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 March 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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
----- -----
Shares of common stock, par value $.01 per share, outstanding as of May 16,
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.
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............................................... 10
Item 3: Controls and Procedures.................................. 15
PART II - OTHER INFORMATION
Item 1: Legal Proceedings........................................ 16
Item 2: Unregistered Sales of Equity Securities and Use of
Proceeds................................................ 16
Item 3: Default upon Senior Securities........................... 16
Item 4: Submission of Matters to a Vote of Security Holders...... 16
Item 5: Other information........................................ 16
Item 6: Exhibits................................................. 16
SIGNATURES
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, June 30,
2005 2004
-------------- --------------
(Unaudited) (Audited)
ASSETS
Cash and Cash Equivalents $ 10,352,840 $ 4,342,125
Securities Available-for-Sale 72,208,421 64,253,764
Securities Held-to-Maturity 1,689,958 2,515,557
Loans Held-for-Sale 141,000 107,500
Loans Receivable, Net 22,419,109 22,678,740
Accrued Interest Receivable 418,420 405,812
Premises and Equipment, Net 535,421 467,783
Deferred Tax Asset 289,499 832,752
Other Assets 17,288 58,555
-------------- --------------
Total Assets $ 108,071,956 $ 95,662,588
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 68,666,327 $ 68,133,506
Advances from Borrowers for Taxes and
Insurance 97,079 232,947
Advances from Federal Home Loan Bank of
Dallas 7,862,886 9,748,316
Other Accrued Expenses and Liabilities 355,750 238,666
-------------- --------------
Total Liabilities 76,982,042 78,353,435
-------------- --------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock - 8,000,000 shares of $.01 par
value authorized; 3,558,958 and none shares
issued at March 31, 2005 and June 30, 2004,
respectively 14,235 --
Additional paid-in capital 13,391,275 --
Retained Earnings - Partially Restricted 19,400,644 18,977,541
Unallocated Shares held by ESOP (1,124,634) --
Accumulated Other Comprehensive Loss (591,606) (1,668,388)
-------------- --------------
Total Stockholders' Equity 31,089,914 17,309,153
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 108,071,756 $ 95,662,588
============== ==============
See accompanying notes to consolidated financial statements.
1
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- -------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- --------------
INTEREST INCOME
Loans, Including Fees $ 378,983 $ 475,141 $ 1,143,406 $ 1,104,474
Investment Securities 49,929 22,232 97,024 60,613
Mortgage-Backed Securities 790,083 709,173 2,357,745 2,255,464
Other Interest-Earning Assets 56,821 13,746 87,549 42,051
-------------- -------------- -------------- --------------
Total Interest Income 1,275,816 1,220,292 3,685,724 3,937,743
-------------- -------------- -------------- --------------
INTEREST EXPENSE
Deposits 435,557 456,235 1,320,045 1,429,020
Federal Home Loan Bank Borrowings 62,906 70,336 200,454 219,530
-------------- -------------- -------------- --------------
Total Interest Expense 498,463 526,571 1,520,499 1,648,550
-------------- -------------- -------------- --------------
Net Interest Income 777,353 693,721 2,165,225 2,289,193
-------------- -------------- -------------- --------------
PROVISION FOR LOAN LOSSES - - - -
-------------- -------------- -------------- --------------
Net Interest Income after
Provision for Loan Losses 777,353 693,721 2,165,225 2,289,193
-------------- -------------- -------------- --------------
NON-INTEREST INCOME
Gain on Sale of Loans 1,121 10,193 10,374 50,352
Gain on Sale of Investments - 133,316 - 223,200
Other Income 16,812 9,548 30,198 28,504
-------------- -------------- -------------- --------------
Total Non-Interest Income 17,933 153,057 40,572 302,056
-------------- -------------- -------------- --------------
NON-INTEREST EXPENSE
Compensation and Benefits 369,465 369,286 1,035,913 1,110,920
Occupancy and Equipment 48,315 46,703 136,918 132,220
Data Processing 17,400 27,866 50,600 88,059
Deposit Insurance Premiums 2,483 2,674 7,482 8,250
Other Expense 127,723 90,781 340,633 242,235
-------------- -------------- -------------- --------------
Total Non-Interest Expense 565,386 537,310 1,571,546 1,581,684
-------------- -------------- -------------- --------------
Income Before Income Taxes 229,900 309,468 634,251 1,009,565
PROVISION FOR INCOME TAX EXPENSE 74,092 103,917 211,148 336,928
-------------- -------------- -------------- --------------
Net Income $ 155,808 $ 205,551 $ 423,103 $ 672,637
============== ============== ============== ==============
Income per common share
Basic $ .05 n/a $ .12 n/a
============== ==============
Diluted $ .05 n/a $ .12 n/a
============== ==============
See accompanying notes to consolidated financial statements.
