10-Q 1 v446123_10q.htm FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                              to                              

 

Commission File No. 1-34155

 

First Savings Financial Group, Inc.

(Exact name of registrant as specified in its charter)

 

Indiana   37-1567871
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)

 

501 East Lewis & Clark Parkway, Clarksville, Indiana 47129

(Address of principal executive offices) (Zip Code)

 

Registrant's telephone number, including area code 1-812-283-0724

 

Not applicable

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

(Check one): Large Accelerated Filer ¨ Accelerated Filer ¨
     
  Non-accelerated Filer ¨ Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

The number of shares outstanding of the registrant’s common stock as of June 30, 2016 was 2,204,787.

 

 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

 

INDEX

 

    Page
     
Part I Financial Information  
     
  Item 1.  Financial Statements  
     
  Consolidated Balance Sheets as of June 30, 2016 and September 30, 2015 (unaudited) 3
     
  Consolidated Statements of Income for the three months and nine months ended June 30, 2016 and 2015 (unaudited) 4
     
  Consolidated Statements of Comprehensive Income for the three months and nine months ended June 30, 2016 and 2015 (unaudited) 5
     
  Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended June 30, 2016 and 2015 (unaudited) 6
     
  Consolidated Statements of Cash Flows for the nine months ended June 30, 2016 and 2015 (unaudited) 7
     
  Notes to Consolidated Financial Statements (unaudited) 8-44
     
  Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 45-56
     
  Item 3.  Quantitative and Qualitative Disclosures About Market Risk 57-59
     
  Item 4.  Controls and Procedures 60
     
Part II Other Information  
     
  Item 1.  Legal Proceedings 61
     
  Item 1A.  Risk Factors 61
     
  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 62
     
  Item 3.  Defaults Upon Senior Securities 62
     
  Item 4.  Mine Safety Disclosures 62
     
  Item 5.  Other Information 63
     
  Item 6.  Exhibits 63
     
Signatures   64

 

 - 2 - 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   June 30,   September 30, 
(In thousands, except share and per share data)  2016   2015 
           
ASSETS          
Cash and due from banks  $9,602   $9,884 
Interest-bearing deposits with banks   15,474    15,110 
Total cash and cash equivalents   25,076    24,994 
           
Interest-bearing time deposits   3,100    3,100 
Trading account securities, at fair value   8,802    9,044 
Securities available for sale, at fair value   175,849    178,328 
Securities held to maturity   3,406    4,620 
           
Loans held for sale ($5,835 at fair value at September 30, 2015)   5,922    6,803 
Loans, net   494,079    457,112 
           
Federal Reserve Bank and Federal Home Loan Bank stock, at cost   6,936    6,720 
Real estate development and construction   6,966    7,079 
Premises and equipment   13,364    13,838 
Other real estate owned, held for sale   604    618 
Accrued interest receivable:          
Loans   1,468    1,259 
Securities   1,587    1,396 
Cash surrender value of life insurance   18,105    17,766 
Goodwill   7,936    7,936 
Core deposit intangibles   1,123    1,381 
Other assets   4,835    7,952 
           
Total Assets  $779,158   $749,946 
           
LIABILITIES          
Deposits:          
Noninterest-bearing  $78,468   $71,184 
Interest-bearing   495,634    462,113 
Total deposits   574,102    533,297 
           
Repurchase agreements   1,344    1,342 
Borrowings from Federal Home Loan Bank   105,265    104,867 
Other long-term debt   4,491    4,632 
Accrued interest payable   187    186 
Advance payments by borrowers for taxes and insurance   741    883 
Accrued expenses and other liabilities   8,854    10,382 
Total Liabilities   694,984    655,589 
           
STOCKHOLDERS' EQUITY          
Preferred stock of $.01 par value per share Authorized 982,880 shares; none issued   -    - 
Senior Non-Cumulative Perpetual Preferred Stock, Series A, $.01 par value; Authorized 17,120 shares; issued and outstanding 17,120 shares at September 30, 2015; aggregate liquidation preference of $17,120 at September 30, 2015   -    - 
Common stock of $.01 par value per share Authorized 20,000,000 shares; issued 2,542,042 shares; outstanding 2,204,787 shares (2,183,510 shares at September 30, 2015)   25    25 
Additional paid-in capital - preferred   -    17,120 
Additional paid-in capital – common   27,182    26,796 
Retained earnings - substantially restricted   56,980    52,760 
Accumulated other comprehensive income   6,057    4,210 
Unearned ESOP shares   -    (197)
Less treasury stock, at cost - 337,255 shares (358,532 shares at September 30, 2015)   (6,070)   (6,357)
Total Stockholders' Equity   84,174    94,357 
           
Total Liabilities and Stockholders' Equity  $779,158   $749,946 

 

See notes to consolidated financial statements.

 

 - 3 - 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
(In thousands, except share and per share data)  2016   2015   2016   2015 
                 
INTEREST INCOME                    
Loans, including fees  $5,794   $5,284   $16,805   $16,004 
Securities:                    
Taxable   916    996    2,843    3,080 
Tax-exempt   613    546    1,732    1,506 
Dividend income   77    77    231    223 
Interest-bearing deposits with banks   22    12    84    35 
Total interest income   7,422    6,915    21,695    20,848 
                     
INTEREST EXPENSE                    
Deposits   690    594    1,869    1,834 
Repurchase agreements   -    1    2    3 
Borrowings from Federal Home Loan Bank   384    297    1,119    845 
Loans payable   41    41    121    134 
Total interest expense   1,115    933    3,111    2,816 
                     
Net interest income   6,307    5,982    18,584    18,032 
Provision for loan losses   303    208    428    627 
                     
Net interest income after provision for loan losses   6,004    5,774    18,156    17,405 
                     
NONINTEREST INCOME                    
Service charges on deposit accounts   289    317    893    993 
Net gain on trading account securities   285    45    713    205 
Unrealized loss on derivative contract   -    -    -    (1)
Net gain on sales of loans   499    86    826    220 
Increase in cash surrender value of life insurance   111    119    338    364 
Gain on life insurance   -    831    -    831 
Commission income   69    92    282    260 
Real estate lease income   170    164    496    465 
Loss on tax credit investment   (4,309)   -    (4,309)   - 
Other income   310    283    891    789 
Total noninterest income   (2,576)   1,937    130    4,126 
                     
NONINTEREST EXPENSE                    
Compensation and benefits   3,215    2,989    9,583    8,627 
Occupancy and equipment   670    675    2,043    1,931 
Data processing   442    309    1,209    1,038 
Advertising   131    159    366    412 
Professional fees   279    282    890    797 
FDIC insurance premiums   116    117    359    341 
Net (gain) loss on other real estate owned   9    (38)   59    (17)
Other operating expenses   728    704    2,205    2,318 
Total noninterest expense   5,590    5,197    16,714    15,447 
Income (loss) before income taxes   (2,162)   2,514    1,572    6,084 
Income tax expense (benefit)   (4,389)   318    (3,533)   1,161 
Net Income  $2,227   $2,196   $5,105   $4,923 
                     
Preferred stock dividends declared   -    43    62    129 
Net Income Available to Common Shareholders  $2,227   $2,153   $5,043   $4,794 
                     
Net income per common share:                    
Basic  $1.01   $1.00   $2.30   $2.25 
Diluted  $0.97   $0.95   $2.19   $2.14 
                     
Weighted average common shares outstanding:                    
Basic   2,204,787    2,149,931    2,197,101    2,133,557 
Diluted   2,306,029    2,259,170    2,300,834    2,240,922 
                     
Dividends per common share  $0.13   $0.12   $0.38   $0.35 

 

See notes to consolidated financial statements.

