HOME FEDERAL BANCORP, INC. OF LOUISIANA Management’s Discussion and Analysis of Financial Condition and Results of Operations (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 $4.9 million in fiscal 2022
compared to net income of $5.4 million in fiscal 2021.

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 the acquisition of deposits and it is
our policy to require commercial customers to have a deposit relationship with
us, which primarily consists of NOW accounts or non-interest checking 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.  Because of a decrease in our average rate on our interest-bearing
assets, partially offset by a decrease in our rate on total interest bearing
liabilities, our net interest margin decreased from 3.31% to 3.27% during fiscal
2022 compared to 2021, and our net interest income increased $416,000 to $17.4
million for fiscal 2022 as compared to $16.9 million for fiscal 2021. We expect
to continue to emphasize commercial lending in the future in order to improve
the yield on our portfolio.

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

Business Strategy

Our business strategy is focused on operating a growing and profitable
community-oriented financial institution. Our current business strategy
includes:

• Continuing to Grow and Diversify Our Loan Portfolio. We intend to grow and

continue to diversify our loan portfolio by, among other things, emphasizing

the origination of commercial real estate and business loans. At June 30,

2022, our commercial real estate loans amounted to $127.6 million, or 32.5% of

the total loan portfolio. Our commercial business loans amounted to $44.5

million, or 11.3% of the total loan portfolio. Commercial real estate,

commercial business, construction and development, and consumer loans all

typically have higher yields and are more interest sensitive than long-term

single-family residential mortgage loans.

• Diversify Our Products and Services. We intend to continue to emphasize our

commercial business products to provide a full-service banking relationship to

our commercial customers. We have introduced mobile and Internet banking and

remote deposit capture, to better serve our commercial clients. Additionally,

we have developed new deposit products focused on expanding our deposit base to

   new types of customers.



• Managing 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 non-interest

income divided by non-interest expense, for 2022 was 69.59% compared to 61.55%

   for fiscal 2021.



• Enhancing Core Earnings. We expect to continue to emphasize commercial real

estate and business loans, which generally bear interest rates higher than

residential real estate loans, and sell a substantial part of our fixed rate

residential mortgage loan originations.

• Expanding Our Franchise in our Market Area and Contiguous Communities.

We

intend to continue to pursue opportunities to expand our market area by opening

additional de novo banking offices and possibly through acquisitions of other

financial institutions and banking related businesses. We expect to focus on

contiguous areas to our current locations in Caddo, Bossier and Webster

Parishes. We announced our expansion into Webster Parish with a new loan

production office in September 2021 which converted to a full-service branch in

   October 2021. In December 2021, we opened our ninth full-service branch
   location in West Shreveport.


• Maintain Our Asset Quality. At June 30, 2022, our non-performing assets

totaled $2.5 million, or 0.43% of total assets. We had no balances in other

real estate owned at June 30, 2022. 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 Products and Services and Emphasizing Local Decision Making. We

have promoted cross-selling products and services in our branch offices and

emphasized our local decision making and streamlined loan approval process.




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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.

Allowance for Loan Losses.  We have identified the evaluation of the allowance
for loan losses as a critical accounting policy and a critical accounting
estimate 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.

The allowance for loan losses is comprised of (i) specific reserves determined
in accordance with current authoritative accounting guidance based on probable
specific losses (ii) general reserve determined in accordance with current
authoritative accounting guidance that consider historical loss experience, and
(iii) qualitative reserves determined in accordance with current authoritative
accounting guidance based upon qualitive factors, which include: 1) changes in
lending policies, procedures, and practices; 2) changes in national and local
economic trends and conditions; 3) changes in the nature and volume of the
portfolio; 4) changes in the experience, ability, and depth of lending
management and staff; 5) changes in the volume and loss severity of past due
loans, the volume of non-accrual loans, and the volume and loss severity of
adversely classified or graded loans; 6) changes in the quality of the Company's
loan review system; 7) changes in the value of underlying collateral for
collateral-dependent loans; 8) the existence and effect of any concentrations of
credit, and changes in the level of such concentrations.

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COVID-19


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, 2022, 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
$68.4 million of SBA PPP loans that have been forgiven which represents 99.4% of
the total amount of loans funded.  The provision for loan losses for the year
ended June 30, 2022 was $336,000 compared to $1.8 million for the year ended
June 30, 2021. The decrease is mainly due to an improvement in our overall
credit quality.

