# Home Federal Bancorp, Inc. of Louisiana: Form 10-Q for the period ended Dec 31, 2023

- Company: [Home Federal Bancorp, Inc. of Louisiana](/companies/hfbl.md) (CIK 1500375)
- Form: 10-Q
- Filed: 2024-02-12
- Accepted by EDGAR: Feb 12, 2024, 16:07 ET
- Period: 2023-12-31
- Accession: 0001140361-24-007011
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1500375/000114036124007011/ef20015342_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1500375/000114036124007011/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-10-01 to 2023-12-31 | $3.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-07-01 to 2023-12-31 | $6.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-10-01 to 2023-12-31 | −$196.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-07-01 to 2023-12-31 | $114.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-10-01 to 2023-12-31 | $1.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-07-01 to 2023-12-31 | $2.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-10-01 to 2023-12-31 | $0.33 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-07-01 to 2023-12-31 | $0.72 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-10-01 to 2023-12-31 | $0.33 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-07-01 to 2023-12-31 | $0.73 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 6 months, 2023-07-01 to 2023-12-31 | −$190.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2023-07-01 to 2023-12-31 | $784.0k | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2023-07-01 to 2023-12-31 | $30.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2023-12-31 | $654.2m | us-gaap:Assets |
| Total liabilities | at 2023-12-31 | $601.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-12-31 | $52.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,493 characters.

### General

The Company’s results of operations are primarily dependent on the results of Home Federal Bank (the “Bank”), its wholly owned subsidiary. The Bank’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 expenses. 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 condition and results of operations.

The Bank operates from its main office in Shreveport, Louisiana and ten full-service branch offices located in Shreveport, Bossier City, Benton and Minden, Louisiana. The Company’s primary market area is the Shreveport-Bossier City-Minden combined statistical area.

### Critical Accounting Policies

The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. Critical accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

During the six months ended December 31, 2023, the Company implemented new current expected credit loss (“CECL”) accounting policies, procedures, and controls as part of its adoption of ASU No. 2016-13 and subsequent ASUs issued to amend ASC Topic 326.

*Allowance for Credit Losses.* The Company has identified the calculation of the allowance for credit losses as a critical accounting policy, due to the higher degree of judgment and complexity than its other significant accounting policies.

*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 basis of the various assets and liabilities and gives current recognition to changes in tax rates and laws. The realization of our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances, if our judgments change.

### Discussion of Financial Condition Changes from June 30, 2023 to December 31, 2023

#### General

At December 31, 2023, the Company reported total assets of $654.2 million, a decrease of $6.7 million, or 1.0%, compared to total assets of $660.9 million at June 30, 2023. The decrease in assets was comprised primarily of decreases in cash and cash equivalents of $16.1 million, or 65.0%, from $24.8 million at June 30, 2023 to $8.7 million at December 31, 2023, investment securities of $5.1 million, or 4.5%, from $114.0 million at June 30, 2023 to $108.8 million at December 31, 2023, real estate owned of $368,000, or 100.0% from $368,000 at June 30, 2023 to none at December 31, 2023, core deposit intangible of $179,000, or 11.7%, from $1.5 million at June 30, 2023 to $1.4 million at December 31, 2023, deferred tax asset of $140,000, or 10.7%, from $1.3 million at June 30, 2023 to $1.2 million at December 31, 2023, and other assets of $117,000, or 8.2%, from $1.4 million at June 30, 2023 to $1.3 million at December 31, 2023. These decreases were partially offset by increases in net loans receivable of $12.3 million, or 2.5%, from $489.5 million at June 30, 2023 to $501.8 million at December 31, 2023, loans-held-for-sale of $1.8 million, from $4,000 at June 30, 2023 to $1.9 million at December 31, 2023, premises and equipment of $1.0 million, or 6.3%, from $16.6 million at June 30, 2023 to $17.6 million at December 31, 2023, accrued interest receivable of $93,000, or 5.2%, from $1.8 million at June 30, 2023 to $1.9 million at December 31, 2023, and bank owned life insurance of $54,000, or 0.8%, from $6.7 million at June 30, 2023 to $6.8 million at December 31, 2023. The decrease in cash and cash equivalents was primarily due to a decrease in total deposits and the funding of additional loan growth. The decrease in held to maturity securities was due to $2.9 million in principal payments. The increase in loans held-for-sale primarily reflected an increase in loans originated for sale during the six months ended December 31, 2023.

