10-Q 1 v472589_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended June 30, 2017

 

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

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, 2017 was 2,242,454.

 

 

 

 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

 

INDEX

 

    Page
Part I Financial Information
     
  Item 1.  Financial Statements  
     
  Consolidated Balance Sheets as of June 30, 2017 and September 30, 2016 (unaudited) 3
     
  Consolidated Statements of Income for the three months and nine months ended June 30, 2017 and 2016 (unaudited) 4
     
  Consolidated Statements of Comprehensive Income for the three months and nine months ended June 30, 2017 and 2016 (unaudited) 5
     
  Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended June 30, 2017 and 2016 (unaudited) 6
     
  Consolidated Statements of Cash Flows for the nine months ended June 30, 2017 and 2016 (unaudited) 7
     
  Notes to Consolidated Financial Statements (unaudited) 8-45
     
  Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 46-57
     
  Item 3.  Quantitative and Qualitative Disclosures About Market Risk 58-59
     
  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.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   June 30,   September 30, 
(In thousands, except share and per share data)  2017   2016 
         
ASSETS          
Cash and due from banks  $10,926   $11,449 
Interest-bearing deposits with banks   30,164    17,893 
Total cash and cash equivalents   41,090    29,342 
           
Interest-bearing time deposits   2,555    3,100 
Trading account securities, at fair value   5,819    9,255 
Securities available for sale, at fair value   178,019    174,493 
Securities held to maturity   2,955    3,166 
           
Loans held for sale, residential mortgage   755    384 
Loans held for sale, Small Business Administration   24,215    5,087 
Loans, net of allowance for loan losses of $7,995 and $7,122   564,771    518,611 
           
Federal Reserve Bank and Federal Home Loan Bank stock, at cost   6,936    6,936 
Premises and equipment   11,439    11,674 
Other real estate owned, held for sale   346    519 
Accrued interest receivable:          
Loans   1,827    1,451 
Securities   1,681    1,355 
Cash surrender value of life insurance   18,182    18,214 
Goodwill   7,936    7,936 
Core deposit intangibles   779    1,037 
Other assets   4,777    3,956 
           
Total Assets  $874,082   $796,516 
           
LIABILITIES          
Deposits:          
Noninterest-bearing  $95,558   $79,859 
Interest-bearing   578,342    499,608 
Total deposits   673,900    579,467 
           
Repurchase agreements   1,347    1,345 
Borrowings from Federal Home Loan Bank   100,000    121,633 
Accrued interest payable   265    195 
Advance payments by borrowers for taxes and insurance   992    1,014 
Accrued expenses and other liabilities   6,259    6,282 
Total Liabilities   782,763    709,936 
           
STOCKHOLDERS' EQUITY          
Preferred stock of $.01 par value per share; authorized 1,000,000 shares; none issued   -    - 
Common stock of $.01 par value per share; authorized 20,000,000 shares; issued 2,559,307 shares (2,542,042 at September 30, 2016); outstanding 2,242,454 shares (2,204,787 shares at September 30, 2016)   25    25 
Additional paid-in capital   27,782    27,182 
Retained earnings - substantially restricted   65,558    59,499 
Accumulated other comprehensive income   4,438    5,944 
Unearned stock compensation   (606)   - 
Less treasury stock, at cost - 316,853 shares (337,255 shares at September 30, 2016)   (5,878)   (6,070)
Total Stockholders' Equity   91,319    86,580 
           
Total Liabilities and Stockholders' Equity  $874,082   $796,516 

 

See notes to consolidated financial statements.

 

 -3- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
(In thousands, except share and per share data)  2017   2016   2017   2016 
                 
INTEREST INCOME                    
Loans, including fees  $6,908   $5,794   $19,781   $16,805 
Securities:                    
Taxable   880    916    2,691    2,843 
Tax-exempt   754    613    2,082    1,732 
Dividend income   79    77    235    231 
Interest-bearing deposits with banks   43    22    105    84 
Total interest income   8,664    7,422    24,894    21,695 
                     
INTEREST EXPENSE                    
Deposits   689    690    1,930    1,869 
Federal funds purchased   14    -    21    - 
Repurchase agreements   1    -    3    2 
Borrowings from Federal Home Loan Bank   428    384    1,232    1,119 
Loans payable   -    41    -    121 
Total interest expense   1,132    1,115    3,186    3,111 
                     