2
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 2005 AND 2004
Accumulated
Additional Unearned Other Total
Paid-in ESOP Retained Comprehensive Stockholders'
Common Stock Capital Stock Earnings Income (Loss) Equity
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - JUNE 30, 2003 $ - $ - $ - $18,156,800 $ 992,350 $19,149,150
------------
Net Income - - - 672,637 - 672,637
Other Comprehensive Income:
Changes in Unrealized Gain
(Loss) on Securities
Available-for-Sale, Net Tax
Effects - - - - - -
------------
BALANCE - MARCH 31, 2004 $ - $ - $ - $18,829,437 $ - $ -
============ ============ ============ ============ ============ ============
BALANCE - JUNE 30, 2004 $ - $ - $ - $18,977,541 $(1,668,388) $17,309,153
Net Income - - - 423,103 - 423,103
Other Comprehensive Income:
Changes in Unrealized Gain
(Loss) on Securities
Available-for-Sale, Net of Tax
Effects - - - - 1,076,782 1,076,782
Capitalization of mutual holding
company ($100,000) - (100,000) - - - (100,000)
Issuance of common stock 14,235 13,491,560 - - - 13,505,795
Common stock acquired by ESOP - - (1,138,870) - - (1,138,870)
ESOP Compensation Earned - (285) 14,236 - - 13,951
BALANCE - MARCH 31, 2005 $ 14,235 $13,391,275 $(1,124,634) $19,400,644 $ (591,606) $31,089,914
============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
3
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
--------------------------------
2005 2004
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 423,103 $ 672,637
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Net Amortization and Accretion on
Securities 37,179 11,066
Gain on Sale of Investments - (223,200)
Amortization of Deferred Loan Fees (34,223) (90,313)
Depreciation of Premises and Equipment 35,840 36,736
ESOP Expense 13,591 -
Changes in Assets and Liabilities
Increase in Deferred Tax Asset (12,728) -
Loans Held-for-Sale (33,500) 1,227,800
Accrued Interest Receivable (12,608) 45,596
Other Operating Assets 41,267 42,244
Other Operating Liabilities 117,084 (59,276)
-------------- --------------
Net Cash Provided by Operating
Activities 575,005 1,663,290
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations and Purchases, Net of
Principal Collections 271,716 7,520,846
Deferred Loan Fees Collected 23,632 23,488
Acquisition of Depreciable Assets (103,478) (10,890)
Activity in Available-for-Sale Securities
Proceeds from Sales and Principal Payments
on Mortgage-Backed Securities 904,793 8,390,602
Purchases (7,265,222) (16,374,426)
Activity in Held-to-Maturity Securities
Proceeds from Redemption or Maturity of
Investments 541,600 544,623
Principal Payments on Mortgage-Backed
Securities 504,534 868,526
Purchases (220,403) -
-------------- --------------
Net Cash Provided by (Used in)
Investing Activities (5,342,828) 962,769
-------------- --------------
See accompanying notes to consolidated financial statements.
4
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Nine Months Ended
March 31,
--------------------------------
2005 2004
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits 532,821 (2,522,078)
Net Proceeds from Sale of Common Stock 13,405,885 -
Acquisition of ESOP Shares (1,138,870) -
(Repayments)/Proceeds from Advances from
Federal Home Loan Bank, Net (1,885,430) (83,752)
Repayments on Other Long-Term Debt - (20,414)
Net Decrease in Mortgage-Escrow Funds (135,868) (116,388)
-------------- --------------
Net Cash Provided by (Used in)
Financing Activities 10,778,538 (2,742,632)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 6,010,715 (116,573)
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 4,342,125 9,470,593
-------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 10,352,840 $ 9,354,020
============== ==============
SUPPLEMENTARY CASH FLOW INFORMATION
Interest Paid on Deposits and Borrowed Funds $ 1,517,382 $ 1,654,964
Income Taxes Paid 136,275 183,999
Market Value Adjustment for Gain (Loss) on
Securities Available-for-Sale 1,631,487 (951,478)
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 accompanying unaudited 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 generally accepted
accounting principles. 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 nine month period ended March 31, 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, 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 Association 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 Association
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-then-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 period 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 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. During the three and nine
months ended March 31, 2005, the Company did not issue and does not have
outstanding any dilutive securities.
3. CONVERSION TO STOCK FORM OF OWNERSHIP
On April 14, 2004, the Board of Directors 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 Stock Holding Company. Costs incurred in connection with
the offering were recorded as a reduction of the proceeds from the offering. The
total amount of costs incurred in connection with the offering was $730,035.