 

 - 4 - 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
(In thousands)  2016   2015   2016   2015 
                 
Net Income  $2,227   $2,196   $5,105   $4,923 
                     
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX                    
Unrealized gains (losses) on securities available for sale:                    
Unrealized holding gains (losses) arising during the period   1,511    (2,767)   2,803    (599)
Income tax (expense) benefit   (522)   976    (956)   206 
Net of tax amount   989    (1,791)   1,847    (393)
                     
Other Comprehensive Income (Loss)   989    (1,791)   1,847    (393)
                     
Comprehensive Income  $3,216   $405   $6,952   $4,530 

 

See notes to consolidated financial statements.

 

 - 5 - 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

 

                   Accumulated   Unearned         
                   Other   Stock         
   Preferred   Common   Additional   Retained   Comprehensive   Compensation   Treasury     
(In thousands, except share and per share data)  Stock   Stock   Paid-in Capital   Earnings   Income   and ESOP   Stock   Total 
                                 
Nine Months Ended June 30, 2015:                                        
Balances at October 1, 2014  $-   $25   $43,199   $47,175   $3,853   $(699)  $(6,473)  $87,080 
                                         
Net income   -    -    -    4,923    -    -    -    4,923 
                                         
Other comprehensive loss   -    -    -    -    (393)   -    -    (393)
                                         
Preferred stock dividends   -    -    -    (129)   -    -    -    (129)
                                         
Common stock dividends ($0.35 per share)   -    -    -    (734)   -    -    -    (734)
                                         
Stock compensation expense   -    -    243    -    -    162    -    405 
                                         
Shares released by ESOP trust   -    -    477    -    -    298    -    775 
                                         
Stock options exercises - 20,972 shares   -    -    (89)   -    -    -    367    278 
                                         
Purchase of 9,274 treasury shares   -    -    -    -    -    -    (251)   (251)
                                         
Balances at June 30, 2015  $-   $25   $43,830   $51,235   $3,460   $(239)  $(6,357)  $91,954 
                                         
Nine Months Ended June 30, 2016:                                        
Balances at October 1, 2015  $-   $25   $43,916   $52,760   $4,210   $(197)  $(6,357)  $94,357 
                                         
Net income   -    -    -    5,105    -    -    -    5,105 
                                         
Other comprehensive income   -    -    -    -    1,847    -    -    1,847 
                                         
Preferred stock dividends   -    -    -    (62)   -    -    -    (62)
                                         
Common stock dividends ($0.38 per share)   -    -    -    (823)   -    -    -    (823)
                                         
Shares released by ESOP trust   -    -    504    -    -    197    -    701 
                                         
Stock options exercises - 26,210 shares   -    -    (118)   -    -    -    466    348 
                                         
Redemption of preferred stock - 17,120 shares   -    -    (17,120)        -    -    -    (17,120)
                                         
Purchase of 4,933 treasury shares   -    -    -    -    -    -    (179)   (179)
                                         
Balances at June 30, 2016  $-   $25   $27,182   $56,980   $6,057   $-   $(6,070)  $84,174 

 

See notes to consolidated financial statements.

 

 - 6 - 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine Months Ended 
   June 30, 
(In thousands)  2016   2015 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $5,105   $4,923 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   428    627 
Depreciation and amortization   1,103    1,081 
Amortization of premiums and accretion of discounts on securities, net   450    557 
(Increase) decrease in trading account securities   242    (3,451)
Loans originated for sale   (22,054)   (7,178)
Proceeds on sales of loans   22,711    7,373 
Net gain on sales of loans   (826)   (220)
Net realized and unrealized gain on other real estate owned   (10)   (29)
Unrealized loss on derivative contract   -    1 
Gain on life insurance   -    (831)
Increase in cash surrender value of life insurance   (338)   (364)
Loss on tax credit investment   4,309   -
Deferred income taxes   (2,876)   (284)
ESOP and stock compensation expense   628    980 
Increase in accrued interest receivable   (400)   (313)
Increase in accrued interest payable   1    4 
Change in other assets and liabilities, net   (967)   164 
Net Cash Provided By Operating Activities   7,506    3,040 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Investment in interest-bearing time deposits   -    (735)
Purchase of securities available for sale   (10,933)   (19,096)
Proceeds from maturities of securities available for sale   5,395    8,417 
Proceeds from maturities of securities held to maturity   1,148    367 
Principal collected on securities   10,410    14,243 
Net increase in loans   (36,486)   (14,647)
Purchase of Federal Reserve Bank stock   -    (945)
Purchase of Federal Home Loan Bank stock   (216)   (461)
Proceeds from redemption of Federal Home Loan Bank stock   -    1,276 
Investment in historic tax credit entity   -    (417)
Proceeds from sale of other real estate owned   430    677 
Investment in real estate development and construction   (35)   (73)
Purchase of premises and equipment   (223)   (350)
Net Cash Used In Investing Activities   (30,510)   (11,744)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net increase (decrease) in deposits   40,805    (4,239)
Net increase in repurchase agreements   2    3 
Decrease in Federal Home Loan Bank line of credit   (9,602)   (4,922)
Proceeds from Federal Home Loan Bank advances   35,000    240,000 
Repayment of Federal Home Loan Bank advances   (25,000)   (220,000)
Repayment of other long-term debt   (141)   (134)
Net decrease in advance payments by borrowers for taxes and insurance   (142)   (107)
Redemption of preferred stock   (17,120)   - 
Proceeds from exercise of stock options   169    278 
Purchase of treasury stock   -    (251)
Dividends paid on preferred stock   (62)   (129)
Dividends paid on common stock   (823)   (734)
Net Cash Provided By Financing Activities   23,086    9,765 
           
Net Increase in Cash and Cash Equivalents   82    1,061 
           
Cash and cash equivalents at beginning of period   24,994    20,330 
           
Cash and Cash Equivalents at End of Period  $25,076   $21,391 

 

See notes to consolidated financial statements.

 

 - 7 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.Presentation of Interim Information

 

First Savings Financial Group, Inc. (the “Company”) is a financial holding company and the parent of First Savings Bank (the “Bank”) and First Savings Insurance Risk Management, Inc. (the “Captive”).

 

The Bank, which is a wholly-owned Indiana-chartered commercial bank subsidiary of the Company, provides a variety of banking services to individuals and business customers through fourteen locations in southern Indiana. The Bank attracts deposits primarily from the general public and uses those funds, along with other borrowings, primarily to originate commercial mortgage, residential mortgage, construction, commercial business and consumer loans, and to a lesser extent, to invest in mortgage-backed securities and other securities. The Bank has three wholly-owned subsidiaries: First Savings Investments, Inc., a Nevada corporation that manages a securities portfolio; FFCC, Inc. (“FFCC”), which is an Indiana corporation that participates in commercial real estate development and leasing; and Southern Indiana Financial Corporation, which is currently inactive.

