Home Federal Bancorp, Inc. of Louisiana - FORM 10-Q - February 12, 2015

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended:
  December 31, 2014
 
or
 
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from
  
to
  
 
 
Commission file number:
  001-35019
 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA
(Exact name of registrant as specified in its charter)
 
 
                                           Louisiana
  
02-0815311
(State or other jurisdiction of incorporation or organization)
  
(IRS Employer Identification No.)
 
624 Market Street, Shreveport, Louisiana
  
71101
(Address of principal executive offices)
  
(Zip Code)
 
 
(318) 222-1145
(Registrant's telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   [X]  Yes    [   ]  No
 
Indicate by check mark whether the registrant has submitted electronically 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).        [X]  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     [X]  No
 
Shares of common stock, par value $.01 per share, outstanding as of February 12, 2015: The registrant had 2,166,343 shares of common stock outstanding.
 
 
INDEX



 
   
Page
PART I
FINANCIAL INFORMATION
  
     
Item 1:
Financial Statements (Unaudited)
  
     
 
Consolidated Statements of Financial Condition
  1
     
 
Consolidated Statements of Income
  2
     
 
Consolidated Statements of Comprehensive Income
  3
     
 
Consolidated Statements of Changes in Stockholders' Equity
  4
     
 
Consolidated Statements of Cash Flows
  5
     
 
Notes to Consolidated Financial Statements
  7
     
Item 2:
Management's Discussion and Analysis of Financial Condition and  Results of Operations
25
     
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
33
     
Item 4:
Controls and Procedures
33
     
PART II
OTHER INFORMATION
  
     
Item 1:
Legal Proceedings
33
     
Item 1A:
Risk Factors
33
     
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
34
     
Item 3:
Defaults Upon Senior Securities
34
     
Item 4:
Mine Safety Disclosures
34
     
Item 5:
Other Information
34
     
Item 6:
Exhibits
34
     
     
SIGNATURES
    

 
 
HOME FEDERAL BANCORP, INC. OF LOUISIANA  
  
     
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)  
  
     
    
December 31, 2014
    
June 30, 2014
  
   
(Dollars In Thousands)  
  
ASSETS
        
Cash and Cash Equivalents (Includes Interest-Bearing
Deposits with Other Banks of $809 and $9,317 for
December 31, 2014 and June 30, 2014, Respectively)
  
$
4,611
    
$
13,633
  
Securities Available-for-Sale
    
50,799
      
48,434
  
Securities Held-to-Maturity
    
2,376
      
1,765
  
Loans Held-for-Sale
    
9,761
      
9,375
  
Loans Receivable, Net of Allowance for Loan Losses
of $2,365 and $2,396, Respectively
    
260,147
      
239,563
  
Accrued Interest Receivable
    
943
      
965
  
Premises and Equipment, Net
    
10,084
      
8,454
  
Bank Owned Life Insurance
    
6,285
      
6,203
  
Deferred Tax Asset
    
748
      
723
  
Other Assets
    
553
      
414
  
                 
Total Assets
  
$
346,307
    
$
329,529
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
          
                 
LIABILITIES
                
Deposits
  
$
252,764
    
$
272,295
  
Advances from Borrowers for Taxes and Insurance
    
264
      
428
  
Advances from Federal Home Loan Bank of Dallas
    
49,030
      
12,897
  
Other Accrued Expenses and Liabilities
    
957
      
1,130
  
 
Total Liabilities
    
303,015
      
286,750
  
                 
STOCKHOLDERS' EQUITY
                
Preferred Stock – 10,000,000 Shares of $.01 Par Value
   Authorized; None Issued and Outstanding
    
-
      
-
  
Common Stock – 40,000,000 Shares of $.01 Par Value
   Authorized; 3,062,386 Shares Issued and
   2,190,812 Shares Outstanding at December 31, 2014;
   2,241,967 Shares Outstanding at June 30, 2014
    
34
      
34
  
Additional Paid-in Capital
    
33,037
      
32,853
  
Treasury Stock, at Cost – 871,574 shares at December 31, 2014;
   820,419 at June 30, 2014
    
