Home Federal Bancorp(HFBL) - 2023 Q4 - Annual Report

Part I Business Home Federal Bancorp operates as a federally chartered savings bank, focusing on deposits and diversified loan origination in northwest Louisiana - The company operates as the holding company for Home Federal Bank, which has ten full-service branch offices in Caddo, Bossier, and Webster Parishes, Louisiana[9] - In February 2023, the Bank acquired First National Bank of Benton, expanding its presence with a branch in Benton, Louisiana[9] - The primary market area has a diversified economy based on services (especially healthcare), government, trade, and the energy sector[14] - The company faces significant competition for both deposits and loans from commercial banks, credit unions, savings institutions, and non-bank lenders like mortgage companies[15][16] Lending Activities Net loans reached $489.5 million, with a diversified portfolio and active sales of fixed-rate residential loans to manage risk Loan Portfolio Composition at June 30 | Loan Type | 2023 (in thousands) | % of Total | 2022 (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | One-to-four family residential | $179,579 | 36.29% | $120,014 | 30.57% | | Commercial – real estate secured | $148,441 | 30.00% | $127,589 | 32.49% | | Multi-family residential | $28,849 | 5.83% | $30,411 | 7.75% | | Land | $26,841 | 5.42% | $22,127 | 5.64% | | Construction | $28,035 | 5.67% | $27,884 | 7.10% | | Equity lines of credit | $23,817 | 4.81% | $17,831 | 4.54% | | Commercial business | $55,364 | 11.19% | $44,487 | 11.33% | | Other Consumer/Real Estate | $3,904 | 0.79% | $2,292 | 0.58% | | Total Loans | $494,830 | 100.00% | $392,635 | 100.00% | Loan Origination and Sale Activity (Year Ended June 30) | Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Total loan originations | $244,024 | $339,609 | | Loans purchased | $54,949 | $0 | | Loans Sold | ($24,865) | ($87,238) | | Loan principal repayments | ($171,869) | ($199,431) | - The regulatory limit on loans to one borrower was $7.6 million as of June 30, 2023. The five largest loans to single borrowers were all within this limit and performing as per their terms[20] - The company sold $24.9 million and $87.2 million of loans in fiscal 2023 and 2022, respectively, recognizing gains of $466 thousand and $2.0 million. These sales, primarily of long-term, fixed-rate residential loans, were aimed at reducing interest rate risk[32] Asset Quality Asset quality improved in fiscal 2023, with non-performing assets decreasing and allowance for loan losses increasing Non-Performing Assets at June 30 | Category | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Non-accruing loans | $1,228 | $2,157 | | Accruing loans 90+ days past due | $0 | $26 | | Total non-performing loans | $1,228 | $2,183 | | Real estate owned, net | $368 | $0 | | Total non-performing assets | $1,596 | $2,183 | | Non-performing assets as a % of total assets | 0.24% | 0.37% | Allowance for Loan Losses Activity (Year Ended June 30) | Category | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Beginning Balance | $4,451 | $4,122 | | Provision for loan losses | $868 | $336 | | Recoveries | $91 | $24 | | Charge-offs | ($237) | ($31) | | Ending Balance | $5,173 | $4,451 | | Allowance as a % of loans outstanding | 1.05% | 1.13% | - Classified assets totaled $7.1 million at June 30, 2023, consisting of loans designated as special mention ($3.1 million) and substandard ($4.0 million)[61] Investment Securities The investment securities portfolio totaled $117.3 million at amortized cost, primarily comprising fixed-rate mortgage-backed securities Investment Securities Portfolio at June 30 | Category | 2023 Amortized Cost (in thousands) | 2023 Fair Value (in thousands) | 2022 Amortized Cost (in thousands) | 2022 Fair Value (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Held-to-Maturity | | | | | | Mortgage-backed securities | $71,568 | $58,447 | $78,072 | $67,737 | | Other (Municipals, FHLB/FNBB) | $2,855 | $2,775 | $1,878 | $1,776 | | Available-for-Sale | | | | | | Mortgage-backed securities | $32,063 | $28,634 | $30,250 | $28,099 | | US Treasury & Municipals | $10,847 | $10,917 | $0 | $0 | | Total | $117,333 | $100,773 | $110,200 | $97,612 | - The mortgage-backed securities portfolio is predominantly fixed-rate, totaling $86.9 million at fair value at June 30, 2023, compared to $94.7 million in 2022[80] Sources of Funds Deposits, primarily certificates of deposit, are the main funding source, supplemented by FHLB and other lines of credit Deposit Composition at June 30 | Deposit Type | 2023 (in thousands) | % of Total | 2022 (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Non-interest-bearing demand | $145,553 | 24.37% | $161,142 | 30.29% | | Passbook savings | $81,895 | 13.71% | $132,981 | 25.00% | | NOW accounts | $65,335 | 10.94% | $58,957 | 11.08% | | Money market | $114,195 | 19.12% | $98,627 | 18.54% | | Certificate accounts | $190,383 | 31.87% | $80,284 | 15.09% | | Total Deposits | $597,361 | 100.00% | $531,991 | 100.00% | - The company had access to $212.2 million in borrowing capacity from the FHLB of Dallas and a $20.4 million Federal Funds line with First National Bankers Bank as of June 30, 2023[94] - At June 30, 2023, the company had an outstanding balance of $8.6 million on a $10.0 million line of credit with First National Bankers Bank[94] Regulation The company is subject to extensive regulation by the OCC, FDIC, and Federal Reserve Board, maintaining a 'well-capitalized' status - Home Federal Bank is primarily regulated by the Office of the Comptroller of the Currency (OCC), with deposit insurance provided by the FDIC[99] - The holding company, Home Federal Bancorp, is regulated by the Federal Reserve Board. Due to its asset size (under $3.0 billion), it is subject to the Small Bank Holding Company (SBHC) Policy and is exempt from certain regulatory capital requirements[103][106] - At June 30, 2023, Home Federal Bank exceeded all regulatory capital requirements and was deemed "well-capitalized" under prompt corrective action regulations[126][133] - The Bank believes it meets the Qualified Thrift Lender (QTL) test, which is required to avoid certain operational restrictions[140] Risk Factors This section is not applicable as per the report - Not applicable[165] Properties The company operates ten banking offices across Louisiana, with most properties owned and a total net book value of $13.0 million Office Locations and Value as of June 30, 2023 | Location | Status | Net Book Value (in thousands) | Deposits (in thousands) | | :--- | :--- | :--- | :--- | | Shreveport, LA (6 offices) | Owned | $8,677 | $410,227 | | Bossier City, LA (2 offices) | Owned | $3,183 | $95,976 | | Minden, LA (1 office) | Leased | $386 | $20,926 | | Benton, LA (1 office) | Owned | $704 | $70,232 | Legal Proceedings The company is not involved in any material legal proceedings outside of ordinary business - Home Federal Bancorp and Home Federal Bank are not involved in any pending legal proceedings other than nonmaterial legal proceedings occurring in the ordinary course of business[170] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, with no repurchases during the quarter ended June 30, 2023 - The company's common stock is traded on the Nasdaq Capital Market under the symbol "HFBL"[176] - No shares of common stock were repurchased during the three months ended June 30, 2023[173] Management's Discussion and Analysis of Financial Condition and Results of Operations Net income increased to $5.7 million in FY2023, driven by higher net interest income and asset growth, despite increased expenses Key Performance Indicators (Fiscal Year Ended June 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Income | $5.7 million | $4.9 million | | Diluted EPS | $1.81 | $1.41 | | Net Interest Income | $21.6 million | $17.4 million | | Net Interest Margin | 3.73% | 3.27% | | Return on Average Assets | 0.92% | 0.85% | | Return on Average Equity | 11.57% | 9.24% | | Efficiency Ratio | 67.71% | 69.59% | - The company's business strategy includes growing the commercial loan portfolio, diversifying products, managing expenses, and expanding its franchise through de novo branching and potential acquisitions[179] - Critical accounting policies identified by management include the allowance for loan losses and accounting for business combinations, both of which require significant estimates and judgments[178][180][183] Changes in Financial Condition Total assets grew by $70.4 million to $660.9 million, driven by loan and deposit growth, while equity decreased due to repurchases and dividends - Total assets increased 11.9% to $660.9 million, driven by a 26.2% increase in net loans receivable to $489.5 million[196] - The acquisition of First National Bank of Benton contributed $54.9 million in loans and $77.4 million in deposits[197][202] - Total deposits increased by 12.3% to $597.4 million, with a significant shift towards certificates of deposit, which grew by 137.1%[202] - Stockholders' equity decreased by 3.4% to $50.5 million due to stock repurchases ($6.0 million) and dividends ($1.5 million) exceeding net income ($5.7 million)[203] Comparison of Operating Results (FY 2023 vs FY 2022) Net income increased to $5.7 million in FY2023, driven by a 24.2% rise in net interest income, despite lower non-interest income and higher expenses Rate/Volume Analysis of Net Interest Income Change (2023 vs. 2022) | Component | Change Due to Rate (in thousands) | Change Due to Volume (in thousands) | Total Change (in thousands) | | :--- | :--- | :--- | :--- | | Interest Income | | | | | Loans receivable, net | $1,988 | $3,963 | $5,951 | | Investment securities | $464 | $232 | $696 | | Interest Expense | | | | | Deposits | $2,278 | $458 | $2,736 | | Borrowings | $261 | $205 | $466 | | Change in Net Interest Income | $819 | $3,376 | $4,195 | - Net interest income increased by $4.2 million (24.2%) due to a higher interest rate environment and growth in average earning assets[209][210] - Non-interest income