home Federal Bank to lend in a first lien position on real property occupied as a commercial business property. Home Federal Bank offers fixed and variable rate mortgage loans. Home Federal Bank’s commercial real estate loans are limited to a maximum of 85% of the appraised value and have terms up to 15 years, however, the terms are generally no more than 5 years with amortization periods of 20 years or less. It is our policy that commercial real estate secured lines of credit are limited to a maximum of 85% of the appraised value of the property and shall not exceed 3 to 5 year amortizations.

Multi-Family Residential Loans.  At June 30, 2011, we had outstanding approximately $8.4 million of multi-family residential loans. Our multi-family residential loan portfolio includes income producing properties of 50 or more units and low income housing developments. We obtain personal guarantees on all properties other than those of the public housing authority for which they are not permitted.

Commercial Business Loans.  At June 30, 2011, we had outstanding approximately $10.2 million of non-real estate secured commercial loans. The business lending products we offer include lines of credit, inventory financing and equipment loans. Commercial business loans and lines of credit carry more credit risk than other types of commercial loans. We attempt to limit such risk by making loans predominantly to small- and mid-sized businesses located within our market area and having the loans personally guaranteed by the principals involved. We have established underwriting standards in regard to business loans which set forth the criteria for sources of repayment, borrower’s capacity to repay, specific financial and collateral margins and financial enhancements such as guarantees. Generally, the primary source of repayment is cash flow from the business and the financial strength of the borrower.

Land Loans.  As of June 30, 2011, land loans were $11.3 million, or 8.9% of the total loan portfolio. Land loans include land which has been acquired for the purpose of development and unimproved land. Our loan policy provides for loan-to-value ratios of 50% for unimproved land loans. Land loans are originated with fixed rates and terms up to five years with longer amortizations. Although land loans generally are considered to have greater credit risk than certain other types of loans, we expect to mitigate such risk by requiring personal guarantees and identifying other secondary source of repayment for the land loan other than the sale of the collateral. It is our practice to only originate a limited amount of loans for speculative development to borrowers with whom our lenders have a prior relationship.

 
6

 
Construction Loans.  At June 30, 2011, we had outstanding approximately $10.3 million of construction loans which included loans for the construction of residential and commercial property. Our residential construction loans typically have terms of 6 to eleven months with a takeout letter from Home Federal for the permanent mortgage. Our commercial construction loans include owner occupied commercial properties, pre-sold property and speculative office property. As of June 30, 2011, we held $5.5 million of speculative construction loans, $5.2 million of which related to speculative office condominium projects, which are limited to eight units at any one time.

Home Equity and Second Mortgage Loans.  At June 30, 2011, we held $1.5 million of home equity and second mortgage loans compared to $3.0 million of home equity and second mortgage loans at June 30, 2010. These loans are secured by the underlying equity in the borrower’s residence. We do not require that we hold the first mortgage on the properties that secure the second mortgage loans. The amount of our second mortgage loans generally cannot exceed a loan-to-value ratio of 90% after taking into consideration the first mortgage loan. These loans are typically three-to-five year balloon loans with fixed rates and terms that will not exceed 10 years and contain an on-demand clause that allows us to call the loan in at any time.

Equity Lines of Credit.  We offer lines of credit secured by a borrower’s equity in real estate which loans amounted to $6.0 million, or 4.7% of the total loan portfolio, at June 30, 2011. The rates and terms of such lines of credit depend on the history and income of the borrower, purpose of the loan and collateral. Lines of credit will not exceed 90% of the value of the equity in the collateral.

Consumer Non-real Estate Loans.  We are authorized to make loans for a wide variety of personal or consumer purposes. We originate consumer loans primarily in order to accommodate our customers. The consumer loans at June 30, 2011 consist of loans secured by deposit accounts with us, automobile loans, overdraft and other unsecured loans.

Consumer non-real estate loans generally have shorter terms and higher interest rates than residential mortgage loans, and generally entail greater credit risk than residential mortgage loans, particularly those loans secured by assets that depreciate rapidly, such as automobiles, boats and recreational vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In particular, amounts realizable on the sale of repossessed automobiles may be significantly reduced based upon the condition of the automobiles and the fluctuating demand for used automobiles. Our automobile loans at June 30, 2011 totaled $136,000.