9
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 will continue to be 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 be sufficient to absorb estimated, probable losses. 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, 2004 to March 31, 2005
------------------------------------------------------------------------------
At March 31, 2005, total assets amounted to $108.1 million compared to $95.7
million at June 30, 2004, an increase of $12.4 million or 13.0%. This increase
was primarily due to an increase in cash and cash equivalents primarily as a
result of funds received for subscription orders in the Company's subscription
and community offering conducted in connection with the Association's mutual
holding company reorganization. Securities available for sale increased $7.9
million or 12.4% due to purchases of securities during the quarter ended March
31, 2005. Loans receivable, net decreased $259,631 or 1.1% primarily due to loan
repayments. Home Federal Savings and Loan has continued to invest funds from
operations primarily in marketable securities rather than long-term, fixed rate
loans as part of its interest-rate risk strategy during this period of
historically low interest rates. Securities held-to-maturity decreased $825,599,
or 32.8% for the nine months ended March 31, 2005 compared to securities
held-to-maturity at June 30, 2004 primarily due to maturities and principal
payments.
The Company's total liabilities amounted to $77.0 million at March 31, 2005, a
decrease of $1.4 million, or 1.8%, compared to total liabilities at June 30,
2004. The primary reason for the decrease in liabilities was due to the decrease
of $1,885,430, or 19.3%, in Advances in Federal Home Loan Bank of Dallas. This
decrease was a result of principal repayments of maturing FHLB advances. This
decrease was offset by an increase in deposits of $532,821, or 0.8%. Total
deposits increased from $68.1 million at June 30, 2004 to $68.7 million at March
31, 2005, due to normal deposits inflow.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Total stockholders' equity increased $13.8 million, or 79.6% to $31.1 million at
March 31, 2005 compared to $17.3 million at June 30, 2004. This increase was
primarily the result of the net proceeds received from the sale of 1,423,583
shares of common stock. Total stockholders' equity also increased due to a
change in accumulated other comprehensive loss from a loss of $1.7 million at
June 30, 2004 to a loss of $591,606 at March 31, 2005, as a result of an
increase in the market value of securities available for sale at March 31, 2005
compared to June 30, 2004. The increase in equity was also due to continued
profitable operations during the nine months ended March 31, 2005 of $423,103.
The Association is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision ("OTS"). At March 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 Nine Month Periods Ended March
--------------------------------------------------------------------------------
31, 2005 and 2004
-----------------
General
-------
Net income amounted to $155,808 for the three months ended March 31, 2005
compared to $205,551 for the same period in 2004, a decrease of $49,743, or
24.2%. For the nine months ended March 31, 2005, the Company's net income was
$423,103, a $249,534, or 37.1% decrease from $672,637 for the nine months ended
March 31, 2004. The decreases during the respective periods were primarily due
to decreases in net interest income and non-interest income, partially offset by
decreases in non-interest expense and income taxes.
Net Interest Income
-------------------
Net interest income increased $83,632 for the three months ended March 31, 2005
over the prior year period. This increase was due primarily to the increase in
investment securities and interest earning deposits maintained at the Federal
Home Loan Bank of Dallas as a result of the investment of the net proceeds
associated with the Company's sale of common stock.
Net interest income decreased $123,968 for the nine months ended March 31, 2005
from the prior year period primarily due to continued margin compression. Home
Federal Savings and Loan's average interest rate spread was 2.29% and 2.36% for
the three and nine months ended March 31, 2005, respectively, compared to 2.38%
and 2.63%, respectively, for the same periods in 2004. The Association's net
interest margin was 2.91% and 2.90%, respectively, for the three and nine months
ended March 31, 2005, compared to 2.88% and 3.14%, respectively for the 2004
periods. This margin compression was due in large part to Home Federal Savings
and Loan's interest rate risk strategy of investing in marketable securities
rather than long-term, fixed rate loans. While management believes that
purchasing available for sale securities rather than investing in long-term,
fixed rate loans is a better interest rate risk strategy during this period of
historically low interest rates, these investment securities generally yield
less than loans, resulting in lower net interest income.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Provision for Losses on Loans
-----------------------------
As a result of an analysis of historical experience, the volume and type of
lending conducted by Home Federal Savings and Loan, the status of past due
principal and interest payments, general economic conditions, particularly as
such conditions relate to Home Federal Savings and Loan's market area, the
decrease in the loan portfolio and other factors related to the collectibility
of Home Federal Savings and Loan's loan portfolio, no provisions were made
during the three and nine months ended March 31, 2005 or 2004. The Association's
allowance for loan losses was $235,000, or 1% of total loans, at March 31, 2005
and at March 31, 2004. The Association did not have any non-performing loans at
March 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 $17,933 for the three months ended March
31, 2005 compared to $153,057 for the same period in 2004. The decrease was
primarily due to a $133,316 decrease in gain on sale of investment securities
due to a decrease in sales activity during the three-month period ended March
31, 2005. Total non-interest income decreased $261,484 for the nine months ended
March 31, 2005 compared to the prior year period. The decrease was primarily due
to a decrease in gain on sale of securities, as well as a decrease in gain on
sale of loans as a result of a decrease in the volume of loans sold.