 

The Captive, which is a wholly-owned insurance subsidiary of the Company formed during the fourth fiscal quarter of 2014, is a Nevada corporation that provides property and casualty insurance to the Company, the Bank and the Bank’s active subsidiaries. In addition, the Captive provides reinsurance to eight other third-party insurance captives for which insurance may not be currently available or economically feasible in the insurance marketplace.

 

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of June 30, 2016, the results of operations for the three- and nine-month periods ended June 30, 2016 and 2015, and the cash flows for the nine-month periods ended June 30, 2016 and 2015. All of these adjustments are of a normal, recurring nature. Such adjustments are the only adjustments included in the unaudited consolidated financial statements. Interim results are not necessarily indicative of results for a full year.

 

The unaudited consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements, conform to general practices within the banking industry and are presented as permitted by the instructions to Form 10-Q. Accordingly, they do not contain certain information included in the Company’s audited consolidated financial statements and related notes for the year ended September 30, 2015 included in the Company’s Annual Report on Form 10-K.

 

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the current period presentation. The reclassifications had no effect on net income or stockholders’ equity.

 

 - 8 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

2.Investment Securities

 

Agency bonds and notes, agency mortgage-backed securities and agency collateralized mortgage obligations (“CMO”) include securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency, and the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal Home Loan Bank (“FHLB”), which are U.S. government-sponsored enterprises. The Company holds municipal bonds issued by municipal governments within the U.S. The Company also holds a pass-through asset-backed security guaranteed by the U.S. Small Business Administration (“SBA”) representing participating interests in pools of long-term debentures issued by state and local development companies certified by the SBA. Privately-issued CMO and asset-backed securities (“ABS”) are complex securities issued by non-government special-purpose entities that are collateralized by residential mortgage loans and residential home equity loans.

 

Investment securities have been classified according to management’s intent.

 

Trading Account Securities

 

The Company invests in small and medium lot, investment grade municipal bonds through a managed brokerage account. The brokerage account is managed by an investment advisory firm registered with the U.S. Securities and Exchange Commission. At June 30, 2016 and September 30, 2015, trading account securities recorded at fair value totaled $8.8 million and $9.0 million, respectively, and were comprised of investment grade municipal bonds. During the nine-month period ended June 30, 2016, the Company reported net gains on trading account securities of $713,000, including net realized gains on the sale of securities of $664,000 and net unrealized gains on securities still held as of the balance sheet date of $49,000. During the three-month period ended June 30, 2016, the Company reported net gains on trading account securities of $285,000, including net realized gains on the sale of securities of $239,000 and net unrealized gains on securities still held as of the balance sheet date of $46,000. During the nine-month period ended June 30, 2015, the Company reported net gains on trading account securities of $205,000, including net realized gains on the sale of securities of $194,000 and net unrealized gains on securities still held as of the balance sheet date of $11,000. During the three-month period ended June 30, 2015, the Company reported net gains on trading account securities of $45,000, including net realized gains on the sale of securities of $34,000 and net unrealized gains on securities still held as of the balance sheet date of $11,000.

 

 - 9 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Securities Available for Sale and Held to Maturity

 

The amortized cost of securities available for sale and held to maturity and their approximate fair values are as follows:

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
   (In thousands) 
June 30, 2016:                    
Securities available for sale:                    
                     
Agency bonds and notes  $1,034   $10   $-   $1,044 
Agency mortgage-backed   48,487    965    9    49,443 
Agency CMO   16,614    102    68    16,648 
Privately-issued CMO   2,693    329    -    3,022 
Privately-issued ABS   4,080    938    4    5,014 
SBA certificates   1,266    7    -    1,273 
Municipal obligations   92,281    7,124    -    99,405 
                     
Total securities available for sale  $166,455   $9,475   $81   $175,849 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $268   $24   $-   $292 
Municipal obligations   3,138    500    -    3,638 
                     
Total securities held to maturity  $3,406   $524   $-   $3,930 

 

 - 10 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
   (In thousands) 
September 30, 2015:                    
Securities available for sale:                    
                     
Agency bonds and notes  $5,564   $18   $-   $5,582 
Agency mortgage-backed   47,418    901    41    48,278 
Agency CMO   18,943    118    47    19,014 
Privately-issued CMO   3,005    465    -    3,470 
Privately-issued ABS   4,820    1,289    -    6,109 
SBA certificates   1,472    8    -    1,480 
Municipal bonds   90,380    4,185    170    94,395 
                     
Total securities available for sale  $171,602   $6,984   $258   $178,328 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $345   $31   $-   $376 
Municipal bonds   4,275    540    -    4,815 
                     
Total securities held to maturity  $4,620   $571   $-   $5,191 

 

The amortized cost and fair value of investment securities as of June 30, 2016 by contractual maturity are shown below. Expected maturities of mortgage-backed securities, CMO and ABS may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.

 

   Available for Sale   Held to Maturity 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost   Value 
   (In thousands) 
                 
Due within one year  $2,714   $2,729   $372   $405 
Due after one year through five years   7,104    7,568    951    1,103 
Due after five years through ten years   20,529    22,526    1,193    1,402 
Due after ten years   62,968    67,626    622    728 
    93,315    100,449    3,138    3,638 
                     
CMO   19,307    19,670    -    - 
ABS   4,080    5,014    -    - 
SBA certificates   1,266    1,273    -    - 
Mortgage-backed securities   48,487    49,443    268    292 
                     
   $166,455   $175,849   $3,406   $3,930 

 

 - 11 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Information pertaining to investment securities with gross unrealized losses at June 30, 2016, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

 

   Number       Gross 
   of Investment   Fair   Unrealized 
   Positions   Value   Losses 
   (Dollars in thousands) 
Securities available for sale:               
                
Continuous loss position less than twelve months:               
Agency CMO   1    1,354    5 
Privately-issued ABS   2    73    4 
                
Total less than twelve months   3    1,427    9 
                
Continuous loss position more than twelve months:               
Agency mortgage-backed   2    1,721    9 
Agency CMO   2    5,132    63 
                
Total more than twelve months   4    6,853    72 
                
Total securities available for sale   7   $8,280   $81 

 

At June 30, 2016, the Company did not have any securities held to maturity with an unrealized loss.

 

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

The total available for sale debt securities in loss positions at June 30, 2016, which consisted of U.S. government agency mortgage-backed securities and CMOs, privately-issued ABS and municipal bonds, had depreciated approximately 0.88% from their amortized cost basis and are fixed and variable rate securities with a weighted-average yield of 1.60% and a weighted-average coupon rate of 3.00% at June 30, 2016. All of the agency and municipal securities are issued by U.S. government-sponsored enterprises and municipal governments, and are generally secured by first mortgage loans and municipal project revenues.

 

 - 12 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The Company evaluates the existence of a potential credit loss component related to the decline in fair value of the privately-issued CMO and ABS portfolios each quarter using an independent third party analysis. At June 30, 2016, the Company held seventeen privately-issued CMO and ABS securities acquired in a 2009 bank acquisition with an aggregate carrying value of $2.2 million and fair value of $3.0 million that have been downgraded to a substandard regulatory classification due to a downgrade of the security’s credit quality rating by various nationally recognized statistical rating organizations (“NRSRO”).

