Home Federal Bancorp(HFBL) - 2024 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1: Financial Statements (Unaudited) The unaudited consolidated financial statements for the quarter ended September 30, 2023, show a net income of $1.2 million, a decrease from $1.7 million in the prior-year period, with total assets slightly increasing to $662.6 million driven by loan growth, and a key accounting change being the adoption of the CECL standard Consolidated Statements of Financial Condition As of September 30, 2023, total assets increased slightly to $662.6 million, driven by a $17.1 million increase in net loans receivable funded by a $15.9 million decrease in cash, while liabilities and equity saw minor changes Consolidated Balance Sheet Highlights (in thousands) | Financial Metric | Sep 30, 2023 (Unaudited) | June 30, 2023 (Audited) | Change (%) | | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | $8,878 | $24,765 | -64.2% | | Loans Receivable, Net | $506,599 | $489,493 | +3.5% | | Total Assets | $662,602 | $660,915 | +0.3% | | Total Deposits | $592,505 | $597,361 | -0.8% | | Total Liabilities | $612,129 | $610,373 | +0.3% | | Total Stockholders' Equity | $50,473 | $50,542 | -0.1% | Consolidated Statements of Income Net income for the three months ended September 30, 2023, decreased to $1.22 million ($0.39 per diluted share) from $1.67 million in 2022, primarily due to a significant rise in interest expense offsetting interest income growth, despite no provision for credit losses Quarterly Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Interest Income | $8,074 | $5,781 | | Total Interest Expense | $2,790 | $476 | | Net Interest Income | $5,284 | $5,305 | | Provision for Credit Losses | $0 | $418 | | Net Income | $1,220 | $1,671 | | Diluted Earnings Per Share | $0.39 | $0.52 | Consolidated Statements of Comprehensive Income Total comprehensive income for Q3 2023 significantly decreased to $408,000 from $793,000 in 2022, driven by lower net income and an $812,000 other comprehensive loss from unrealized securities losses Comprehensive Income (in thousands) | Component | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Income | $1,220 | $1,671 | | Other Comprehensive Loss, Net of Tax | ($812) | ($878) | | Total Comprehensive Income | $408 | $793 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $50.54 million to $50.47 million, primarily due to a $189,000 accounting change, $392,000 in dividends, and an $812,000 unrealized loss on securities, partially offset by $1.22 million net income - Key drivers for the change in stockholders' equity during the quarter included: - Net Income: +$1,220,000 - Dividends Declared: -$392,000 - Unrealized Loss on Securities: -$812,000 - Cumulative Effect of ASU 2016-13 Adoption: -$189,000[16] Consolidated Statements of Cash Flows For Q3 2023, the company experienced a net decrease in cash and cash equivalents of $15.9 million, primarily due to $18.1 million used in investing activities for loan originations, partially offset by $2.4 million from operating activities Cash Flow Summary (in thousands) | Cash Flow Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $2,445 | $4,335 | | Net Cash Used in Investing Activities | ($18,145) | ($20,626) | | Net Cash Used in Financing Activities | ($187) | ($10,256) | | Net Decrease in Cash and Cash Equivalents | ($15,887) | ($26,547) | Notes to Consolidated Financial Statements The notes detail accounting policies, notably the July 1, 2023, adoption of ASU 2016-13 (CECL) increasing allowance for credit losses by $359,000, alongside significant unrealized losses on securities, growth in the loan portfolio to $511.8 million, and fair value disclosures - The Company adopted ASU 2016-13 (CECL) on July 1, 2023, which requires earlier measurement of credit losses on financial instruments, resulting in a one-time cumulative adjustment to retained earnings[70] Impact of Adopting ASU 2016-13 (in thousands) | Item | Balance June 30, 2023 (in thousands) | Impact of Adoption (in thousands) | Balance after Adoption (in thousands) | | :--- | :--- | :--- | :--- | | Allowance for credit losses - loans | $5,173 | $359 | $5,532 | - As of September 30, 2023, the loan portfolio totaled $511.8 million, an increase from $494.8 million at June 30, 2023, with the allowance for credit losses standing at $5.1 million[93] - Unrealized losses on mortgage-backed securities were attributed to changes in interest rates, not credit quality, and no allowance for credit losses was recorded as the company intends to hold these investments until recovery[89] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 0.3% asset increase to loan growth funded by decreased cash, while quarterly net income declined due to net interest margin compression from 3.90% to 3.37% and higher non-interest expenses, despite strong liquidity and capital positions Discussion of Financial Condition Changes From June 30 to September 30, 2023, total assets increased by $1.7 million to $662.6 million, driven by a $17.1 million (3.5%) rise in net loans funded by a $15.9 million (64.2%) decrease in cash, while deposits and equity saw minor declines - Net loans receivable increased by $17.1 million (3.5%), primarily driven by growth in one-to-four-family residential, construction, and land loans[168] - Cash and cash equivalents decreased by $15.9 million (64.2%) primarily to fund the growth in loan originations[167] - Stockholders' equity decreased by $69,000 due to dividends ($392,000), CECL implementation ($189,000), and a decrease in accumulated other comprehensive income ($812,000), partially offset by net income of $1.2 million[175] Comparison of Operating Results Net income for Q3 2023 decreased by $451,000 due to a $21,000 decline in net interest income from interest expense growth outpacing interest income, net interest margin compression to 3.37%, a $112,000 fall in non-interest income, and a $435,000 rise in non-interest expense Net Interest Margin and Spread Comparison | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Average Interest Rate Spread | 2.68% | 3.74% | | Net Interest Margin | 3.37% | 3.90% | - Non-interest income decreased by $112,000, primarily due to a $137,000 decrease in gain on sale of loans as refinance activity slowed and the company held more adjustable-rate mortgages in its portfolio[183] - Non-interest expense increased by $435,000, with notable increases in amortization of core deposit intangible ($94k), compensation and benefits ($74k), and advertising ($69k)[184] Liquidity and Capital Resources The Bank maintains adequate liquidity through deposits, loan and security repayments, and available credit lines, including $198.1 million in FHLB borrowing capacity, while regulatory capital levels remain strong with a total risk-based capital ratio of 13.87% - The Bank has access to significant additional funding, including $198.1 million in borrowing capacity from the FHLB of Dallas and an $11.0 million line of credit with First National Bankers Bank[195] Regulatory Capital Ratios as of September 30, 2023 | Ratio | Value | | :--- | :--- | | Tangible Equity | 8.91% | | Common Equity Tier 1 | 12.76% | | Core Capital | 8.91% | | Total Risk-Based Capital | 13.87% | Item 3: Quantitative and Qualitative Disclosures About Market Risk This item is not applicable for the reporting period - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable for this filing[203] Item 4: Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the reporting period, with no material changes to internal control over financial reporting during the quarter - The President and Chief Executive Officer and the Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[204] - No material changes to the company's internal control over financial reporting occurred during the most recent fiscal quarter[205] PART II OTHER INFORMATION Item 1: Legal Proceedings The company is not involved in any material pending legal proceedings beyond routine matters occurring in the ordinary course of business - The Company is not involved in any material pending legal proceedings outside of the ordinary course of business[208] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common stock during the quarter ended September 30, 2023 - No shares of common stock were repurchased by the Company during the three months ended September 30, 2023[210] Other Items (1A, 3, 4, 5) No disclosures are provided for Risk Factors, Defaults Upon Senior Securities, Mine Safety Disclosures, or Other Information, as these items were not applicable for the reporting period - The following items were reported as 'Not applicable': Risk Factors, Defaults Upon Senior Securities, Mine Safety Disclosures, and Other Information[209][212][213][214]