UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
___________________________
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _______________
Commission File Number: 000-51117
________________
HOME FEDERAL BANCORP, INC. OF LOUISIANA
______________________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Federal 86-1127166
______________________________________ ___________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
624 Market Street, Shreveport, Louisiana 71101
______________________________________________________________________________
(Address of principal executive offices)
(318) 222-1145
______________________________________________________________________________
(Issuer's telephone number)
______________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 is a shell company (as
defined in Rule 12b-2 of the Exchange Act) Yes No X
----- -----
Shares of common stock, par value $.01 per share, outstanding as of
November 14, 2006: The registrant had 3,534,482 shares of common stock
outstanding, of which 2,135,375 shares were held by Home Federal Mutual
Holding Company of Louisiana, the registrant's mutual holding company, and
1,399,107 shares were held by the public and directors, officers and employees
of the registrant, and the registrant's employee benefit plans.
Transitional Small Business Disclosure Format: Yes No X
----- -----
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 Changes in Stockholders' Equity.... 3
Consolidated Statements of Cash Flows......................... 4
Notes to Consolidated Financial Statements.................... 6
Item 2: Management's Discussion and Analysis or Plan of Operation.... 12
Item 3: Controls and Procedures...................................... 17
PART II - OTHER INFORMATION
Item 1: Legal Proceedings............................................ 18
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.. 18
Item 3: Defaults upon Senior Securities.............................. 18
Item 4: Submission of Matters to a Vote of Security Holders.......... 18
Item 5: Other information............................................ 19
Item 6: Exhibits..................................................... 19
SIGNATURES
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, June 30,
2006 2006
------------- ---------
(Unaudited) (Audited)
ASSETS
Cash and Cash Equivalents $ 9,192,214 $ 4,929,595
Securities Available-for-Sale 86,682,367 83,693,681
Securities Held-to-Maturity 1,458,738 1,424,866
Loans Receivable, Net 20,646,485 20,866,177
Accrued Interest Receivable 478,261 464,908
Premises and Equipment, Net 958,121 947,584
Deferred Tax Asset 668,521 1,597,083
Other Assets 50,074 76,218
----------- -----------
Total Assets $120,134,781 $114,000,052
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 73,435,506 $ 71,278,564
Advances from Borrowers for Taxes and Insurance 257,144 219,054
Advances from Federal Home Loan Bank of Dallas 15,310,538 13,417,166
Other Accrued Expenses and Liabilities 576,801 545,991
----------- -----------
Total Liabilities 89,579,989 85,460,775
----------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock - 8,000,000 shares of $.01
par value authorized; 3,558,958 shares issued;
3,534,482 shares outstanding and 3,538,258
shares outstanding at September 30, 2006 and
June 30, 2006, respectively 14,236 14,236
Additional paid-in capital 13,461,254 13,445,231
Retained Earnings - Partially Restricted 20,221,935 20,148,695
Unearned ESOP Stock (1,039,495) (1,053,731)
Unearned RRP Trust Stock (551,020) (688,439)
Accumulated Other Comprehensive Loss (1,303,480) (3,116,215)
Treasury Stock - At Cost (248,638) (210,500)
----------- -----------
Total Stockholders' Equity 30,554,792 28,539,277
----------- -----------
Total Liabilities and Stockholders'
Equity $120,134,781 $114,000,052
=========== ===========
See accompanying notes to consolidated financial statements.
