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, 2006
______________________________________
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 (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 14, 2007: The registrant had 3,532,902 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
1,397,527 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..... 12
Item 3: Controls and Procedures....................................... 17
PART II - OTHER INFORMATION
Item 1: Legal Proceedings............................................. 18
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds... 18
Item 3: Defaults upon Senior Securities............................... 18
Item 4: Submission of Matters to a Vote of Security Holders........... 18
Item 5: Other information............................................. 19
Item 6: Exhibits...................................................... 19
SIGNATURES
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2006 June 30, 2006
_____________________ _________________
(Unaudited) (Audited)
ASSETS
Cash and Cash Equivalents $ 13,110,080 $ 4,929,595
Securities Available-for-Sale 84,471,642 83,693,681
Securities Held-to-Maturity 1,467,075 1,424,866
Loans Held for Sale 255,000 --
Loans Receivable, Net 22,815,441 20,866,177
Accrued Interest Receivable 488,263 464,908
Premises and Equipment, Net 949,664 947,584
Deferred Tax Asset 532,521 1,597,083
Other Assets 97,159 76,218
___________ ___________
Total Assets $124,186,845 $114,000,052
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 76,273,312 $ 71,278,564
Advances from Borrowers for Taxes and Insurance 95,235 219,054
Advances from Federal Home Loan Bank of Dallas 16,365,709 13,417,166
Other Accrued Expenses and Liabilities 519,705 545,991
___________ ___________
Total Liabilities 93,253,961 85,460,775
___________ ___________
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock - 8,000,000 shares of $.01
par value authorized; 3,558,958 shares issued;
3,532,902 shares outstanding and 3,538,258
shares outstanding at December 31, 2006 and
June 30, 2006, respectively 14,236 14,236
Additional paid-in capital 13,477,270 13,445,231
Retained Earnings - Partially Restricted 20,311,710 20,148,695
Unearned ESOP Stock (1,025,259) (1,053,731)
Unearned RRP Trust Stock (551,020) (688,439)
Accumulated Other Comprehensive Loss (1,029,247) (3,116,215)
Treasury Stock - At Cost (264,806) (210,500)
___________ ___________
Total Stockholders' Equity 30,932,884 28,539,277
___________ ___________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $124,186,845 $114,000,052
=========== ===========
See accompanying notes to consolidated financial statements.
1
HOME FEDERAL BANCORP, INC. OF LOUISIANA
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
_________________________ _________________________
2006 2005 2006 2005
__________ __________ __________ ___________
INTEREST INCOME
Loans, Including Fees $ 430,674 $ 339,562 $ 801,172 $ 724,086
Investment Securities 76,738 80,230 152,644 141,052
Mortgage-Backed Securities 1,063,618 892,532 2,132,290 1,784,257
Other Interest-Earning Assets 84,856 57,350 124,151 100,059
_________ _________ _________ _________
Total Interest Income 1,655,886 1,369,674 3,210,257 2,749,454
_________ _________ _________ _________
INTEREST EXPENSE
Deposits 681,676 517,483 1,307,268 1,007,224
Federal Home Loan Bank Borrowings 181,599 58,576 326,843 121,546
_________ _________ _________ _________
Total Interest Expense 863,275 576,059 1,634,111 1,128,770
_________ _________ _________ _________
Net Interest Income 792,611 793,615 1,576,146 1,620,684
_________ _________ _________ _________
PROVISION FOR LOAN LOSSES -- -- -- --
_________ _________ _________ _________
Net Interest Income after
Provision for Loan Losses 792,611 793,615 1,576,146 1,620,684
_________ _________ _________ _________
NON-INTEREST INCOME
Gain on Sale of Loans -- 11,086 -- 15,165
Gain on Sale of Investments 101,041 -- 101,041 52,209
Other Income (Loss) (7,471) 17,629 49,939 25,290
_________ _________ _________ _________
Total Non-Interest Income 93,570 28,715 150,980 92,664
_________ _________ _________ _________
NON-INTEREST EXPENSE
Compensation and Benefits 384,494 372,493 752,476 724,211
Occupancy and Equipment 47,021 44,317 92,614 88,266
Data Processing 16,036 18,162 33,479 38,346
Audit and Professional Fees 69,380 76,469 124,131 151,376
Franchise and Bank Shares Tax 39,496 -- 78,819 --
Advertising (800) 13,800 13,000 27,600
Deposit Insurance Premiums 2,260 2,429 4,686 4,835
Other Expense 64,970 63,827 125,108 148,183
_________ _________ _________ _________
Total Non-Interest Expense 622,857 591,497 1,224,313 1,182,817
_________ _________ _________ _________
Income Before Income Taxes 263,324 230,833 502,813 530,531