We offer loans secured by deposit accounts held with us, which loans amounted to $328,000, or 0.3% of the total loan portfolio, at June 30, 2011. Such loans are originated for up to 100% of the account balance, with a hold placed on the account restricting the withdrawal of the account balance. The interest rate on the loan is equal to the interest rate paid on the account plus 2%. These loans typically are payable on demand with a maturity date of one year.

Loan Origination and Other Fees.  In addition to interest earned on loans, we generally receive loan origination fees or “points” for originating loans. Loan points are a percentage of the principal amount of the mortgage loan and are charged to the borrower in connection with the origination of the loan. In accordance with accounting guidance, loan origination fees and points are deferred and amortized into income as an adjustment of yield over the life of the loan.

Asset Quality

General.  During fiscal 2011, we engaged a third party to review loans, policies, and procedures. The scope of the services to be provided includes credit underwriting, adherence to our loan policies as well as regulatory policies, and recommendations regarding reserve allocations. We expect to have such reviews done annually.

Our collection procedures provide that when a loan is 10 days past due, personal contact efforts are attempted, either in person or by telephone. At 15 days past due, a late charge notice is sent to the borrower requesting payment. If the loan is still past due at 30 days, a formal letter is sent to the borrower stating that the loan is past due and that legal action, including foreclosure proceedings, may be necessary. If a loan becomes 60 days past due and no progress has been made in resolving the delinquency, a collection letter from legal counsel is sent and personal contact is attempted. When a loan continues in a delinquent status for 90 days or more, and a repayment schedule has not been made or kept by the borrower, generally a notice of intent to foreclose is sent to the borrower. If the delinquency is not cured, foreclosure proceedings are initiated. In most cases, deficiencies are cured promptly. While we generally prefer to work with borrowers to resolve such problems, we will institute foreclosure or other collection proceedings when necessary to minimize any potential loss.

 
7

 
Loans are placed on non-accrual status when management believes the probability of collection of interest is doubtful. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. We generally discontinue the accrual of interest income when the loan becomes 90 days past due as to principal or interest unless the credit is well secured and we believe we will fully collect.

Real estate and other assets we acquire as a result of foreclosure or by deed-in-lieu of foreclosure are classified as real estate owned until sold. We held no real estate owned at June 30, 2011 or June 30, 2010.

Delinquent Loans.  The following table shows the delinquencies in our loan portfolio as of the dates indicated.

 
June 30, 2011
   
June 30, 2010
 
 
30-89
   
90 or More Days
   
30-89
   
90 or More Days
 
 
Days Overdue
   
Overdue
   
Days Overdue
   
Overdue
 
 
Number
   
Principal
   
Number
   
Principal
   
Number
   
Principal
   
Number
   
Principal
 
 
of Loans
   
Balance
   
of Loans
   
Balance
   
of Loans
   
Balance
   
of Loans
   
Balance
 
 
(Dollars in thousands)
 
One- to four-family residential
 
24
   
$
2,467
     
2
   
$
114
     
4
   
$
265
     
1
   
$
 15
 
Commercial — real estate secured
 
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
Multi-family residential 
 
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
Commercial business   
 
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
Land                                               
 
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
Construction                                               
 
--
     
--
     
--
     
--
     
--
     
--
     
1
     
345
 
Home equity loans and lines of credit and
  other consumer                                               
 
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                               
     Total delinquent loans  
 
24
   
$
2,467
     
2
   
$
114
     
4
   
$
265
     
2
   
$
360
 
                                                               
Delinquent loans to total net loans
         
1.97
%
           
0.09
%
           
0.28
%
           
0.39
%
Delinquent loans to total loans
         
1.95
%
           
0.09
%
           
0.28
%
           
0.38
%
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
8

 
Non-Performing Assets.  The following table shows the amounts of our non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due and real estate owned) at the dates indicated. We did not have real estate owned or troubled debt restructurings at either of the dates indicated.