#### Cash and Cash Equivalents

Cash and cash equivalents decreased $16.1 million, or 65.0%, from $24.8 million at June 30, 2023 to $8.7 million at December 31, 2023. The decrease in cash and cash equivalents was primarily due to the funding of loan originations along with a reduction in total deposits.

#### Loans Receivable, Net

Loans receivable, net, increased by $12.3 million, or 2.5%, to $501.8 million at December 31, 2023 compared to $489.5 million at June 30, 2023. The increase in loans receivable, net was primarily due to increases in multi-family residential loans of $10.7 million, one-to-four family residential loans of $8.0 million, commercial real estate loans of $2.7 million, land loans of $2.7 million, commercial non-real estate loans of $2.0 million, equity and second mortgage loans of $180,000, and consumer loans of $3,000, partially offset by decreases in construction loans of $11.9 million, and equity line-of-credit loans of $2.2 million.

#### Loans Held-for-Sale

Loans held-for-sale increased $1.8 million, from $4,000 at June 30, 2023 to $1.9 million at December 31, 2023. The increase in loans held-for-sale results primarily from the increase in the origination volume during the first six months of fiscal year end 2024.

#### Investment Securities

Investment securities amounted to $108.8 million at December 31, 2023 compared to $114.0 million at June 30, 2023, a decrease of $5.2 million, or 4.5%. The decrease in investment securities was primarily due to $8.7 million in principal repayments on mortgage backed securities, partially offset by security purchases of $2.7 million and a $733,000 decrease in market value losses on available-for-sale securities.

### Discussion of Financial Condition Changes from June 30, 2023 to December 31, 2023 (continued)

#### Premises and Equipment, Net

Premises and equipment, net increased $1.0 million, or 6.3%, to $17.6 million at December 31, 2023 compared to $16.6 million at June 30, 2023. The increase in premises and equipment was primarily due to construction costs of a new Minden branch that will replace an existing temporary location and is expected to open in April 2024.

#### Asset Quality

At December 31, 2023, the Company had $2.2 million of non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due, and other real estate owned) compared to $1.6 million on non-performing assets at June 30, 2023, consisting of eleven commercial non-real estate loans, six single-family residential loans, three land loans, and three home equity line-of-credit loans at December 31, 2023, compared to seven single-family residential loans, three commercial non-real estate loans, one consumer loan and two single-family residences in other real estate owned at June 30, 2023. At December 31, 2023 the Company had 12 commercial non-real-estate loans, seven single family residential loans, four home-equity line-of-credit loans, two land loans, one commercial real estate loan, and one auto loan classified as substandard, compared to ten single family residential loans, three commercial non-real-estate loans, two commercial real estate loans, and three home equity line-of-credit loans classified as substandard at June 30, 2023. There were no loans classified as doubtful at December 31, 2023 or June 30, 2023.

#### Total Liabilities

Total liabilities decreased $8.8 million, or 1.4%, from $610.4 million at June 30, 2023 to $601.6 million at December 31, 2023. The decrease in liabilities was comprised primarily of decreases in total deposits of $13.7 million, or 2.3%, from $597.4 million at June 30, 2023 to $583.7 million at December 31, 2023, other accrued expenses and liabilities of $1.4 million, or 35.8%, from $3.9 million at June 30, 2023 to $2.5 million at December 31, 2023, and advances from borrowers for taxes and insurance of $209,000, or 37.7%, from $554,000 at June 30, 2023 to $345,000 at December 31, 2023. The decreases were partially offset by increases in short term advances from FHLB of $5.4 million from none at June 30, 2023 to $5.4 million at December 31, 2023, and other borrowings of $1.1 million, or 12.9%, from $8.6 million at June 30, 2023 to $9.7 million at December 31, 2023. The decrease in deposits was primarily due to decreases in money market deposits of $21.8 million, or 19.1%, from $114.2 million at June 30, 2023 to $92.4 million at December 31, 2023, savings deposits of $11.3 million, or 13.8%, from $81.9 million at June 30, 2023 to $70.6 million at December 31, 2023, non-interest deposits of $9.4 million, or 6.4%, from $145.6 million at June 30, 2023 to $136.2 million at December 31, 2023, NOW accounts of $150,000, or 0.2%, from $65.3 million at June 30, 2023 to $65.2 million at December 31, 2023, partially offset by an increase in certificates of deposit of $28.9 million, or 15.2%, from $190.4 million at June 30, 2023 to $219.2 million at December 31, 2023. The Company had $3.0 million in brokered deposits at both December 31, 2023 and June 30, 2023. There was a shift of balances between deposit categories due to customers moving funds from lower yielding categories to higher yielding categories. The $13.7 million decrease in deposits from June 30, 2023 to December 31, 2023 was primarily due to an estate settlement totaling $24.2 million. $15.4 million of the settlement has been paid out to date, with the remaining $8.8 million to be paid out in the future. This loss of deposits resulted in an increase in short term advances from FHLB.