Net interest income   7,532    6,307    21,708    18,584 
Provision for loan losses   321    303    1,002    428 
                     
Net interest income after provision for loan losses   7,211    6,004    20,706    18,156 
                     
NONINTEREST INCOME                    
Service charges on deposit accounts   329    289    971    893 
Net gain on sales of available for sale securities   30    -    30    - 
Net gain on trading account securities   184    285    113    713 
Net gain on sales of loans, residential mortgage   104    76    342    313 
Net gain on sales of loans, Small Business Administration   938    423    2,741    513 
Increase in cash surrender value of life insurance   105    111    318    338 
Gain on life insurance   -    -    189    - 
Commission income   78    69    283    282 
Real estate lease income   -    170    -    496 
Net gain on sale of premises and equipment   7    -    30    - 
Loss on tax credit investment   -    (4,309)   (226)   (4,309)
Other income   348    310    1,068    891 
Total noninterest income   2,123    (2,576)   5,859    130 
                     
NONINTEREST EXPENSE                    
Compensation and benefits   3,837    3,215    11,035    9,583 
Occupancy and equipment   699    670    1,990    2,043 
Data processing   329    442    1,031    1,209 
Advertising   126    131    363    366 
Professional fees   419    279    919    890 
FDIC insurance premiums   113    116    342    359 
Net (gain) loss on other real estate owned   (14)   9    (123)   59 
Other operating expenses   796    728    2,354    2,205 
Total noninterest expense   6,305    5,590    17,911    16,714 
Income (loss) before income taxes   3,029    (2,162)   8,654    1,572 
Income tax (benefit) expense   586    (4,389)   1,680    (3,533)
Net Income  $2,443   $2,227   $6,974   $5,105 
                     
Preferred stock dividends declared   -    -    -    62 
Net Income Available to Common Shareholders  $2,443   $2,227   $6,974   $5,043 
                     
Net income per common share:                    
Basic  $1.10   $1.01   $3.15   $2.30 
Diluted  $1.04   $0.97   $2.98   $2.19 
                     
Weighted average common shares outstanding:                    
Basic   2,225,189    2,204,787    2,217,033    2,197,101 
Diluted   2,351,739    2,306,029    2,340,688    2,300,834 
                     
Dividends per common share  $0.14   $0.13   $0.41   $0.38 

 

See notes to consolidated financial statements.

 

 -4- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
(In thousands)  2017   2016   2017   2016 
                 
Net Income  $2,443   $2,227   $6,974   $5,105 
                     
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX                    
Unrealized gains (losses) on securities available for sale:                    
Unrealized holding gains (losses) arising during the period   2,307    1,511    (2,309)   2,803 
Income tax benefit (expense)   (800)   (522)   823    (956)
Net of tax amount   1,507    989    (1,486)   1,847 
                     
Less: reclassification adjustment for realized gains included in net income   (30)   -    (30)   - 
Income tax expense   10    -    10    - 
Net of tax amount   (20)   -    (20)   - 
                     
Other Comprehensive Income (Loss)   1,487    989    (1,506)   1,847 
                     
Comprehensive Income  $3,930   $3,216   $5,468   $6,952 

 

See notes to consolidated financial statements.

 

 -5- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

 

                Accumulated   Unearned         
                Other   Stock         
   Common   Additional   Retained    Comprehensive   Compensation   Treasury     
(In thousands, except share and per share data)  Stock   Paid-in Capital   Earnings    Income   and ESOP   Stock   Total 
                              
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 
                                     
Nine Months Ended June 30, 2017:                                    
Balances at October 1, 2016  $25   $27,182   $59,499    $5,944   $-   $(6,070)  $86,580 
                                     
Net income   -    -    6,974     -    -    -    6,974 
                                     
Other comprehensive loss   -    -    -     (1,506)   -    -    (1,506)
                                     
Common stock dividends ($0.41 per share)   -    -    (915)    -    -    -    (915)
                                     
Restricted stock grants - 17,265 shares   -    692    -     -    (692)   -    - 
                                     
Stock compensation expense   -    39    -     -    86    -    125 
                                     
Stock option exercises - 26,858 shares   -    (131)   -     -    -    486    355 
                                     
Purchase of 6,456 treasury shares   -    -    -     -    -    (294)   (294)
                                     
Balances at June 30, 2017  $25   $27,782   $65,558    $4,438   $(606)  $(5,878)  $91,319 

 

See notes to consolidated financial statements.