1
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
-----------------------
2006 2005
-------- ---------
INTEREST INCOME
Loans, Including Fees $ 370,498 $ 384,524
Investment Securities 75,906 60,822
Mortgage-Backed Securities 1,068,672 891,725
Other Interest-Earning Assets 39,295 42,709
--------- ---------
Total Interest Income 1,554,371 1,379,780
--------- ---------
INTEREST EXPENSE
Deposits 625,592 489,741
Federal Home Loan Bank Borrowings 145,244 62,970
--------- ---------
Total Interest Expense 770,836 552,711
--------- ---------
Net Interest Income 783,535 827,069
--------- ---------
PROVISION FOR LOAN LOSSES -- --
--------- ---------
Net Interest Income after
Provision for Loan Losses 783,535 827,069
--------- ---------
NON-INTEREST INCOME
Gain on Sale of Loans -- 4,079
Gain on Sale of Investments -- 52,209
Other Income 57,410 7,661
--------- ---------
Total Non-Interest Income 57,410 63,949
--------- ---------
NON-INTEREST EXPENSE
Compensation and Benefits 367,982 351,718
Occupancy and Equipment 45,593 43,949
Data Processing 17,443 20,184
Audit and Professional Fees 54,751 74,907
Franchise and Bank Shares Tax 39,323 --
Other Expense 76,364 100,562
--------- ---------
Total Non-Interest Expense 601,456 591,320
--------- ---------
Income Before Income Taxes 239,489 299,698
PROVISION FOR INCOME TAX EXPENSE 81,476 101,875
--------- ---------
Net Income $ 158,013 $ 197,823
========= =========
INCOME PER COMMON SHARE:
Basic $ .05 $ .06
========= =========
Diluted $ .05 $ .06
========= =========
See accompanying notes to consolidated financial statements.
2
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
Unearned Accumulated
Additional Unearned RRP Other Total
Paid-in ESOP Trust Retained Treasury Comprehensive Stockholders'
Common Stock Capital Stock Stock Earnings Stock Income (Loss) Equity
------------ ---------- -------- -------- -------- ------------- ------------- -------------
BALANCE - JUNE 30, 2005 $14,236 $13,391,061 $(1,110,683) $ -- $19,827,439 $ -- $ 309,421 $32,431,474
Net Income -- -- -- -- 197,823 -- -- 197,823
Other Comprehensive Loss:
Changes in Unrealized Gain
(Loss) on Securities Available-
for-Sale, Net of Tax Effects -- -- -- -- -- -- (782,801) (782,801)
Purchase of Common Stock for RRP
Trust -- -- -- (654,040) -- -- -- (654,040)
Stock Options Vested -- 7,396 -- -- -- -- -- 7,396
ESOP Compensation Earned -- (427) 14,240 -- -- -- -- 13,813
Dividends Declared -- -- -- -- (71,179) -- -- (71,179)
BALANCE - SEPTEMBER 30, 2005 $14,236 $13,398,030 $(1,096,443) $(654,040) $19,954,083 $ -- $ (473,380) $31,142,486
====== ========== =========== ========= ========== ======== =========== ==========
BALANCE - JUNE 30, 2006 $14,236 $13,445,231 $(1,053,731) $(688,439) $20,148,695 $(210,500) $(3,116,215) $28,539,277
Net Income -- -- -- -- 158,013 -- -- 158,013
Other Comprehensive Loss:
Changes in Unrealized Gain
(Loss) on Securities Available-
for-Sale, Net of Tax Effects -- -- -- -- -- -- 1,812,735 1,812,735
RRP Shares Earned -- -- -- 137,419 -- -- -- 137,419
Stock Options Vested -- 15,504 -- -- -- -- -- 15,504
ESOP Compensation Earned -- 519 14,236 -- -- -- -- 14,755
Dividends Declared -- -- -- -- (84,773) -- -- (84,773)
Acquisition Treasury Stock -- -- -- -- -- (38,138) -- (38,138)
BALANCE - SEPTEMBER 30, 2006 $14,236 $13,461,254 $(1,039,495) $(551,020) $20,221,935 $(248,638) $(1,303,480) $30,554,792
====== ========== =========== ========= ========== ======== =========== ==========
See accompanying notes to consolidated financial statements.
