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, 2005
___________________________
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 filer
(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, 2005: The registrant had 3,558,958 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
1,423,583 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.... 11
Item 3: Controls and Procedures...................................... 16
PART II - OTHER INFORMATION
Item 1: Legal Proceedings............................................ 17
Item 2: Unrestricted Sales of Equity Securities and Use of Proceeds.. 17
Item 3: Defaults upon Senior Securities.............................. 17
Item 4: Submission of Matters to a Vote of Security Holders.......... 17
Item 5: Other information............................................ 17
Item 6: Exhibits..................................................... 17
SIGNATURES
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, June 30,
2005 2005
(Unaudited) (Audited)
------------- ------------
ASSETS
Cash and Cash Equivalents $ 12,680,995 $ 9,292,489
Securities Available-for-Sale 74,794,600 75,760,424
Securities Held-to-Maturity 1,544,616 1,612,657
Loans Held-for-Sale 526,200 70,000
Loans Receivable, Net 19,532,176 23,575,037
Accrued Interest Receivable 413,044 435,534
Premises and Equipment, Net 962,404 524,755
Deferred Tax Asset 246,218 --
Other Assets 47,297 59,936
----------- -----------
Total Assets $110,747,550 $111,330,832
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 71,297,483 $ 69,995,056
Advances from Borrowers for Taxes and Insurance 236,594 170,037
Advances from Federal Home Loan Bank of Dallas 7,550,871 8,224,459
Deferred Tax Liability -- 186,118
Other Accrued Expenses and Liabilities 520,116 323,688
----------- -----------
Total Liabilities 79,605,064 78,899,358
----------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock - 8,000,000 shares of $.01
par value authorized; 3,558,958 shares issued
at September 30, 2005 and June 30, 2005,
respectively 14,236 14,236
Additional paid-in capital 13,398,030 13,391,061
Retained Earnings - Partially Restricted 19,954,083 19,827,439
Unallocated Shares held by ESOP (1,096,443) (1,110,683)
Unearned RRP Trust Stock (654,040) --
Accumulated Other Comprehensive (Loss) Income (473,380) 309,421
----------- -----------
Total Stockholders' Equity 31,142,486 32,431,474
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $110,747,550 $111,330,832
=========== ===========
See accompanying notes to consolidated financial statements.
1
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
--------------------------
2005 2004
----------- ----------
INTEREST INCOME
Loans, Including Fees $ 384,524 $ 381,119
Investment Securities 60,822 20,448
Mortgage-Backed Securities 891,725 781,403
Other Interest-Earning Assets 42,709 10,369
--------- ---------
Total Interest Income 1,379,780 1,193,339
--------- ---------
INTEREST EXPENSE
Deposits 489,741 439,759
Federal Home Loan Bank Borrowings 62,970 69,703
--------- ---------
Total Interest Expense 552,711 509,462
--------- ---------
Net Interest Income 827,069 683,877
--------- ---------
PROVISION FOR LOAN LOSSES -- --
--------- ---------
Net Interest Income after
Provision for Loan Losses 827,069 683,877
--------- ---------
NON-INTEREST INCOME
Gain on Sale of Loans 4,079 4,338
Gain on Sale of Investments 52,209 --
Other Income 7,661 6,444
--------- ---------
Total Non-Interest Income 63,949 10,782
--------- ---------
NON-INTEREST EXPENSE
Compensation and Benefits 351,718 330,842
Occupancy and Equipment 43,949 42,851
Data Processing 20,184 16,491
Audit and Professional Fees 74,907 25,815
Other Expense 100,562 69,732
--------- ---------
Total Non-Interest Expense 591,320 485,731
--------- ---------
Income Before Income Taxes 299,698 208,928
PROVISION FOR INCOME TAX EXPENSE 101,875 70,805
--------- ---------
Net Income $ 197,823 $ 138,123
========= =========
INCOME PER COMMON SHARE:
Basic $ .06 n/a
=========
Diluted $ .06 n/a
=========
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, 2005 AND 2004
Unearned Accumulated
Additional Unearned RRP Other Total
Paid-in ESOP Trust Retained Comprehensive Stockholders'
Common Stock Capital Stock Stock Earnings Income (Loss) Equity
------------ ---------- -------- -------- -------- ------------- -------------
BALANCE - JUNE 30, 2004 $ -- $ -- $ -- $ -- $18,977,541 $(1,668,388) $17,309,153
Net Income -- -- -- -- 138,123 -- 138,123
Other Comprehensive Income:
Changes in Unrealized Gain
(Loss) on Securities Available-
