HOME FEDERAL BANCORP OF LOUISIANE: Management report and analysis of the financial situation and operating results (form 10-K)
General
Our profitability depends primarily on our net interest income, which is the difference between interest and dividend income on interest-earning assets, principally loans, investment securities, and interest-earning deposits in other institutions, and interest expense on interest-bearing deposits and borrowings from theFederal Home Loan Bank of Dallas . Net interest income is dependent upon the level of interest rates and the extent to which such rates are changing. Our profitability also depends, to a lesser extent, on non-interest income, provision for loan losses, non-interest expenses, and federal income taxes.Home Federal Bancorp, Inc. of Louisiana had net income of$5.4 million in fiscal 2021 compared to net income of$3.9 million in fiscal 2020. Our business consists primarily of originating single-family real estate loans secured by property in our market area and to a lesser extent, commercial real estate loans, commercial business loans, and real estate secured lines of credit which typically have higher rates and shorter terms than single-family loans. Although our loans are primarily funded by certificates of deposit, which typically have a higher interest rate than passbook accounts, it is our policy to require commercial customers to have a deposit relationship with us, which primarily consist of NOW accounts. Due to the continued low interest rate environment, we have sold a substantial amount of our fixed rate single-family residential loan originations in recent periods. We have also sold investment securities available-for-sale to realize gains in the portfolio. Because of an increase in our average cost of funds on our interest bearing liabilities, our net interest margin decreased from 3.46% to 3.31% during fiscal 2021 compared to 2020, and our net interest income increased$1.8 million to$16.9 million for fiscal 2021 as compared to$15.2 million for fiscal 2020. We expect to continue to emphasize consumer and commercial lending in the future in order to improve the yield on our portfolio.
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Business strategy
Our business strategy is focused on operating a growing and profitable community financial institution. Our current business strategy includes:
• Continue to grow and diversify our loan portfolio. We intend to grow and
continue to diversify our loan portfolio by focusing, among other things, on
the origination of commercial real estate and business loans. TO
2021, our commercial real estate loans amounted to
the entire loan portfolio. Our loans to commercial enterprises amounted to
million euros, or 20.48% of the total loan portfolio. Commercial real estate,
trade, construction and development, and consumer loans, all
generally have higher yields and are more interest sensitive than long term
single-family residential mortgages.
• Diversify our products and services. We intend to continue to focus on our
commercial products to provide a full service banking relationship to
our business customers. We have introduced mobile and internet banking services and
remote collection of deposits, to better serve our commercial customers. Besides,
we have developed new deposit products focused on expanding our deposit base to
new types of customers.
• Manage our expenses. We have incurred significant additional expenses
related to personnel and infrastructure in recent periods as we implemented our
business strategy. Our efficiency ratio, net interest income plus interest not
income divided by non-interest expenses, for 2021 was 61.55% versus 64.9%
for fiscal 2020.
• Improve basic income. We plan to continue to focus on commercial real estate
real estate and commercial loans, which generally carry interest rates above
residential real estate loans, and sell a substantial portion of our fixed rate loans
residential mortgage loan arrangements.
• Expand our franchise into our market area and adjoining communities. We
intend to continue to seize opportunities to expand our market by opening
additional de novo bank offices and possibly through the acquisition of other
financial institutions and companies linked to the bank. We hope to focus on
areas contiguous to our current locations in
location in
announced our expansion in
in
near future.
• Maintain the quality of our assets. TO
totaled
composed of a commercial building and a family residence
with a book value of
stress maintaining high asset quality, even as we continue to grow our institution and diversify our loan portfolio.
• Cross-selling of products and services and emphasis on local decision-making. We
have promoted cross-selling products and services in our branches and
highlighted our local decision making and streamlined the loan approval process.