PROVISION FOR INCOME TAX EXPENSE 89,376 74,864 170,852 176,739
_________ _________ _________ _________
Net Income $ 173,948 $ 155,969 $ 331,961 $ 353,792
========= ========= ========= =========
INCOME PER COMMON SHARE:
Basic $ 0.05 $ 0.05 $ 0.10 $ 0.10
====== ====== ====== ======
Diluted $ 0.05 $ 0.05 $ 0.10 $ 0.10
====== ====== ====== ======
DIVIDENDS DECLARED $ 0.06 $ 0.05 $ 0.12 $ 0.10
====== ====== ====== ======
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, 2006 AND 2005
Accumu-
lated
Other
Unearned Compre- Total
Additional Unearned RRP hensive Stock-
Common Paid-in ESOP Trust Retained Tresury Income holders'
Stock Capital Stock Stock Earnings Stock (Loss) Equity
------- ----------- ----------- --------- ----------- --------- ----------- -----------
(C>
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
======= =========== =========== ========= =========== ========= =========== ===========
BALANCE - JUNE 30, 2006 $14,236 $13,445,231 $(1,053,731) $(688,439) $20,148,695 $(210,500) $(3,116,215) $(28,539,277)
Net Income -- -- -- -- 331,961 -- -- 331,961
Other Comprehensive Loss:
Changes in Unrealized
Gain (Loss) on Securities
Available-for-Sale, Net
of Tax Effects -- -- -- -- -- -- 2,086,968 2,086,968
RRP Shares Earned -- -- -- 137,419 -- -- -- 137,419
Stock Options Vested -- 31,007 -- -- -- -- -- 31,007
ESOP Compensation Earned -- 1,032 28,472 -- -- -- -- 29,504
Dividends Declared -- -- -- -- (168,946) -- -- (168,946)
Acquisition Treasury Stock -- -- -- -- -- (54,306) -- (54,306)
------- ----------- ----------- --------- ----------- --------- ----------- -----------
BALANCE - DECEMBER 31, 2006 $14,236 $13,477,270 $(1,025,259) $(551,020) $20,311,710 $(264,806) $(1,029,247) $30,932,884
======= =========== =========== ========= =========== ========= =========== ===========
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,
------------------------
2006 2005
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 331,961 $ 353,792
Adjustments to Reconcile Net Income to Net
Cash (Used in) Provided by Operating Activities
Net Amortization and Accretion on Securities (105,986) (39,407)
Gain on Sale of Investments (101,041) (52,209)
Amortization of Deferred Loan Fees (6,982) (25,943)
Depreciation of Premises and Equipment 31,237 31,654
ESOP Expense 29,504 26,023
Stock Option Expense 31,007 23,220
Recognition and Retention Plan Expense 67,795 51,809
Deferred Income Tax (10,543) (7,895)
Changes in Assets and Liabilities
Loans Held-for-Sale (255,000) 70,000
Accrued Interest Receivable (23,355) 7,375
Other Operating Assets (20,941) (7,494)
Other Operating Liabilities 43,338 (109,663)
---------- ----------
Net Cash Provided by Operating Activities 10,994 321,262
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations and Purchases, Net of Principal Collections (1,950,077) 5,487,437
Deferred Loan Fees Collected 7,735 13,196
Acquisition of Premises and Equipment (33,317) (467,641)
Activity in Available-for-Sale Securities:
Proceeds from Sales and Maturities of Securities 14,643,164 3,378,017
Principal Payments on Mortgage-backed Securities 6,004,675 6,109,741
Purchases of Securities (18,056,700) (15,349,958)
Activity in Held-to-Maturity Securities
Proceeds from Redemption or Maturity of Investments -- --
Principal Payments on Mortgage-Backed Securities 81,991 105,435
Purchases of Securities (124,200) --
---------- ----------
Net Cash Provided by (Used in) Investing Activities 573,271 (723,773)
---------- ----------
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,
----------------------
2006 2005
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits $ 4,994,748 $ 2,335,144
Proceeds from Federal Home Loan Bank Advances 4,750,000 3,025,000
Repayments of Advances from Federal Home Loan Bank (1,801,457) (1,367,708)
Net Decrease in Mortgage-Escrow Funds (123,819) (97,680)
Dividends Paid (168,946) (142,358)
Acquisition of Treasury Stock (54,306) --
Acquisition of Stock for Recognition and Retention Plan -- (654,040)
--------- ---------
Net Cash Provided by Financing Activities 7,596,220 3,098,358
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,180,485 2,695,847
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 4,929,595 9,292,489
---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $13,110,080 $11,988,336
========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest Paid on Deposits and Borrowed Funds $1,637,846 $ 1,124,617
Income Taxes Paid 136,913 188,160
Market Value Adjustment for Gain (Loss) on Securities
Available-for-Sale 3,162,072 (2,754,441)
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,
2006, is not necessarily indicative of the results which may be
expected for the fiscal year ending June 30, 2007.