#### Stockholders’ Equity

Shareholders’ equity increased $2.1 million, or 4.1%, to $52.6 million at December 31, 2023 from $50.5 million at June 30, 2023. The primary reasons for the changes in shareholders’ equity from June 30, 2023 was net income of $2.2 million, a decrease in the Company’s accumulated other comprehensive loss of $532,000, the vesting of restricted stock awards, stock options, and the release of employee stock ownership plan shares totaling $300,000, partially offset by dividends paid totaling $784,000, CECL implementation totaling $189,000, and stock repurchases of $30,000.

### Discussion of Financial Condition Changes from June 30, 2023 to December 31, 2023 (continued)

#### Regulatory Capital

The Bank is required to meet minimum capital standards promulgated by the Office of the Comptroller of the Currency (“OCC”). At December 31, 2023, Home Federal Bank’s regulatory capital was well in excess of the minimum capital requirements. At December 31, 2023, Home Federal Bank exceeded each of its regulatory capital requirements with tangible equity, common equity Tier 1, core, and total risk-based capital ratios of 9.15%, 13.09%, 9.15%, and 14.19%, respectively.

### Comparison of Operating Results for the Three and Six Months Ended December 31, 2023 and 2022

#### General

The decrease in net income for the three months ended December 31, 2023, as compared to same period in 2022 resulted primarily from an increase of $693,000, or 19.4%, in non-interest expense, a decrease of $421,000, or 7.9%, in net interest income, and a decrease of $402,000, or 74.5%, in non-interest income, partially offset by a decrease of $640,000, or 144.1%, in provision (benefit) for income taxes, and a decrease of $166,000, or 110.7%, in the provision for credit losses. The decrease in net interest income for the three months ended December 31, 2023, as compared to same period in 2022, was primarily due to an increase of $2.4 million, or 315.9%, in total interest expense, partially offset by an increase of $2.0 million, or 32.7%, in total interest income. The Company’s average interest rate spread was 2.45% for the three months ended December 31, 2023, compared to 3.67% for the three months ended December 31, 2022. The Company’s net interest margin was 3.14% for the three months ended December 31, 2023, compared to 3.91% for the three months ended December 31, 2022.

The decrease in net income for the six months ended December 31, 2023, as compared to same period in 2022 resulted primarily from an increase of $1.1 million, or 15.4%, in non-interest expense, a decrease of $514,000, or 47.3%, in non-interest income, and a decrease of $443,000, or 4.2%, in net interest income, partially offset by a decrease of $584,000, or 102.8%, in the provision for credit losses, and a decrease of $339,000, or 74.7%, in provision for income taxes. The decrease in net interest income for the six months ended December 31, 2023, as compared to same period in 2022, was primarily due to an increase of $4.7 million, or 381.3%, in total interest expense, partially offset by an increase of $4.3 million, or 36.1%, in total interest income. The Company’s average interest rate spread was 2.60% for the six months ended December 31, 2023 compared to 3.70% for the six months ended December 31, 2022. The Company’s net interest margin was 3.26% for the six months ended December 31, 2023 compared to 3.91% for the six months ended December 31, 2022.

#### Provision for Credit Losses

On July 1, 2023, the Company adopted the new current expected credit loss (“CECL”) methodology for estimating credit losses. This resulted in a $189,000 increase to the allowance for credit losses (the “ACL”) and a one-time cumulative adjustment resulted in a $149,000, net of tax, decrease to stockholders’ equity. For purchased credit deteriorated loans, the Company applied the guidance under CECL using the prospective transition approach. As a result, the Company adjusted the amortized cost basis of the purchased credit deteriorated loans by $170,000 to reclassify the purchase discount to the allowance for credit losses on July 1, 2023. The ACL account increased $359,000 from these two transactions. No provision expense was recorded in the first quarter of 2024 and a recovery of credit losses of $16,000 was recorded in the second quarter of 2024. As of December 31, 2023, the ACL was $5.1 million, and the ratio of ACL to gross loans was 1.00%. As of June 30, 2023, the ACL was $5.2 million, and the ratio of allowance for loan and lease losses (“ALLL”) to gross loans was 1.05%. No ACL was recorded for unfunded commitments due to all unfunded commitments being unconditionally cancellable.