decreased by $1.4 million (39.6%), mainly from a $1.5 million drop in gain on sale of loans as mortgage refinance activity slowed[219] - Non-interest expense increased by $1.5 million (10.5%), primarily driven by $875 thousand in professional fees associated with the FNBB acquisition[220] Exposure to Changes in Interest Rates The company manages interest rate risk through loan sales and securities, with NPV sensitivity analysis indicating an asset-sensitive balance sheet Net Portfolio Value (NPV) Sensitivity Analysis at June 30, 2023 | Rate Shock (Basis Points) | Net Portfolio Value (in thousands) | % Change from Static | | :--- | :--- | :--- | | +300 | $67,744 | (6.37)% | | +200 | $72,747 | (2.59)% | | +100 | $74,779 | (4.73)% | | Static | $78,493 | 0.00% | | -100 | $87,788 | 11.84% | | -200 | $92,848 | 6.45% | - The company mitigates interest rate risk by selling long-term fixed-rate loans, maintaining available-for-sale securities, and emphasizing shorter-term commercial and consumer loans[223][225] Liquidity and Capital Resources The company maintains strong liquidity and capital, exceeding all regulatory requirements, with CECL adoption anticipated in fiscal 2024 - Primary sources of funds include deposits, loan/security repayments, and earnings. Additional liquidity is available from the FHLB of Dallas ($212.2 million capacity) and other bank lines[228][229] - At June 30, 2023, the Bank exceeded all capital requirements with a total risk-based capital ratio of 13.95%[231] - The company will adopt CECL in fiscal 2024 and estimates the allowance for credit losses will increase by 4% to 9%, with the regulatory capital impact phased in over three years[232] Financial Statements and Supplementary Data This section presents audited consolidated financial statements with an unqualified auditor's opinion, highlighting critical audit matters - The independent auditor, FORVIS, LLP, provided an unqualified opinion on the consolidated financial statements[239] - Critical Audit Matters identified were the Allowance for Loan Losses (due to judgment in qualitative factors) and the Fair Value of Acquired Loans and Core Deposit Intangible from the Northwest Bancshares acquisition (due to significant estimates and assumptions)[245][248] - On February 1, 2023, the company acquired Northwest Bancshares Corporation for $10.2 million in cash, resulting in $3.0 million of goodwill and a $1.5 million core deposit intangible[436][437] Consolidated Balance Sheet Highlights (at June 30) | Account | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $660,915 | $590,480 | | Loans Receivable, Net | $489,493 | $387,873 | | Total Deposits | $597,361 | $531,991 | | Total Liabilities | $610,373 | $538,133 | | Total Stockholders' Equity | $50,542 | $52,347 | Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[456] - Based on an evaluation using the COSO framework, management concluded that internal control over financial reporting was effective as of June 30, 2023[453] Part III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement - The required information is incorporated by reference from the Registrant's Proxy Statement[457] - The company has adopted a Code of Ethics for its principal officers, directors, and employees[458] Executive Compensation Information regarding executive compensation is incorporated by reference from the Proxy Statement - The required information is incorporated by reference from the section captioned "Management Compensation" in the Proxy Statement[459] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, detailing equity compensation plan securities and available future issuances Equity Compensation Plan Information as of June 30, 2023 | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 402,816 | $11.82 | 24,600 | Certain Relationships and Related Transactions and Director Independence Information on related party transactions and director independence is incorporated by reference from the Proxy Statement - The required information is incorporated by reference from the section captioned "Indebtedness of Management and Related Party Transactions" in the Proxy Statement[463] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the Proxy Statement - The required information is incorporated by reference from the section captioned "Ratification of Appointment of Independent Registered Public Accounting Firm — Audit Fees" in the Proxy Statement[464] Part IV Exhibit and Financial Statement Schedules This section lists filed financial statements and an index of all exhibits, including corporate governance and compensation plans - This section includes the Report of Independent Registered Public Accounting Firm and the full set of Consolidated Financial Statements and Notes[466] - Exhibits filed include corporate governance documents, descriptions of equity compensation plans (e.g., 2014 and 2019 Stock Incentive Plans), employment agreements, and SEC certifications[467] Form 10-K Summary This section is not applicable as per the report - None[471]