Selected Financial and Other Data


Set forth below is selected consolidated financial and other data of Home
Federal Bancorp. The information at or for the years ended June 30, 2022 and
2021 is derived in part from the audited financial statements that appear in
this Form 10-K.

                                           At June 30,
                                       2022          2021
                                         (In thousands)
Selected Financial and Other Data:
Total assets                         $ 590,480     $ 565,731
Cash and cash equivalents               64,078       104,405
Securities available for sale           28,099        29,550
Securities held to maturity             79,950        54,706
Loans held-for-sale                      3,978        14,427
Loans receivable, net                  387,873       336,394
Deposits                               531,991       506,596
Federal Home Loan Bank advances            832           867
Total Stockholders' equity              52,347        52,725



                                                                       As of or for the Year
                                                                           Ended June 30,
                                                                   2022                    2021
                                                                 (Dollars in thousands, except per
                                                                               share
                                                                              amounts)
Selected Operating Data:
Total interest income                                          $     19,234           $        20,245
Total interest expense                                                1,877                     3,304
Net interest income                                                  17,357                    16,941
Provision for loan losses                                               336                     1,800
Net interest income after provision for loan losses                  17,021                    15,141
Total non-interest income                                             3,476                     5,452
Total non-interest expense                                           14,497                    13,783
Income before income tax expense                                      6,000                     6,810
Income tax expense                                                    1,127                     1,445
Net income                                                     $      4,873           $         5,365
Earnings per share of common stock:
Basic                                                          $       1.50           $          1.66
Diluted                                                        $       1.41           $          1.57



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                                                                  As of or for the Year
                                                                     Ended June 30,
                                                                  2022             2021

Selected Operating Ratios(1):
Average yield on interest-earning assets                              3.62 %          3.96 %
Average rate on interest-bearing liabilities                          0.51  

0.89

Average interest rate spread(2)                                       3.11  

3.07

Net interest margin(2)                                                3.27  

3.31

Average interest-earning assets to average interest-bearing
liabilities

                                                         143.32  

137.46

Net interest income after provision for loan losses to
non-interest expense

                                                117.41  

109.85

Total non-interest expense to average assets                          2.54            2.53
Efficiency ratio(3)                                                  69.59           61.55
Return on average assets                                              0.85            0.98
Return on average equity                                              9.24           10.45
Average equity to average assets                                      9.22            9.42
Dividend payout ratio                                                28.37           20.91

Selected Quality Ratios(4):
Non-performing loans as a percent of loans receivable, net            0.62 %          0.30 %
Non-performing assets as a percent of total assets                    0.37  

0.25

Allowance for loan losses as a percent of total loans
receivable

                                                            1.13  

1.21

Net charge-offs to average loans receivable                           0.00  

0.48

Allowance for loan losses as a percent of non-performing
loans                                                               174.96          406.85

Bank Capital Ratios(4):
Tangible capital ratio                                                9.65 %          9.57 %
Core capital ratio                                                    9.65            9.57
Total capital ratio                                                  15.62           17.88

Other Data:
Offices (branch and home)                                                9               8
Employees (full-time)                                                   70              61


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(1) With the exception of end of period ratios, all ratios are based on average

monthly balances during the indicated periods.

(2) Average interest rate spread represents the difference between the average

yield on interest-earning assets and the average rate paid on

interest-bearing liabilities, and net interest margin represents net interest

income as a percentage of average interest-earning assets.

(3) Non-GAAP: The efficiency ratio represents the ratio of non-interest expense

divided by the sum of net interest income and non-interest income.

(4) Asset quality ratios and capital ratios are end of period ratios, except for

net charge-offs to average loans receivable.