for-Sale, Net Tax Effects -- -- -- -- -- 1,695,004 1,695,004
------------ ---------- --------- -------- ---------- ---------- ----------
BALANCE - SEPTEMBER 30, 2004 $ -- $ -- $ -- $ -- $19,115,664 $ 26,616 $19,142,280
============ ========== ========= ======== ========== ========== ==========
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
============ ========== ========= ======== ========== ========== ==========
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,
------------------------
2005 2004
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 197,823 $ 138,123
Adjustments to Reconcile Net Income to Net
Cash (Used in) Provided by Operating Activities
Net Amortization and Accretion on Securities (24,244) 19,556
Gain on Sale of Investments (52,209) --
Amortization of Deferred Loan Fees (11,837) (10,483)
Depreciation of Premises and Equipment 15,588 10,318
ESOP Expense 13,813 --
Stock Option Expense 7,396 --
Recognition and Retention Plan Expense 16,189 --
Deferred Income Tax (2,515) --
Changes in Assets and Liabilities
Loans Held-for-Sale - Originations (456,200) 107,500
Accrued Interest Receivable 22,490 121,720
Other Operating Assets 16,470 (154,238)
Other Operating Liabilities 149,849 (3,006)
--------- --------
Net Cash (Used in) Provided by Operating Activities (107,387) 229,490
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations and Purchases, Net of Principal Collections 4,050,665 561,120
Deferred Loan Fees Collected 4,033 1,351
Acquisition of Premises and Equipment (453,237) (49,709)
Activity in Available-for-Sale Securities:
Proceeds from Sales of Securities 3,378,017 --
Principal Payments on Mortgage-backed Securities 2,913,023 --
Purchases of Securities (6,434,826) (1,863,313)
Activity in Held-to-Maturity Securities
Proceeds from Redemption or Maturity of Investments -- 270,000
Principal Payments on Mortgage-Backed Securities 68,041 96,471
--------- ---------
Net Cash Provided by (Used in) Investing Activities 3,525,716 (984,080)
--------- ---------
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,
------------------------
2005 2004
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits 1,302,427 1,341,774
Repayments of Advances from Federal Home Loan Bank (673,588) (623,541)
Net Increase in Mortgage-Escrow Funds 66,557 68,755
Dividends Paid (71,179) --
Acquisition of Stock for Recognition and Retention Plan (654,040) --
--------- ---------
Net Cash (Used in) Provided by Financing Activities (29,823) 786,988
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,388,506 32,398
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 9,292,489 4,342,125
---------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 12,680,995 $4,374,523
========== =========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest Paid on Deposits and Borrowed Funds $ 526,078 $ 503,280
Income Taxes Paid -- 70,000
Market Value Adjustment for (Loss) Gain on Securities
Available-for-Sale (1,186,062) 2,568,186
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, 2005, is not necessarily indicative of the results which may be expected
for the entire fiscal year.
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 60% of its outstanding common stock in the
reorganization to Home Federal Mutual Holding Company of Louisiana, or
2,135,375 shares. 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. NET INCOME PER COMMON SHARE
Basic and diluted net income per common share was $.06 and $.06 respectively,
at September 30, 2005. Net income per common share at September 30, 2004, is
not applicable since the Association had not completed its reorganization to
stock form as of that date.
3. CONVERSION TO STOCK FORM OF OWNERSHIP
On April 14, 2004, the Board of Directors of the Association unanimously
adopted the Plan of Reorganization and the Plan of Stock Issuance (together,
the "Plan"). Pursuant to the Plan, on January 18, 2005, the Association
converted to a stock savings and loan association as the successor to the
Association in its mutual form and organized Home Federal Bancorp, Inc. of
Louisiana (the "Company") as a federally-chartered corporation that owns 100%
of the common stock of the Association. The Association organized Home
Federal Mutual Holding Company of Louisiana (the "Mutual Holding Company") as
a federally-chartered mutual holding company that acquired 60% of the Common
Stock of the Company. The Company sold 1,423,583 shares of Common Stock in a
subscription and community offering. In addition to the shares of the Company
which it owns, the Mutual Holding Company was capitalized with $100,000 in
cash.