 

At June 30, 2016, two privately-issued ABS were in loss positions and had depreciated approximately 5.15% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $73,000 and a total unrealized loss of $4,000 at June 30, 2016, and were rated below investment grade by NRSROs. Based on the independent third party analysis of the expected cash flows, management has determined that the decline in value for these securities are temporary and, as a result, no other-than-temporary impairment was recognized on the privately-issued CMO and ABS portfolios at June 30, 2016. While the Company did not recognize a credit-related impairment loss at June 30, 2016, additional deterioration in market and economic conditions may have an adverse impact on the credit quality in the future and therefore, require a credit-related impairment charge.

 

The unrealized losses on U.S. government agency mortgage-backed securities and CMOs and municipal bonds relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities to maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

 

During the three- and nine-month periods ended June 30, 2016 and June 30, 2015, the Company did not realize any gross gains or losses on sales of available for sale securities.

 

Certain available for sale debt securities were pledged under repurchase agreements and to secure FHLB borrowings at June 30, 2016 and September 30, 2015, and may be pledged to secure federal funds borrowings.

 

 - 13 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

3.Loans and Allowance for Loan Losses

 

Loans at June 30, 2016 and September 30, 2015 consisted of the following:

 

   June 30,   September 30, 
   2016   2015 
   (In thousands) 
Real estate mortgage:          
1-4 family residential  $180,076   $181,873 
Commercial   198,577    172,995 
Multifamily residential   18,804    21,647 
Residential construction   23,616    19,723 
Commercial construction   41,814    15,548 
Land and land development   11,545    11,061 
Commercial business loans   37,692    32,574 
Consumer:          
Home equity loans   20,348    19,423 
Auto loans   4,853    5,452 
Other consumer loans   2,173    2,159 
Gross loans   539,498    482,455 
Undisbursed portion of construction loans   (38,248)   (18,599)
Principal loan balance   501,250    463,856 
           
Deferred loan origination fees and costs, net   (202)   (120)
Allowance for loan losses   (6,969)   (6,624)
           
Loans, net  $494,079   $457,112 

 

During the nine-month period ended June 30, 2016, there was no significant change in the Company’s lending activities or methodology used to estimate the allowance for loan losses as disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2015.

 

At June 30, 2016 and September 30, 2015, the recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $934,000 and $806,000, respectively.

 

 - 14 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table provides the components of the recorded investment in loans as of June 30, 2016:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands) 
                                 
Recorded Investment in Loans:                      
Principal loan balance  $180,076   $198,577   $18,804   $27,182   $11,545   $37,692   $27,374   $501,250 
                                         
Accrued interest receivable   536    559    40    73    33    168    59    1,468 
                                         
Net deferred loan origination fees and costs   197    (270)   (17)   (124)   6    17    (11)   (202)
                                         
Recorded investment in loans  $180,809   $198,866   $18,827   $27,131   $11,584   $37,877   $27,422   $502,516 
                                         
Recorded Investment in Loans as Evaluated for Impairment:                      
Individually evaluated for impairment  $4,067   $6,417   $-   $-   $-   $232   $286   $11,002 
                                         
Collectively evaluated for impairment   176,374    192,449    18,827    27,131    11,584    37,645    27,108    491,118 
                                         
Acquired with deteriorated credit quality   368    -    -    -    -    -    28    396 
                                         
Ending balance  $180,809   $198,866   $18,827   $27,131   $11,584   $37,877   $27,422   $502,516 

 

 - 15 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table provides the components of the recorded investment in loans as of September 30, 2015:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands) 
                                 
Recorded Investment in Loans:                 
Principal loan balance  $181,873   $172,995   $21,647   $16,672   $11,061   $32,574   $27,034   $463,856 
                                         
Accrued interest receivable   552    454    47    23    30    95    58    1,259 
                                         
Net deferred loan origination fees and costs   283    (294)   (21)   (63)   8    (28)   (5)   (120)
                                         
Recorded investment in loans  $182,708   $173,155   $21,673   $16,632   $11,099   $32,641   $27,087   $464,995 
                                         
Recorded Investment in Loans as Evaluated for Impairment:                 
Individually evaluated for impairment  $4,391   $7,041   $-   $-   $-   $222   $290   $11,944 
                                         
Collectively evaluated for impairment   177,873    166,114    21,673    16,632    11,099    32,419    26,767    452,577 
                                         
Acquired with deteriorated credit quality   444    -    -    -    -    -    30    474 
                                         
Ending balance  $182,708   $173,155   $21,673   $16,632   $11,099   $32,641   $27,087   $464,995 

 

 - 16 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the allowance for loan losses as of June 30, 2016 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Ending Allowance Balance Attributable to Loans:                      
Individually evaluated for impairment  $3   $-   $-   $-   $-   $-   $4   $7 
                                         
Collectively evaluated for impairment   315    5,121    111    743    313    258    101    6,962 
                                         
Acquired with deteriorated credit quality   -    -    -    -    -    -    -    - 
                                         
Ending balance  $318   $5,121   $111   $743   $313   $258   $105   $6,969 

 

An analysis of the allowance for loan losses as of September 30, 2015 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Ending Allowance Balance Attributable to Loans:                      
Individually evaluated for impairment  $9   $-   $-   $-   $-   $-   $5   $14 
                                         
Collectively evaluated for impairment   435    4,327    156    551    369    678    94    6,610 
                                         
Acquired with deteriorated credit quality   -    -    -    -    -    -    -    - 
                                         
Ending balance  $444   $4,327   $156   $551   $369   $678   $99   $6,624 

 

 - 17 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the changes in the allowance for loan losses for the three months ended June 30, 2016 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Changes in Allowance for Loan Losses:                                        
Beginning balance  $286   $4,595   $157   $651   $345   $625   $92   $6,751 
Provisions   113    526    (46)   92    (32)   (358)   8    303 
Charge-offs   (114)   -    -    -    -    (10)   (20)   (144)
Recoveries   33    -    -    -    -    1    25    59 
                                         
Ending balance  $318   $5,121   $111   $743   $313   $258   $105   $6,969 

 

An analysis of the changes in the allowance for loan losses for the nine months ended June 30, 2016 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Changes in Allowance for Loan Losses:                                        
Beginning balance  $444   $4,327   $156   $551   $369   $678   $99   $6,624 
Provisions   (69)   794    (45)   192    (56)   (411)   23    428 
Charge-offs   (170)   -    -    -    -    (10)   (77)   (257)
Recoveries   113    -    -    -    -    1    60    174 
                                         
Ending balance  $318   $5,121   $111   $743   $313   $258   $105   $6,969 

 

 - 18 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the changes in the allowance for loan losses for the three months ended June 30, 2015 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Changes in Allowance for Loan Losses:                      
Beginning balance  $457   $4,109   $163   $455   $316   $886   $128   $6,514 
Provisions   300    (254)   7    94    59    3    (1)   208 
Charge-offs   (156)   -    -    -    -    (48)   (30)   (234)
Recoveries   14    -    -    -    -    -    18    32 
                                         
Ending balance  $615   $3,855   $170   $549   $375   $841   $115   $6,520 

 

An analysis of the changes in the allowance for loan losses for the nine months ended June 30, 2015 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Changes in Allowance for Loan Losses:                      
Beginning balance  $577   $3,808   $146   $443   $302   $795   $179   $6,250 
Provisions   298    47    24    106    73    93    (14)   627 
Charge-offs   (299)   -    -    -    -    (48)   (103)   (450)
Recoveries   39    -    -    -    -    1    53    93 
                                         
Ending balance  $615   $3,855   $170   $549   $375   $841   $115   $6,520 

 

 - 19 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of June 30, 2016 and for the three and nine months ended June 30, 2016 and 2015.