Changes in Financial Condition


At June 30, 2022, the Company reported total assets of $590.5 million, an
increase of $24.7 million, or 4.4%, compared to total assets of $565.7 million
at June 30, 2021. The increase in assets was comprised primarily of increases in
loans receivable, net of $51.5 million, or 15.3%, from $336.4 million at June
30, 2021 to $387.9 million at June 30, 2022, investment securities of $23.8
million, or 28.2%, from $84.3 million at June 30, 2021 to $108.0 million at June
30, 2022, premises and equipment of $1.3 million, or 8.9%, from $14.9 million at
June 30, 2021 to $16.2 million at June 30, 2022, and deferred tax assets of
$324,000, or 39.6%, from $819,000 at June 30, 2021 to $1.1 million at June 30,
2022.  These increases were partially offset by decreases in cash and cash
equivalents of $40.3 million, or 38.6%, from $104.4 million at June 30, 2021 to
$64.1 million at June 30, 2022, loans held-for-sale of $10.4 million, or 72.4%,
from $14.4 million at June 30, 2021 to $4.0 million at June 30, 2022, bank owned
life insurance of $617,000, or 8.6%, from $7.2 million at June 30, 2021 to $6.6
million at June 30, 2022, real estate owned of $383,000, or 100.0%, from
$383,000 at June 30, 2021 to none at June 30, 2022, other assets of $366,000, or
20.9%, from $1.8 million at June 30, 2021 to $1.4 million at June 30, 2022, and
accrued interest receivable of $39,000, or 3.4%, from $1.2 million at June 30,
2021 to $1.1 million at June 30, 2022.

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Loans receivable, net increased $51.5 million, or 15.3%, from $336.4 million at
June 30, 2021 to $387.9 million at June 30, 2022. The increase in loans
receivable, net was attributable primarily to increases in commercial real
estate loans of $31.4 million, one-to-four family residential loans of $22.4
million, construction loans of $12.5 million, land loans of $5.9 million, equity
lines of credit loans of $5.0 million, and equity and second mortgage loans of
$320,000, partially offset by decreases in commercial business loans of $25.4
million, and consumer loans of $210,000.  With rising interest rates, 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, 2022, Home Federal Bank had $127.6
million of commercial real estate loans, 32.5% of the total loan portfolio, and
$44.5 million of commercial business loans, 11.3% 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 $1.5 million, or 4.9%, from $29.6
million at June 30, 2021 to $28.1 million at June 30, 2022. This decrease
resulted primarily from principal repayments of $9.5 million and a decrease in
market values of securities of $2.5 million, partially offset by purchases of
$9.3 million in mortgage-backed securities.

Securities held-to-maturity increased $25.2 million, from $54.7 million at June
30, 2021 to $79.9 million at June 30, 2022.  This increase was primarily due to
purchases of $34.6 million of mortgage backed securities and purchases of
$14,800 in FHLB stock, partially offset by principal repayments of $9.3 million.
We chose to place these securities in held-to-maturity as part of our interest
rate risk management strategy.

Cash and cash equivalents decreased $40.3 million, or 38.6%, from $104.4 million
at June 30, 2021 to $64.1 million at June 30, 2022. The decrease in cash and
cash equivalents was primarily due to the funding of additional loan growth and
purchases of securities with excess liquidity.

Total liabilities increased $25.1 million, or 4.9%, from $513.0 million at June
30, 2021 to $538.1  million at June 30, 2022 primarily due to increases in total
deposits of $25.4 million, or 5.0%, to $532.0 million at June 30, 2022 compared
to $506.6 million at June 30, 2021, partially offset by a decrease of $111,000,
or 4.1%, in other accrued expenses and liabilities from $2.7 million at June 30,
2021 to $2.6 million at June 30, 2022, a decrease of $72,000, or 16.9%, in
advances from borrowers for taxes and insurance from $426,000 at June 30, 2021
to $354,000 at June 30, 2022, a decrease of $50,000, or 2.1%, in other
borrowings from $2.4 million at June 30, 2021 to $2.3 million at June 30, 2022,
and a decrease of $35,000, or 4.0%, in advances from the Federal Home Loan Bank
from $867,000 at June 30, 2021 to $832,000 at June 30, 2022.  The increase in
deposits was primarily due to a $30.1 million, or 23.0%, increase in
non-interest bearing deposits from $131.0 million at June 30, 2021 to $161.1
million at June 30, 2022, a $10.4 million, or 11.8%, increase in money market
deposits from $88.2 million at June 30, 2021 to $98.6 million at June 30, 2022,
a $9.7 million, or 19.7%, increase in NOW accounts from $49.3 million at June
30, 2021 to $59.0 million at June 30, 2022, and an increase in savings deposits
of $3.9 million, or 3.0%, from $129.1 million at June 30, 2021 to $133.0 million
at June 30, 2022, partially offset by a decrease of $28.7 million, or 26.4%, in
certificates of deposit from $109.0 million at June 30, 2021 to $80.3 million at
June 30, 2022. The Company had $6.0 million in brokered deposits at June 30,
2022 compared to $10.7 million at June 30, 2021. The decrease in advances from
the Federal Home Loan Bank was primarily due to principal paydowns on amortizing
advances.  The entire balance in advances from the Federal Home Loan Bank are
now short-term due to our only advance with a balloon maturity in January 2023.