### Comparison of Operating Results for the Three and Six Months Ended December 31, 2023 and 2022 (continued)

#### Non-interest Income

The $402,000 decrease in non-interest income for the three months ended December 31, 2023, compared to the prior year quarterly period, was primarily due to an increase of $381,000 in loss on sale of real estate, and a $66,000 decrease in gain on sale of loans, partially offset by a $38,000 increase in service charges on deposit accounts, an increase of $5,000 in other non-interest income, and an increase of $2,000 in income on bank owned life insurance. The $514,000 decrease in non-interest income for the six months ended December 31, 2023 compared to the prior year six-month period was primarily due to an increase of $415,000 in loss on sale of real estate, and a decrease of $202,000 in gain on sale of loans, partially offset by a $94,000 increase in service charges on deposit accounts, an increase of $7,000 in other non-interest income, and a $2,000 increase in income from bank owned life insurance. The decreases in gain on sale of loans for both the quarter and six months ended December 31, 2023, were primarily due to a decrease in refinance activity causing a decrease in mortgage loan originations. In addition, in recent periods the Company has increased its originations of adjustable rate mortgages for portfolio rather than for sale in the secondary market. The increases in loss on sale of real estate for both the quarter and six months ended December 31, 2023, were primarily due to the bulk sale of twenty-one distressed rental properties.

#### Non-interest Expense

The $693,000 increase in non-interest expense for the three months ended December 31, 2023, compared to the same period in 2022, is primarily attributable to increases of $235,000 in compensation and benefits expense, $186,000 in audit and examination fees, $113,000 in professional fees, $85,000 in amortization of core deposit intangible expense, $55,000 in deposit insurance premium expense, $46,000 in occupancy and equipment expense, $42,000 in franchise and bank shares tax expense, $38,000 in other non-interest expense, and $14,000 in advertising expense. The increases were partially offset by a decrease of $91,000 in data processing expense, and $30,000 in loan and collection expense. The $1.1 million increase in non-interest expense for the six months ended December 31, 2023, compared to the same six-month period in 2022, is primarily attributable to increases of $309,000 in compensation and benefits expense, $213,000 in audit and examination fees, $179,000 in amortization of core deposit intangible expense, $147,000 in professional fees, $99,000 in deposit insurance premium expense, $93,000 in occupancy and equipment expense, $83,000 in advertising expense, and $79,000 in franchise and bank shares tax expense. The increases were partially offset by decreases of $27,000 in data processing expense, $26,000 in other non-interest expense, and $22,000 in loan and collection expense. The increases in compensation and benefits expense were primarily due to additional branch and back office staff.

#### Income Taxes

There was an income tax benefit of $196,000 and an income tax expense of $114,000 for the three and six months ended December 31, 2023, respectively, resulting in an effective tax rate of (24.23)% and 4.90%. Income taxes amounted to $444,000 and $453,000 for the three and six months ended December 31, 2022, respectively. The decrease in provision for income taxes was due to an adjustment in taxes related to stock option exercises for the 2022 period.

**Average Balances, Net Interest Income, Yields Earned, and Rates Paid.** The following tables show for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.