 

   At June 30, 2016   Three Months Ended June 30,   Nine Months Ended June 30, 
  

Recorded

Investment

  

Unpaid

Principal

Balance

  

Related

Allowance

  

2016

Average

Recorded

Investment

  

2016

Interest

Income

Recognized

  

2015

Average

Recorded

Investment

  

2015

Interest

Income

Recognized

  

2016

Average

Recorded

Investment

  

2016

Interest

Income

Recognized

  

2015

Average

Recorded

Investment

  

2015

Interest

Income

Recognized

 
   (In thousands) 
Loans with no related allowance recorded:                                
Residential real estate  $4,221   $4,625   $-   $4,929   $36   $5,643   $36   $5,252   $109   $5,663   $109 
Commercial real estate   6,417    6,486    -    6,508    48    6,047    55    6,646    148    5,842    168 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   -    -    -    -    -    -    -    -    -    -    - 
Commercial business   232    223    -    248    2    305    -    299    4    242    1 
Consumer   188    192    -    197    1    233    1    202    4    243    4 
   $11,058   $11,526   $-   $11,882   $87   $12,048   $92   $12,399   $265   $11,990   $282 
                                                        
Loans with an allowance recorded:                                     
Residential real estate  $80   $78   $3   $72   $-   $73   $-   $30   $-   $129   $- 
Commercial real estate   -    -    -    -    -    22    -    -    -    9    - 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   -    -    -    -    -    -    -    -    -    -    - 
Commercial business   -    -    -    -    -    12    -    -    -    5    - 
Consumer   98    98    4    83    -    93    -    78    -    91    - 
   $178   $176   $7   $155   $-   $200   $-   $108   $-   $234   $- 
                                                        
Total:                                                       
Residential real estate  $4,301   $4,703   $3   $5,001   $36   $5,536   $36   $5,282   $109   $5,792   $109 
Commercial real estate   6,417    6,486    -    6,508    48    6,069    55    6,646    148    5,851    168 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   -    -    -    -    -    -    -    -    -    -    - 
Commercial business   232    223    -    248    2    317    -    299    4    247    1 
Consumer   286    290    4    280    1    326    1    280    4    334    4 
   $11,236   $11,702   $7   $12,037   $87   $12,248   $92   $12,507   $265   $12,224   $282 

 

The Company recognized $5,000 of interest income on an impaired commercial real estate loan using the cash receipts method during the nine-month period ended June 30, 2015. The Company did not recognize any interest income using the cash receipts method during the three-month period ended June 30, 2015 or the three- and nine-month periods ended June 30, 2016.

 

 - 20 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of September 30, 2015.

 

  

Recorded

Investment

  

Unpaid

Principal

Balance

  

Related

Allowance

 
   (In thousands) 
             
Loans with no related allowance recorded:               
Residential real estate  $4,681   $5,245   $- 
Commercial real estate   7,041    7,079    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   222    282    - 
Consumer   210    214    - 
                
   $12,154   $12,820   $- 
                
Loans with an allowance recorded:               
Residential real estate  $9   $9   $9 
Commercial real estate   -    -    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   -    -    - 
Consumer   80    80    5 
                
   $89   $89   $14 
                
Total:               
Residential real estate  $4,690   $5,254   $9 
Commercial real estate   7,041    7,079    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   222    282    - 
Consumer   290    294    5 
                
   $12,243   $12,909   $14 

 

 - 21 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Nonperforming loans consist of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at June 30, 2016:

 

  

Nonaccrual

Loans

  

Loans 90+

Days

Past Due

Still Accruing

  

Total

Nonperforming

Loans

 
   (In thousands) 
             
Residential real estate  $1,686   $-   $1,686 
Commercial real estate   1,671    -    1,671 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   135    -    135 
Consumer   173    -    173 
                
Total  $3,665   $-   $3,665 

 

The following table presents the recorded investment in nonperforming loans at September 30, 2015:

 

  

Nonaccrual

Loans

  

Loans 90+

Days

Past Due

Still Accruing

  

Total

Nonperforming

Loans

 
   (In thousands) 
             
Residential real estate  $1,923   $155   $2,078 
Commercial real estate   1,855    -    1,855 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   210    94    304 
Consumer   165    3    168 
                
Total  $4,153   $252   $4,405 

 

 - 22 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents the aging of the recorded investment in past due loans at June 30, 2016:

 

  

30-59

Days

Past Due

  

60-89

Days

Past Due

  

90 +

Days

Past Due

  

Total

Past Due

   Current  

Total

Loans

 
   (In thousands) 
                         
Residential real estate  $2,145   $736   $1,131   $4,012   $176,797   $180,809 
Commercial real estate   -    49    94    143    198,723    198,866 
Multifamily   -    -    -    -    18,827    18,827 
Construction   -    -    -    -    27,131    27,131 
Land and land development   371    -    -    371    11,213    11,584 
Commercial business   6    -    37    43    37,834    37,877 
Consumer   88    7    26    121    27,301    27,422 
                               
Total  $2,610   $792   $1,288   $4,690   $497,826   $502,516 

 

The following table presents the aging of the recorded investment in past due loans at September 30, 2015:

 

  

30-59

Days

Past Due

  

60-89

Days

Past Due

  

90 +

Days

Past Due

  

Total

Past Due

   Current  

Total

Loans

 
   (In thousands) 
                         
Residential real estate  $3,635   $1,419   $1,530   $6,584   $176,124   $182,708 
Commercial real estate   1,098    113    139    1,350    171,805    173,155 
Multifamily   504    -    -    504    21,169    21,673 
Construction   -    -    -    -    16,632    16,632 
Land and land development   253    -    -    253    10,846    11,099 
Commercial business   15    -    303    318    32,323    32,641 
Consumer   81    14    32    127    26,960    27,087 
                               
Total  $5,586   $1,546   $2,004   $9,136   $455,859   $464,995 
 - 23 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, public information, historical payment experience, credit documentation, and current economic conditions and trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings:

 

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

 

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

Loss: Loans classified as loss are considered uncollectible and of such little value that their continuance on the Company’s books as an asset is not warranted.