Critical Accounting Policies In reviewing and understanding financial information forHome Federal Bancorp , you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements. These policies are described in Note 1 of the notes to our consolidated financial statements included in Item 8 of this document. Our accounting and financial reporting policies conform to accounting principles generally accepted inthe 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. The following 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. 34
-------------------------------------------------------------------------------- Allowance for Loan Losses. We have identified the evaluation of the allowance for loan losses as a critical accounting policy where amounts are sensitive to material variation. The allowance for loan losses represents management's estimate for probable losses that are inherent in our loan portfolio but which have not yet been realized as of the date of our consolidated balance sheet. It is established through a provision for loan losses charged to earnings. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that management believes will cover known and inherent losses in the loan portfolio based on evaluations of the collectibility of loans. The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral, estimated losses on our commercial and residential loan portfolios, and general amounts for historical loss experience. All of these estimates may be susceptible to significant changes as more information becomes available. While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. Historically, our estimates of the allowance for loan loss have not required significant adjustments from management's initial estimates. In addition, theOffice of the Comptroller of the Currency as an integral part of their examination processes periodically reviews our allowance for loan losses.The Office of the Comptroller of the Currency may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations. To the extent that actual outcomes differ from management's estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods. 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. Realizing 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.
COVID-19[female[feminine
In light of the events surrounding the COVID-19 epidemic, the Company is continually assessing the effects of the pandemic on its employees, customers and communities. InMarch 2020 , the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted. The CARES Act contains many provisions related to banking, lending, mortgage forbearance and taxation. The Company has worked diligently to help support its customers through the SBA Paycheck Protection Program ("SBA PPP"), loan modifications and loan deferrals. OnDecember 27, 2020 , the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the "Economic Aid Act") became law. The Economic Aid Act extended the authority to make SBA PPP loans throughMay 31, 2021 . As ofJune 30, 2021 ,Home Federal Bank has funded 597 SBA PPP loans totaling approximately$68.8 million to existing customers and key prospects located primarily in our trade area ofNW Louisiana . Our commercial lenders and operational support staff have worked diligently to accomplish what seemed to be an insurmountable task in providing a lifeline to our small community businesses. We believe the customer interaction during this time provides a real opportunity to broaden and deepen our customer relationships while benefiting our community. We have had$38.6 million of SBA PPP loans that have been forgiven which represents 56.1% of the total amount of loans funded. The provision for loan losses for the year endedJune 30, 2021 was$1.8 million compared to$1.9 million for the year endedJune 30, 2020 . 35
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Changes in financial situation
AtJune 30, 2021 , the Company reported total assets of$565.7 million , an increase of$47.5 million , or 9.2%, compared to total assets of$518.2 million atJune 30, 2020 . The increase in assets was comprised primarily of increases in cash and cash equivalents of$49.5 million , or 90.3%, from$54.9 million atJune 30, 2020 to$104.4 million atJune 30, 2021 , investment securities of$21.3 million , or 33.9%, from$62.9 million atJune 30, 2020 to$84.3 million atJune 30, 2021 , premises and equipment of$1.7 million , or 12.7%, from$13.2 million atJune 30, 2020 to$14.9 million atJune 30, 2021 , and deferred tax assets of$62,000 , or 8.2%, from$757,000 atJune 30, 2020 to$819,000 atJune 30, 2021 . These increases were partially offset by decreases in loans receivable, net of$23.5 million , or 6.5%, from$359.9 million atJune 30, 2020 to$336.4 million atJune 30, 2021 , accrued interest receivable of$697,000 , or 37.5%, from$1.9 million atJune 30, 2020 to$1.2 million atJune 30, 2021 , real estate owned of$567,000 , or 59.7%, from$950,000 atJune 30, 2020 to$383,000 atJune 30, 2021 , and loans held-for-sale of$371,000 , or 2.5%, from$14.8 million atJune 30, 2020 to$14.4 million atJune 30, 2021 . The increase in investment securities was primarily due to security purchases of$52.9 million offset by principal repayments on mortgage backed securities