   
June 30,
 
   
2011
   
2010
 
   
(Dollars in thousands)
 
Non-accruing loans:
               
     One- to four-family residential                                                                                                        
 
$
15
   
$
15
 
     Commercial — real estate secured                                                                                                        
   
--
     
--
 
     Multi-family residential                                                                                                        
   
--
     
--
 
     Commercial business                                                                                                        
   
--
     
--
 
     Land                                                                                                        
   
--
     
--
 
     Construction                                                                                                        
   
--
     
345
 
     Home equity loans and lines of credit and other consumer          
   
--
     
--
 
          Total non-accruing loans                                                                                                        
   
15
     
360
 
Accruing loans 90 days or more past due                                                                                                        
   
99
     
--
 
               Total non-performing loans(1)                                                                                                        
   
114
     
360
 
          Real estate owned, net                                                                                                        
   
--
     
--
 
               Total non-performing assets                                                                                                        
 
$
114
   
$
360
 
                 
Total non-performing loans as a percent of loans, net                                                                                                        
   
0.09
%
   
0.39
%
Total non-performing assets as a percent of total assets                                                                                                        
   
0.05
%
   
0.19
%
_________________
(1)           Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more past due.

Classified Assets.  Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a higher possibility of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated “special mention” also must be established and maintained for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution’s regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital. Federal examiners may disagree with an insured institution’s classifications and amounts reserved. At June 30, 2011 we held $100,000 of assets classified special mention and $114,000 classified as substandard. The classified assets are related to four mortgage loans.

Allowance for Loan Losses.  At June 30, 2011, our allowance for loan losses amounted to $842,000. The allowance for loan losses is maintained at a level believed, to the best of our knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. The level of allowance for loan losses is based on our periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing conditions. We are primarily engaged in originating single-family residential loans. Our management considers the deficiencies of all classified loans in determining the amount of allowance for loan losses required at each reporting date. Our management analyzes the probability of the correction of the substandard loans’ weaknesses and the extent of any known or inherent losses that we might sustain on them. During the fiscal year 2011, we recorded a provision for loan losses of $353,000 as compared to $36,000 recorded for the fiscal year 2010. The 2010 provision reflects our estimate to maintain the allowance for loan losses at a level to cover probable losses inherent in the loan portfolio.

 
9

 
The increase in the provision for fiscal year 2011 reflects the increased risk associated with our commercial lending (both real estate secured and non-real estate secured), as well our consideration of the downturn in the national economy. As noted previously, total non-performing assets decreased by approximately $246,000 over the prior year; however, our loans 30-89 days overdue increased $2.2 million as of June 30, 2011 compared to June 30, 2010, all of which were secured by one- to four-family residential properties.

While management believes that it determines the size of the allowance based on the best information available at the time, the allowance will need to be adjusted as circumstances change and assumptions are updated. Future adjustments to the allowance could significantly affect net income.

The following table shows changes in our allowance for loan losses during the periods presented. We had $13,000 of loan charge-offs during fiscal 2010.  There were no loan charge-offs during fiscal 2011.
 
   
At or for the Year Ended
 
   
June 30,
 
   
2011
   
2010
 
   
(Dollars in thousands)
 
Total loans outstanding at end of period                                                                                                      
 
$
126,490
   
$
93,812
 
Average loans outstanding                                                                                                      
   
115,505
     
77,879
 
Allowance for loan losses, beginning of period                                                                                                      
 
 
489
   
 
466
 
Provision for loan losses                                                                                                      
   
353
     
36
 
Charge-offs                                                                                                      
   
--
     
(13
)
Allowance for loan losses, end of period                                                                                                      
 
$
842
   
$
489
 
                 
Allowance for loan losses as a percent of non-performing loans      
   
738.60
%
   
135.83
%
Allowance for loan losses as a percent of loans outstanding     
   
0.67
%
   
0.52
%
 
The following table shows how our allowance for loan losses is allocated by type of loan at each of the dates indicated.
 