 

 - 24 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. As of June 30, 2016, and based on the most recent analysis performed, the recorded investment in loans by risk category was as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land and Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands) 
                                 
Pass  $175,181   $192,184   $18,827   $27,027   $11,343   $37,742   $27,194   $489,498 
Special Mention   446    -    -    104    -    -    3    553 
Substandard   5,052    6,682    -    -    241    135    221    12,331 
Doubtful   130    -    -    -    -    -    4    134 
Loss   -    -    -    -    -    -    -    - 
                                         
Total  $180,809   $198,866   $18,827   $27,131   $11,584   $37,877   $27,422   $502,516 

 

As of September 30, 2015, the recorded investment in loans by risk category was as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land and Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands) 
                                 
Pass  $175,662   $160,224   $21,673   $16,632   $11,079   $32,335   $26,793   $444,398 
Special Mention   799    5,342    -    -    -    96    13    6,250 
Substandard   5,871    7,589    -    -    20    173    274    13,927 
Doubtful   376    -    -    -    -    37    7    420 
Loss   -    -    -    -    -    -    -    - 
                                         
Total  $182,708   $173,155   $21,673   $16,632   $11,099   $32,641   $27,087   $464,995 

 

 - 25 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Troubled Debt Restructurings

 

Modification of a loan is considered to be a troubled debt restructuring (“TDR”) if the debtor is experiencing financial difficulties and the Company grants a concession to the debtor that it would not otherwise consider. By granting the concession, the Company expects to obtain more cash or other value from the debtor, or to increase the probability of receipt, than would be expected by not granting the concession. The concession may include, but is not limited to, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturity date or reduction of the face amount or maturity amount of the debt. A concession will be granted when, as a result of the restructuring, the Company does not expect to collect all amounts due, including interest at the original stated rate. A concession may also be granted if the debtor is not able to access funds elsewhere at a market rate for debt with similar risk characteristics as the restructured debt. The Company’s determination of whether a loan modification is a TDR considers the individual facts and circumstances surrounding each modification.

 

Loans modified in a TDR may be retained on accrual status if the borrower has maintained a period of performance in which the borrower’s lending relationship was not greater than ninety days delinquent at the time of restructuring and the Company determines the future collection of principal and interest is reasonably assured. Loans modified in a TDR that are placed on nonaccrual status at the time of restructuring will continue on nonaccrual status until the Company determines the future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate a period of performance according to the restructured terms of at least six consecutive months.

 

The following table summarizes the Company’s recorded investment in TDRs at June 30, 2016 and September 30, 2015. There was no specific reserve included in the allowance for loan losses related to TDRs at June 30, 2016 and September 30, 2015.

 

   Accruing   Nonaccrual   Total 
   (In thousands) 
June 30, 2016:               
Residential real estate  $2,615   $-   $2,615 
Commercial real estate   4,746    1,576    6,322 
Commercial business   97    124    221 
Consumer   113    -    113 
                
Total  $7,571   $1,700   $9,271 
                
September 30, 2015:               
Residential real estate  $2,767   $110   $2,877 
Commercial real estate   5,186    1,523    6,709 
Commercial business   12    -    12 
Consumer   125    -    125 
                
Total  $8,090   $1,633   $9,723 

 

 - 26 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table summarizes information in regard to TDRs that were restructured during the three- and nine-month periods ended June 30, 2016 and 2015:

 

  

Number of

Loans

  

Pre-

Modification

Principal

Balance

  

Post-

Modification

Principal

Balance

 
   (Dollars in thousands) 
             
June 30, 2016:               
Three Months Ended June 30, 2016:               
Commercial real estate   1   $94   $131 
Commercial business   1    97    97 
                
Total   2   $191   $228 
                
Nine Months Ended June 30, 2016:               
Residential real estate   5   $181   $247 
Commercial real estate   1    94    131 
Commercial business   3    186    216 
                
Total   9   $461   $594 
                
June 30, 2015:               
Three Months Ended June 30, 2015:               
Consumer   1   $3   $3 
                
Total   1   $3   $3 
                
June 30, 2015:               
Nine Months Ended June 30, 2015:               
Residential real estate   2   $165   $172 
Consumer   1    3    3 
                
Total   3   $168   $175 

 

For the TDRs listed above, the terms of modification included deferral of contractual principal and interest payments, reduction of the stated interest rate and extension of the maturity date where the debtor was unable to access funds elsewhere at a market interest rate for debt with similar risk characteristics.

 

The Company had not committed to lend any additional amounts as of June 30, 2016 to customers with outstanding loans classified as TDRs. At September 30, 2015, the Company had a commitment to lend $2,000 in additional funds to a customer with an outstanding loan classified as a TDR.

 

Principal in the amount of $51,000 was charged-off during the nine-month period ended June 30, 2016 as a result of a TDR that was restructured in 2013. There were no principal charge-offs recorded as a result of TDRs during the nine-month period ended June 30, 2015. There was no specific allowance for loan losses related to TDRs modified during the nine-month periods ended June 30, 2016 and 2015. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan.

 

During the nine-month periods ended June 30, 2016 and 2015, the Company did not have any TDRs that were modified within the previous twelve months and for which there was a payment default.

 

 - 27 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Loan Servicing Rights

 

The Company originates loans to commercial customers under the SBA 7(a) program. During the fiscal year ending September 30, 2016, the Company began selling the guaranteed portion of the commercial SBA 7(a) loans with servicing retained. Loan servicing rights on originated commercial SBA 7(a) loans that have been sold are initially recorded at fair value. Capitalized servicing rights are then amortized in proportion to and over the period of estimated net servicing income. Impairment of servicing rights is assessed using the present value of estimated future cash flows.

 

The aggregate fair value of loan servicing rights at June 30, 2016 approximated its carrying value. A valuation model employed by an independent third party calculates the present value of future cash flows and is used to estimate fair value at the date of sale and on a quarterly basis for impairment analysis purposes. Management periodically compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Key assumptions used to estimate the fair value of the loan servicing rights include the discount rate and prepayment speed assumptions. For purposes of impairment, risk characteristics such as interest rate, loan type, term and investor type are used to stratify the loan servicing rights. Impairment is recognized through a valuation allowance to the extent that fair value is less than the carrying amount. Changes in the valuation allowance are reported in net gain on sales of loans in the consolidated statements of income.

 

The unpaid principal balance of commercial SBA 7(a) loans serviced for others was $10.7 million at June 30, 2016. There were no commercial SBA 7(a) loans serviced for others at September 30, 2015 or June 30, 2015. Contractually specified servicing fees, late fees and ancillary fees earned on commercial SBA 7(a) loans of $35,000 and $62,000 for the three- and nine-month periods ended June 30, 2016, respectively, are included in interest income on loans in the consolidated statements of income.  This income is offset by direct servicing expenses related to commercial SBA 7(a) loans of $34,000 and $69,000 for the three- and nine-month periods ended June 30, 2016, respectively.

 

An analysis of loan servicing rights for the nine-month period ended June 30, 2016 is as follows:

 

(In thousands)    
     
Balance, beginning of period  $- 
Servicing rights resulting from transfers of loans   282 
Amortization   - 
Change in valuation allowance   - 
      
Balance, end of period  $282 

 

Residential mortgage loans originated for sale in the secondary market continue to be sold with servicing released.

 

 - 28 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

4.Real Estate Development and Construction

 

The Company developed a parcel of land in New Albany, Indiana for retail purposes through the Bank’s subsidiary, FFCC. The total cost of the development was $7.7 million. The development costs were partially funded by a loan from another financial institution. The development is substantially completed, with only certain tenant improvements in a multi-tenant retail building to be completed for current and future lessees, and eleven tenants have commenced occupancy as of June 30, 2016. The development plans provide for up to thirteen tenants when fully occupied.

 

Depreciation expense of $49,000 and $148,000 was recognized for real estate development and construction for the three- and nine-month periods ended June 30, 2016, respectively. Depreciation expense of $48,000 and $146,000 was recognized for real estate development and construction for the three- and nine-month periods ended June 30, 2015, respectively.