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 2,135,375 shares of
common stock in the reorganization to Home Federal Mutual Holding
Company of Louisiana, or 60.4% of our outstanding common stock at
December 31, 2006. 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 for the
three and six month periods ended December 31, 2006 and 2005 were
calculated as follows:
Three Months Ended Three Months Ended
December 31, 2006 December 31, 2005
-------------------- --------------------
Basic Diluted Basic Diluted
--------- --------- --------- ---------
Net Income 173,948 173,948 155,969 155,969
Weighted average shares outstanding 3,373,758 3,373,758 3,382,957 3,382,957
Effect of unvested common stock awards -- 4,292 -- --(1)
--------- --------- --------- ---------
Adjusted weighted average shares used in
Earnings per share computation 3,373,758 3,378,050 3,382,957 3,382,957
--------- --------- --------- ---------
Earnings per share $0.05 $0.05 $0.05 $0.05
==== ==== ==== ====
Six Months Ended Six Months Ended
December 31, 2006 December 31, 2005
-------------------- --------------------
Basic Diluted Basic Diluted
--------- ---------- --------- ---------
Net Income 331,961 331,961 353,792 353,792
Weighted average shares outstanding 3,370,828 3,370,828 3,407,154 3,407,154
Effect of unvested common stock awards -- 4,312 -- --(1)
--------- --------- --------- ---------
Adjusted weighted average shares used in
Earnings per share computation 3,370,828 3,375,140 3,407,154 3,407,154
--------- --------- --------- ---------
Earnings per share $0.10 $0.10 $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.
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 and Retention Plan and Trust Agreement (the
"Recognition Plan") for the benefit of directors, officers, and
employees 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 totaled 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. As of
December 31, 2006, the Company
9
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
had purchased 69,756 shares at an aggregate cost of $688,439. During
the six months ended December 31, 2006, 13,661 shares vested and were
released from the Recognition Plan Trust and 56,095 shares remained in
the Recognition Plan Trust at December 31, 2006.
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. As of December 31, 2006, 1,490 awards had been
forfeited. 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. As of December 31, 2006, 3,532 stock options had
been forfeited and are available for future grant. 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).
5. RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the FASB issued SFAS No. 155, Accounting for
Certain Hybrid Financial Instruments. This Statement amends FASB
Statements No. 133, Accounting for Derivative Instruments and
Hedging Activities, and Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement permits fair value remeasurement
for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation, clarifies
which interest-only strips and principal-only strips are not
subject to the requirements of SFAS No. 133, establishes a
requirement to evaluate interests in securities financial assets
to identify interests that are freestanding derivatives or that
are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, and clarifies that concentrations
of credit risk in the form of subordination are not
10
HOME FEDERAL BANCORP, INC. OF LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
embedded derivatives. This Statement is effective for all financial
instruments acquired or issued after the beginning of an entity's
first fiscal year that begins after September 15, 2006.
In March 2006, the FASB issued SFAS No. 156, Accounting for
Servicing of Financial Assets. This Statement requires an entity
to recognize a servicing asset or servicing liability each time
it undertakes an obligation to service a financial asset by
entering into a servicing contract in certain prescribed
situations. In addition, SFAS No. 156 requires that all
separately recognized servicing assets and servicing liabilities
be measured at fair value, if practicable. The FASB recommends
that entities should adopt this Statement as of the beginning of
its first fiscal year that begins after September 15, 2006.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements.
This Statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007.
11
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, 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, 2006 to
December 31, 2006
---------------------------------------------------------------
At December 31, 2006, total assets amounted to $124.2 million
compared to $114.0 million at June 30, 2006, an increase of
approximately $10.2 million, or 8.9%. This increase was
primarily due to an increase in cash and cash equivalents of $8.2
million, or 167.3%, an increase in investment securities of
$820,000, or 1.0%, and an increase in loans receivable of $2.2
million, or 10.6%. These increases were offset by a decrease in
the Company's deferred tax asset of $1.1 million, or 68.7%.