(16,750
)
    
(15,698
)
Unearned ESOP Stock
    
(1,503
)
    
(1,561
)
Unearned RRP Trust Stock
    
(599
)
    
(609
)
Retained Earnings
    
28,936
      
27,588
  
Accumulated Other Comprehensive Income
    
137
      
172
  
                 
Total Stockholders' Equity
    
43,292
      
42,779
  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  
$
346,307
    
$
329,529
  

See accompanying notes to unaudited consolidated financial statements.
1
HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

   
For the Three Months Ended
December 31,
    
For the Six Months Ended
December 31
  
   
2014
    
2013
    
2014
    
2013
  
   
(In Thousands, Except per Share Data)
          
INTEREST INCOME
                
Loans, Including Fees
  
$
3,436
    
$
2,961
    
$
6,744
    
$
6,011
  
Investment Securities
    
2
      
1
      
3
      
3
  
Mortgage-Backed Securities
    
283
      
270
      
527
      
545
  
Other Interest-Earning Assets
    
2
      
3
      
4
      
8
  
Total Interest Income
    
3,723
      
3,235
      
7,278
      
6,567
  
                                 
INTEREST EXPENSE
                                
Deposits
    
552
      
556
      
1,087
      
1,131
  
Federal Home Loan Bank Borrowings
    
66
      
40
      
111
      
88
  
Other Bank Borrowings
    
-
      
7
      
-
      
14
  
Total Interest Expense
    
618
      
603
      
1,198
      
1,233
  
Net Interest Income
    
3,105
      
2,632
      
6,080
      
5,334
  
                                 
PROVISION FOR LOAN LOSSES
    
80
      
22
      
120
      
88
  
Net Interest Income after
Provision for Loan Losses
    
3,025
      
2,610
      
5,960
      
5,246
  
                                 
NON-INTEREST INCOME
                                
Gain on Sale of Loans
    
415
      
404
      
887
      
880
  
     Gain on Sale of Securities
    
10
      
34
      
10
      
34
  
Income on Bank Owned Life Insurance
    
41
      
44
      
83
      
88
  
     Service Charges on deposit accounts
    
113
      
79
      
213
      
154
  
Other Income
    
15
      
8
      
31
      
16
  
Total Non-Interest Income
    
594
      
569
      
1,224
      
1,172
  
                                 
NON-INTEREST EXPENSE
                                
Compensation and Benefits
    
1,445
      
1,346
      
2,947
      
2,730
  
Occupancy and Equipment
    
269
      
236
      
498
      
431
  
Data Processing
    
124
      
86
      
243
      
201
  
Audit and Examination Fees
    
49
      
50
      
101
      
106
  
Franchise and Bank Shares Tax
    
47
      
85
      
122
      
178
  
Advertising
    
60
      
69
      
135
      
133
  
Legal Fees
    
134
      
144
      
203
      
238
  
Loan Collection
    
50
      
32
      
117
      
64
  
Deposit Insurance Premium
    
44
      
35
      
75
      
68
  
Other Expense
    
153
      
142
      
272
      
258
  
Total Non-Interest Expense
    
2,375
      
2,225
      
4,713
      
4,407
  
Income Before Income Taxes
    
1,244
      
954
      
2,471
      
2,011
  
                                 
PROVISION FOR INCOME TAX EXPENSE
    
409
      
309
      
813
      
653
  
Net Income
  
$
835
    
$
645
    
$
1,658
    
$
1,358
  
EARNINGS PER COMMON SHARE:
                                
Basic
  
$
0.42
    
$
0.31
    
$
0.83
    
$
0.64
  
Diluted
  
$
0.41
    
$
0.30
    
$
0.81
    
$
0.63
  
DIVIDENDS DECLARED
  
$
0.07
    
$
0.06
    
$
0.14
    
$
0.12
  
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
2
HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
   
