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 December 31, 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
February 10, 2006: 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: Unregistered 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
December 31, June 30,
2005 2005
------------ ------------
(Unaudited) (Audited)
ASSETS
Cash and Cash Equivalents $ 11,988,336 $ 9,292,489
Securities Available-for-Sale 78,959,801 75,760,424
Securities Held-to-Maturity 1,507,222 1,612,657
Loans Held-for-Sale -- 70,000
Loans Receivable, Net 18,100,347 23,575,037
Accrued Interest Receivable 428,159 435,534
Premises and Equipment, Net 960,742 524,755
Deferred Tax Asset 758,286 --
Other Assets 67,430 59,936
----------- -----------
Total Assets $112,770,323 $111,330,832
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 72,330,200 $ 69,995,056
Advances from Borrowers for Taxes and Insurance 72,357 170,037
Advances from Federal Home Loan Bank of Dallas 9,881,751 8,224,459
Deferred Tax Liability -- 186,118
Other Accrued Expenses and Liabilities 265,834 323,688
---------- ----------
Total Liabilities $ 82,550,142 $ 78,899,358
========== ==========
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock - 8,000,000 shares of $.01
par value authorized; 3,558,958 shares issued and
outstanding at December 31, 2005 and June 30,
2005, respectively 14,236 14,236
Additional paid-in capital 13,411,824 13,391,061
Retained Earnings - Partially Restricted 20,038,873 19,827,439
Unallocated Shares held by ESOP (1,082,203) (1,110,683)
Unearned RRP Trust Stock (654,040) --
Accumulated Other Comprehensive (Loss) Income (1,508,509) 309,421
----------- -----------
Total Stockholders' Equity 30,220,181 32,431,474
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $112,770,323 $111,330,832
=========== ===========
See accompanying notes to consolidated financial statements.
1
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended For the Six Months Ended
December 31, December 31,
-------------------------- ------------------------
2005 2004 2005 2004
--------- ------------- --------- ------------
INTEREST INCOME
Loans, Including Fees $ 339,562 $ 383,304 $ 724,086 $ 764,423
Investment Securities 80,230 26,647 141,052 47,095
Mortgage-Backed Securities 892,532 786,259 1,784,257 1,567,662
Other Interest-Earning Assets 57,350 20,359 100,059 30,728
--------- --------- --------- ---------
Total Interest Income 1,369,674 1,216,569 2,749,454 2,409,908
--------- --------- --------- ---------
INTEREST EXPENSE
Deposits 517,483 444,729 1,007,224 884,488
Federal Home Loan Bank Borrowings 58,576 67,845 121,546 137,548
--------- --------- --------- ---------
Total Interest Expense 576,059 512,574 1,128,770 1,022,036
--------- --------- --------- ---------
Net Interest Income 793,615 703,995 1,620,684 1,387,872
--------- --------- --------- ---------
PROVISION FOR LOAN LOSSES -- -- -- --
--------- --------- --------- ---------
Net Interest Income after
Provision for Loan Losses 793,615 703,995 1,620,684 1,387,872
--------- --------- --------- ---------
NON-INTEREST INCOME
Gain on Sale of Loans 11,086 4,915 15,165 9,253
Gain on Sale of Investments -- -- 52,209 --
Other Income 17,629 6,942 25,290 13,386
--------- --------- --------- ---------
Total Non-Interest Income 28,715 11,857 92,664 22,639
--------- --------- --------- ---------
NON-INTEREST EXPENSE
Compensation and Benefits 372,493 335,605 724,211 666,448
Occupancy and Equipment 44,317 45,752 88,266 88,603
Data Processing 18,162 16,709 38,346 33,200
Audit and Other Professional Fees 76,469 39,740 151,376 65,555
Advertising 13,800 22,837 27,600 35,467
Deposit Insurance Premiums 2,429 2,470 4,835 4,999
Other Expense 63,827 57,314 148,183 111,887
--------- --------- --------- ---------
Total Non-Interest Expense 591,497 520,427 1,182,817 1,006,159
--------- --------- --------- ---------
Income Before Income Taxes 230,833 195,425 530,531 404,352
PROVISION FOR INCOME TAX EXPENSE 74,864 66,251 176,739 137,056
--------- --------- --------- ---------
Net Income $ 155,969 $ 129,174 $ 353,792 $ 267,296
========= ========= ========= =========
EARNINGS PER SHARE:
Basic $ 0.05 n/a $ 0.10 n/a
==== ====
Diluted $ 0.05 n/a $ 0.10 n/a
==== ====
DIVIDENDS DECLARED $ 0.05 n/a $ 0.10 n/a
See accompanying notes to consolidated financial statements.
