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 the Federal 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.

Home Federal Bancorp’s operations and profitability are subject to changes in interest rates, applicable laws and regulations, and general economic conditions, as well as other factors beyond our control.

                                       33

————————————————– ——————————-

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 June 30th,

2021, our commercial real estate loans amounted to $ 96.2 millionor 28.18% of

the entire loan portfolio. Our loans to commercial enterprises amounted to $ 69.9

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 Caddo and the parishes of Bossier. In

June 2021, we announced the launch of a new eighth full-service branch

location in West Shreveport which should open in November 2021. We

announced our expansion in Webster Parish with a new loan production office

in September 2021 which we plan to convert to a full-service branch in the

  near future.

• Maintain the quality of our assets. TO June 30, 2021, our non-performing assets

totaled $ 1.4 million, or 0.25% of total assets. We owned other real estate

composed of a commercial building and a family residence

with a book value of $ 383,000 To June 30, 2021. We intend to continue to

  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 for Home 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 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. 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, the Office 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.  In March 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.
On December 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 through May 31, 2021.  As of June
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 of NW 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
ended June 30, 2021 was $1.8 million compared to $1.9 million for the year ended
June 30, 2020.



                                       35

--------------------------------------------------------------------------------

Changes in financial situation

At June 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
at June 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 at June
30, 2020 to $104.4 million at June 30, 2021, investment securities of $21.3
million, or 33.9%, from $62.9 million at June 30, 2020 to $84.3 million at June
30, 2021, premises and equipment of $1.7 million, or 12.7%, from $13.2 million
at June 30, 2020 to $14.9 million at June 30, 2021, and deferred tax assets of
$62,000, or 8.2%, from $757,000 at June 30, 2020 to $819,000 at June 30, 2021.
These increases were partially offset by decreases in loans receivable, net of
$23.5 million, or 6.5%, from $359.9 million at June 30, 2020 to $336.4 million
at June 30, 2021, accrued interest receivable of $697,000, or 37.5%, from $1.9
million at June 30, 2020 to $1.2 million at June 30, 2021, real estate owned of
$567,000, or 59.7%, from $950,000 at June 30, 2020 to $383,000 at June 30, 2021,
and loans held-for-sale of $371,000, or 2.5%, from $14.8 million at June 30,
2020 to $14.4 million at June 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 at
June 30, 2020 to $336.4 million at June 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 of June 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 at June 30, 2020 to $29.6 million at June 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 at June
30, 2020 to $54.7 million at June 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
at June 30, 2020 to $104.4 million at June 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 at June
30, 2020 to $513.0 million at June 30, 2021 primarily due to increases in total
deposits of $45.8 million, or 9.9%, to $506.6 million at June 30, 2021 compared
to $460.8 million at June 30, 2020, and in other borrowings of $100,000, or
4.3%, from $2.3 million at June 30, 2020 to $2.4 million at June 30, 2021,
partially offset by a decrease of $276,000, or 9.2% in other liabilities from
$3.0 million at June 30, 2020 to $2.7 million at June 30, 2021, and a decrease
of $193,000, or 18.2%, in advances from the Federal Home Loan Bank from $1.1
million at June 30, 2020 to $867,000 at June 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 at June 30, 2020 to $129.1 million at June 30, 2021, a $27.6
million, or 26.7%, increase in non-interest bearing deposits from $103.4 million
at June 30, 2020 to $131.0 million at June 30, 2021, a $13.5 million, or 18.1%,
increase in money market deposits from $74.6 million at June 30, 2020 to $88.2
million at June 30, 2021, and an increase in NOW accounts of $7.9 million, or
19.1%, from $41.4 million at June 30, 2020 to $49.3 million at June 30, 2021,
partially offset by a decrease of $48.6 million, or 30.8%, in certificates of
deposit from $157.6 million at June 30, 2020 to $109.0 million at June 30, 2021.
The Company had $10.7 million in brokered deposits at June 30, 2021 compared to
$16.1 million at June 30, 2020.  The decrease in advances from the Federal Home
Loan Bank was primarily due to principal paydowns on amortizing advances.

Shareholders' equity increased $2.2 million, or 4.3%, to $52.7 million at June
30, 2021 from $50.5 million at June 30, 2020.  The primary reasons for the
changes in shareholders' equity from June 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

--------------------------------------------------------------------------------
  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 %

__________________

(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 affected Home 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 June 30, 2021 and 2020

General. The increase in net income for the year ended June 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 ended June 30, 2021 compared to 3.13% for the year ended June 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% at June 30, 2020 to 3.96% at
June 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 $ 1.9 million, or 35.9%, to $ 3.3 million for fiscal year 2021 compared to $ 5.2 million for fiscal 2020, mainly due to the decrease in the average rate paid on interest-bearing deposits.

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.  At June 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 at June 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 at June 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 at June 30, 2020.  The decrease in non-performing
assets from $7.2 million at June 30, 2020 to $1.4 million at June 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.  At June
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 at June 30, 2020. There were no loans classified as doubtful at June
30, 2021 or June 30, 2020.

Non-Interest Income. Non-interest income amounted to $5.5 million for the year
ended June 30, 2021, an increase of $1.6 million, or 39.8%, compared to
non-interest income of $3.9 million for the year ended June 30, 2020.  The $1.6
million increase in non-interest income for the year ended June 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 ended June 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 ended June 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 at June 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.  At June 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
the Office 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 of June 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

————————————————– ——————————-

Liquidity and capital resources

Home Federal Bancorp maintains levels of liquid assets deemed adequate by management. Our liquidity ratio averaged 38.83% for the quarter ended June 30, 2021. We adjust our liquidity levels to fund deposit outflows, repay our borrowings and fund loan commitments. We also adjust liquidity, as needed, to meet asset and liability management goals.

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 the Federal
Home Loan Bank of Dallas amounted to $42.0 million and $19.1 million at June 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 the Federal Home
Loan Bank of Dallas, which provide an additional source of funds. At June 30,
2021, we had $867,000 in advances from the Federal Home Loan Bank of Dallas and
had $173.5 million in additional borrowing capacity.  Additionally, at June 30,
2021, Home Federal 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 June 30, 2021.  In addition,
Home Federal Bancorp had available a $5.0 million line of credit agreement at
June 30, 2021 with First National Bankers Bank.  At June 30, 2021 there was a
$2.4 million balance in the credit line.

At June 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.
At June 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.

At June 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

————————————————– ——————————-

Off-balance sheet provisions

We do not have any off-balance sheet arrangements, as defined by Securities and
Exchange Commission rules, and have not had any such arrangements during the two
years ended June 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 regarding Home Federal Bancorp have been prepared in accordance with
accounting principles generally accepted in the 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 on Home 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 of Home 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 of Home 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 which Home
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 which Home 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.

© Edgar online, source Previews