For the Three Months Ended
December 31,
    
For the Six Months Ended
December 31,
  
   
2014
    
2013
    
2014
    
2013
  
    (In Thousands)     (In Thousands)  
                 
                 
Net Income
  
$
835
    
$
645
    
$
1,658
    
$
1,358
  
                                 
Other Comprehensive Income (Loss), Net of Tax
                                
   Unrealized Holding Gain (Loss) on Securities Available-for-Sale,
     Net of Tax of $68 and $12 in 2014, respectively, and $149 and $20 in 2013, respectively
    
132
      
289
      
(24
)
    
39
  
 
   Reclassification Adjustment for Gain Included in Net Income,
   Net of Tax of $5 and $6 in 2014, respectively, and $18 and
   $24 in 2013, respectively
    
(9
)
    
(35
)
    
(11
)
    
(47
)
 
        Net Other Comprehensive Income (Loss)
 
    
123
      
254
      
(35
)
    
(8
)
        Total Comprehensive Income
  
$
958
    
$
899
    
$
1,623
    
$
1,350
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
3
HOME FEDERAL BANCORP, INC. OF LOUISIANA

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 2014 AND 2013
(Unaudited)

   
Common
Stock
    
Additional
Paid-in
Capital
    
Unearned
ESOP
Stock
    
Unearned
RRP
Trust
Stock
    
Retained
Earnings
    
Treasury
Stock
    
Accumulated
Other
Comprehensive
Income (Loss)
    
Total
Stockholders'
Equity
  
               
(In Thousands)
              
BALANCE – June 30, 2013
  
$
32
    
$
32,218
    
$
(1,676
)
  
$
(863
)
  
$
25,395
    
$
(13,168
)
  
$
44
    
$
41,982
  
                                                                 
Net Income
    
--
      
--
      
--
      
--
      
1,358
      
--
      
--
      
1,358
  
                                                                 
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
    
--
      
--
      
--
      
--
      
--
      
--
      
(8
)
    
(8
)
                                                                 
RRP Shares Earned
    
--
      
--
      
--
      
10
      
--
      
--
      
--
      
10
  
                                                                 
Stock Options Vested
    
--
      
81
      
--
      
--
      
--
      
--
      
--
      
81
  
                                                                 
Common Stock Issuance for Stock
    Option Exercises
    
1
      
249
      
--
      
--
      
--
      
--
      
--
      
250
  
                                                                 
ESOP Compensation Earned
    
--
      
43
      
57
      
--
      
--
      
--
      
--
      
100
  
                                                                 
Acquisition of Treasury Stock
    
--
      
--
      
--
      
--
      
--
      
(2,171
)
    
--
      
(2,171
)
                                                                 
Dividends Declared
    
--
      
--
      
--
      
--
      
(282
)
    
--
      
--
      
(282
)
                                                                 
BALANCE – December  31, 2013
  
$
33
    
$
32,591
    
$
(1,619
)
  
$
(853
)
  
$
26,471
    
$
(15,339
)
  
$
36
    
$
41,320
  
                                                                 
BALANCE – June 30, 2014
  
$
34
    
$
32,853
    
$
(1,561
)
  
$
(609
)
  
$
27,588
    
$
(15,698
)
  
$
172
    
$
42,779
  
                                                                 
Net Income
    
--
      
--
      
--
      
--
      
1,658
      
--
      
--
      
1,658
  
                                                                 
Changes in Unrealized Gain
    on Securities Available-for-
    Sale, Net of Tax Effects
    
--
      
--
      
--
      
--
      
--
      
--
      
(35
)
    
(35
)
                                                                 
RRP Shares Earned
    
--
      
--
      
--
      
10
      
--
      
--
      
--
      
10
  
                                                                 
Stock Options Vested
    
--
      
88
      
--
      
--
      
--
      
--
      
--
      
88
  
                                                                 
Common Stock Issuance for Stock
    Option Exercises
    
--
      
42
      
--
      
--
      
--
      
--
      
--
      
42
  
                                                                 
ESOP Compensation Earned
    
--
      
54
      
58
      
--
      
--
      
--
      
--
      
112
  
                                                                 
Acquisition of Treasury Stock
    
--
      
--
      
--
      
--
      
--
      
(1,052
)
    
--
      
(1,052
)
                                                                 
Dividends Declared
    
--
      
--
      
--
      
--
      
(310
)
    
--
      
---
      
(310
)
                                                                 
BALANCE – December 31, 2014
  
$
34
    
$
33,037
    
$
( 1,503
)
  
$
(599
)
  
$
28,936
    
$
(16,750
)
  
$
137
    
$
43,292
  

 
 
See accompanying notes to unaudited consolidated financial statements.
 