The increase in cash and cash equivalents was due primarily to
proceeds received through deposits and advances from the Federal
Home Loan Bank of Dallas. The increase in investment securities
was primarily due to an increase in the market value of
securities available-for-sale. This increase in the market value
in available-for-sale securities reduced the deferred tax asset
associated with unrealized loss associated with these securities.
The increase in loans receivable was primarily due to the
purchase of first mortgage loans originated by another mortgage
loan company.
The Company's total liabilities amounted to $93.3 million at
December 31, 2006, an increase of approximately $7.8 million, or
9.1%, compared to total liabilities of $85.5 million at June 30,
2006. The primary reason for the increase in liabilities was due
to the $5.0 million, or 7.0%, increase of customers' deposits due
to normal deposits inflow, and a $3.0 million, 22.4%, increase in
advances from the Federal Home Loan Bank.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Stockholders' equity increased $2.4 million, or 8.4%, to $30.9
million at December 31, 2006 compared to $28.5 million at June
30, 2006. This increase was primarily the result of the change
in the Company's Accumulated Other Comprehensive Loss associated
with securities available-for-sale of $2.1 million, or 67.7%, the
recognition of net income of $332,000 for the six months ended
December 31, 2006, and the distribution of shares associated with
the Company's Recognition Plan of $137,000. These increases were
offset by dividends of $169,000 paid during the six months ended
December 31, 2006, and the acquisition of treasury shares of
$54,000.
The Association is required to meet minimum capital standards
promulgated by the Office of Thrift Supervision ("OTS"). At
December 31, 2006, 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, 2006 and 2005
-------------------------------------------------------------------
General
-------
Net income amounted to $174,000 for the three months ended
December 31, 2006 compared to $156,000 for the same period in
2005, an increase of $18,000, or 11.5%. The increase was
primarily due to increases in non-interest income, partially
offset by increases in non-interest expense and income taxes.
For the six months ended December 31, 2006, net income amounted
to $332,000, compared to $354,000 for the same period in 2005, a
decrease of $22,000, or 6.2%. The decrease was primarily due to
decreases in net interest income and an increase in non-interest
expense, partially offset by a decrease in income tax expense,
and an increase in non-interest income.
Net Interest Income
-------------------
Net interest income for the three months ended December 31, 2006,
was $793,000, a decrease of $1,000, or .1%, in comparison to the
three months ended December 31, 2005. This decrease was due
primarily to the increase the Company's cost of funds.
Net interest income for the six months ended December 31, 2006,
was $1,576,000, a decrease of $45,000 in comparison to the six
months ended December 31, 2005. This decrease was due primarily
to the increase in interest expense incurred on deposit accounts
and advances from the Federal Home Loan Bank, partially offset by
an increase in total interest income.
The Company's average interest rate spread was 1.80% and 1.89%
for the three and six months ended December 31, 2006, compared to
2.17% and 2.21% for the three and six months ended December 31,
2005. The Company's net interest margin was 2.69% and 2.75% for
the three and six months ended December 31, 2006, compared to
2.95% and 2.99% for the three and six months ended December 31,
2005. The decrease in net interest income and net interest
margin is attributable primarily to the increase in interest
expense and average cost associated with deposits and advances
from the Federal Home Loan Bank.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
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, 2006 or 2005. The Association's
allowance for loan losses was $235,000, or 1.01% of total loans,
at December 31, 2006 compared to $235,000, or 1.28% of total
loans at December 31, 2005. Home Federal did not have any non-
performing loans at December 31, 2006 or 2005. 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 $94,000 for the three
months ended December 31, 2006, compared to $29,000 for the same
period in 2005. The increase was primarily due to an increase of
$101,000 in gain on sale of investments partially offset by a
decrease in other income.
Total non-interest income amounted to $151,000 for the six months
ended December 31, 2006, compared to $93,000 for the same period
in 2005. The increase was primarily due to increases in gain on
sale of securities and other income.
Non-interest Expense
--------------------
Total non-interest expense increased $31,000, or 5.2%, for the
three months ended December 31, 2006 compared to the prior year
period. The increase in non-interest expense was primarily due
to an increase in compensation and benefits expense of $12,000,
or 3.2%, over the prior year period and an increase franchise and
bank shares tax partially offset by decreases in professional
fees and advertising expense.