2
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
Unearned Accumulated
Additional Unearned RRP Other Total
Common Paid-in ESOP Trust Retained Comprehensive Stockholders'
Stock Capital Stock Stock Earnings Income (Loss) Equity
--------- ---------- --------- --------- ----------- --------------- -------------
BALANCE - JUNE 30, 2004 $ -- $ -- $ -- $ -- $18,977,541 $(1,668,388) $17,309,153
Net Income -- -- -- -- 267,296 -- 267,296
Other Comprehensive Income:
Changes in Unrealized Gain
(Loss) on Securities Available-
for-Sale, Net Tax Effects -- -- -- -- -- 1,562,395 1,562,395
--------- ---------- --------- --------- ----------- --------------- -------------
Total Comprehensive Income -- -- -- -- -- -- 1,829,691
--------- ---------- --------- --------- ----------- --------------- -------------
BALANCE - DECEMBER 31, 2004 $ -- $ -- $ -- $ -- $19,244,837 $ (105,993) $19,138,844
========= ========== =========== ========= =========== =============== =============
BALANCE - JUNE 30, 2005 $14,236 $13,391,061 $(1,110,683) $ -- $19,827,439 $ 309,421 $32,431,474
Net Income -- -- -- -- 353,792 -- 353,792
Other Comprehensive Loss:
Changes in Unrealized Gain
(Loss) on Securities Available-
for-Sale, Net of Tax Effects -- -- -- -- -- (1,817,930) (1,817,930)
Purchase of Common Stock for RRP
Trust -- -- -- (654,040) -- -- (654,040)
Stock Options Vested -- 23,220 -- -- -- -- 23,220
ESOP Compensation Earned -- (2,457) 28,480 -- -- -- 26,023
Dividends Declared -- -- -- -- (142,358) -- (142,358)
--------- ---------- --------- --------- ----------- --------------- -------------
BALANCE - DECEMBER 31, 2005 $14,236 $13,411,824 $(1,082,203) $(654,040) $20,038,873 $(1,508,509) $30,220,181
========= ========== =========== ========= =========== =============== =============
See accompanying notes to consolidated financial statements.
3
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
--------------------
2005 2004
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 353,792 $ 267,296
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Net Amortization and Accretion on Securities (39,407) 36,658
Gain on Sale of Investments (52,209) --
Amortization of Deferred Loan Fees (25,943) (24,163)
Depreciation of Premises and Equipment 31,654 25,370
ESOP Expense 26,023 --
Stock Option Expense 23,220 --
Recognition and Retention Plan Expense 51,809 --
Deferred Income Tax (Benefit) (7,895) --
Changes in Assets and Liabilities
Loans Held-for-Sale - Originations 70,000 107,500
Accrued Interest Receivable 7,375 14,768
Other Operating Assets (7,494) (9,162)
Other Operating Liabilities (109,663) (73,252)
------- -------
Net Cash Provided by Operating Activities 321,262 345,015
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations and Purchases, Net of Principal Collections 5,487,437 498,755
Deferred Loan Fees Collected 13,196 4,950
Acquisition of Premises and Equipment (467,641) (49,709)
Activity in Available-for-Sale Securities:
Proceeds from Sales of Securities 3,378,017 --
Principal Payments on Mortgage-backed Securities 6,109,741 904,743
Purchases of Securities (15,349,958) (1,877,000)
Activity in Held-to-Maturity Securities:
Proceeds from Redemption or Maturity of Investments -- 541,600
Principal Payments on Mortgage-Backed Securities 105,435 429,560
Purchases -- (220,403)
------- -------
Net Cash (Used in) Provided by Investing Activities (723,773) 232,496
------- -------
See accompanying notes to consolidated financial statements.