 

 -6- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine Months Ended 
   June 30, 
(In thousands)  2017   2016 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $6,974   $5,105 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Provision for loan losses   1,002    428 
Depreciation and amortization   871    1,103 
Amortization of premiums and accretion of discounts on securities, net   516    450 
Decrease in trading account securities   3,436    242 
Loans originated for sale   (67,128)   (22,054)
Proceeds on sales of loans   52,145    22,711 
Net gain on sales of loans   (3,083)   (826)
Net realized and unrealized gain on other real estate owned   (168)   (10)
Net gain on sales of available for sale securities   (30)   - 
Gain on life insurance   (189)   - 
Increase in cash surrender value of life insurance   (318)   (338)
Net gain on sale of premises and equipment   (30)   - 
Loss on tax credit investment   226    4,309 
Deferred income taxes   1,293    (2,876)
ESOP and stock compensation expense   125    628 
Increase in accrued interest receivable   (702)   (400)
Increase in accrued interest payable   70    1 
Change in other assets and liabilities, net   (755)   (967)
Net Cash Provided By (Used In) Operating Activities   (5,745)   7,506 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Investment in interest-bearing time deposits   (445)   - 
Proceeds from maturities of interest-bearing time deposits   990    - 
Purchase of securities available for sale   (26,422)   (10,933)
Proceeds from sales of securities available for sale   4,255    - 
Proceeds from maturities of securities available for sale   2,830    5,395 
Proceeds from maturities of securities held to maturity   139    1,148 
Principal collected on securities   13,047    10,410 
Net increase in loans   (48,644)   (36,486)
Purchase of Federal Home Loan Bank stock   -    (216)
Proceeds from sale of other real estate owned   186    430 
Investment in real estate development and construction   -    (35)
Purchase of premises and equipment   (389)   (223)
Proceeds from sale of premises and equipment   19    - 
Net Cash Used In Investing Activities   (54,434)   (30,510)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net increase in deposits   94,433    40,805 
Net increase in repurchase agreements   2    2 
Decrease in Federal Home Loan Bank line of credit   (21,633)   (9,602)
Proceeds from Federal Home Loan Bank advances   15,000    35,000 
Repayment of Federal Home Loan Bank advances   (15,000)   (25,000)
Repayment of other long-term debt   -    (141)
Net decrease in advance payments by borrowers for taxes and insurance   (22)   (142)
Redemption of preferred stock   -    (17,120)
Proceeds from exercise of stock options   62    169 
Dividends paid on preferred stock   -    (62)
Dividends paid on common stock   (915)   (823)
Net Cash Provided By Financing Activities   71,927    23,086 
           
Net Increase in Cash and Cash Equivalents   11,748    82 
           
Cash and cash equivalents at beginning of period   29,342    24,994 
           
Cash and Cash Equivalents at End of Period  $41,090   $25,076 

 

See notes to consolidated financial statements.

 

 -7- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

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 two wholly-owned subsidiaries: First Savings Investments, Inc., a Nevada corporation that manages a securities portfolio, and Southern Indiana Financial Corporation, which is currently inactive. At September 30, 2016, the Bank had a third wholly-owned subsidiary, FFCC, Inc. (“FFCC”), which was an Indiana corporation that participated in commercial real estate development and leasing. In accordance with the Plan of Complete Liquidation adopted by FFCC’s board of directors and approval by the Bank as its sole shareholder on December 21, 2016, FFCC voluntarily dissolved and completely liquidated effective December 31, 2016. As a result of the liquidation, FFCC distributed its net assets to the Bank on December 31, 2016.

 

On April 25, 2017, the Bank formed Q2 Business Capital, LLC (“Q2”), which is an Indiana limited liability company that specializes in the origination and servicing of U.S. Small Business Administration (“SBA”) loans. The Bank owns 51% of Q2 with the option to purchase the minority interest between July 1, 2020 and September 30, 2020.

 

The Captive, which is a wholly-owned insurance subsidiary of the Company, 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, 2017, the results of operations for the three and nine month periods ended June 30, 2017 and 2016, and the cash flows for the nine month periods ended June 30, 2017 and 2016. 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, 2016 included in the Company’s Annual Report on Form 10-K.