3
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
--------------------
2006 2005
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 158,013 $ 197,823
Adjustments to Reconcile Net Income to Net
Cash (Used in) Provided by Operating Activities
Net Amortization and Accretion on Securities (65,052) (24,244)
Gain on Sale of Investments -- (52,209)
Amortization of Deferred Loan Fees (1,740) (11,837)
Depreciation of Premises and Equipment 15,610 15,588
ESOP Expense 14,755 13,813
Stock Option Expense 15,504 7,396
Recognition and Retention Plan Expense 33,897 16,189
Deferred Income Tax (5,271) (2,515)
Changes in Assets and Liabilities
Loans Held-for-Sale - Originations -- (456,200)
Accrued Interest Receivable (13,353) 22,490
Other Operating Assets 26,144 16,470
Other Operating Liabilities 134,332 149,849
-------- -------
Net Cash (Used in) Provided by Operating Activities 312,839 (107,387)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations and Purchases, Net of Principal Collections 218,710 4,050,665
Deferred Loan Fees Collected 2,663 4,033
Acquisition of Premises and Equipment (26,147) (453,237)
Activity in Available-for-Sale Securities:
Proceeds from Sales of Securities -- 3,378,017
Principal Payments on Mortgage-backed Securities 4,361,034 2,913,023
Purchases of Securities (4,538,101) (6,434,826)
Activity in Held-to-Maturity Securities
Proceeds from Redemption or Maturity of Investments -- --
Principal Payments on Mortgage-Backed Securities 33,628 68,041
Purchases of Securities (67,500) --
-------- ---------
Net Cash (Used in) Provided by Investing Activities (15,713) 3,525,716
-------- ---------
See accompanying notes to consolidated financial statements.
4
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Three Months Ended
September 31,
---------------------
2006 2005
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits 2,156,942 1,302,427
Proceeds from Federal Home Loan Bank Advances 2,750,000 --
Repayments of Advances from Federal Home Loan Bank (856,628) (673,588)
Net Increase in Mortgage-Escrow Funds 38,090 66,557
Dividends Paid (84,773) (71,179)
Acquisition of Treasury Stock (38,138) --
Acquisition of Stock for Recognition and Retention Plan -- (654,040)
--------- ---------
Net Cash Provided by (Used in) Financing Activities 3,965,493 (29,823)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,262,619 3,388,506
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 4,929,595 9,292,489
--------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $9,192,214 $12,680,995
========= ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest Paid on Deposits and Borrowed Funds $ 747,647 $ 526,078
Income Taxes Paid 913 --
Market Value Adjustment for Gain (Loss) on Securities
Available-for-Sale 2,746,567 (1,186,062)
See accompanying notes to consolidated financial statements.
5
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
Savings and Loan Association (the "Association"). These consolidated
financial statements were prepared in accordance with instructions for Form
10-QSB and Regulation S-X and do not include information or footnotes
necessary for a complete presentation of financial condition, results of
operations, and cash flows in conformity with accounting principles generally
accepted in the United States of America. However, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial statements have been
included. The results of operations for the three month period ended September
30, 2006, is not necessarily indicative of the results which may be expected
for the fiscal year ending June 30, 2007.
Use of Estimates
In preparing consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the Consolidated Statements of
Financial Condition and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in the near
term relate to the allowance for loan losses.
Nature of Operations
On January 18, 2005, Home Federal Savings and Loan Association (the
"Association"), completed its reorganization to the mutual holding company
form of organization and formed Home Federal Bancorp, Inc. of Louisiana (the
"Company") to serve as the stock holding company for the Association. In
connection with the reorganization, the Company sold 1,423,583 shares of its
common stock in a subscription and community offering at a price of $10.00 per
share. The Company also issued 2,135,375 shares of common stock in the
reorganization to Home Federal Mutual Holding Company of Louisiana, or
60.4% of our outstanding common stock at September 30, 2006. The Association
is a federally chartered, stock savings and loan association and is subject to
federal regulation by the Federal Deposit Insurance Corporation and the Office
of Thrift Supervision. Services are provided to its customers by three offices,
all of which are located in the City of Shreveport, Louisiana. The area served
by the Association 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.
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.
6
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 Association to
retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value. Gains and losses on the sale of
securities are recorded on the trade date and are determined using the
specific identification method.
Loans Held For Sale
Loans originated and intended for sale in the secondary market are carried at
the lower of cost or estimated fair value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to
income.
Loans
Loans receivable are stated at unpaid principal balances, less allowances for
loan losses and unamortized deferred loan fees. Net nonrefundable fees (loan
origination fees, commitment fees, discount points) and costs associated with
lending activities are being deferred and subsequently amortized into income
as an adjustment of yield on the related interest earning assets using the
interest method. Interest income on contractual loans receivable is
recognized on the accrual method. Unearned discount on property improvement
and automobile loans is deferred and amortized on the interest method over the
life of the loan.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.