   
June 30,
 
   
2011
   
2010
 
         
Loan
         
Loan
 
         
Category
         
Category
 
   
Amount of
   
as a % of
   
Amount of
   
as a % of
 
   
Allowance
   
Total Loans
   
Allowance
   
Total Loans
 
   
(Dollars in thousands)
 
One- to four-family residential                                                                           
 
$
110
     
36.02
%
 
$
30
     
38.65
%
Commercial — real estate secured                                                                           
   
125
     
25.90
     
95
     
16.44
 
Multi-family residential                                                                           
   
140
     
6.61
     
70
     
9.68
 
Commercial business                                                                           
   
175
     
8.09
     
140
     
10.08
 
Land                                                                           
   
150
     
8.90
     
75
     
9.00
 
Construction                                                                           
   
130
     
8.16
     
74
     
8.31
 
Home equity loans and lines of credit and other consumer
   
12
     
6.32
     
5
     
7.85
 
                                 
     Total                                                                           
 
$
842
     
100.00
%
 
$
489
     
100.00
%
                                 
 
Investment Securities
 
We have authority to invest in various types of securities, including mortgage-backed securities, U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, certificates of deposit at federally insured banks and savings institutions, certain bankers’ acceptances and federal funds. Our investment strategy is established by the board of directors.

 
10

 
The following table sets forth certain information relating to our investment securities portfolio at the dates indicated.
 
   
June 30,
   
2011
   
2010
   
Amortized
   
Fair
   
Amortized
   
Fair
   
Cost
   
Value
   
Cost
   
Value
   
(In thousands)
Securities Held-to-Maturity:
                             
     FNBB stock                                                                                
 
$
250
   
$
250
   
$
--
   
$
--
     FHLB stock                                                                                
   
1,320
   
 
1,320
   
 
1,840
   
 
1,840
     Mortgage-backed securities                                                                                
   
    4,155
     
    4,068
     
       298
     
       323
          Total Securities Held-to-Maturity                                                                                
   
    5,725
     
    5,638
     
    2,138
     
    2,163
                               
Securities Available-for-Sale:
                             
     Government agency securities                                                                                
   
36,774
     
36,981
     
-- 
     
-- 
     ARM Fund                                                                                
   
1,291
     
1,308
     
1,538
     
1,559
     Mortgage-backed securities                                                                                
   
  34,814
     
  36,750
     
  58,974
     
  62,129
                               
          Total Securities Available-for-Sale                                                                                
   
  72,879
     
  75,039
     
  60,512
     
  63,688
                               
Total Investment Securities                                                                  
 
   $
  78,604
   
  $
  80,677
   
    $
  62,650
   
$
  65,851
                               
 
The following table sets forth the amount of investment securities which contractually mature during each of the periods indicated and the weighted average yields for each range of maturities at June 30, 2011. The amounts reflect the fair value of our securities at June 30, 2011.
 
   
Amounts at June 30, 2011 which Mature in
 
               
Over One
                               
         
Weighted
   
Year
   
Weighted
   
Over Five
   
Weighted
         
Weighted
 
   
One Year
   
Average
   
Through
   
Average
   
Through
   
Average
   
Over
   
Average
 
   
or Less
   
Yield
   
Five Years
   
Yield
   
Ten Years
   
Yield
   
Ten Years
   
Yield
 
   
(Dollars in thousands)
 
Bonds and other debt securities:
                                                               
     Government agency securities
 
$
--
     
--
%
 
$
36,981
     
0.81
%
 
$
--
     
--
%
 
$
--
     
--
%
     Mortgage-backed securities
   
--
     
--
     
23
     
7.03
     
750
     
3.56
     
40,045
     
4.94
 
Equity securities(1):
                                                               