All depositors who had liquidation and other rights with respect to the
Association as of the effective date of the reorganization continue to have
such rights solely with respect to the Mutual Holding Company so long as they
continue to hold deposit accounts with the Association. In addition, all
persons who become depositors of the Association subsequent to the
reorganization will have such liquidation and other rights with respect to the
Mutual Holding Company.
The shares of common stock sold in the public offering represent a minority
ownership of the estimated pro forma market value of the Association as
determined by an independent appraisal. The Mutual Holding Company is the
majority owner of the Company.
4. 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 Plan and Trust
Agreement (the "Recognition Plan") 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. At
September 30, 2005, the Company had purchased 66,400 shares at an aggregate
cost of $654,040.
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. 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.
9
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
5. 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. 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).
10
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 initially 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, 2005 to September 30,
2005
-----------------------------------------------------------------------------
At September 30, 2005, total assets amounted to $110.7 million compared to
$111.3 million at June 30, 2004, a decrease of approximately $600,000, or
0.5%. This decrease was primarily due to a decrease in loans receivable of
approximately $4.0 million, or 17.1%, and a decrease of investment securities
of $1.0 million, or 1.3%. These decreases were offset by the Association's
purchase of land for a proposed future branch site and an increase in cash and
cash equivalents. Premises and equipment, net, amounted to $962,404 at
September 30, 2005, compared to $524,755 at June 30, 2005, an increase of
$437,649, or 83.4%. Cash and cash equivalents at September 30, 2005 amounted
to $12.7 million, compared to $9.3 million at June 30, 2005, an increase of
$3.4 million, or 36.6%.
Securities available-for-sale decreased $1.0 million, or 1.3%, from a balance
of $75.8 million at June 30, 2005, compared to $74.8 million at September 30,
2005. This decrease was due primarily to securities sold during the quarter
ended September 30, 2005, principal paydowns on mortgage-backed securities,
and the decrease in the fair value of securities available-for-sale.
Securities held-to-maturity decreased $68,041, or 4.2% for the three months
ended September 30, 2005 compared to securities held-to-maturity at June 30,
2005, primarily due to maturities and principal payments.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
The Company's total liabilities amounted to $79.6 million at September 30,
2005, an increase of approximately $700,000, or 0.9%, compared to total
liabilities of $78.9 million at June 30, 2005. The primary reason for the
increase in liabilities was due to the $1.3 million increase of customers'
deposits due to normal deposits inflow. This increase was offset by a
decrease of $673,588, or 8.2%, in advances in Federal Home Loan Bank of
Dallas.
Equity decreased $1.3 million, or 4.0% to $31.1 million at September 30, 2005
compared to $32.4 million at June 30, 2005. This decrease was primarily the
result of the purchase of 66,400 shares of common stock at a cost of $654,040
for the Company's Recognition and Retention Plan, and from unrealized losses
on securities available-for-sale, net of applicable tax effect, of $782,801.
These decreases were offset by the recognition of net income of $197,823 for
the three months ended September 30, 2005.
The Association is required to meet minimum capital standards promulgated by
the Office of Thrift Supervision ("OTS"). At September 30, 2005, 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, 2005 and 2004
---------------------------------------------------------------------------
General
-------
Net income amounted to $197,823 for the three months ended September 30, 2005
compared to $138,123 for the same period in 2004, an increase of $59,700, or
43.2%. The increase was primarily due to increases in net interest income and
non-interest income, partially offset by increases in non-interest expense and
income taxes.
Net Interest Income
-------------------
Net interest income for the three months ended September 30, 2005, was
$827,069, an increase of $143,192 in comparison to the three months ended
September 30, 2004. This increase was due primarily to the increase in
interest income earned from investment securities and interest earning
deposits maintained at the Federal Home Loan Bank of Dallas as a result of the
investment of the proceeds received from the paydowns of loans receivable and
the investment of the net proceeds associated with the Company's stock
issuance.