of$28.2 million and a redemption of FHLB stock for$2.4 million . Loans receivable, net decreased$23.5 million , or 6.5%, from$359.9 million atJune 30, 2020 to$336.4 million atJune 30, 2021 . The decrease in loans receivable, net was attributable primarily to decreases in multi-family residential loans of$16.4 million , commercial business loans of$12.0 million , one-to-four family residential loans of$10.5 million , land loans of$1.8 million , equity and second mortgage loans of$143,000 , and consumer loans of$64,000 , partially offset by increases in commercial real estate loans of$9.1 million , construction loans of$7.2 million , and equity lines of credit of$536,000 . With interest rates continuing at historical lows, management is reluctant to invest in long-term, fixed rate mortgage loans for the portfolio and instead sells the majority of the long-term, fixed rate mortgage loan production. In recent periods we diversified the loan products we offer and increased our efforts to originate higher yielding commercial real estate loans and lines of credit and commercial business loans which were deemed attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans. As ofJune 30, 2021 ,Home Federal Bank had$96.2 million of commercial real estate loans, 28.2% of the total loan portfolio, and$69.9 million of commercial business loans, 20.5% of the total loan portfolio. Although commercial loans are generally considered to have greater credit risk than other certain types of loans, we attempt to mitigate such risk by originating such loans in our market area to known borrowers. Securities available-for-sale decreased$12.5 million , or 29.7%, from$42.1 million atJune 30, 2020 to$29.6 million atJune 30, 2021 . This decrease resulted primarily from principal repayments of$21.7 million and a decrease in market values of securities of$810,000 , partially offset by purchases of$10.1 million in mortgage-backed securities. Securities held-to-maturity increased$33.8 million , from$20.9 million atJune 30, 2020 to$54.7 million atJune 30, 2021 . This increase was primarily due to purchases of$41.7 million of mortgage backed securities and purchases of municipal securities of$1.1 million , partially offset by principal repayments of$6.4 million and a redemption of FHLB Stock of$2.4 million . We chose to place these securities in held-to-maturity as part of our interest rate risk management strategy. Cash and cash equivalents increased$49.5 million , or 90.3%, from$54.9 million atJune 30, 2020 to$104.4 million atJune 30, 2021 . The net increase in cash and cash equivalents was primarily attributable to increases in total deposits related to SBA PPP loans funded. 36 -------------------------------------------------------------------------------- Total liabilities increased$45.3 million , or 9.7%, from$467.7 million atJune 30, 2020 to$513.0 million atJune 30, 2021 primarily due to increases in total deposits of$45.8 million , or 9.9%, to$506.6 million atJune 30, 2021 compared to$460.8 million atJune 30, 2020 , and in other borrowings of$100,000 , or 4.3%, from$2.3 million atJune 30, 2020 to$2.4 million atJune 30, 2021 , partially offset by a decrease of$276,000 , or 9.2% in other liabilities from$3.0 million atJune 30, 2020 to$2.7 million atJune 30, 2021 , and a decrease of$193,000 , or 18.2%, in advances from theFederal Home Loan Bank from$1.1 million atJune 30, 2020 to$867,000 atJune 30, 2021 . The increase in deposits was primarily due to a$45.3 million , or 54.1%, increase in savings deposits from$83.8 million atJune 30, 2020 to$129.1 million atJune 30, 2021 , a$27.6 million , or 26.7%, increase in non-interest bearing deposits from$103.4 million atJune 30, 2020 to$131.0 million atJune 30, 2021 , a$13.5 million , or 18.1%, increase in money market deposits from$74.6 million atJune 30, 2020 to$88.2 million atJune 30, 2021 , and an increase in NOW accounts of$7.9 million , or 19.1%, from$41.4 million atJune 30, 2020 to$49.3 million atJune 30, 2021 , partially offset by a decrease of$48.6 million , or 30.8%, in certificates of deposit from$157.6 million atJune 30, 2020 to$109.0 million atJune 30, 2021 . The Company had$10.7 million in brokered deposits atJune 30, 2021 compared to$16.1 million atJune 30, 2020 . The decrease in advances from the Federal HomeLoan Bank was primarily due to principal paydowns on amortizing advances. Shareholders' equity increased$2.2 million , or 4.3%, to$52.7 million atJune 30, 2021 from$50.5 million atJune 30, 2020 . The primary reasons for the changes in shareholders' equity fromJune 30, 2020 were net income of$5.4 million , the vesting of restricted stock awards, stock options, and the release of employee stock ownership plan shares totaling$593,000 , and proceeds from the issuance of common stock from the exercise of stock options of$587,000 , partially offset by the acquisition of Company stock of$2.6 million , dividends paid totaling$1.1 million , and a decrease in the Company's accumulated other comprehensive income of$640,000 . 37
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Average Balances, Net Interest Income Yields Earned and Rates Paid. The
following table shows 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.