     ARM Fund                                      
   
--
     
--
     
--
     
--
     
--
     
--
     
1,308
     
2.31
 
     FNBB stock
   
--
     
--
     
--
     
--
     
--
     
--
     
250
     
1.26
 
     FHLB stock  
   
--
     
--
     
--
     
--
     
--
     
--
     
1,320
     
0.33
 
                                                                 
Total investment securities
   and Bank stocks 
 
$
--
     
--
%
 
$
37,004
     
0.81
%
 
$
750
     
3.56
%
 
$
42,923
     
4.70
%
                                                                 
 ____________________
(1)           None of the listed equity securities has a stated maturity.

Our investment in equity securities consists primarily of FHLB stock, a $1.3 million (book value) investment in an adjustable-rate mortgage fund (referred to as the ARM Fund) and shares of First National Bankers Bankshares, Inc. (“FNBB”). The fair value of the ARM Fund has traditionally correlated with the interest rate environment. At June 30, 2011, the unrealized gain on this investment was $17,000. Management will continue to monitor its investment portfolio to determine whether any investment securities which have unrealized losses should be considered other than temporarily impaired.

Mortgage-backed securities represent a participation interest in a pool of one- to four-family or multi-family mortgages. The mortgage originators use intermediaries (generally U.S. Government agencies and government-sponsored enterprises) to pool and repackage the participation interests in the form of securities, with investors receiving the principal and interest payments on the mortgages. Such U.S. Government agencies and government-sponsored enterprises guarantee the payment of principal and interest to investors.

 
11

 
Mortgage-backed securities are typically issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security approximates the life of the underlying mortgages.
 
Our mortgage-backed securities consist of Ginnie Mae securities (“GNMA”), Freddie Mac securities (“FHLMC”) and Fannie Mae securities (“FNMA”). Ginnie Mae is a government agency within the Department of Housing and Urban Development which is intended to help finance government-assisted housing programs. Ginnie Mae securities are backed by loans insured by the Federal Housing Administration, or guaranteed by the Veterans Administration. The timely payment of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. Government. Freddie Mac is a private corporation chartered by the U.S. Government. Freddie Mac issues participation certificates backed principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest and the ultimate return of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae securities. Freddie Mac and Fannie Mae securities are not backed by the full faith and credit of the U.S. Government. In September 2008, the Federal Housing Finance Agency was appointed as conservator of Fannie Mae and Freddie Mac. The U.S. Department of the Treasury agreed to provide capital as needed to ensure that Fannie Mae and Freddie Mac continue to provide liquidity to the housing and mortgage markets.
 
Mortgage-backed securities generally yield less than the loans which underlie such securities because of their payment guarantees or credit enhancements which offer nominal credit risk. In addition, mortgage-backed securities are more liquid than individual mortgage loans and may be used to collateralize our borrowings or other obligations.
 
The following table sets forth the composition of our mortgage-backed securities portfolio at each of the dates indicated. The amounts reflect the fair value of our mortgage-backed securities at June 30, 2011 and 2010.
 
   
June 30,
   
2011
      2010
   
(In thousands)
Fixed rate:
             
     GNMA                                                                
 
$
     157
   
$
  205
     FHLMC                                                                
   
  1,680
     
  2,812
     FNMA                                                                
   
37,784
     
58,004
          Total fixed rate                                                                
   
39,621
     
61,021
Adjustable rate:
             
     GNMA                                                                
   
     115
     
   128
     FNMA                                                                
   
     732
     
   881
     FHLMC                                                                
   
     350
     
     422
          Total adjustable-rate                                                                
   
       1,197
     
  1,431
          Total mortgage-backed securities                                                                
 
$
40,818
   
$
62,452

Information regarding the contractual maturities and weighted average yield of our mortgage-backed securities portfolio at June 30, 2011 is presented below. Due to repayments of the underlying loans, the actual maturities of mortgage-backed securities generally are substantially less than the scheduled maturities. The amounts reflect the fair value of our mortgage-backed securities at June 30, 2011.