The Company's average interest rate spread was 2.31% for the three months
ended September 30, 2005, compared to 2.38% for the three months ended
September 30, 2004. The Company's net interest margin was 3.06% for the three
months ended September 30, 2005, compared to 2.88% for the three months ended
September 30, 2004. The increase in net interest income and net interest
margin is attributable primarily to the investment of the net proceeds from
the Company's stock issuance which occurred in January 2005.
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, 2005 or 2004. The Association's allowance for loan losses was $235,000,
or 1% of total loans, at September 30, 2005 and at September 30, 2004. Home
Federal did not have any non-performing loans at September 30, 2005 or 2004.
There can be no
12
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 $63,949 for the three months ended
September 30, 2005, compared to $10,782 for the same period in 2004. The
increase was primarily due to the recognition of $52,209 in gains from
investment securities sold during the quarter ended September 30, 2005.
Non-interest Expense
--------------------
Total non-interest expense increased $105,589, or 21.7%, for the three months
ended September 30, 2005 compared to the prior year period. The increase was
primarily due to an increase of $20,876, or 6.3%, in compensation and benefits
expense, an increase of $49,092, or 190.2%, in audit and professional fees,
and an increase of $30,830, or 44.2%, in other expense.
The increase in compensation and benefits expenses was a result of the
Company's recognition of expense associated with the vested amount of stock
options granted by the Company during the quarter ended September 30, 2005, as
well as the expense associated with the Company's awards pursuant to the
Recognition and Retention Plan also granted during the quarter ended September
30, 2005. Compensation expense recognized by the Company for its Stock Option
and Recognition and Retention Plans amounted to $7,396 and $16,189,
respectively, for the three months ended September 30, 2005.
The increase in audit and professional fees was due primarily to an increase
in legal expense recognized by the Company during the quarter ended September
30, 2005. The increase in legal expense is attributable to services
associated with the Company's various filings with the Securities and Exchange
Commission and review of the Company's Stock Option and Recognition and
Retention Plans.
The increase in other expense was due primarily to the recognition during the
quarter ended September 30, 2005 of fees paid to the Company's registrar and
transfer agent, and the Company's recognition of Louisiana franchise tax.
Income Taxes
------------
Income taxes amounted to $101,875 and $70,805 for the three months ended
September 30, 2005 and 2004, respectively, resulting in effective tax rates of
34.0% and 33.9%, respectively. The increase in income taxes for the three
months ended September 30, 2005, was due to increased 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 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
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
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
$2,841,121 at September 30, 2005.
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, 2005, Home Federal Savings and Loan had $7.6 million in
advances from the Federal Home Loan Bank of Dallas.
At September 30, 2005, Home Federal Savings and Loan had outstanding loan
commitments of $2.8 million to originate loans. At September 30, 2005,
certificates of deposit scheduled to mature in less than one year, totaled
$29.7 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, 2005, Home Federal
Savings and Loan exceeded each of its capital requirements with ratios of
24.34%, 24.34% and 93.71%, 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, 2005, the Association did not have any off-balance sheet
arrangements, as defined by Securities and Exchange Commission rules.
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
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
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.
15
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.
16
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. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF
EQUITY SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 10, 2005, the Company held a Special Meeting of Shareholders
to obtain approval for two proxy proposals submitted on behalf of the
Company's Board of Directors. Shareholders of record as of June 20, 2005,
received proxy materials and were considered eligible to vote on these
proposals. The following is a brief summary of each proposal and the result
of the vote.
For Against Abstain
--------- ------- -------
1. To adopt the 2005 Stock Option Plan 2,876,200 201,455 6,600
2. To adopt the 2005 Recognition and
Retention Plan and Trust Agreement 2,875,700 201,955 6,600
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
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2005 By: /s/ Daniel R. Herndon
----------------- --------------------------------
Daniel R. Herndon
President and Chief Executive Officer
Date: November 14, 2005 By: /s/ Clyde D. Patterson
----------------- --------------------------------
Clyde D. Patterson
Executive Vice President
(principal financial officer)