 
4
HOME FEDERAL BANCORP, INC. OF LOUISIANA
  
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
(Unaudited)
  
 
        
Six Months Ended
  
        
December 31,
  
   
2014
    
2013
  
        
(In Thousands)
  
CASH FLOWS FROM OPERATING ACTIVITIES
        
Net Income
  
$
1,658
    
$
1,358
  
Adjustments to Reconcile Net Income to Net
                
Cash Used in Operating Activities
                
Net Amortization and Accretion on Securities
    
7
      
38
  
Gain on Sale of Securities
    
(10
)
    
(34
)
Gain on Sale of Loans
    
(887
)
    
(880
)
Amortization of Deferred Loan Fees
    
(101
)
    
(40
)
Depreciation of Premises and Equipment
    
179
      
145
  
ESOP Expense
    
112
      
100
  
Stock Option Expense
    
88
      
81
  
Recognition and Retention Plan Expense
    
117
      
105
  
Deferred Income Tax
    
(6
)
    
(29
)
Provision for Loan Losses
    
120
      
88
  
Increase in Cash Surrender Value on Bank Owned Life Insurance
    
(83
)
    
(88
)
Changes in Assets and Liabilities:
                
Loans Held-for-Sale – Originations and Purchases
    
(40,827
)
    
(35,178
)
Loans Held-for-Sale – Sale and Principal Repayments
    
41,329
      
33,921
  
Accrued Interest Receivable
    
23
      
(52
)
Other Operating Assets
    
(138
)
    
(99
)
Other Operating Liabilities
    
(281
)
    
(344
)
                 
Net Cash Provided by (Used In) Operating Activities
    
1,300
      
(908
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES
                
Loan Originations and Purchases, Net of Principal Collections
    
(20,611
)
    
(6,025
)
Deferred Loan Fees Collected
    
7
      
44
  
Acquisition of Premises and Equipment
    
(1,810
)
    
(1,726
)
Activity in Available-for-Sale Securities:
                
Proceeds from Sale of Securities
    
1,964
      
6,782
  
Principal Payments on Mortgage-Backed Securities
    
5,464
      
6,259
  
Purchases of Securities
    
( 9,843
)
    
(8,798
)
Activity in Held-to-Maturity Securities:
                
Redemption Proceeds
    
297
      
341
  
Purchases of Securities
    
( 908
)
    
(135
)
                 
Net Cash Used in Investing Activities
    
( 25,440
)
    
(3,258
)
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
5
HOME FEDERAL BANCORP, INC. OF LOUISIANA
  
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
  
(Unaudited)
  
 
   
Six Months Ended
  
   
December 31,
  
   
2014
    
2013
  
   
(In Thousands)
  
CASH FLOWS FROM FINANCING ACTIVITIES
    
Net (Decrease) Increase in Deposits
  
$
( 19,531
)
  
$
13,417
  
Proceeds from Federal Home Loan Bank Advances
    
523,700
      
296,350
  
Repayments of Advances from Federal Home Loan Bank
    
( 487,567
)
    
(299,555
)
Net Increase in Advances from Borrowers for Taxes and Insurance
    
(164
)
    
(148
)
Dividends Paid
    
(310
)
    
(282
)
Acquisition of Treasury Stock
    
(1,031
)
    