7
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The allowance for loan losses is evaluated on a regular basis by management
and is based upon management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of the underlying collateral and prevailing economic
conditions. The evaluation is inherently subjective as it requires estimates
that are susceptible to significant revision as more information becomes
available.
A loan is considered impaired when, based on current information or events, it
is probable that the Association 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 fair value of the collateral of the loan. If the
fair value of the collateral is less than the recorded investment in the loan,
the Association 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. Substandard loans are those, which are in excess of
ninety days delinquent. The allowance is established by a charge to interest
income equal to all interest previously accrued and income is subsequently
recognized only to the extent that cash payments are received. When, in
management's judgment, the borrower's ability to make periodic interest and
principal payments is back to normal, the loan is returned to accrual status.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Association has entered into
commitments to extend credit. Such financial instruments are recorded when
they are funded.
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
Deferred income tax assets and liabilities are determined using the liability
(or balance sheet) method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the temporary differences
between the book and tax bases of the various assets and liabilities and gives
current recognition to changes in tax rates and laws.
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.
8
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. EARNINGS PER SHARE
Basic earnings per common share is computed based on the weighted average
number of shares outstanding. Diluted earnings per share is computed based on
the weighted average number of shares outstanding and common share equivalents
that would arise from the exercise of dilutive securities. Earnings per share
for the three ended September 30, 2006 and 2005 were calculated as follows:
Three Months Ended Three Months Ended
September 30, 2006 September 30, 2005
--------------------- ----------------------
Basic Diluted Basic Diluted
--------- --------- --------- ---------
Net Income $ 158,013 $ 158,013 $ 197,823 $ 197,823
Weighted average shares outstanding 3,367,898 3,367,898 3,431,351 3,431,351
Effect of unvested common stock awards -- 4,332 -- --
--------- --------- --------- ---------
Adjusted weighted average shares used in
Earnings per share computation 3,367,898 3,372,230 3,431,351 3,431,351
--------- --------- --------- ---------
Earnings per share $ .05 $ .05 $ .06 $ .06
===== ===== ===== =====
3. RECOGNITION AND RETENTION PLAN
On August 10, 2005, the shareholders of the Company approved the establishment
of the Home Federal Bancorp, Inc. of Louisiana 2005 Recognition and Retention
Plan and Trust Agreement (the "Recognition Plan") for the benefit of directors,
officers, and employees as an incentive to retain personnel of experience and
ability in key positions. The aggregate number of shares of the Company's
common stock subject to award under the Recognition Plan totals 69,756 shares.
As shares are acquired for the Recognition Plan, the purchase price of these
shares will be recorded as a contra equity account. As the shares are
distributed, the contra equity account will be reduced. As of September 30,
2006, the Company had purchased 69,756 shares at an aggregate cost of $688,439.
During the quarter ended September 30, 2006, 13,661 shares vested and were
released from the Recognition Plan Trust and 56,095 shares remained in the
Recognition Plan Trust at September 30, 2006.
Recognition Plan shares are earned by recipients at a rate of 20% of the
aggregate number of shares covered by the Recognition Plan award over five
years. Generally, if the employment of an employee or service as a non-
employee director is terminated prior to the fifth anniversary of the date of
grant of Recognition Plan share award, the recipient shall forfeit the right
to any shares subject to the award that have not been earned. As of September
30, 2006, 1,490 awards had been forfeited. In the case of death or disability
of the recipient or a change in control of the Company, however, the
Recognition Plan awards will be vested and shall be distributed as soon as
practicable thereafter.
The present cost associated with the Recognition Plan is based on a share
price of $9.85, which represents the market price of the Company's stock on
August 18, 2005, the date on which the Recognition Plan shares were granted.
The cost is being recognized over five years.
9
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. STOCK OPTION PLAN
On August 10, 2005, the shareholders of the Company approved the establishment
of the Home Federal Bancorp, Inc. of Louisiana 2005 Stock Option Plan (the
"Option Plan") for the benefit of directors, officers, and other key employees.