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Stockholders' equity decreased $378,000, or 0.7%, to $52.3 million at June 30,
2022 from $52.7 million at June 30, 2021. The primary reasons for the changes in
stockholders' equity from June 30, 2021 were the repurchase of Company stock of
$4.5 million, a decrease in the Company's accumulated other comprehensive income
of $2.0 million, and dividends paid totaling $1.4 million, partially offset by
net income of $4.9 million, proceeds from the issuance of common stock from the
exercise of stock options of $1.9 million, and the vesting of restricted stock
awards, stock options, and the release of employee stock ownership plan shares
totaling $671,000.

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,
                                                         2022                                          2021
                                                                       Average                                       Average
                                        Average                         Yield/        Average                         Yield/
                                        Balance        Interest          Rate         Balance        Interest          Rate
                                                                       (Dollars in thousands)
Interest-earning assets:
Loans receivable(1)                    $  360,774     $    17,501           4.85 %   $  366,546     $    18,913           5.16 %
Investment securities                      98,229           1,509           1.53         65,721           1,228           1.87
Interest-earning deposits                  72,189             224           0.32         79,028             104           0.13
Total interest-earning assets             531,192          19,234           3.62 %      511,295          20,245           3.96 %
Non-interest-earning assets                40,426                                        33,784
Total assets                           $  571,618                                    $  545,079
Interest-bearing liabilities:
Savings accounts                          136,139             393           0.29 %      108,592             565           0.52 %
NOW accounts                               51,412              57           0.11         44,655              90           0.20
Money market accounts                      91,862             108           0.12         77,198             216           0.28
Certificates of deposit accounts           88,450           1,212           1.37        138,603           2,324           1.68
Total interest-bearing deposits           367,863           1,770           0.48        369,048           3,195           0.87
FHLB advances                                 848              41           4.83            923              45           4.88
Other bank borrowings                       1,921              66           3.44          1,991              64           3.21
Total interest-bearing liabilities        370,632           1,877           0.51 %      371,962           3,304           0.89 %
Non-interest-bearing liabilities:
Non-interest-bearing demand accounts      145,522                                       118,662
Other liabilities                           2,741                                         3,092
Total liabilities                         518,895                                       493,716
Total stockholders' equity(2)              52,723                                        51,368

Total liabilities and equity           $  571,618                                    $  545,079
Net interest-earning assets            $  160,560                                    $  139,333

Net interest income; average
interest rate spread(3)                               $    17,357           3.11 %                  $    16,941           3.07 %

Net interest margin(4)                                                      3.27 %                                        3.31 %

Average interest-earning assets to
average interest-bearing liabilities                                      143.32 %                                      137.46 %



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(1) Includes loans held for sale.

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

(3) Interest rate spread represents the difference between the weighted-average

yield on interest-earning assets and the weighted-average rate on

interest-bearing liabilities.

(4) Net interest margin is net interest income divided by net average

    interest-earning assets.



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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.

                                        2022 vs. 2021                                    2021 vs. 2020
                            Increase (Decrease)             Total            Increase (Decrease)            Total
                                   Due to                  Increase                 Due to                 Increase
                            Rate            Volume        (Decrease)         Rate           Volume        (Decrease)
                                                               (In thousands)
Interest income:
Investment securities   $       (327 )    $      608     $        281     $      (255 )    $     (76 )   $       (331 )
Loans receivable, net         (1,114 )          (298 )         (1,412 )          (944 )        1,422              478
Interest-earning
deposits                         129              (9 )            120            (818 )          580             (238 )

Total
interest-earning
assets                        (1,312 )           301           (1,011 )        (2,017 )        1,926               91

Interest expense:
Savings accounts                (315 )           143             (172 )          (628 )          493             (135 )
NOW accounts                     (48 )            14              (34 )          (147 )           61              (86 )
Money market accounts           (148 )            41             (107 )          (540 )           29             (511 )
Certificate accounts            (271 )          (841 )         (1,112 )          (521 )         (597 )         (1,118 )