June 30,
2021 2020
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
Interest-earning assets:
Investment securities $ 65,721 $ 1,228 1.87 % $ 69,073 $ 1,559 2.26 %
Loans receivable(1) 366,546 18,913 5.16 340,302 18,435 5.42
Interest-earning deposits 79,028 104 0.13 29,326 342 1.17
Total interest-earning assets 511,295 20,245 3.96 % 438,701 20,336 4.64 %
Non-interest-earning assets 33,784 27,869
Total assets $ 545,079 $ 466,570
Interest-bearing liabilities:
Savings accounts 108,592 565 0.52 % 63,719 700 1.10 %
NOW accounts 44,655 90 0.20 33,206 176 0.53
Money market accounts 77,198 216 0.28 74,190 727 0.98
Certificate accounts 138,603 2,324 1.68 167,666 3,442 2.05
Total deposits 369,048 3,195 0.87 338,781 5,045 1.49
FHLB advances 923 45 4.88 1,197 57 4.76
Other borrowings 1,991 64 3.21 1,228 52 4.23
Total interest-bearing liabilities 371,962 3,304 0.89 % 341,206 5,154 1.51 %
Non-interest bearing debts:
Non-interest-bearing demand accounts 118,662 73,562
Other liabilities 3,092 2,065
Total liabilities 493,716 416,833
Total stockholders' equity(2) 51,363 49,737
Total liabilities and equity $ 545,079 $ 466,570
Net interest-earning assets $ 139,333 $ 97,495
Net interest income; average interest
rate spread(3) $ 16,941 3.07 % $ 15,182 3.13 %
Net interest margin(4) 3.31 % 3.46 %
Average interest-earning assets to
average interest-bearing liabilities 137.46 % 128.57 %
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(1) Includes loans held for sale.
(2) Includes retained earnings and accumulated other comprehensive income.
(3) The interest rate differential represents the difference between the weighted average
the return on interest-bearing assets and the weighted average rate on
interest bearing liabilities.
(4) The net interest margin is the net interest income divided by the net average
interest-bearing assets.
38 -------------------------------------------------------------------------------- Rate/Volume Analysis. The following table describes the extent to which changes in interest rates and changes in volume of interest-related assets and liabilities have affectedHome Federal Bancorp's interest income and interest expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by current year volume), and (iii) total change in rate and volume. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume. 2021 vs. 2020
2020 vs 2019
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
Rate Volume (Decrease) Rate Volume (Decrease)
(In thousands)
Interest income:
Investment securities $ (255 ) $ (76 ) $ (331 ) $ (41 ) $ 140 $ 99
Loans receivable, net (944 ) 1,422 478 (358 ) 735 377
Interest-earning
deposits (818 ) 580 (238 ) (316 ) 330 14
Total
interest-earning
assets (2,017 ) 1,926 91 (715 ) 1,205 490
Interest expense:
Savings accounts (628 ) 493 (135 ) 349 156 505
NOW accounts (147 ) 61 (86 ) (4 ) 14 10
Money market accounts (540 ) 29 (511 ) (54 ) 20 (34 )
Certificate accounts (521 ) (597 ) (1,118 ) 387 (203 ) 184
Total deposits (1,836 ) (14 ) (1,850 ) 678 (13 ) 665
FHLB advances and
other borrowings (22 ) 22 -- 33 (76 ) (43 )
Total
interest-bearing
liabilities (1,858 ) 8 (1,850 ) 711 (89 ) 622
Increase (Decrease)
in net interest
income $ (159 ) $ 1,918 $ 1,759 $ (1,426 ) $ 1,294 $ (132 )
Comparison of operating results for the years ended
General. The increase in net income for the year endedJune 30, 2021 resulted primarily from a$1.8 million , or 11.6%, increase in net interest income, an increase of$1.6 million , or 39.8%, in non-interest income, a$91,000 , or 4.8%, decrease in provision for loan losses, partially offset by an increase of$1.4 million , or 11.3%, in non-interest expense, and an increase of$488,000 , or 51.0%, in provision for income taxes. The increase in net interest income for the year was primarily due to a$1.9 million , or 35.9%, decrease in total interest expense, partially offset by$91,000 , or 0.4%, decrease in total interest income. The Company's average interest rate spread was 3.07% for the year endedJune 30, 2021 compared to 3.13% for the year endedJune 30, 2020 . Net Interest Income. Net interest income amounted to$16.9 million for fiscal year 2021, an increase of$1.8 million , or 11.6%, compared to$15.2 million for fiscal year 2020. The increase was due primarily to a decrease of$1.9 million in interest expense, partially offset by a$91,000 decrease in both total interest income and provision for loan losses. The average interest rate spread decreased from 3.13% for fiscal 2020 to 3.07% for fiscal 2021, while the average balance of interest-earning assets increased from$438.7 million to$511.3 million during the same periods. The percentage of average interest-earning assets to average interest-bearing liabilities increased to 137.46% for fiscal 2021 compared to 128.57% for fiscal 2020. The decrease in the average interest rate spread and net interest margin was attributable primarily to a decrease of 68 basis points in average rate on interest earning assets for the year, from 4.64% atJune 30, 2020 to 3.96% atJune 30, 2021 . The average rate paid on certificates of deposit decreased from 2.05% for fiscal 2020 to 1.68% for fiscal 2021. Net interest margin decreased to 3.31% for fiscal 2021 compared to 3.46% for fiscal 2020. Interest income decreased$91,000 , or 0.4%, to$20.2 million for fiscal 2021 compared to$20.3 million for fiscal 2020, primarily due to an aggregate decrease in interest income from investment and mortgage-backed securities of$383,000 and a decrease in interest income on other earning assets of$186,000 , partially offset by an increase in interest income from loans of$478,000 for fiscal 2021 compared to 2020. The increase in the average balance of loans receivable was primarily due to new loans originated by our commercial lending division. The average yield of the loan portfolio decreased by 26 basis points during fiscal 2021 mainly due to a lower interest rate environment. 39 --------------------------------------------------------------------------------
Interest expense has decreased
Provision for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to have occurred in our loan portfolio. Loan losses are charged against the allowance when management believes the collectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectability 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 we 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, we 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. 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 interest and principal payments is back to normal, the loan is returned to accrual status. A provision of$1.8 million was made to the allowance during fiscal 2021, compared to a provision of$1.9 million in fiscal 2020. AtJune 30, 2021 , the Company had$1.4 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$7.2 million of non-performing assets atJune 30, 2020 , consisting of six commercial real estate loans to one borrower, three single-family residential loans, and one commercial real estate property and one single family residence in other real estate owned atJune 30, 2021 , compared to five single-family residential loans, five commercial real estate loans to one borrower, one lot loan, one land loan and two commercial real estate properties in other real estate owned atJune 30, 2020 . The decrease in non-performing assets from$7.2 million atJune 30, 2020 to$1.4 million atJune 30, 2021 was primarily due to a payoff of$2.0 million on one lot loan and one land loan to the same borrower, a write-down of$907,000 on a lot loan, a write-down of$1.0 million on a commercial real estate loan, and the paydown of a portion of the collateral on the same commercial real estate loan totaling$449,000 . AtJune 30, 2021 , the Company had one single family residential loans and eight commercial real estate loans to one borrower classified as substandard compared to four single family residential loans, two commercial land and lot development loans, and six commercial real estate loans to one borrower classified as substandard atJune 30, 2020 . There were no loans classified as doubtful atJune 30, 2021 orJune 30, 2020 . Non-Interest Income. Non-interest income amounted to$5.5 million for the year endedJune 30, 2021 , an increase of$1.6 million , or 39.8%, compared to non-interest income of$3.9 million for the year endedJune 30, 2020 . The$1.6 million increase in non-interest income for the year endedJune 30, 2021 compared to the prior year was primarily due to an increase of$1.8 million in gain on sale of loans, and an increase of$15,000 in other non-interest income, partially offset by a$219,000 decrease in gain on sale of securities, a$42,000 loss on sale of real estate, a$28,000 decrease in service charges on deposit accounts, and a$12,000 decrease in income from bank owned life insurance. The Company sells most of its long-term fixed rate residential mortgage loan originations primarily in order to manage interest rate risk. 40 -------------------------------------------------------------------------------- Non-Interest Expense. Non-interest expense increased$1.4 million , or 11.3%, in fiscal 2021 compared to the prior year period. The$1.4 million increase in non-interest expense for the year endedJune 30, 2021 , compared to the prior year, is primarily attributable to increases of$978,000 in compensation and benefits expense,$200,000 in real estate owned valuation adjustment expense,$176,000 in data processing expense,$88,000 in deposit insurance premium expense,$69,000 in other non-interest expenses,$49,000 in loan and collection expense, and$48,000 in audit and examination fees expense, partially offset by decreases of$100,000 in advertising expense,$52,000 in franchise and bank shares tax expense,$43,000 in legal fees, and$13,000 in occupancy and equipment expense. Provision for Income Tax Expense. The provision for income taxes amounted to$1.4 million and$957,000 for the fiscal years endedJune 30, 2021 and 2020, respectively. Our effective tax rate was 21.2% for fiscal 2021 and 19.9% for fiscal 2020.