The aggregate number of shares of common stock reserved for the issuance
under the Option Plan totaled 174,389. Both incentive stock options and
non-qualified stock options may be granted under the Option Plan.
On August 18, 2005, the Company granted 174,389 options to directors and key
employees. Under the Option Plan, the exercise price of each option cannot be
less than the fair market value of the underlying common stock as of the date
of the option grant, which was $9.85, and the maximum term is ten years.
Incentive stock options and non-qualified stock options granted under the
Option Plan become vested and exercisable at a rate of 20% per year over five
years, commencing one year from the date of the grant, with an additional 20%
vesting on each successive anniversary of the date the option was granted. No
vesting shall occur after an employee's employment or service as a director is
terminated. As of September 30, 2006, 3,532 stock options had been forfeited
and are available for future grant. In the event of the death or disability
of an employee or director or change in control of the Company, the unvested
options shall become vested and exercisable. The Company accounts for the
Option Plan under the guidance of SFAS No. 123(R).
5. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2005, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 154, Accounting Changes and Error
Corrections. This Statement replaces APB Opinion No. 20, Accounting Changes,
and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements,
and changes the requirements for the accounting for and reporting of a change
in accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. This Statement was effective for accounting
changes and corrections of errors made in fiscal years beginning after
December 15, 2005. This Statement has had no impact to the interim financial
statements of the Company.
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments. This Statement amends FASB Statements No. 133,
Accounting for Derivative Instruments and Hedging Activities, and Statement
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This Statement permits fair value
remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation, clarifies which interest-
only strips and principal-only strips are not subject to the requirements of
SFAS No. 133, establishes a requirement to evaluate interests in securities
financial assets to identify interests that are freestanding derivatives or
that are hybrid financial instruments that contain an embedded derivative
requiring bifurcation, and clarifies that concentrations of credit risk in the
form of subordination are not embedded derivatives. This Statement is
effective for all financial instruments acquired or issued after the beginning
of an entity's first fiscal year that begins after September 15, 2006.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets. This Statement requires an entity to recognize a servicing
asset or servicing liability each time it undertakes an obligation to service
a financial asset by entering into a servicing contract in certain prescribed
situations.
10
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, SFAS No. 156 requires that all separately recognized servicing
assets and servicing liabilities be measured at fair value, if practicable.
The FASB recommends that entities should adopt this Statement as of the
beginning of its first fiscal year that begins after September 15, 2006.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The Company was formed by the Association in connection with the Association's
reorganization and commenced operations on January 18, 2005. The Company's
results of operations are primarily dependent on the results of the Association,
which became a wholly owned subsidiary upon completion of the reorganization.
The Association's results of operations depend, to a large extent, on net
interest income, which is the difference between the income earned on its loan
and investment portfolios and the cost of funds, consisting of the interest
paid on deposits and borrowings. Results of operations are also affected by
provisions for loan losses and loan sale activities. Non-interest expense
principally consists of compensation and employee benefits, office occupancy
and equipment expense, data processing and other expense. Our results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in interest rates, government policies and
actions of regulatory authorities. Future changes in applicable law,
regulations or government policies may materially impact our financial
conditions and results of operations.
Critical Accounting Policies
The Company has identified the calculation of the allowance for loan losses as
a critical accounting policy, due to the higher degree of judgment and
complexity than its other significant accounting policies. Provisions for loan
losses are based upon management's periodic valuation and assessment of the
overall loan portfolio and the underlying collateral, trends in non-performing
loans, current economic conditions and other relevant factors in order to
maintain the allowance for loan losses at a level believed by management to
represent all known and inherent losses in the portfolio that are both probable
and reasonably estimable. Although management uses the best information
available, the level of the allowance for loan losses remains an estimate which
is subject to significant judgment and short-term change.
Discussion of Financial Condition Changes from June 30, 2006 to September 30,
2006
-----------------------------------------------------------------------------
At September 30, 2006, total assets amounted to $120.1 million compared to
$114.0 million at June 30, 2006, an increase of approximately $6.1 million, or
5.4%. This increase was primarily due to an increase in cash and cash
equivalents of $4.3 million, or 86.5% and an increase in investment securities
of $3.0 million, or 3.6%. These increases were offset by a decrease in loans
receivable of $219,692, or 1.1%, and a decrease in the Company's deferred tax
asset of $928,562, or 58.1%.