Total deposits                  (782 )          (643 )         (1,425 )        (1,836 )          (14 )         (1,850 )
FHLB advances and
other borrowings                   3              (5 )             (2 )           (22 )           22               --
Total
interest-bearing
liabilities                     (779 )          (648 )         (1,427 )        (1,858 )            8           (1,850 )

Increase (Decrease)
in net interest
income                  $       (533 )    $      949     $        416     $      (159 )    $   1,918     $      1,759


Comparison of Operating Results for the Years Ended June 30, 2022 and 2021


General. The decrease in net income for the year ended June 30, 2022 resulted
primarily from a $2.0 million, or 36.2%, decrease in non-interest income, and an
increase of $714,000, or 5.2%, in non-interest expense, partially offset by a
decrease of $1.5 million, or 81.3%, in provision for loan losses, an increase of
$416,000, or 2.5%, in net interest income, and a decrease of $318,000, or 22.0%
in provision for income taxes. The decrease in the provision for loan losses is
mainly due to an improvement in overall credit quality. The increase in net
interest income was primarily due to a $1.4 million, or 43.2%, decrease in total
interest expense, partially offset by a $1.0 million, or 5.0%, decrease in total
interest income. The Company's average interest rate spread was 3.11% for the
year ended June 30, 2022 compared to 3.07% for the year ended June 30, 2021. The
Company's net interest margin was 3.27% for the year ended June 30, 2022
compared to 3.31% for the year ended June 30, 2021.

Net Interest Income.  Net interest income amounted to $17.4 million for fiscal
year 2022, an increase of $416,000, or 2.5%, compared to $16.9 million for
fiscal year 2021. The increase was due primarily to a decrease of $1.4 million
in interest expense, partially offset by a $1.0 million decrease in total
interest income.

The average interest rate spread increased from 3.07% for fiscal 2021 to 3.11%
for fiscal 2022, while the average balance of interest-earning assets increased
from $511.3 million to $531.2 million during the same periods. The percentage of
average interest-earning assets to average interest-bearing liabilities
increased to 143.32% for fiscal 2022 compared to 137.46% for fiscal 2021. The
average rate paid on certificates of deposit decreased from 1.68% for fiscal
2021 to 1.37% for fiscal 2022. Net interest margin decreased to 3.27% for fiscal
2022 compared to 3.31% for fiscal 2021.

Interest income decreased $1.0 million, or 5.0%, to $19.2 million for fiscal
2022 compared to $20.2 million for fiscal 2021, primarily due to a decrease in
interest income from loans of $1.4 million, partially offset by an increase in
interest income from investment and mortgage-backed securities of $282,000, and
an increase in interest income on other earning assets of $120,000.  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 12 basis points during fiscal 2022 mainly due to a
lower interest rate environment.

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Interest expense decreased $1.4 million, or 43.2%, to $1.9 million for fiscal
2022 compared to $3.3 million for fiscal 2021, primarily as a result of
decreases 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 $336,000 was made to the allowance during fiscal 2022, compared
to a provision of $1.8 million in fiscal 2021.  At June 30, 2022, the Company
had $2.2 million of non-performing assets (defined as non-accruing loans,
accruing loans 90 days or more past due, and other real estate owned) compared
to $1.4 million of non-performing assets at June 30, 2021, consisting of seven
single family residential loans at June 30, 2022, compared to three
single-family residential loans, six commercial real estate loans to one
borrower, and one commercial real estate property and one single family
residence in other real estate owned at June 30, 2021.  The increase in
non-performing assets from $1.4 million at June 30, 2021 to $2.5 million at June
30, 2022 was primarily due to a $1.8 million loan relationship with one customer
secured by multiple one-to-four family non-owner occupied homes. At June 30,
2022, the Company had five single family residential loans and two commercial
real estate loans classified as substandard compared to one single family
residential loan and eight commercial real estate loans with six of those to one
borrower classified as substandard at June 30, 2021. There were no loans
classified as doubtful at June 30, 2022 or June 30, 2021.

