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Msg  111 of 167  at  3/6/2011 10:16:13 AM  by


Home Federal Bancorp of Louisiana

 Symbol: HFBL
Shares Outstanding: 3,045,913
Market Cap: $38M
Second Step Conversion

Home Federal Bancorp did a second step conversion from a mutual holding company in December 2010.   According to the company's SEC filing:
As part of the conversion and in accordance with the Plan of Conversion, all outstanding shares of the former Home Federal Bancorp, Inc. of Louisiana common stock (other than those owned by Home Federal Mutual Holding Company) were converted into the right to receive 0.9110 of a share of the newly formed Home Federal Bancorp, Inc. of Louisiana common stock resulting in 1,100,693 shares issued in the exchange. In addition, a total of 1,945,220 shares of common stock, par value $0.01 per share, of Home Federal Bancorp, Inc. of Louisiana were sold in subscription, community and syndicated community offerings to certain depositors and borrowers of the Bank and other investors for $10.00 per share, or $19.45 million in the aggregate.
 So they cashed up $19.45M from the stock sale.
Where do they Operate?

Home Federal Bancorp’s primary market area for loans and deposits is in northwest Louisiana, particularly Caddo Parish and neighboring communities in Bossier Parish, which are located in the Shreveport-Bossier City metropolitan statistical area.

In 2008, the median household income in Caddo Parish and Bossier Parish was $37,000 and $49,000, respectively. The median income of the city of Shreveport is $30,000.  According to the U.S. Department of Labor, the unemployment rate as of June 2010 was 8.4% in Caddo Parish and 6.3% in Bossier Parish, compared to 7.0% for the entire state of Louisiana and 9.5% nationwide.

This isn't an economic mecca by any means.   The primary employers in our market area are the Louisiana Department of Civil Service, Barksdale Air Force Base, Louisiana State University Medical Center and the Willis-Knighton Health System. The gaming industry also supports service sector employment. The Haynesville is in and around the area, so oil and gas employment is is key to the area as well.
Their Business
This is taken from the company\s 10-K (my bold):

Home Federal Bank’s business consists primarily of attracting deposits from the general public and using those funds to invest in securities and originate single-family and consumer loans. Historically, Home Federal Bank has been a traditional thrift institution with an emphasis on fixed-rate long-term single-family residential first mortgage loans. As part of implementing our business strategy, we diversified the loan products we offer and increased our efforts to originate higher yielding commercial real estate loans and lines of credit and, to a lesser extent commercial business loans, in the last half of fiscal 2009. We recently hired senior management officers with significant commercial lending experience in our market area. Commercial real estate loans and lines of credit were deemed attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans
Here is a breakdown of loans as of their last 10-K (June)
At June 30, 2010, our net loan portfolio amounted to $93.1 million, representing approximately 50.3% of total assets at that date. Historically, our principal lending activity was the origination of one- to four-family residential loans. At June 30, 2010, one- to four-family residential loans amounted to $36.3 million, or 38.7% of the total loan portfolio. As part of our desire to diversify the loan portfolio, we began to offer commercial real estate loans and commercial business loans in fiscal 2009, which amounted to $15.4 million and $9.5 million, respectively, at June 30, 2010.
Their loans in terms of percentages:

House Prices in Bossier Parish and Shreveport
So HFBL is going to be mostly leveraged to house price in their areas of operation.  So its necessary to look at the real estate market in Shreveport and Bossier Parish.  It looks like real estate in their core areas of shreveport and bossier city have bottomed out and are doing reasonably well of late.  Below are a charts of home prices in both the Bossier City and Shreveport area.
Neither parish really saw the kind of price appreciation during the housing boom that was seen in some of the coastal areas.  Below is a chart of home price appreciation in Shreveport over the past 25 years.

Nonperforming Assets

The best evidence of the stability of the bank and its customers is that they have an extremely low amount of nonperforming assets. Nonperforming assets are an incredible 0.06% of total assets.  So basically all their loans are current.
 How Cheap are they?
If you ex-out their provision for loan losses, HFBL earned 20 cents/share in Q4 and  23 cents per share in Q3.  More importantly, they are growing both their deposit and loan base by leaps and bounds.  Check out yoy growth of both in the table below.
These are some of the best growth numbers I've seen.
What's more, the stock is trading at a significant discount to book, and has massive cash and tangible capital that it can put to work to grow its loan book further.
 As far as mutual holding conversions go, this one seems like a real winner to me.  Its biggest problem is that it is small and illiquid. It took me a month of waiting to finally get the shares at ~$12 that I had bid.

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