 

 -8- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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.

 

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 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, 2017 and September 30, 2016, trading account securities recorded at fair value totaled $5.8 million and $9.3 million, respectively, and were comprised of investment grade municipal bonds. During the three month periods ended June 30, 2017 and 2016, the Company reported net gains on trading account securities of $184,000 and $285,000, respectively. During the nine month periods ended June 30, 2017 and 2016, the Company reported net gains on trading account securities of $113,000 and $713,000, respectively.

 

 -9- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

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, 2017:                    
Securities available for sale:                    
                     
Agency mortgage-backed  $38,941   $467   $(68)  $39,340 
Agency CMO   14,259    32    (56)   14,235 
Privately issued CMO   1,873    205    (19)   2,059 
Privately issued ABS   2,956    813    -    3,769 
SBA certificates   1,047    3    -    1,050 
Municipal obligations   112,076    5,663    (173)   117,566 
                     
Total securities available for sale  $171,152   $7,183   $(316)  $178,019 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $187   $17   $-  $204 
Municipal obligations   2,768    371    -    3,139 
                     
Total securities held to maturity  $2,955   $388   $-   $3,343 

 

 -10- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
   (In thousands) 
September 30, 2016:                    
Securities available for sale:                    
                     
Agency bonds and notes  $1,024   $8   $-  $1,032 
Agency mortgage-backed   46,376    1,029    -    47,405 
Agency CMO   16,053    108    (66)   16,095 
Privately issued CMO   2,359    293    -    2,652 
Privately issued ABS   3,675    864    (7)   4,532 
SBA certificates   1,220    7    -    1,227 
Municipal bonds   94,567    7,002    (19)   101,550 
                     
Total securities available for sale  $165,274   $9,311   $(92)  $174,493 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $260   $23   $-  $283 
Municipal bonds   2,906    465    -    3,371 
                     
Total securities held to maturity  $3,166   $488   $-  $3,654 

 

The amortized cost and fair value of investment securities as of June 30, 2017 by contractual maturity are shown below. CMO, ABS, SBA certificates, and mortgage-backed securities which do not have a single maturity date are shown separately.

 

   Available for Sale   Held to Maturity 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost   Value 
   (In thousands) 
                 
Due within one year  $1,531   $1,545   $220   $248 
Due after one year through five years   11,528    12,046    984    1,112 
Due after five years through ten years   22,513    24,131    1,055    1,207 
Due after ten years   76,504    79,844    509    572 
    112,076    117,566    2,768     3,139 
                     
CMO   16,132    16,294    -    - 
ABS   2,956    3,769    -    - 
SBA certificates   1,047    1,050    -    - 
Mortgage-backed securities   38,941    39,340    187    204 
                     
   $171,152   $178,019   $2,955   $3,343 

 

 -11- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Information pertaining to investment securities with gross unrealized losses at June 30, 2017 and September 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) 
June 30, 2017:               
Securities available for sale:               
                
Continuous loss position less than twelve months:               
Agency mortgage-backed   10   $9,946   $68 
Agency CMO   7    7,389    42 
Privately issued CMO   2    126    19 
Municipal obligations   10    6,938    173 
Total less than twelve months   29    24,399    302 
                
Continuous loss position more than twelve months:               
Agency CMO   3    3,341    14 
Total more than twelve months   3    3,341    14 
                
Total securities available for sale   32   $27,740   $316 
                
September 30, 2016:               
Securities available for sale:               
                
Continuous loss position less than twelve months:               
Agency CMO   3   $3,946   $12 
Privately issued ABS   2    66    7 
Municipal obligations   4    2,147    19 
Total less than twelve months   9    6,159    38 
                
Continuous loss position more than twelve months:               
Agency CMO   2    4,683    54 
Total more than twelve months   2    4,683    54 
                
Total securities available for sale   11   $10,842   $92 

 

At June 30, 2017 and September 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.

 

 -12- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The total available for sale debt securities in loss positions at June 30, 2017, which consisted of U.S. government agency mortgage backed securities, agency CMOs, privately issued CMOs and municipal bonds, had a fair value as a percentage of amortized cost of 98.88%. 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.

 

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, 2017, the Company held fifteen privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $1.8 million and fair value of $2.5 million that have been downgraded to a substandard regulatory classification due to the security’s credit quality rating by various nationally recognized statistical rating organizations.