4
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Six Months Ended
December 31,
-----------------------
2005 2004
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits $ 2,335,144 $ 937,548
Increase in Stock Purchase Deposit Escrow Account -- 12,947,055
Payments for Costs Associated with Stock Conversion -- (322,940)
Proceeds from Federal Home Loan Bank Advances 3,025,000 --
Repayments of Advances from Federal Home Loan Bank (1,367,708 (1,252,005)
Net Decrease in Mortgage-Escrow Funds (97,680) (206,715)
Dividends Paid (142,358) --
Acquisition of Stock for Recognition and Retention Plan (654,040) --
---------- ----------
Net Cash Provided by Financing Activities 3,098,358 12,102,943
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,695,847 12,680,454
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 9,292,489 4,342,125
---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $11,988,336 $17,022,579
========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest Paid on Deposits and Borrowed Funds $ 1,124,617 $ 1,031,087
Income Taxes Paid 188,160 135,000
Market Value Adjustment for (Loss) Gain on Securities
Available-for-Sale (2,754,441) 2,367,263
See accompanying notes to consolidated financial statements.
5
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of
Home Federal Bancorp, Inc. of Louisiana (the "Company") and its
subsidiary, Home Federal 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 six month period ended December 31,
2005, are not necessarily indicative of the results which may be
expected for the fiscal year ending June 30, 2006.
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,
completed its reorganization to the mutual holding company form
of organization and formed Home Federal Bancorp, Inc. of
Louisiana 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. 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 were
calculated as follows:
Three Months Ended December 31,
2005
-------------------------------
Basic Diluted
------------ ------------
Net Income 155,969 155,969
Weighted average shares outstanding 3,382,957 3,382,957
Effect of unvested common stock awards -- --(1)
--------- ---------
Adjusted weighted average shares used in
Earnings per share computation 3,382,957 3,382,957
--------- ---------
Earnings per share $0.05 $0.05
==== ====
Six Months Ended December 31,
2005
----------------------------
Basic Diluted
----------- ----------
Net Income 353,792 353,792
Weighted average shares outstanding 3,407,154 3,407,154
Effect of unvested common stock awards -- --(1)
--------- ---------
Adjusted weighted average shares used in
Earnings per share computation 3,407,154 3,407,154
--------- ---------
Earnings per share $0.10 $0.10
==== ====
_________________
(1) Unvested common stock awards had no impact on diluted
earnings per share because the options exercise price was
greater than the average market value price of the common
shares.
No common shares of the Company were outstanding during the three
or six months ended December 31, 2004.
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 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
9
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
contra equity account. As the shares are distributed, the contra
equity account will be reduced. At December 31, 2005, the Company
had purchased 66,400 shares at an aggregate cost of $654,000.
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.
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.
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. 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 are primarily
dependent on the results of the Association, its wholly owned
subsidiary. 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 laws, 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
December 31, 2005
---------------------------------------------------------------
At December 31, 2005, total assets amounted to $112.8 million
compared to $111.3 million at June 30, 2005, an increase of
approximately $1.5 million, or 1.3%. The increase in assets was
due primarily to the increase in cash and cash equivalents of
$2.7 million, to $12.0 million, at December 31, 2005 compared to
$9.3 million at June 30, 2005, as well as a $3.1 million, or
4.0%, increase in investment securities at December 31, 2005
compared to June 30, 2005. These increases were offset by a
decrease in loans receivable, net of $5.5 million, or 23.5%, from
$23.6 million at June 30, 2005 to $18.1 million at December 31,
2005. The decrease in loans receivable was primarily a result of
loan prepayments during the six months ended December 31, 2005,
as well as continuing reduction of loans originated in our
primary market area.