The increase in cash and cash equivalents was due primarily to proceeds
received through deposits and advances from the Federal Home Loan Bank of
Dallas. The increase in investment securities was primarily due to an
increase in the market value of securities available-for-sale. This increase
in the market value in available-for-sale securities reduced the deferred tax
asset associated with unrealized loss associated with these securities.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
The Company's total liabilities amounted to $89.6 million at September 30,
2006, an increase of approximately $4.1 million, or 4.8%, compared to total
liabilities of $85.5 million at June 30, 2006. The primary reason for the
increase in liabilities was due to the $2.2 million, or 3.0%, increase of
customers' deposits due to normal deposits inflow, and a $1.9 million, 14.1%,
increase in advances from the Federal Home Loan Bank.
Stockholders' equity increased $2.0 million, or 7.1%, to $30.6 million at
September 30, 2006 compared to $28.5 million at June 30, 2006. This increase
was primarily the result of the change in the Company's Accumulated Other
Comprehensive Loss associated with securities available-for-sale of $1.8
million, or 58.2%, the recognition of net income of $158,013 for the three
months ended September 30, 2006, and the distribution of shares associated
with the Company's Recognition Plan of $137,419. These increases were offset
by dividends of $84,733 paid during the quarter ended September 30, 2006, and
the acquisition of treasury shares of $38,138.
The Association is required to meet minimum capital standards promulgated by
the Office of Thrift Supervision ("OTS"). At September 30, 2006, Home Federal
Savings and Loan's regulatory capital was well in excess of the minimum
capital requirements.
Comparison of Operating Results for the Three Month Periods Ended September
30, 2006 and 2005
---------------------------------------------------------------------------
General
-------
Net income amounted to $158,013 for the three months ended September 30, 2006
compared to $197,823 for the same period in 2005, a decrease of $39,810, or
20.1%. The decrease was primarily due to decreases in net interest income and
an increase in non-interest expense, partially offset by a decrease in income
tax expense.
Net Interest Income
-------------------
Net interest income for the three months ended September 30, 2006, was
$783,535, a decrease of $43,534 in comparison to the three months ended
September 30, 2005. This decrease was due primarily to the increase in
interest expense incurred on deposit accounts and advances from the Federal
Home Loan Bank.
The Company's average interest rate spread was 2.00% for the three months
ended September 30, 2006, compared to 2.31% for the three months ended
September 30, 2005. The Company's net interest margin was 2.81% for the three
months ended September 30, 2006, compared to 3.06% for the three months ended
September 30, 2005. The decrease in net interest income and net interest
margin is attributable primarily to the increase in interest expense and the
average cost associated with deposits and advances from the Federal Home Loan
Bank.
Provision for Losses on Loans
-----------------------------
Based on an analysis of historical experience, the volume and type of lending
conducted by Home Federal, the status of past due principal and interest
payments, general economic conditions, particularly as such conditions relate
to Home Federal's market area, the decrease in the loan portfolio and other
factors related to the collectibility of Home Federal's loan portfolio, no
provisions for loan losses were made during the three months ended September
30, 2006 or 2005. The Association's allowance for loan losses was $235,000,
or 1% of total loans, at September 30, 2006 and at September 30, 2005. Home
Federal did not have any non-performing loans at September 30, 2006 or 2005.
There can be no
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
assurance that the loan loss allowance will be sufficient to cover losses on
nonperforming assets in the future.
Non-interest Income
-------------------
Total non-interest income amounted to $57,410 for the three months ended
September 30, 2006, compared to $63,949 for the same period in 2005. The
decrease was primarily due to the recognition of gains from investment
securities sold during the three months ended September 30, 2005. There were
no sales of investments during the three months ended September 30, 2006.
Non-interest Expense
--------------------
Total non-interest expense increased $10,136, or 1.7%, for the three months
ended September 30, 2006 compared to the prior year period. The increase was
primarily due to an increase of $16,264, or 4.6%, in compensation and benefits
expense, and an increase in franchise and bank shares tax expense of $39,323.