Total non-interest expense increased $41,000, or 3.5%, for the
six months ended December 31, 2006 compared to the prior year
period. The increase was primarily due to an increase of
$28,000, or 3.9%, in compensation and benefits expense, and an
increase in franchise and bank shares tax expense of $79,000,
partially offset by decreases in professional fees and
advertising expense.
The increase in compensation and benefits expenses was a result
of the Company's recognition of a full six months 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 Plan also granted during the quarter ended September
30, 2005. Options associated with the Company's stock option
plan and shares associated with the Company's Recognition Plan
were granted on August 18, 2005. Compensation expense recognized
by the Company for its Stock Option and Recognition and Retention
Plans amounted to $16,000 and $34,000, respectively, for the
three months ended December 31, 2006, and $31,000 and $68,000,
respectively, for the six months ended December 31, 2006.
Effective January 1, 2006, the Company, through its subsidiary
Home Federal Savings and Loan Association, became subject to the
Louisiana bank shares tax. This tax is assessed on the
Association's equity and earnings. For the three and six months
ended December 31, 2006, the Company recognized expense of
$36,000 and $73,000, respectively.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
These increases were offset by decreases in audit and
professional fees, and a decrease in other expense during the
three and six months ended December 31, 2006 compared to the
prior year periods. The decrease in audit and professional fees
was due primarily to a decrease in legal fees of approximately
$19,000 and $24,000 during the three and six months ended
December 31, 2006, respectively. During the three and six months
ended December 31, 2005, the Company incurred additional legal
fees associated with the drafting and adoption of its stock
option plan and Recognition Plan. The decrease in other expense
was due primarily to a decrease in registrar and transfer agent
fees, office supplies, and telephone expenses for the six months
ended December 31, 2006 compared to the 2005 period.
Income Taxes
------------
Income taxes amounted to $89,000 and $75,000 for the three months
ended December 31, 2006 and 2005, respectively, resulting in
effective tax rates of 33.9% and 32.4%, respectively. Income
taxes amounted to $171,000 and $177,000 for the six months ended
December 31, 2006 and 2005, respectively, resulting in an
effective tax rate of 34.0% and 33.3%, respectively.
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 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 $3,771,000 at December 31,
2006.
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 December 31, 2006, Home Federal
Savings and Loan had $16.4 million in advances from the Federal
Home Loan Bank of Dallas.
At December 31, 2006, Home Federal Savings and Loan had
outstanding loan commitments of $1.5 million to originate loans.
At December 31, 2006, certificates of deposit scheduled to mature
in less than one year, totaled $39.8 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
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
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
December 31, 2006, Home Federal Savings and Loan exceeded each of
its capital requirements with ratios of 22.05%, 22.05% and
83.74%, 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 December 31, 2006, 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 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.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
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.
17
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 SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Purchases of Equity Securities
The following table represents the repurchasing activity of
the stock repurchase program during the second quarter of
fiscal 2007:
Total Number Maximum
of Shares Number of
Puchased as Shares that
Part of May Yet Be
Total Average Publicly Purchased
Number of Price Announced Under the
Shares Paid per Plans or Plans or
Period Purchased Share Programs Programs
--------------------------------------------- ----------- ---------- ---------- -----------
Month #1 October 1, 2006 - October 31, 2006 -- $ -- -- 121,658
Month #2 November 1, 2006 - November 30, 2006 1,580 10.23 -- 121,658
Month #3 December 1, 2006 - December 31, 2006 -- -- -- 121,658
----- ------- ------ -------
Total 1,580 $ 10.23 -- 121,658
===== ======= ====== =======
Notes to this table:
(a) On January 11, 2006, the Company issued a press release announcing
that the Board of Directors authorized a stock repurchase program
(the "program").
(b) The Company was authorized to repurchase 10% or 142,358 of the
outstanding shares other than shares held by Home Federal Mutual
Holding Company.
(c) The program had an expiration date of January 18, 2007. On January
10, 2007, the Company announced an extension of the program until
January 18, 2008 to purchase the remaining 121,658 shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
18
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
19
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 14, 2007 By: /s/ Daniel R. Herndon
----------------- -------------------------------------
Daniel R. Herndon
President and Chief Executive Officer
Date: February 14, 2007 By: /s/ Clyde D. Patterson
----------------- -------------------------------------
Clyde D. Patterson
Executive Vice President
(principal financial officer)