 

As a result of the Bank’s conversion to an Indiana-chartered commercial bank and entry in the Federal Reserve System on December 19, 2014, the Company is required under federal regulations to divest of its commercial real estate development by December 19, 2016 but may apply to the Federal Reserve System for extension of the conformance period for up to three additional years, in three one-year increments. The Company is required under Indiana statute to divest of its commercial real estate development within a ten-year period, or prior to December 19, 2024. In connection with its charter conversion, the Bank has committed under a plan of divestiture filed with the Indiana Department of Financial Institutions to divest of the commercial real estate development prior to December 31, 2017, which may require approval from the Federal Reserve System for extension of the federal conformance period beyond December 19, 2016.

 

On August 15, 2016, the Bank and FFCC executed a purchase and sale agreement for the sale of the development to an unaffiliated third party, with an expected close prior to September 30, 2016. Prior to the close, the Bank will execute a lease agreement with the buyer for the portion of the development in which it currently operates a retail branch. 

 

5.Investment in Historic Tax Credit Entity

  

On October 15, 2014, the Company entered into an agreement to participate in the rehabilitation of a certified historic structure located in Louisville, Kentucky with a regional commercial developer. As part of the agreement, the Bank committed to invest $4.2 million into a limited liability company organized in the state of Kentucky by the commercial developer, for which it received a 99% equity interest in the entity and will receive an allocation of 99% of the operating profit and losses and any historic tax credits generated by the entity. The tax credits originally expected to be allocated to the Bank included federal rehabilitation investment credits totaling $4.6 million available under Internal Revenue Code Section 47. The Bank invested $417,000 on October 15, 2014 and an additional $417,000 on September 11, 2015 upon 50% completion of the project, and has committed to invest the remaining funds when the project is fully completed and all certificates of occupancy are received. At June 30, 2016, the Bank’s unfunded capital contribution commitment of $3.5 million was included in other liabilities in the accompanying consolidated balance sheet.

 

During the quarter ended June 30, 2016, the estimate of the historic tax credits to be generated by the entity increased to $4.8 million and the Company’s investment in the entity increased to $4.3 million, or 90% of the anticipated credits to be received by the Company.

 

The Bank’s investment in the historic tax credit entity is accounted for under the equity method of accounting. Certificates of occupancy for substantially all of the project were received in June 2016, which resulted in the recognition of $4.8 million in historic tax credits during the three- and nine-month periods ended June 30, 2016. As a result of the recognition of the historic tax credits, the Company also recognized a $4.3 million loss during the three- and nine-month periods ended June 30, 2016 on its investment in the historic tax credit entity in order to reduce the amount of the investment to its estimated current fair value as of June 30, 2016. The net impact of the recognition of the historic tax credits and the impairment loss, including the tax impact and other accrual adjustments, was a $395,000 increase in net income for the three- and nine-months period ended June 30, 2016. 

 

 - 29 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

6.Supplemental Disclosure for Earnings Per Share

 

When presented, basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Earnings per share information is presented below for the three- and nine-month periods ended June 30, 2016 and 2015.

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
   2016   2015   2016   2015 
   (Dollars in thousands, except per share data) 
     
Basic:                    
Earnings:                    
Net income  $2,227   $2,196   $5,105   $4,923 
Less: Preferred stock dividends declared   -    (43)   (62)   (129)
                     
Net income available to common shareholders  $2,227   $2,153   $5,043   $4,794 
                     
Shares:                    
Weighted average common shares outstanding   2,204,787    2,149,931    2,197,101    2,133,557 
                     
Net income per common share, basic  $1.01   $1.00   $2.30   $2.25 
                     
Diluted:                    
Earnings:                    
Net income  $2,227   $2,196   $5,105   $4,923 
Less: Preferred stock dividends declared   -    (43)   (62)   (129)
                     
Net income available to common shareholders  $2,227   $2,153   $5,043   $4,794 
                     
Shares:                    
Weighted average common shares outstanding   2,204,787    2,149,931    2,197,101    2,133,557 
Add: Dilutive effect of outstanding options   101,242    103,545    103,733    99,515 
Add: Dilutive effect of restricted stock   -    5,694    -    7,850 
Weighted average common shares outstanding as adjusted   2,306,029    2,259,170    2,300,834    2,240,922 
                     
Net income per common share, diluted  $0.97   $0.95   $2.19   $2.14 

 

Unearned ESOP and nonvested restricted stock shares are not considered as outstanding for purposes of computing weighted average common shares outstanding.

 

 - 30 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

7.Supplemental Disclosures of Cash Flow Information

 

   Nine Months Ended 
   June 30, 
   2016   2015 
   (In thousands) 
Cash payments for:          
Interest  $3,158   $2,913 
Taxes   793    894 
           
Transfers from loans held for sale to loans   1,319    - 
           
Transfers from loans to foreclosed real estate   566    543 
           
Proceeds from sales of foreclosed real estate financed through loans   134    290 
           
Noncash exercise of stock options   179    - 

 

8.Fair Value Measurements and Disclosures about Fair Value of Financial Instruments

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are described as follows:

 

Level 1:Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted market price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

 

Level 2:Inputs to the valuation methodology include quoted market prices for similar assets or liabilities in active markets; quoted market prices for identical or similar assets or liabilities in markets that are not active; or inputs that are derived principally from or can be corroborated by observable market data by correlation or other means.

 

Level 3:Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets carried at fair value or the lower of cost or fair value. The tables below present the balances of financial assets measured at fair value on a recurring and nonrecurring basis as of June 30, 2016 and September 30, 2015. The Company had no liabilities measured at fair value as of June 30, 2016 or September 30, 2015.

 

 - 31 - 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

   Carrying Value 
   Level 1   Level 2   Level 3   Total 
   (In thousands) 
June 30, 2016:                
Assets Measured - Recurring Basis:                    
Trading account securities  $-   $8,802   $-   $8,802 
                     
Securities available for sale:                    
Agency bonds and notes  $-   $1,044   $-   $1,044 
Agency mortgage-backed   -    49,443    -    49,443 
Agency CMO   -    16,648    -    16,648 
Privately-issued CMO   -    3,022    -    3,022 
Privately-issued ABS   -    5,014    -    5,014 
SBA certificates   -    1,273         1,273 
Municipal   -    99,405    -    99,405 
Total securities available for sale  $-   $175,849   $-   $175,849 
                     
Assets Measured - Nonrecurring Basis:                    
Impaired loans:                    
Residential real estate  $-   $-   $4,298   $4,298 
Commercial real estate   -    -    6,417    6,417 
Commercial business   -    -    232    232 
Consumer   -    -    282    282 
Total impaired loans  $-   $-   $11,229   $11,229 
                     
Loans held for sale  $-   $5,922   $-   $5,922 
                     
Loan servicing rights  $-   $-   $282   $282 
                     
Other real estate owned, held for sale:                    
Residential real estate  $-   $-   $400   $400 
Commercial real estate  -    -    204    204 
Total other real estate owned  $-   $-   $604   $604 

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

   Carrying Value 
   Level 1   Level 2   Level 3   Total 
   (In thousands) 
September 30, 2015:                    
Assets Measured - Recurring Basis:                    
Trading account securities  $-   $9,044   $-   $9,044 
                     