 

At June 30, 2017, two privately-issued CMO were in loss positions and had depreciated approximately 12.92% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $126,000 and a total unrealized loss of $19,000 at June 30, 2017, and were rated below investment grade by NRSROs. Based on the independent third party analysis of the expected cash flows, management has determined that no other-than-temporary impairment is required to be recognized on the privately issued CMO and ABS portfolios. While the Company did not recognize a credit related impairment loss at June 30, 2017, 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, 2017, the Company realized gross gains on sales of available for sale securities of $96,000 and gross losses of $66,0000. During the three and nine month periods ended June 30, 2016, 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, 2017 and September 30, 2016, and may be pledged to secure federal funds borrowings.

 

 -13- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

3.Loans and Allowance for Loan Losses

 

Loans at June 30, 2017 and September 30, 2016 consisted of the following:

 

   June 30,   September 30, 
   2017   2016 
   (In thousands) 
Real estate mortgage:          
1-4 family residential  $173,620   $178,364 
Commercial   254,871    217,378 
Multifamily residential   18,696    18,431 
Residential construction   33,837    24,275 
Commercial construction   35,829    33,685 
Land and land development   9,303    11,137 
Commercial business loans   52,411    41,967 
Consumer:          
Home equity loans   21,811    21,370 
Auto loans   6,825    4,858 
Other consumer loans   2,120    2,102 
Gross loans   609,323    553,567 
Undisbursed portion of construction loans   (36,718)   (27,623)
Principal loan balance   572,605    525,944 
           
Deferred loan origination fees and costs, net   161    (211)
Allowance for loan losses   (7,995)   (7,122)
           
Loans, net  $564,771   $518,611 

 

During the nine-month period ended June 30, 2017, 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, 2016.

 

At June 30, 2017 and September 30, 2016, the recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $1.2 million and $837,000, respectively.

 

 -14- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table provides the components of the recorded investment in loans as of June 30, 2017:

 

   Residential
Real Estate		   Commercial
Real Estate		   Multifamily   Construction   Land & Land
Development		   Commercial
Business		   Consumer   Total 
   (In thousands) 
                                 
Recorded Investment in Loans:                                  
Principal loan balance  $173,620   $254,871   $18,696   $32,948   $9,303   $52,411   $30,756   $572,605 
                                         
Accrued interest receivable   482    844    33    175    22    213    58    1,827 
                                         
Net deferred loan origination fees and costs   79    (97)   (15)   40    4    170    (20)   161 
                                         
Recorded investment in loans  $174,181   $255,618   $18,714   $33,163   $9,329   $52,794   $30,794   $574,593 
                                         
Recorded Investment in Loans as Evaluated for Impairment:                         
Individually evaluated for impairment  $4,589   $5,464   $-   $-   $314   $198   $196   $10,761 
                                         
Collectively evaluated for impairment   169,592    250,154    18,714    33,163    9,015    52,596    30,598    563,832 
                                         
 Ending balance  $174,181   $255,618   $18,714   $33,163   $9,329   $52,794   $30,794   $574,593 

 

 -15- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table provides the components of the recorded investment in loans as of September 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  $178,364   $217,378   $18,431   $30,337   $11,137   $41,967   $28,330   $525,944 
                                         
Accrued interest receivable   505    592    38    95    23    143    55    1,451 
                                         
Net deferred loan origination fees and costs   158    (254)   (17)   (126)   4    37    (13)   (211)
                                         
Recorded investment in loans  $179,027   $217,716   $18,452   $30,306   $11,164   $42,147   $28,372   $527,184 
                                         
Recorded Investment in Loans as Evaluated for Impairment:                         
Individually evaluated for impairment  $4,342   $6,298   $-   $-   $241   $231   $249   $11,361 
                                         
Collectively evaluated for impairment   174,685    211,418    18,452    30,306    10,923    41,916    28,123    515,823 
                                         
 Ending balance  $179,027   $217,716   $18,452   $30,306   $11,164   $42,147   $28,372   $527,184 

 

 -16- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the allowance for loan losses as of June 30, 2017 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  $189   $-   $-   $-   $-   $-   $2   $191 
                                         
Collectively evaluated for impairment   286    5,484    95    820    201    809    109    7,804 
                                         