The increase in compensation and benefits expenses was a result of the
Company's recognition of a full three months of expense associated with the
vested amount of stock options granted by the Company during the quarter ended
September 30, 2006, as well as the expense associated with the Company's
awards pursuant to the Recognition Plan also granted during the quarter ended
September 30, 2005. Options associated with the Company's stock option plan
and shares associated with the Company's Recognition Plan were granted on
August 18, 2005. Compensation expense recognized by the Company for its Stock
Option and Recognition and Retention Plans amounted to $15,503 and $33,897 for
the three months ended September 30, 2006, and $7,396 and $16,189,
respectively, for the three months ended September 30, 2005.
Effective January 1, 2006, the Company, through its subsidiary Home Federal
Savings and Loan Association, became subject to the Louisiana bank shares tax.
This tax is assessed on the Association's equity and earnings. For the three
months ended September 30, 2006, the Company recognized expense of $39,323
pertaining to this assessment.
These increases were offset by decreases in audit and professional fees of
$20,156, or 26.9%, and a decrease in other expense of $24,198, or 24.1%. The
decrease in audit and professional fees was due primarily to a decrease in
legal fees of approximately $20,000. During the three months ended September
30, 2005, the Company incurred additional legal fees associated with the
drafting and adoption of its stock option plan and Recognition Plan. The
decrease in other expense was due primarily to a decrease in registrar and
transfer agent fees, office supplies, and telephone expenses for the quarter
ended September 30, 2006 compared to the 2005 quarter.
Income Taxes
------------
Income taxes amounted to $81,476 and $101,875 for the three months ended
September 30, 2006 and 2005, respectively, resulting in an effective tax rate
of 34.0% for both periods. The decrease in income taxes for the three
months ended September 30, 2006, was due to decreased income before income
taxes.
Liquidity and Capital Resources
-------------------------------
Home Federal Savings and Loan maintains levels of liquid assets deemed
adequate by management. The Association adjusts its liquidity levels to fund
deposit outflows, repay its borrowings and to fund loan
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
commitments. Home Federal Savings and Loan also adjusts liquidity as
appropriate to meet asset and liability management objectives.
Home Federal Savings and Loan's primary sources of funds are deposits,
amortization and prepayment of loans and mortgage-backed securities,
maturities of investment securities and other short-term investments, loan
sales and earnings and funds provided from operations. While scheduled
principal repayments on loans and mortgage-backed securities are a relatively
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions and competition.
The Association sets the interest rates on its deposits to maintain a desired
level of total deposits. In addition, Home Federal Savings and Loan invests
excess funds in short-term interest-earning accounts and other assets, which
provide liquidity to meet lending requirements. Home Federal Savings and
Loan's deposit accounts with the Federal Home Loan Bank of Dallas amounted to
$4,611,291 at September 30, 2006.
A significant portion of Home Federal Savings and Loan's liquidity consists of
securities classified as available-for-sale and cash and cash equivalents.
Home Federal Savings and Loan's primary sources of cash are net income,
principal repayments on loans and mortgage-backed securities and increases in
deposit accounts. If Home Federal Savings and Loan requires funds beyond its
ability to generate them internally, borrowing agreements exist with the
Federal Home Loan Bank of Dallas which provide an additional source of funds.
At September 30, 2006, Home Federal Savings and Loan had $15.3 million in
advances from the Federal Home Loan Bank of Dallas.
At September 30, 2006, Home Federal Savings and Loan had outstanding loan
commitments of $1.6 million to originate loans. At September 30, 2006,
certificates of deposit scheduled to mature in less than one year, totaled
$23.2 million.
Based on prior experience, management believes that a significant portion of
such deposits will remain with us, although there can be no assurance that
this will be the case. In addition, the cost of such deposits could be
significantly higher upon renewal, in a rising interest rate environment.
Home Federal Savings and Loan intends to utilize its high levels of liquidity
to fund its lending activities. If additional funds are required to fund
lending activities, Home Federal Savings and Loan intends to sell its
securities classified as available-for-sale as needed.