Non-Interest Income.  Non-interest income amounted to $3.5 million for the year
ended June 30, 2022, a decrease of $2.0 million, or 36.2%, compared to
non-interest income of $5.5 million for the year ended June 30, 2021.  The $2.0
million decrease in non-interest income for the year ended June 30, 2022
compared to the prior year period was primarily due to a decrease of $2.3
million in gain on sale of loans, a $14,000 decrease in income from bank owned
life insurance, and an increase of $6,000 in loss on sale of real estate,
partially offset by an increase of $225,000 in other non-interest income, and a
$156,000 increase in service charges on deposit accounts. The decrease in gain
on sale of loans for the year ended June 30, 2022 was primarily due to a
decrease in refinance activity causing a decrease in mortgage loan
originations.  The Company sells most of its long-term fixed rate residential
mortgage loan originations primarily in order to manage interest rate risk. 

The

increase in other non-interest income for the year ended June 30, 2022 was due
to a $228,000 bank-owned life insurance claim on a retired bank executive
officer.

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Non-Interest Expense.  Non-interest expense increased $714,000, or 5.2%, in
fiscal 2022 compared to the prior year period. The $714,000 increase in
non-interest expense for the year ended June 30, 2022, compared to the prior
year period,  is primarily attributable to increases of $354,000 in compensation
and benefits expense, $299,000 in occupancy and equipment expense, $139,000 in
advertising expense, $128,000 in franchise and bank shares tax expense, $95,000
in audit and examination fees, $70,000 in data processing expense, $52,000 in
other non-interest expense, and a $17,000 increase in deposit insurance premium
expense, partially offset by decreases of $200,000 in real estate owned
valuation adjustment expense, $146,000 in loan and collection expense, and
$94,000 in legal fees.

Provision for Income Tax Expense.  The provision for income taxes amounted to
$1.1 million and $1.4 million for the fiscal years ended June 30, 2022 and 2021,
respectively. Our effective tax rate was 18.8% for fiscal 2022 and 21.2% for
fiscal 2021.

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, 2022, 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, 2022 and 2021, securities available-for-sale
amounted to $28.1 million and $29.6 million, respectively, or 4.8% and 5.2%,
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, 2022:

                                                                                  NPV as % of Portfolio
Change in Interest Rates in                 Net Portfolio Value                      Value of Assets
Basis Points (Rate Shock)           Amount       $ Change       % Change        NPV Ratio          Change
                                                            (Dollars in thousands)
300                                $  50,261     $ (10,624 )       (17.45 )%          9.76 %          (1.36 )%
200                                   58,751        (2,134 )        (3.50 )          11.21             0.09
100                                   64,489         3,604           5.92            12.03             0.91
Static                                60,885            --             --            11.12               --
(100)                                 66,700         5,815           9.55            11.79            (0.67 )
(200)                                 62,259         1,374           2.26            10.71            (0.41 )



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 $339.6 million for fiscal 2022 and $389.8 million for
fiscal 2021, while loans sold amounted to $87.2 million and $198.8 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.

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Liquidity and Capital Resources

Home Federal Bancorp maintains levels of liquid assets deemed adequate by
management. Our liquidity ratio averaged 31.7% for the quarter ended June 30,
2022
. We adjust our liquidity levels to fund deposit outflows, repay our
borrowings, and to fund loan commitments. We also adjust liquidity, as
appropriate, to meet asset and liability management objectives.


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 $11.9 million and $42.0 million at June 30,
2022 and 2021, 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,
2022, we had $832,000 in advances from the Federal Home Loan Bank of Dallas and
had $176.7 million in additional borrowing capacity.  Additionally, at June 30,
2022, 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, 2022.  In addition,
Home Federal Bancorp had available a $10.0 million line of credit agreement at
June 30, 2022 with First National Bankers Bank.  At June 30, 2022 there was a
$2.4 million balance in the credit line.

At June 30, 2022, the Company had outstanding loan commitments of $60.5 million
to originate loans and commitments under unused lines of credit of $11.4
million. At June 30, 2022, certificates of deposit scheduled to mature in one
year or less totaled $51.1 million, or 64.6% 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, 2022, Home Federal Bank exceeded each of its capital requirements
with tangible equity, common equity Tier 1, core, and total risk-based capital
ratios of 9.65%, 14.47%, 9.65%, and 15.62%, respectively.

Off-Balance Sheet Arrangements


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, 2022.  See Notes 9 and 14 to the Notes to Consolidated
Financial Statements contained in Item 8 of this Form 10-K.

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Impact of Inflation and Changing Prices


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.

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