### Comparison of Operating Results for the Three and Six Months Ended December 31, 2023 and 2022 (continued)

*(Dollars In Thousands)*

| Interest-earning assets: | Three Months Ended December 31, 2023 Average Balance | Interest | Average Yield/ Rate | 2022 Average Balance | Interest | Average Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans receivable | $507,844 | $7,397 | 5.78% | $415,113 | $5,406 | 5.17% |
| Investment securities | 109,485 | 670 | 2.43 | 107,490 | 493 | 1.82 |
| Interest-earning deposits | 1,751 | 13 | 2.95 | 17,067 | 189 | 4.39 |
| Total interest-earning assets | 619,080 | 8,080 | 5.18% | $539,670 | 6,088 | 4.48% |
| Non-interest-earning assets | 41,169 |  |  | 36,125 |  |  |
| Total assets | $660,249 |  |  | $575,795 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Savings accounts | $73,228 | 74 | 0.40% | $109,471 | 80 | 0.29% |
| NOW accounts | 65,252 | 70 | 0.43 | 61,223 | 42 | 0.27 |
| Money market accounts | 95,763 | 601 | 2.49 | 96,264 | 96 | 0.40 |
| Certificate accounts | 212,792 | 2,151 | 4.01 | 101,234 | 427 | 1.67 |
| Total interest-bearing deposits | 447,035 | 2,896 | 2.57 | 368,192 | 645 | 0.70 |
| Other Borrowings | 9,202 | 199 | 8.58 | 6,422 | 109 | 6.74 |
| FHLB advances | 5,379 | 78 | 5.75 | 817 | 10 | 4.80 |
| Total interest-bearing liabilities | $461,616 | 3,173 | 2.73% | $375,431 | 764 | 0.81% |
| Non-interest-bearing liabilities: |  |  |  |  |  |  |
| Non-interest-bearing demand accounts | 143,054 |  |  | 149,091 |  |  |
| Other liabilities | 4,656 |  |  | 3,454 |  |  |
| Total liabilities | 609,326 |  |  | 527,976 |  |  |
| Total Stockholders’ Equity(1) | 50,924 |  |  | 47,819 |  |  |
| Total liabilities and stockholders’ equity | $660,250 |  |  | $575,795 |  |  |
| Net interest-earning assets | $157,464 |  |  | $164,239 |  |  |
| Net interest income; average interest rate spread(2) |  | $4,907 | 2.45% |  | $5,324 | 3.67% |
| Net interest margin(3) |  |  | 3.14% |  |  | 3.91% |
| Average interest-earning assets to average interest-bearing liabilities |  |  | 134.11% |  |  | 143.75% |

(1) Includes retained earnings and accumulated other comprehensive loss.

(2) Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities.

(3) Net interest margin is net interest income divided by net average interest-earning assets.

### Comparison of Operating Results for the Three and Six Months Ended December 31, 2023 and 2022 (continued)

*(Dollars In Thousands)*

| Interest-earning assets: | Six Months Ended December 31, 2023 Average Balance | Interest | Average Yield/ Rate | 2022 Average Balance | Interest | Average Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans receivable | $503,043 | $14,671 | 5.79% | $405,940 | $10,434 | 5.10% |
| Investment securities | 111,535 | 1,382 | 2.46 | 109,045 | 985 | 1.79 |
| Interest-earning deposits | 5,843 | 101 | 3.43 | 24,931 | 450 | 3.58 |
| Total interest-earning assets | $620,421 | 16,154 | 5.16% | $539,916 | 11,869 | 4.36% |
| Non-interest-earning assets | 40,941 |  |  | 40,556 |  |  |
| Total assets | $661,362 |  |  | $580,472 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Savings accounts | $75,900 | 149 | 0.39% | $119,110 | 164 | 0.27% |
| NOW accounts | 66,639 | 137 | 0.41 | 59,940 | 59 | 0.19 |
| Money market accounts | 102,327 | 1,222 | 2.37 | 95,479 | 131 | 0.27 |
| Certificate accounts | 203,779 | 3,986 | 3.88 | 92,974 | 691 | 1.47 |
| Total interest-bearing deposits | 448,645 | 5,494 | 2.43 | 367,503 | 1,045 | 0.56 |
| Other bank borrowings | 8,928 | 381 | 8.47 | 5,668 | 175 | 6.12 |
| FHLB advances | 3,259 | 93 | 5.66 | 822 | 20 | 4.83 |
| Total interest-bearing liabilities | 460,832 | 5,968 | 2.57% | $373,993 | 1,240 | 0.66% |
| Non-interest-bearing liabilities: |  |  |  |  |  |  |
| Non-interest bearing demand accounts | 144,950 |  |  | 155,501 |  |  |
| Other liabilities | 4,530 |  |  | 3,373 |  |  |
| Total liabilities | 610,312 |  |  | 532,867 |  |  |
| Total Stockholders’ Equity(1) | 51,052 |  |  | 47,605 |  |  |
| Total liabilities and equity | $661,364 |  |  | $580,472 |  |  |
| Net interest-earning assets | $159,590 |  |  | $165,923 |  |  |
| Net interest income; average interest rate spread(2) |  | $10,186 | 2.60% |  | $10.629 | 3.70% |
| Net interest margin(3) |  |  | 3.26% |  |  | 3.91% |
| Average interest-earning assets to average interest-bearing liabilities |  |  | 134.63% |  |  | 144.37% |

(1) Includes retained earnings and accumulated other comprehensive loss.