 
 
 

 
 
12

 
 
   
Amounts at June 30, 2011 which Mature in
 
         
Weighted
   
Over One
   
Weighted
         
Weighted
 
   
One Year
   
Average
   
through
   
Average
   
Over
   
Average
 
   
or Less
   
Yield
   
Five Years
   
Yield
   
Five Years
   
Yield
 
   
(In thousands)
 
Fixed rate:
                                               
     GNMA                                                  
 
$
--
     
--
%
 
$
8
     
10.20
%
 
$
149
     
8.30
%
     FHLMC                                                  
   
--
     
--
     
2
     
9.17
     
1,678
     
4.93
 
     FNMA                                                  
   
--
     
--
     
--
     
--
     
37,784
     
4.97
 
                                                 
          Total fixed-rate                                                  
   
--
     
--
     
10
     
10.03
     
39,611
     
4.98
%
                                                 
Adjustable rate:
                                               
     GNMA                                                  
   
--
     
--
     
10
     
4.47
     
105
     
2.53
%
     FNMA                                                  
   
--
     
--
     
3
     
6.66
     
729
     
3.00
 
     FHLMC                                                  
   
--
     
--
     
--
     
--
     
350
     
3.05
 
                                                 
          Total adjustable-rate      
   
--
     
--
     
13
     
4.95
     
1,184
     
2.97
 
                                                 
               Total                                                  
 
$
--
     
--
%
 
$
23
     
7.04
%
 
$
40,795
     
4.93
%
                                                 
 
The following table sets forth the purchases, sales and principal repayments of our mortgage-backed securities during the periods indicated.
 
   
At or For the
 
   
Year Ended June 30,
 
   
2011
   
2010
 
   
(Dollars in thousands)
 
Mortgage-backed securities at beginning of period                                                                                                      
 
$
59,272
   
$
89,945
 
Purchases                                                                                                      
   
3,969
     
--
 
Repayments                                                                                                      
   
(14,342
)
   
(14,555
)
Sales                                                                                                      
   
(10,103
)
   
(16,420
)
Amortizations of premiums and discounts, net                                                                                                      
   
173
     
302
 
                 
Mortgage-backed securities at end of period                                                                                                      
 
38,969
   
59,272
 
                 
Weighted average yield at end of period                                                                                                      
   
4.93
%
   
4.95
%
                 
 
Sources of Funds
 
General.  Deposits are our primary source of funds for lending and other investment purposes. In addition to deposits, principal and interest payments on loans and investment securities are a source of funds. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Borrowings may also be used on a short-term basis to compensate for reductions in the availability of funds from other sources and on a longer-term basis for general business purposes.
 
Deposits.  We attract deposits principally from residents of Louisiana and particularly from Caddo Parish and Bossier Parish. Deposit account terms vary, with the principal differences being the minimum balance required, the time periods the funds must remain on deposit and the interest rate. We have not solicited deposits from outside Louisiana or paid fees to brokers to solicit funds for deposit. With the introduction of commercial lending in fiscal 2009, we commenced a policy of requiring commercial loan customers to have a deposit account relationship with us. This policy resulted in a significant increase in NOW accounts in fiscal 2011.
 
 
 
13

 
We establish interest rates paid, maturity terms, service fees and withdrawal penalties on a periodic basis. Management determines the rates and terms based on rates paid by competitors, the need for funds or liquidity, growth goals and federal regulations. We attempt to control the flow of deposits by pricing our accounts to remain generally competitive with other financial institutions in the market area.

The following table shows the distribution of, and certain other information relating to, our deposits by type of deposit, as of the dates indicated.
 
   
June 30,
 
   
2011
   
2010
 
         
Percent of
         
Percent of
 
   
Amount
   
Total Deposits
   
Amount
   
Total Deposits
 
Certificate accounts: 
 
(Dollars in thousands)
 
     0.00% - 0.99%                                                                    
 
$
4,762
     
3.10
%
 
$
12
     
0.01
%
     1.00% - 1.99%                                                                    
   
24,946
     
16.24
     
30,309
     
25.75
 
     2.00% - 2.99%                                                                    
   
29,869
     
19.44
     
16,734
     
14.22
 
     3.00% - 3.99%                                                                    
   
20,192
     
13.15
     
17,497
     
14.86
 
     4.00% - 4.99%                                                                    
   
1,026
     
0.67
     
7,865
     
6.68
 
     5.00% - 5.99%                                                                    
   
4,870
     
3.17
     
1,473
     
1.25
 
                                 
          Total certificate accounts                                                                    
   
85,665
     
55.77
     
73,890
     
62.77
 
                                 
Transaction accounts:
                               