(1,983
)
Proceeds from Stock Options Exercised
    
21
      
63
  
Proceeds from other Bank Borrowings
    
--
      
300
  
     Repayment of other Bank Borrowings
    
--
      
(800
)
Net Cash Provided by Financing Activities
    
15,118
      
7,362
  
                 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
( 9,022
)
    
3,196
  
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
    
13,633
      
3,685
  
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
  
$
4,611
    
$
6,881
  
                 
SUPPLEMENTARY CASH FLOW INFORMATION
                
Interest Paid on Deposits and Borrowed Funds
  
$
1,153
    
$
1,344
  
Income Taxes Paid
    
785
      
691
  
Market Value Adjustment for Loss on Securities Available-for-Sale
    
( 53
)
    
(12
)
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
6
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
1.            Summary of Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Home Federal Bancorp, Inc. of Louisiana (the "Company") and its subsidiary, Home Federal Bank ("Home Federal Bank" or the "Bank").  These consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the six month period ended December 31, 2014, is not necessarily indicative of the results which may be expected for the fiscal year ending June 30, 2015.

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

In accordance with the subsequent events topic of the ASC, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements.  The effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of December 31, 2014.  In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued.

Use of Estimates

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

Nature of Operations

Home Federal Bancorp, Inc. of Louisiana, a Louisiana corporation, is the fully public stock holding company for Home Federal Bank located in Shreveport, Louisiana.  The Bank is a federally chartered, stock savings and loan association and is subject to federal regulation by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.  The Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. Services are provided to the Bank's customers by five full-service banking offices and one agency office, located in Caddo and Bossier Parishes, Louisiana.  The area served by the Bank is primarily the Shreveport-Bossier City metropolitan area; however, loan and deposit customers are found dispersed in a wider geographical area covering much of northwest Louisiana. As of December 31, 2014, the Bank had one wholly-owned subsidiary, Metro Financial Services, Inc., which previously engaged in the sale of annuity contracts and does not currently engage in a meaningful amount of business.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, balances due from banks, and federal funds sold, all of which mature within ninety days.
 
 
 
7
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

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 uncollectability of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of the underlying collateral and prevailing economic conditions.  The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
 
 
 
 
 
8
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Allowance for Loan Losses (continued)

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.  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 pays its pro-rata share of income taxes in accordance with a written tax-sharing agreement.

The Company accounts for income taxes on the asset and liability method.  Deferred tax assets and liabilities are recorded based on the difference between the tax 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 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.
 
 
 
 
 
9
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Income Taxes (continued)

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.

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method.  This ASU is not expected to have a significant impact on the Company's financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.  The new guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.   ASU 2014-12 is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted.  The Company's current accounting treatment of performance conditions for employees who are or become eligible prior to the achievement of the performance target are consistent with ASU 2014-12, and as such does not expect the new guidance to have a material effect on the Corporation's financial condition and results of operations.  The Company expects to prospectively adopt ASU 2014-12 in the first quarter of 2015.
 
 
 
 
 
 
 
 
 
10
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
2.            Securities

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

   
December 31, 2014
  
       
Gross
    
Gross
      
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
   
Cost
    
Gains
    
Losses
    
Value
  
   
(In Thousands)
  
Securities Available-for-Sale
                
                 
Debt Securities
                
  FHLMC Mortgage-Backed Certificates
  
$
289
    
$
18
    
$
--
    
$
307
  
  FNMA Mortgage-Backed Certificates
    
30,364
      
851
      
128
      
31,087
  
  GNMA Mortgage-Backed Certificates
    
19,938
      
6
      
539
      
19,405
  
                                 
          Total Debt Securities
    
50,591
      
875
      
667
      
50,799
  
                                 
    Total Securities Available-for-Sale
  
$
50,591
    
$
875
    
$
667
    
$
50,799
  
                                 
Securities Held-to-Maturity
                                
                                 
Equity Securities (Non-Marketable)
                                