Home Federal Savings and Loan is required to maintain regulatory capital
sufficient to meet tangible, core and risk-based capital ratios of at least
1.5%, 3.0% and 8.0%, respectively. At September 30, 2006, Home Federal
Savings and Loan exceeded each of its capital requirements with ratios of
22.77%, 22.77% and 87.63%, respectively.
In connection with the Association's reorganization to the mutual holding
company form of organization, Home Federal Bancorp, Inc., the parent holding
company of the Association, sold 1,423,583 shares of its common stock in a
subscription and community offering, which was completed on January 18, 2005
at a price of $10.00 per share. This includes 113,887 shares acquired by the
Association's Employee Stock Ownership Plan. The Company has invested 50% of
the net proceeds from the reorganization in the Association.
Off-Balance Sheet Arrangements
------------------------------
At September 30, 2006, the Association did not have any off-balance sheet
arrangements, as defined by Securities and Exchange Commission rules.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Impact of Inflation and Changing Prices
---------------------------------------
The financial statements and related financial data presented herein have been
prepared in accordance with instructions to Form 10-QSB, which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power over time
due to inflation.
Unlike most industrial companies, virtually all of the Association's assets
and liabilities are monetary in nature. As a result, interest rates generally
have a more significant impact on a financial institution's performance than
does the effect of inflation.
Forward-Looking Statements
--------------------------
This Form 10-QSB contains certain forward-looking statements and information
relating to the Association that are based on the beliefs of management as
well as assumptions made by and information currently available to management.
In addition, in those and other portions of this document, the words
"anticipate," "believe," "estimate," "except," "intend," "should" and similar
expressions, or the negative thereof, as they relate to the Association or the
Association's management, are intended to identify forward-looking statements.
Such statements reflect the current views of the Association with respect to
future looking events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize
or should underlying assumptions prove incorrect, actual results may vary from
those described herein as anticipated, believed, estimated, expected or
intended. The Association does not intend to update these forward-looking
statements.
16
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our Chief Executive Officer and our principal financial officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report.
Based upon that evaluation, the Chief Executive Officer and the principal
financial officer have concluded that, as of the end of the period covered by
this report, our disclosure controls and procedures are effective to ensure
that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934, is recorded,
processed, summarized and reported within the applicable time periods
specified by the Securities and Exchange Commission's rules and forms. There
has been no change in the Association's internal control over financial
reporting during the Association's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
Association's internal control over financial reporting.
17
PART II
ITEM 1. LEGAL PROCEEDINGS
The Association is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business, which
involve amounts in the aggregate believed by management to be immaterial to
the financial condition of the Association.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Purchases of Equity Securities
The following table represents the repurchasing activity of the stock
repurchase program during the first quarter of fiscal 2007:
Total Number Maximum
of Shares Number of
Purchased as Shares that
Part of May Yet Be
Total Average Publicly Purchased
Number of Price Announced Under the
Shares Paid per Plans or Plans or
Period Purchased Share Programs Programs
---------------------------------------------- --------- -------- ----------- -----------
Month #1 July 1, 2006 - July 31, 2006 -- $ -- -- 121,658
Month #2 August 1, 2006 - August 31, 2006 3,776 10.10 -- 121,658
Month #3 September 1, 2006 - September 30, 2006 -- -- -- 121,658
----- ------ ------ -------
Total -- $ -- -- 121,658
===== ====== ====== =======
Notes to this table:
(a) On January 11, 2006, the Company issued a press release announcing that
the Board of Directors authorized a stock repurchase program
(the "program").
(b) The Company was authorized to repurchase 10% or 142,358 of the outstanding
shares other than shares held by Home Federal Mutual Holding Company.
(c) The program has an expiration date of January 11, 2007.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
18
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
The following Exhibits are filed as part of this report:
No. Description
----- -------------------------------------------------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
32.0 Certification Pursuant to 18 U.S.C Section 1350
19
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: November 14, 2006 By: /s/ Daniel R. Herndon
----------------- ------------------------------
Daniel R. Herndon
President and Chief Executive Officer
Date: November 14, 2006 By: /s/ Clyde D. Patterson
----------------- ------------------------------
Clyde D. Patterson
Executive Vice President
(principal financial officer)