(2) Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities.

(3) Net interest margin is net interest income divided by net average interest-earning assets.

### Liquidity and Capital Resources

The Bank maintains levels of liquid assets deemed adequate by management. The Bank adjusts its liquidity levels to fund deposit outflows, repay its borrowings, and to fund loan commitments. The Bank also adjusts liquidity as appropriate to meet asset and liability management objectives.

The Bank’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 Bank sets the interest rates on its deposits to maintain a desired level of total deposits. In addition, the Bank invests excess funds in short-term interest-earning accounts and other assets which provide liquidity to meet lending requirements. The Bank’s deposit accounts with the Federal Home Loan Bank of Dallas amounted to $70,000 at December 31, 2023.

A significant portion of the Bank’s liquidity consists of securities classified as available-for-sale and cash and cash equivalents. The Bank’s primary sources of cash are net income, principal repayments on loans and mortgage-backed securities, and increases in deposit accounts. If the Bank requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas which provides an additional source of funds. At December 31, 2023, The Bank had $5.4 million in advances from the Federal Home Loan Bank of Dallas and had $192.8 million in additional borrowing capacity. Additionally, at December 31, 2023, the Bank was a party to a Master Purchase Agreement with First National Bankers Bank whereby Home Federal Bank may purchase Federal Funds from First National Bankers Bank in an amount not to exceed $20.4 million. There were no amounts purchased under this agreement as of December 31, 2023. In addition, the Company had available an $11.0 million line of credit agreement at December 31, 2023 with First National Bankers Bank. At December 31, 2023, there was a $9.7 million balance in the credit line.

At December 31, 2023, the Bank had outstanding loan commitments of $52.6 million to originate loans and commitments under unused lines of credit of $14.3 million. At December 31, 2023, certificates of deposit scheduled to mature in less than one year totaled $184.7 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, the cost of such deposits could be significantly higher upon renewal in a rising interest rate environment. The Bank intends to utilize its high levels of liquidity to fund its lending activities. If additional funds are required to fund lending activities, Home Federal Bank intends to sell its securities classified as available-for-sale, as needed.

At December 31, 2023, the Bank exceeded each of its regulatory capital requirements with tangible equity, common equity Tier 1, core, and total risk-based capital ratios of 9.15%, 13.09%, 9.15%, and 14.19%, respectively.

### Off-Balance Sheet Arrangements

At December 31, 2023, the Company 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-Q 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 Company’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-Q contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management, as well as assumptions made by and information currently available to management. In addition, in those and other portions of this document the words “anticipate”, “believe”, “estimate”, “except”, “intend”, “should”, and similar expressions, or the negative thereof, as they relate to the Company or the Company’s management are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future looking events and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary from those described herein as anticipated, believed, estimated, expected, or intended. The Company does not intend to update these forward-looking statements.

In addition to factors previously disclosed in the reports filed by the Company with the Securities and Exchange Commission and those identified elsewhere in this Form 10-Q, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: the strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations; general economic conditions; legislative and regulatory changes; monetary and fiscal policies of the federal government; changes in tax policies, rates and regulations of federal, state and local tax authorities including the effects of the Tax Reform Act; changes in interest rates, deposit flows, the cost of funds, demand for loan products and the demand for financial services, competition, changes in the quality or composition of the Company’s loans, investment and mortgage-backed securities portfolios; geographic concentration of the Company’s business; fluctuations in real estate values; the adequacy of loan loss reserves; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; changes in accounting principles, policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and fees.

## Controls and procedures

As filed, 1,353 characters.

*Evaluation of Disclosures Controls and Procedures.* Under the supervision and with the participation of our management including our President and Chief Executive Officer (principal executive officer) and our Chief Financial Officer (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 President and Chief Executive Officer and the Chief 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.

*Changes in Internal Control over Financial Reporting.* There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Filed Feb 12, 2024.
Source: SEC EDGAR, the filing index for accession 0001140361-24-007011. Last ingested by Listed: Oct 30, 2026, 14:24 ET. No prices; not investment advice.