  21,262 Shares – Federal Home Loan Bank
  
$
2,126
    
$
--
    
$
--
    
$
2,126
  
  630 Shares – First National Bankers
    Bankshares, Inc.
    
250
      
--
      
--
      
250
  
                                 
          Total Equity Securities
    
2,376
      
--
      
--
      
2,376
  
                                 
    Total Securities Held-to-Maturity
  
$
2,376
    
$
--
    
$
--
    
$
2,376
  

   
June 30, 2014
  
       
Gross
    
Gross
      
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
   
Cost
    
Gains
    
Losses
    
Value
  
   
(In Thousands)
  
Securities Available-for-Sale
    
                 
Debt Securities
                
  FHLMC Mortgage-Backed Certificates
  
$
311
    
$
12
    
$
--
    
$
323
  
  FNMA Mortgage-Backed Certificates
    
24,947
      
857
      
24
      
25,780
  
  GNMA Mortgage-Backed Certificates
    
22,915
      
6
      
590
      
22,331
  
                                 
          Total Debt Securities
    
48,173
      
875
      
614
      
48,434
  
                                 
          Total Securities Available-for-Sale
  
$
48,173
    
$
875
    
$
614
    
$
48,434
  
                                 
Securities Held-to-Maturity
                                
                                 
Equity Securities (Non-Marketable)
                                
  15,145 Shares – Federal Home Loan Bank
  
$
1,515
    
$
--
    
$
--
    
$
1,515
  
  630 Shares – First National Bankers
    Bankshares, Inc.
    
250
      
--
      
--
      
250
  
                                 
          Total Equity Securities
    
1,765
      
--
      
--
      
1,765
  
                                 
          Total Securities Held-to-Maturity
  
$
1,765
    
$
--
    
$
--
    
$
1,765
  

 
 
 
11
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

The amortized cost and fair value of securities by contractual maturity at December 31, 2014, follows:

   
Available-for-Sale
    
Held-to-Maturity
  
   
Amortized
    
Fair
    
Amortized
    
Fair
  
   
Cost
    
Value
    
Cost
    
Value
  
       
(In Thousands)
      
                 
                 
Debt Securities
                
    Within One Year or Less
  
$
2
    
$
2
    
$
--
    
$
--
  
    One through Five Years
    
216
      
220
      
--
      
--
  
    After Five through Ten Years
    
143
      
147
      
--
      
--
  
    Over Ten Years
    
50,230
      
50,430
      
--
      
--
  
     
50,591
      
50,799
      
--
      
--
  
                                 
Other Equity Securities
    
--
      
--
      
2,376
      
2,376
  
                                 
   Total
  
$
50,591
    
$
50,799
    
$
2,376
    
$
2,376
  

For the six months ended December 31, 2014, proceeds from the sale of securities available-for-sale amounted to $2.0 million and gross realized gains amounted to $10,000 for the six months ended December 31, 2014.

The following tables show information pertaining to gross unrealized losses on securities available-for-sale for the six months ended December 31, 2014 and at June 30, 2014 aggregated by investment category and length of time that individual securities have been in a continuous loss position.

   
December 31, 2014
  
   
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
  
$
128
    
$
3,778
    
$
539
    
$
19,279
  
Marketable Equity Securities
    
--
      
--
      
--
      
--
  
                                 
        Total Securities Available-for-Sale
  
$
128
    
$
3,778
    
$
539
    
$
19,279
  
                                 

   
June 30, 2014
  
   
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
  
$
24
    
$
1,947
    
$
590
    
$
22,193
  
Marketable Equity Securities
    
--
      
--
      
--
      
--
  
                                 
        Total Securities Available-for-Sale
  
$
24
    
$
1,947
    
$
590
    
$
22,193
  

The Company's investment in equity securities consists primarily of FHLB stock, and shares of First National Bankers Bankshares, Inc. ("FNBB").  Management monitors its investment portfolio to determine whether any investment securities which have unrealized losses should be considered other than temporarily impaired.
 
 
12
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

At December 31, 2014, securities with a carrying value of $806,000 were pledged to secure public deposits, and securities and mortgage loans with a carrying value of $166.9 million were pledged to secure FHLB advances.