Exposure to changes in interest rates
Our ability to maintain net interest income depends upon our ability to earn a higher yield on interest-earning assets than the rates we pay on deposits and borrowings. Our interest-earning assets consist primarily of securities available-for-sale and long-term residential and commercial mortgage loans, which have fixed rates of interest. Consequently, our ability to maintain a positive spread between the interest earned on assets and the interest paid on deposits and borrowings can be adversely affected when market rates of interest rise. Although long-term, fixed-rate mortgage loans made up a significant portion of our interest-earning assets atJune 30, 2021 , we sold a substantial amount of our one-to-four family residential loans we originated and maintained a significant portfolio of available-for-sale securities during the past few years in order to better position the Company for a rising interest rate environment in the long term. AtJune 30, 2021 and 2020, securities available-for-sale amounted to$29.6 million and$42.1 million , respectively, or 5.2% and 8.1%, respectively, of total assets at such dates. Quantitative Analysis.The Office of the Comptroller of the Currency provides a quarterly report on the potential impact of interest rate changes upon the market value of portfolio equity. Management reviews the quarterly reports from theOffice of the Comptroller of the Currency , which show the impact of changing interest rates on net portfolio value. Net portfolio value is the difference between incoming and outgoing discounted cash flows from assets, liabilities, and off-balance sheet contracts. Net Portfolio Value. Our interest rate sensitivity is monitored by management through the use of a model which internally generates estimates of the change in our net portfolio value ("NPV") over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The following table sets forth our NPV as ofJune 30, 2021 : Change in Interest Rates NPV as % of Portfolio in Net Portfolio Value Value of Assets Basis Points Amount $ Change % Change NPV Ratio Change (Rate Shock) (Dollars in thousands) 300$ 68,231 $ 5,781 9.25 % 12.98 % 1.86 % 200 62,551 101 0.16 11.57 0.45 100 66,348 3,898 6.24 12.03 0.91 Static 62,450 -- -- 11.12 -- (100) 55,969 (6,481 ) (10.38 ) 9.82 (1.30 ) (200) 47,996 (14,454 ) (23.14 ) 8.34 (2.78 ) Qualitative Analysis. Our ability to maintain a positive "spread" between the interest earned on assets and the interest paid on deposits and borrowings is affected by changes in interest rates. Our fixed-rate loans generally are profitable, if interest rates are stable or declining since these loans have yields that exceed our cost of funds. If interest rates increase, however, we would have to pay more on our deposits and new borrowings, which would adversely affect our interest rate spread. In order to counter the potential effects of dramatic increases in market rates of interest, we have underwritten our mortgage loans to allow for their sale in the secondary market. Total loan originations amounted to$389.8 million for fiscal 2021 and$311.4 million for fiscal 2020, while loans sold amounted to$198.8 million and$111.8 million during the same respective periods. We have invested excess funds from loan payments and prepayments and loan sales in investment securities classified as available-for-sale. As a result,Home Federal Bancorp is not as susceptible to rising interest rates as it would be if its interest-earning assets were primarily comprised of long-term fixed rate mortgage loans. With respect to its floating or adjustable rate loans,Home Federal Bancorp writes interest rate floors and caps into such loan documents. Interest rate floors limit our interest rate risk by limiting potential decreases in the interest yield on an adjustable rate loan to a certain level. As a result, we receive a minimum yield even if rates decline farther, and the interest rate on the particular loan would otherwise adjust to a lower amount. Conversely, interest rate ceilings limit the amount by which the yield on an adjustable rate loan may increase to no more than six percentage points over the rate at the time of origination. Finally, we intend to place a greater emphasis on shorter-term consumer loans and commercial business loans in the future. 41
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Liquidity and capital resources