Securities available-for-sale increased $3.4 million, or 4.5%,
from a balance of $75.8 million at June 30, 2005, compared to
$78.9 million at December 31, 2005. This increase was due
primarily to the purchase of $15.3 million of available for sale
securities, net of $6.1 million of principal payments, $3.3
million of available for sale securities sold, and a decrease in
the fair value of $2.8 million. Securities held-to-maturity
decreased $105,000, or 6.5% for the six months ended December 31,
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 $82.6 million at
December 31, 2005, an increase of approximately $3.7 million, or
4.6%, compared to total liabilities of $78.9 million at June 30,
2005. The primary reason for the increase in liabilities was due
to the $2.3 million, or 3.3%, increase of customers' deposits due
to normal deposits inflow. Deposits increased from $70.0 million
at June 30, 2005 to $72.3 million at December 31, 2005. Advances
from the Federal Home Loan Bank of Dallas increased $1.7 million,
or 20.2%, from $8.2 million at June 30, 2005, to $9.9 million at
December 31, 2005.
Shareholders' equity decreased $2.2 million to $30.2 million, or
26.8% of total assets, at December 31, 2005 compared to $32.4
million, or 29.1% of total assets, at June 30, 2005. The primary
reasons for the decrease in shareholders' equity from June 30,
2005, were a decrease in the Company's accumulated other
comprehensive income (loss) of $1.8 million, and the acquisition
of 66,400 shares of the Company's stock at a cost of $654,000 for
its Recognition and Retention Plan, and dividends of $142,000
paid during the six months ended December 31, 2005. These
decreases in shareholders' equity were offset by the recognition
of net income of $354,000 for the six months ended December 31,
2005.
The Association is required to meet minimum capital standards
promulgated by the Office of Thrift Supervision ("OTS"). At
December 31, 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 and Six Month
Periods Ended December 31, 2005 and 2004
-----------------------------------------------------------
General
-------
Net income amounted to $156,000 for the three months ended
December 31, 2005 compared to $129,000 for the same period in
2004, an increase of $27,000, or 20.7%. The increase was
primarily due o increases in net interest income and non-interest
income, partially offset by increases in non-interest expense and
income taxes.
For the six months ended December 31, 2005, net income amounted
to $354,000, an increase of $86,000, or 32.4%, as compared to the
$267,000 in net income, reported for the six months ended
December 31, 2004. The increase was primarily due to increases
in net interest income of $233,000, or 16.8%, for the six months
ended December 31, 2005, partially offset by a $177,000, or
17.6%, increase in non-interest expense.
Net Interest Income
-------------------
Net interest income for the three months ended December 31, 2005,
was $794,000, an increase of $90,000, or 12.7%, in comparison to
the three months ended December 31, 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 increase in net interest
income was partially offset by a $71,000, or 13.7% increase in
non-interest expenses.
Net interest income for the six months ended December 31, 2005
was $1.6 million, an increase of $233,000, or 16.8%. The
increase in net-interest income was attributable primarily to an
increase in average interest-earning assets as a result of the
investment of the net proceeds associated with the Company's
stock issuance which occurred in January 2005.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
The Company's average interest rate spread was 2.17% and 2.21%
for the three and six months ended December 31, 2005,
respectively, compared to 2.34% and 2.41% for the three and six
months ended December 31, 2004. The Company's net interest
margin was 2.95% and 2.99% for the three and six months ended
December 31, 2005, compared to 2.89% and 2.90% for the three and
six months ended December 31, 2004.
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 and six
months ended December 31, 2005 or 2004. The Association's
allowance for loan losses was $235,000, or 1.28% of total loans,
at December 31, 2005 compared to $235,000, or 1.04% of total
loans at December 31, 2004. Home Federal did not have any non-
performing loans at December 31, 2005 or 2004. There can be no
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 $29,000 for the three
months ended December 31, 2005, compared to $12,000 for the same
period in 2004. The increase was primarily due to an increase of
$6,000 in gain on sale of loans and an increase of approximately
$10,000 on fees generated from deposit accounts. Total non-
interest income amounted to $93,000 for the six months ended
December 31, 2005, compared to $23,000 for the same period in
2004. The increase was primarily due to the recognition of
$52,000 in gains from investment securities sold during the six
months ended December 31, 2005.