3.            Loans Receivable

Loans receivable are summarized as follows:

   
  
December 31, 2014
    
June 30, 2014
  
     
(In Thousands)
  
Loans Secured by Mortgages on Real Estate
        
One- to Four-Family Residential
  
$
98,472
    
$
89,545
  
Commercial
    
55,787
      
56,266
  
Multi-Family Residential
    
15,845
      
20,368
  
 Land
    
23,283
      
19,945
  
Construction
    
16,228
      
12,505
  
Equity and Second Mortgage
    
2,926
      
2,563
  
Equity Lines of Credit
    
21,224
      
14,950
  
     
233,765
      
216,142
  
                 
Commercial Loans
    
28,607
      
25,749
  
Consumer Loans
                
Loans on Savings Accounts
    
242
      
255
  
Automobile and Other Consumer Loans
    
103
      
111
  
Total Consumer and Other Loans
    
345
      
366
  
Total Loans
    
262,717
      
242,257
  
                 
Less:   Allowance for Loan Losses
    
(2,365
)
    
(2,396
)
     Unamortized Loan Fees
    
(205
)
    
(298
)
Net Loans Receivable
  
$
260,147
    
$
239,563
  

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

   
Six Months Ended December 31,
  
 
  
2014
    
2013
  
   
(In Thousands)
  
         
Balance - Beginning of Period
  
$
2,396
    
$
2,240
  
Provision for Loan Losses
    
120
      
88
  
Loan Charge-Offs
    
(151
)
    
(12
)
                 
Balance - End of Period
  
$
2,365
    
$
2,316
  

Credit Quality Indicators

The Company segregates loans into risk categories based on the pertinent information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans according to credit risk.  Loans classified as substandard or identified as special mention are reviewed quarterly by management to evaluate the level of deterioration, improvement, and impairment, if any, as well as assign the appropriate risk category.
 
 
 
13
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

Loans excluded from the scope of the quarterly review process above are generally identified as pass credits until:  (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification.  In these circumstances, the loan is specifically evaluated for potential classification and the need to allocate reserves or charge-off.  The Company uses the following definitions for risk ratings:

Special Mention - Loans identified as special mention have a potential weakness that deserves management's close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss - This classification includes those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted.  Even though partial recovery may be possible in the future, it is not practical or desirable to defer writing off these basically worthless loans.  Accordingly, these loans are charged-off before period end.

The following tables present the grading of loans, segregated by class of loans, as of December 31, 2014 and June 30, 2014:

       
Special
              
December 31, 2014  
Pass
    
Mention
    
Substandard
    
Doubtful
    
Total
  
       
(In Thousands)
      
Real Estate Loans:
                    
  One- to Four-Family Residential
  
$
98,345
    
$
114
    
$
13
    
$
-
    
$
98,472
  
  Commercial
    
55,178
      
546
      
-
      
63
      
55,787
  
  Multi-Family Residential
    
15,845
      
-
      
-
      
-
      
15,845
  
  Land
    
23,283
      
-
      
-
      
-
      
23,283
  
  Construction
    
16,228
      
-
      
-
      
-
      
16,228
  
  Equity and Second Mortgage
    
2,926
      
-
      
-
      
-
      
2,926
  
  Equity Lines of Credit
    
21,197
      
-
      
-
      
27
      
21,224
  
Commercial Loans
    
28,607
      
-
      
-
      
-
      
28,607
  
Consumer Loans
    
345
      
-
      
-
      
-
      
345
  
     Total
  
$
261,954
    
$
660
    
$
13
    
$
90
    
$
262,717
  
                                         
 
 
 
 
 
 
 
14
HOME FEDERAL BANCORP, INC. OF LOUISIANA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
3.                Loans Receivable (continued)
 
Credit Quality Indicators (continued)
      
             
June 30, 2014
  
Pass
    
Special
Mention
    
Substandard
    
Doubtful
    
Total
  
   
(In Thousands)
  
Real Estate Loans:
                    