Ending balance  $475   $5,484   $95   $820   $201   $809   $111   $7,995 

 

An analysis of the allowance for loan losses as of September 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  $43   $-   $-   $-   $-   $-   $5   $48 
                                         
Collectively evaluated for impairment   292    5,160    109    845    295    284    89    7,074 
                                         
Ending balance  $335   $5,160   $109   $845   $295   $284   $94   $7,122 

 

 -17- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

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, 2017 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  $311   $5,870   $116   $703   $267   $348   $103   $7,718 
Provisions   201    (386)   (21)   117    (66)   461    (15)   321 
Charge-offs   (41)   -    -    -    -    -    (25)   (66)
Recoveries   4    -    -    -    -    -    18    22 
                                         
Ending balance  $475   $5,484   $95   $820   $201   $809   $111   $7,995 

 

An analysis of the changes in the allowance for loan losses for the nine months ended June 30, 2017 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  $335   $5,160   $109   $845   $295   $284   $94   $7,122 
Provisions   211    324    (14)   (25)   (94)   536    64    1,002 
Charge-offs   (80)   -    -    -    -    (25)   (87)   (192)
Recoveries   9    -    -    -    -    14    40    63 
                                         
Ending balance  $475   $5,484   $95   $820   $201   $809   $111   $7,995 

 

 -18- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

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 

 

 -19- 

 

  

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of June 30, 2017 and for the three and nine months ended June 30, 2017 and 2016.

 

   At June 30, 2017   Three Months Ended June 30,   Nine Months Ended June 30, 
               2017   2017   2016   2016   2017   2017   2016   2016 
   Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		   Average
Recorded
Investment		   Interest
Income
Recognized		   Average
Recorded
Investment		   Interest
Income
Recognized		   Average
Recorded
Investment		   Interest
Income
Recognized		   Average
Recorded
Investment		   Interest
Income
Recognized		 
   (In thousands) 
Loans with no related allowance recorded:
Residential real estate  $4,204   $4,478   $-   $4,371   $36   $4,929   $36   $4,264   $106   $5,252   $109 
Commercial real estate   5,464    5,567    -    5,731    50    6,508    48    6,085    149    6,646    148 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   314    270    -    270    1    -    -    254    1    -    - 
Commercial business   198    203    -    206    1    248    2    211    4    299    4 
Consumer   117    118    -    120    1    197    1    151    3    202    4 
   $10,297   $10,636   $-   $10,698   $89   $11,882   $87   $10,965   $263   $12,399   $265 
                                                        
Loans with an allowance recorded:                                              
Residential real estate  $385   $401   $189   $406   $-   $72   $-   $444   $-   $30   $- 
Commercial real estate   -    -    -    -    -    -    -    -    -    -    - 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   -    -    -    -    -    -    -    -    -    -    - 
Commercial business   -    -    -    -    -    -    -    -    -    -    - 
Consumer   79    79    2    88    -    83    -    86    -    78    - 
   $464   $480   $191   $494   $-   $155   $-   $530   $-   $108   $- 
                                                        
Total:                                                       
Residential real estate  $4,589   $4,879   $189   $4,777   $36   $5,001   $36   $4,708   $106   $5,282   $109 
Commercial real estate   5,464    5,567    -    5,731    50    6,508    48    6,085    149    6,646    148 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   314    270    -    270    1    -    -    254    1    -    - 
Commercial business   198    203    -    206    1    248    2    211    4    299    4 
Consumer   196    197    2    208    1    280    1    237    3    280    4 
   $10,761   $11,116   $191   $11,192   $89   $12,037   $87   $11,495   $263   $12,507   $265 

 

The Company did not recognize any interest income using the cash receipts method during the three and nine month periods ended June 30, 2017 and 2016.

 

 -20- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of September 30, 2016.