Our 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. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning accounts and other assets, which provide liquidity to meet lending requirements. Our deposit accounts with theFederal Home Loan Bank of Dallas amounted to$42.0 million and$19.1 million atJune 30, 2021 and 2020, respectively. A significant portion of our liquidity consists of securities classified as available-for-sale and cash and cash equivalents. Our primary sources of cash are net income, principal repayments on loans and mortgage-backed securities, and increases in deposit accounts. If we require funds beyond our ability to generate them internally, we have borrowing agreements with theFederal Home Loan Bank of Dallas , which provide an additional source of funds. AtJune 30, 2021 , we had$867,000 in advances from theFederal Home Loan Bank of Dallas and had$173.5 million in additional borrowing capacity. Additionally, atJune 30, 2021 ,Home Federal Bank was a party to a Master Purchase Agreement withFirst National Bankers Bank , wherebyHome Federal Bank may purchase Federal Funds fromFirst National Bankers Bank in an amount not to exceed$20.4 million . There were no amounts purchased under this agreement as ofJune 30, 2021 . In addition,Home Federal Bancorp had available a$5.0 million line of credit agreement atJune 30, 2021 withFirst National Bankers Bank . AtJune 30, 2021 there was a$2.4 million balance in the credit line. AtJune 30, 2021 , the Company had outstanding loan commitments of$59.1 million to originate loans and commitments under unused lines of credit of$9.7 million . AtJune 30, 2021 , certificates of deposit scheduled to mature in one year or less totaled$64.7 million , or 59.4% of total certificates of deposit. 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. We intend to utilize our high levels of liquidity to fund our lending activities. If additional funds are required to fund lending activities, we intend to sell our securities classified as available-for-sale, as needed. AtJune 30, 2021 ,Home Federal Bank exceeded each of its capital requirements with tangible equity, common equity Tier 1, core, and total risk-based capital ratios of 9.57%, 16.63%, 9.57%, and 17.88%, respectively. 42
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Off-balance sheet provisions
We do not have any off-balance sheet arrangements, as defined bySecurities and Exchange Commission rules, and have not had any such arrangements during the two years endedJune 30, 2021 . See Notes 9 and 14 to the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.
Impact of inflation and price changes
The consolidated financial statements and related financial data presented herein regardingHome Federal Bancorp have been prepared in accordance with accounting principles generally accepted inthe United States of America , which generally 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 our assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact onHome Federal Bancorp's performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates. Forward-Looking Statements This Annual Report on Form 10-K contains certain forward-looking statements (as defined in the Securities Exchange Act of 1934 and the regulations thereunder). Forward-looking statements are not historical facts but instead represent only the beliefs, expectations or opinions ofHome Federal Bancorp and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward-looking statements may be identified by the use of such words as: "believe", "expect", "anticipate", "intend", "plan", "estimate", or words of similar meaning, or future or conditional terms such as "will", "would", "should", "could", "may", "likely", "probably", or "possibly." Forward-looking statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks, uncertainties and assumption, many of which are difficult to predict and generally are beyond the control ofHome Federal Bancorp and its management, that could cause actual results to differ materially from those expressed in, or implied or projected by, forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) economic and competitive conditions which could affect the volume of loan originations, deposit flows and real estate values; (2) the levels of non-interest income and expense and the amount of loan losses; (3) competitive pressure among depository institutions increasing significantly; (4) changes in the interest rate environment causing reduced interest margins; (5) general economic conditions, either nationally or in the markets in whichHome Federal Bancorp is or will be doing business, being less favorable than expected (6) political and social unrest including acts of war or terrorism; (7) the impact of the current outbreak of the novel coronavirus (COVID-19) or (8) legislation or changes in regulatory requirements adversely affecting the business in whichHome Federal Bancorp will be engaged.Home Federal Bancorp undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.
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