  One- to Four-Family Residential
  
$
89,345
    
$
49
    
$
--
    
$
151
    
$
89,545
  
  Commercial
    
53,621
      
2,645
      
--
      
--
      
56,266
  
  Multi-Family Residential
    
20,368
      
--
      
--
      
--
      
20,368
  
  Land
    
19,945
      
--
      
--
      
--
      
19,945
  
  Construction
    
12,505
      
--
      
--
      
--
      
12,505
  
  Equity and Second Mortgage
    
2,563
      
--
      
--
      
--
      
2,563
  
  Equity Lines of Credit
    
14,923
      
--
      
--
      
27
      
14,950
  
Commercial Loans
    
25,749
      
--
      
--
      
--
      
25,749
  
Consumer Loans
    
366
      
--
      
--
      
--
      
366
  
                                         
     Total
  
$
239,385
    
$
2,694
    
$
--
    
$
178
    
$
242,257
  

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

The following tables present an aging analysis of past due loans, segregated by class of loans, as of December 31, 2014 and June 30, 2014:

 December 31, 2014
  
30-59 Days
Past Due
    
60-89
Days Past Due
    
Greater
Than 90 Days
    
Total
Past Due
    
Current
    
Total
Loans
Receivable
    
Recorded
Investment
> 90 Days
and Accruing
  
   
(In Thousands)
  
Real Estate Loans:
                            
One- to Four-Family
    Residential
  
$
1,214
    
$
861
    
$
80
    
$
2,155
    
$
96,317
    
$
98,472
    
$
67
  
  Commercial
    
--
      
--
      
64
      
64
      
55,723
      
55,787
      
--
  
  Multi-Family Residential
    
--
      
--
      
--
      
--
      
15,845
      
15,845
      
--
  
  Land
    
--
      
--
      
--
      
--
      
23,283
      
23,283
      
--
  
  Construction
    
--
      
--
      
--
      
--
      
16,228
      
16,228
      
--
  
  Equity and Second Mortgage
    
--
      
--
      
--
      
--
      
2,926
      
2,926
      
--
  
  Equity Lines of Credit
    
100
      
--
      
--
      
100
      
21,124
      
21,224
      
--
  
Commercial Loans
    
--
      
--
      
--
      
--
      
28,607
      
28,607
      
--
  
Consumer Loans
    
4
      
--
      
--
      
4
      
341
      
345
      
--
  
   
$
1,318
    
$
861
    
$
144
    
$
2,323
    
$
260,394
    
$
262,717
    
$
67
  

 
 
 
 
15
HOME FEDERAL BANCORP, INC. OF LOUISIANA

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

Credit Quality Indicators (continued)

 June 30, 2014
  
30-59 Days
Past Due
    
60-89
Days Past
Due
    
Greater
Than 90
Days
    
Total
Past Due
    
Current
    
Total
Loans
Receivable
    
Recorded
Investment
> 90 Days
and
Accruing
  
   
(In Thousands)
  
Real Estate Loans:
                            
One- to Four-Family
    Residential
  
$
1,326
    
$
435
    
$
164
    
$
1,925
    
$
87,620
    
$
89,545
    
$
13
  
  Commercial
    
--
      
--
      
--
      
--
      
56,266
      
56,266
      
--
  
  Multi-Family Residential
    
--
      
--
      
--
      
--
      
20,368
      
20,368
      
--
  
  Land
    
--
      
--
      
--
      
--
      
19,945
      
19,945
      
--
  
  Construction
    
--
      
--
      
--
      
--
      
12,505
      
12,505
      
--
  
  Equity and Second Mortgage
    
--
      
--
      
--
      
--
      
2,563
      
2,563
      
--
  
  Equity Lines of Credit
    
--
      
--
      
27
      
27
      
14,923
      
14,950
      
--
  
Commercial Loans
    
259
      
--
      
--
      
259
      
25,490
      
25,749
      
--
  
Consumer Loans
    
--
      
--
      
--
      
--
      
366
      
366
      
--
  
                                                         
     Total
  
$
1,585
    
$
435
    
$
191
    
$
2,211
    
$
240,046
    
$