     Passbook savings                                                                    
   
7,363
     
4.79
     
5,266
     
4.47
 
     Non-interest bearing demand accounts
   
14,827
     
9.65
     
9,890
     
8.40
 
     NOW accounts                                                                    
   
14,516
     
 9.45
     
 8,240
     
7.00
 
     Money market                                                                    
   
31,245
     
20.34
     
20,436
     
17.36
 
                                 
          Total transaction accounts                                                                    
   
67,951
     
44.23
     
43,832
     
37.23
 
                                 
          Total deposits                                                                    
 
$
153,616
     
100.00
%
 
$
117,722
     
100.00
%
                                 
            The following table shows the average balance of each type of deposit and the average rate paid on each type of deposit for the periods indicated.

   
Year Ended June 30,
 
   
2011
   
2010
 
               
Average
               
Average
 
   
Average
   
Interest
   
Rate
   
Average
   
Interest
   
Rate
 
   
Balance
   
Expense
   
Paid
   
Balance
   
Expense
   
Paid
 
   
(Dollars in thousands)
 
Passbook savings                                                            
 
$
6,125
   
$
25
     
0.41
%
 
$
5,588
   
$
23
     
0.41
%
Non-interest bearing demand accounts
   
12,302
     
--
     
--
     
5,940
     
--
     
--
 
NOW accounts                                                            
   
10,384
     
65
     
0.63
     
5,583
     
22
     
0.39
 
Money market                                                            
   
27,542
     
260
     
0.94
     
14,377
     
183
     
1.27
 
Certificates of deposit                                                            
   
78,971
     
1,929
     
2.44
     
67,981
     
2,010
     
2.96
 
                                                 
     Total deposits                                                            
 
$
135,324
   
$
2,279
     
1.68
%
 
$
99,469
   
$
2,238
     
2.25
%
                                                 
The following table shows our savings flows during the periods indicated.
 
   
Year Ended June 30,
   
2011
   
2010
   
(In thousands)
Total deposits at beginning of period                                                                                                          
 
$
117,722
   
$
86,146
Net deposits (withdrawals)                                                                                                          
   
34,221
     
30,059
Interest credited                                                                                                          
   
1,673
     
1,517
     Total increase in deposits                                                                                                          
 
$
35,894
   
$
31,576
               
 
 
 
14

 
 
The following table presents, by various interest rate categories and maturities, the amount of certificates of deposit at June 30, 2011.

     
Balance at June 30, 2011
 
     
Maturing in the 12 Months Ending June 30,
 
Certificates of Deposit
 
2012
   
2013
   
2014
   
Thereafter
   
Total
 
     
(In thousands)
 
  0.00% - 0.99 %                                                         $ 4,735     $ 27     $ --     $ --     $ 4,762  
  1.00% - 1.99 %                                                           19,129       5,591       226       --       24,946  
  2.00% - 2.99 %                                                           10,516       4,963       7,697       6,693       29,869  
  3.00% - 3.99 %                                                           1,384       3,667       2,039       13,102       20,192  
  4.00% - 4.99 %                                                           323       281       422       --       1,026  
  5.00% - 5.99 %                                                           3,623       1,247       --       --       4,870  
Total certificate accounts
  $ 39,710     $ 15,776     $ 10,384     $ 19,795     $ 85,665  

The following table shows the maturities of our certificates of deposit in excess of $100,000 at June 30, 2011 by time remaining to maturity.

         
Weighted
 
   
Amount
   
Average Rate
 
   
(Dollars in thousands)
 
September 30, 2011                                                                                         
  $ 4,687       1.75 %
December 31, 2011                                                                                         
    4,198       1.56  
March 31, 2012                                                                                         
    2,872       1.78  
June 30, 2012                                                                                         
    3,955       1.86  
After June 30, 2012                                                                                         
    15,421       2.78  
Total certificates of deposit with balances in excess of $100,000
  $ 31,133       2.25  

Borrowings.  We may obtain advances from the Federal Home Loan Bank of Dallas upon the security of the common stock we own in that bank and certain of our residential mortgage loans and mortgage-backed and other investment securities, provided certain standards related