Non-interest Expense
--------------------
Total non-interest expense increased $71,000, or 13.7%, for the
three months ended December 31, 2005 compared to the prior year
period. The increase in non-interest expense was primarily due
to an increase in compensation and benefits expense of $37,000,
or 11.0%, over the prior year period and an increase in audit and
other professional fees of $37,000, or 92.4%.
Total non-interest expense increased $177,000, or 17.6% for the
six months ended December 31, 2005, compared to the prior year
period. The increase in non-interest expense was primarily due
to an increase in compensation and benefits expense of $58,000,
or 8.7%, over the prior year period and an increase in audit and
other professional fees of $86,000, or 131.0%, over the prior
year period.
The increase in compensation and benefits expenses was a result
of the Company's recognition of expense associated with the 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 $15,824
and $35,620, respectively, for the three months ended December
31, 2005 and $23,220 and $51,809, respectively for the six months
ended December 31, 2005.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
The increase in audit and professional fees was due primarily to
an increase in legal expense recognized by the Company during the
three and six months ended December 31, 2005. The increase in
legal expense is attributable to services associated with the
Company's various filings with the Securities and Exchange
Commission, including the preparation and filing of the Company's
initial Form 10-KSB for the year ended June 30, 2005, 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 December 31, 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 $75,000 and $66,000 for the three months
ended December 31, 2005 and 2004, respectively, resulting in
effective tax rates of 32.4% and 33.9%, respectively. Income
taxes amounted to $177,000 and $137,000 for the six months ended
December 31, 2005 and 2004, respectively, resulting in effective
tax rates of 33.3% and 33.9%, respectively. The increase in
income taxes for the three months ended December 31, 2005, was
due to increased income before income taxes.
Liquidity and Capital Resources
-------------------------------
The Association 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. The Association also adjusts liquidity as
appropriate to meet asset and liability management objectives.
The Association'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, the
Association invests excess funds in short-term interest-earning
accounts and other assets, which provide liquidity to meet
lending requirements. The Association's deposit accounts with
the Federal Home Loan Bank of Dallas amounted to $8,656,000 at
December 31, 2005.
A significant portion of the Association's liquidity consists of
securities classified as available-for-sale and cash and cash
equivalents. The Association's primary sources of cash are net
income, principal repayments on loans and mortgage-backed
securities and increases in deposit accounts. If the Association
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 December
31, 2005, the Association had $9.9 million in advances from the
Federal Home Loan Bank of Dallas.
At December 31, 2005, the Association had outstanding loan
commitments of $2.4 million to originate loans. Of that amount,
the Association has a loan commitment of $2.4 million for a low
income multi-family residential development in Bossier City.
Management anticipates that $2.2 million of this commitment will
be funded in February 2006. At December 31, 2005, certificates
of deposit scheduled to mature in less than one year, totaled
$31.9 million.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
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. The Association intends to
utilize its high levels of liquidity to fund its lending
activities. If additional funds are required to fund lending
activities, the Association intends to sell its securities
classified as available-for-sale as needed.
The Association 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 December 31,
2005, the Association exceeded each of its capital requirements
with ratios of 23.82%, 23.82% and 93.0%, respectively.
In connection with the Association's reorganization to the mutual
holding company form of organization, the Company 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. On January 18,
2005, the Company invested approximately 50% of the net proceeds
from the reorganization in the Association.
Off-Balance Sheet Arrangements
------------------------------
At December 31, 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 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 Company 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
Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current
views of the Company 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 Company 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 Company 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 Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 14, 2005, the Company held an Annual 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 November 4, 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 Withhold Abstain
--------- -------- -------
1. To elect three directors for
a three year term expiring in 2008:
David A. Herndon III 3,310,056 32,400 n/a
Woodus K. Humphrey 3,310,056 32,400 n/a
Sidney D. York 3,310,056 32,400 n/a
2. To ratify the appointment of the
Company's independent registered
public accounting firm: 3,336,256 5,200 1,000
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
----------
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: February 13, 2006 By: /s/ Daniel R. Herndon
------------------------------
Daniel R. Herndon
President and Chief Executive Officer
Date: February 13, 2006 By: /s/ Clyde D. Patterson
------------------------------
Clyde D. Patterson
Executive Vice President
(principal financial officer)
18