Securities available for sale:                    
Agency bonds and notes  $-   $5,582   $-   $5,582 
Agency mortgage-backed   -    48,278    -    48,278 
Agency CMO   -    19,014    -    19,014 
Privately-issued CMO   -    3,470    -    3,470 
Privately-issued ABS   -    6,109    -    6,109 
SBA certificates   -    1,480         1,480 
Municipal   -    94,395    -    94,395 
Total securities available for sale  $-   $178,328   $-   $178,328 
                     
Commercial SBA 7(a) loans held for sale  $-   $5,835   $-   $5,835 
                     
Assets Measured - Nonrecurring Basis:                    
Impaired loans:                    
Residential real estate  $-   $-   $4,681   $4,681 
Commercial real estate   -    -    7,041    7,041 
Commercial business   -    -    222    222 
Consumer   -    -    285    285 
Total impaired loans  $-   $-   $12,229   $12,229 
                     
Residential mortgage loans held for sale  $-   $965   $-   $965 
                     
Other real estate owned, held for sale:                    
Residential real estate  $-   $-   $434   $434 
Commercial real estate   -    -    181    181 
Land and land development   -    -    3    3 
Total other real estate owned  $-   $-   $618   $618 

 

Fair value is based upon quoted market prices where available. If quoted market prices are not available, fair value is based on internally developed models or obtained from third parties that primarily use, as inputs, observable market-based parameters or a matrix pricing model that employs the Bond Market Association’s standard calculations for cash flow and price/yield analysis and observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, or at the lower of cost or fair value. These adjustments may include unobservable parameters. Any such valuation adjustments have been applied consistently over time.

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. There have been no changes in the valuation techniques and related inputs used for assets measured at fair value on a recurring and nonrecurring basis during the nine-month period ended June 30, 2016.

 

Trading Account Securities and Securities Available for Sale. Securities classified as trading and available for sale are reported at fair value on a recurring basis.  These securities are classified as Level 1 of the valuation hierarchy where quoted market prices from reputable third-party brokers are available in an active market. If quoted market prices are not available, the Company obtains fair value measurements from an independent pricing service.  These securities are reported using Level 2 inputs and the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors. For securities where quoted market prices, market prices of similar securities or prices from an independent third party pricing service are not available, fair values are calculated using discounted cash flows or other market indicators and are classified within Level 3 of the fair value hierarchy. Changes in fair value of trading account securities are reported in noninterest income. Changes in fair value of securities available for sale are recorded in other comprehensive income, net of income tax effect.

 

Impaired Loans. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. The fair value of impaired loans is classified as Level 3 in the fair value hierarchy.

 

Impaired loans are measured at the present value of estimated future cash flows using the loan's effective interest rate or the fair value of the collateral if the loan is a collateral-dependent loan. Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable, and its fair value is generally determined based on real estate appraisals or other independent evaluations by qualified professionals. The appraisals are generally then discounted by management in order to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral. At June 30, 2016 and September 30, 2015, the significant unobservable inputs used in the fair value measurement of impaired loans included a discount from appraised value ranging from 0.0% to 15.0% and estimated costs to sell the collateral ranging from 0.0% to 6.0%. During the three-month period ended June 30, 2016, the Company recognized provisions for loan losses of $3,000 for impaired loans. No provision for loan losses was recognized for the three-month period ended June 30, 2015 for impaired loans. During the nine-month periods ended June 30, 2016 and 2015, the Company recognized provisions for loan losses of $3,000 and $49,000, respectively, for impaired loans.

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Loans Held for Sale. Loans held for sale is comprised of residential mortgage loans and commercial SBA 7(a) loans. Residential mortgage loans held for sale are carried at the lower of cost or market value. At June 30, 2016, commercial SBA 7(a) loans held for sale were carried at the lower of cost or market value. As discussed further below, commercial SBA 7(a) loans held for sale at September 30, 2015 were reported at fair value in accordance with FASB ASC 825-10. The fair value of loans held for sale is based on specific prices of the underlying contracts for sale to investors, and is classified as Level 2 in the fair value hierarchy.

 

Loan Servicing Rights. Loan servicing rights represent the value associated with servicing commercial SBA 7(a) loans that have been sold. The fair value of loan servicing rights is determined on a quarterly basis by an independent third party valuation model using market-based discount rate and prepayment assumptions, and is classified as Level 3 in the fair value hierarchy. Impairment of the loan servicing rights is recognized on a quarterly basis through a valuation allowance to the extent that fair value is less than the carrying amount.

 

Other Real Estate Owned. Other real estate owned held for sale is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. The fair value of other real estate owned is classified as Level 3 in the fair value hierarchy.

 

Other real estate owned is reported at fair value less estimated costs to dispose of the property. The fair values are determined by real estate appraisals, which are then generally discounted by management in order to reflect management’s estimate of the fair value of the property given current market conditions and the condition of the property. At June 30, 2016, the significant unobservable inputs used in the fair value measurement of other real estate owned included a discount from appraised value (including estimated costs to sell the property) ranging from 0.0% to 34.2% with a weighted average of 22.1%. At September 30, 2015, the significant unobservable inputs used in the fair value measurement of other real estate owned included a discount from appraised value (including estimated costs to sell the property) ranging from 15.0% to 56.5% with a weighted average of 23.6%. The Company recognized charges of $21,000 and $100,000 to write-down other real estate owned to fair value for the three- and nine-month periods ended June 30, 2016, respectively. The Company did not recognize any charges to write down other real estate owned to fair value for the three-month period ended June 30, 2015. The Company recognized charges of $33,000 to write down other real estate owned to fair value for the nine-month period ended June 30, 2015.

 

Transfers Between Categories. There were no transfers into or out of Level 3 financial assets for the nine-month periods ended June 30, 2016 and 2015. In addition, there were no transfers into or out of Levels 1 and 2 of the fair value hierarchy during the nine-month periods ended June 30, 2016 and 2015.

 

Financial Instruments Recorded Using Fair Value Option. Under FASB ASC 825-10, the Company may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis, with changes in fair value reported in income. The election is made at the acquisition of an eligible financial asset or financial liability, and may not be revoked once made.

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The Company elected the fair value option for commercial SBA 7(a) loans held for sale at September 30, 2015. These loans were intended for sale and the Company believed that the fair value was the best indicator of the resolution of these loans. Interest income was recorded based on the contractual terms of the loans and in accordance with the Company’s policy on loans held for investment. None of these loans were 90 days or more past due, nor were any on nonaccrual status as of September 30, 2015. At September 30, 2015, the difference between the aggregate fair value ($5.8 million) and the aggregate unpaid principal balance ($5.3 million) of commercial SBA 7(a) loans held for sale was $558,000. Each of the commercial SBA 7(a) loans held for sale at September 30, 2015 was sold during the three-month period ended December 31, 2015. Subsequent to September 30, 2015, the Company did not elect the fair value option on commercial SBA 7(a) loans held for sale and, as such, all loans held for sale were carried at the lower of cost or market value at June 30, 2016.

 

GAAP requires disclosure of fair value information about financial instruments for interim reporting periods, whether or not recognized in the consolidated balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The carrying amounts and estimated fair values of the Company's financial instruments are as follows.

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

   Carrying   Fair Value Measurements Using: 
June 30, 2016:  Amount   Level 1   Level 2   Level 3 
   (In thousands) 
                 
Financial assets:                    
Cash and due from banks  $9,602   $9,602   $-   $- 
Interest-bearing deposits with banks   15,474