Non-interest Expense
--------------------
Total non-interest expense increased $28,076, or 5.2%, for the three months
ended March 31, 2005 compared to the prior year period. The increase was
primarily due to an increase of $36,942 in other expense, consisting primarily
of advertising expenses and audit fees, which was partially offset by a $10,466
decrease in data processing expense. Total non-interest expense decreased
$10,138, or 0.6%, for the nine months ended March 31, 2005 compared to the prior
year period. The decrease was primarily related to a $75,007 decrease in
compensation and benefits expense and a $37,459 decrease in data processing
expense, which were partially offset by a $98,398 increase in other expense,
consisting primarily of advertising expenses and audit fees.
Income Taxes
------------
Income taxes amounted to $74,092 and $103,917 for the three months ended March
31, 2005 and 2004, respectively, resulting in effective tax rates of 32.2% and
33.6%, respectively. Income taxes amounted to $211,148 and $336,928 for the nine
months ended March 31, 2005 and 2004, respectively, resulting in effective tax
rates of 33.3% and 33.4%, respectively. The decrease in income taxes for the
three and nine months ended December 31, 2005 was due to decreased income before
income taxes.
Liquidity and Capital Resources
-------------------------------
Home Federal Savings and Loan maintains levels of liquid assets deemed adequate
by management. The Association adjusts its liquidity levels to fund deposit
outflows, repay its borrowings and to fund loan commitments. Home Federal
Savings and Loan also adjusts liquidity as appropriate to meet asset and
liability management objectives.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Home Federal Savings and Loan's primary sources of funds are deposits,
amortization and prepayment of loans and mortgage-backed securities, maturities
of investment securities and other short-term investments, loan sales and
earnings and funds provided from operations. While scheduled principal
repayments on loans and mortgage-backed securities are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition. The Association
sets the interest rates on its deposits to maintain a desired level of total
deposits. In addition, Home Federal Savings and Loan invests excess funds in
short-term interest-earning accounts and other assets, which provide liquidity
to meet lending requirements. Home Federal Savings and Loan's deposit accounts
with the Federal Home Loan Bank of Dallas amounted to $675,346 at March 31,
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 March 31, 2005,
Home Federal Savings and Loan had $7.9 million in advances from the Federal Home
Loan Bank of Dallas.
At March 31, 2005, Home Federal Savings and Loan had outstanding loan
commitments of $2.6 million to originate loans. At March 31, 2005, certificates
of deposit scheduled to mature in less than one year, totaled $27.5 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 March 31, 2005, Home Federal Savings and
Loan exceeded each of its capital requirements with ratios of 24.25%, 24.25% and
91.87%, 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 March 31, 2005, the Association did not have any off-balance sheet
arrangements, as defined by Securities and Exchange Commission rules.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Impact of Inflation and Changing Prices
---------------------------------------
The financial statements and related financial data presented herein have been
prepared in accordance with instructions to Form 10-QSB, which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power over time due
to inflation.
Unlike most industrial companies, virtually all of the Association's assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institution's performance than does the
effect of inflation.
Forward-Looking Statements
--------------------------
This Form 10-QSB contains certain forward-looking statements and information
relating to the Association that are based on the beliefs of management as well
as assumptions made by and information currently available to management. In
addition, in those and other portions of this document, the words "anticipate,"
"believe," "estimate," "except," "intend," "should" and similar expressions, or
the negative thereof, as they relate to the Association or the Association's
management, are intended to identify forward-looking statements. Such statements
reflect the current views of the Association with respect to future looking
events and are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize or should underlying
assumptions prove incorrect, actual results may vary from those described herein
as anticipated, believed, estimated, expected or intended. The Association does
not intend to update these forward-looking statements.
14
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our Chief Executive Officer and our principal 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 has 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.
15
PART II
ITEM 1. LEGAL PROCEEDINGS
The Association is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business, which
involve amounts in the aggregate believed by management to be immaterial to the
financial condition of the Association.
ITEM 2. UNREGISTERED SALE 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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
The following Exhibits are filed as part of this report:
No. Description
--------- ---------------------------------------------------------
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.0 Section 1350 Certification.
16
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: May 16, 2005 By: /s/ Daniel R. Herndon
----------------------- -------------------------------------
Daniel R. Herndon
President and Chief Executive Officer
Date: May 16, 2005 By: /s/ Clyde D. Patterson
----------------------- -------------------------------------
Clyde D. Patterson
Executive Vice President
(principal financial officer)
17