 

   Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		 
   (In thousands) 
 
Loans with no related allowance recorded:
Residential real estate  $3,891   $4,171   $- 
Commercial real estate   6,298    6,394    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   241    238    - 
Commercial business   231    224    - 
Consumer   175    175    - 
                
   $10,836   $11,202   $- 
                
Loans with an allowance recorded:
Residential real estate  $451   $450   $43 
Commercial real estate   -    -    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   -    -    - 
Consumer   74    74    5 
                
   $525   $524   $48 
                
Total:               
Residential real estate  $4,342   $4,621   $43 
Commercial real estate   6,298    6,394    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   241    238    - 
Commercial business   231    224    - 
Consumer   249    249    5 
                
   $11,361   $11,726   $48 

 

 -21- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

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, 2017:

 

   Nonaccrual
Loans		   Loans 90+
Days
Past Due
Still Accruing		   Total
Nonperforming
Loans		 
   (In thousands) 
             
Residential real estate  $1,953   $378   $2,331 
Commercial real estate   1,423    -    1,423 
Multifamily   -    216    216 
Construction   -    -    - 
Land and land development   282    -    282 
Commercial business   85    -    85 
Consumer   97    -    97 
                
   Total  $3,840   $594   $4,434 

 

The following table presents the recorded investment in nonperforming loans at September 30, 2016:

 

   Nonaccrual
Loans		   Loans 90+
Days
Past Due
Still Accruing		   Total
Nonperforming
Loans		 
   (In thousands) 
             
Residential real estate  $1,752   $22   $1,774 
Commercial real estate   1,606    -    1,606 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   241    -    241 
Commercial business   136    -    136 
Consumer   140    -    140 
                
   Total  $3,875   $22   $3,897 

 

 -22- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents the aging of the recorded investment in past due loans at June 30, 2017:

 

   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  $2,140   $1,134   $1,304   $4,578   $169,603   $174,181 
Commercial real estate   144    -    105    249    255,369    255,618 
Multifamily   -    -    216    216    18,498    18,714 
Construction   -    -    -    -    33,163    33,163 
Land and land development   -    -    282    282    9,047    9,329 
Commercial business   10    -    -    10    52,784    52,794 
Consumer   44    -    -    44    30,750    30,794 
                               
   Total  $2,338   $1,134   $1,907   $5,379   $569,214   $574,593 

 

The following table presents the aging of the recorded investment in past due loans at September 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  $2,019   $860   $1,070   $3,949   $175,078   $179,027 
Commercial real estate   367    -    94    461    217,255    217,716 
Multifamily   -    -    -    -    18,452    18,452 
Construction   -    -    -    -    30,306    30,306 
Land and land development   -    -    241    241    10,923    11,164 
Commercial business   40    -    42    82    42,065    42,147 
Consumer   76    1    40    117    28,255    28,372 
                               
   Total  $2,502   $861   $1,487   $4,850   $522,334   $527,184 

 

 -23- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

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.

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, 2017, 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  $167,238   $249,223   $16,180   $32,624   $9,015   $52,700   $30,632   $557,612 
Special Mention   421    3,133    2,534    95    -    -    11    6,194 
Substandard   6,380    3,262    -    444    314    94    149    10,643 
Doubtful   142    -    -    -    -    -    2    144 
Loss   -    -    -    -    -    -    -    - 
                                         
Total  $174,181   $255,618   $18,714   $33,163   $9,329   $52,794   $30,794   $574,593 

 

As of September 30, 2016, 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  $173,477   $211,247   $18,452   $30,206   $10,924   $41,986   $28,197   $514,489 
Special Mention   459    -    -    100    -    25    -    584 
Substandard   5,002    6,469    -    -    240    136    160    12,007 
Doubtful   89    -    -    -    -    -    15    104 
Loss   -    -    -    -    -    -    -    - 
                                         
Total  $179,027   $217,716   $18,452   $30,306   $11,164   $42,147   $28,372   $527,184 

 

 -25- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

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, 2017 and September 30, 2016. There was no specific reserve included in the allowance for loan losses related to TDRs at June 30, 2017 and September 30, 2016.

 

   Accruing   Nonaccrual   Total 
   (In thousands) 
June 30, 2017:               
Residential real estate  $2,636   $77   $2,713 
Commercial real estate   4,041    1,318    5,359 
Land and land development   32    -    32 
Commercial business   113    85    198 
Consumer   99    -    99 
Total  $6,921   $1,480   $8,401 
                
September 30, 2016:               
Residential real estate  $2,590   $-   $2,590 
Commercial real estate   4,692    1,512    6,204 
Commercial business   95    120    215 
Consumer   109    -    109 
Total  $7,486   $1,632   $9,118 

 

 -26- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

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, 2017 and 2016:

 

   Number of
Loans		   Pre-
Modification
Principal
Balance		   Post-
Modification
Principal
Balance		 
   (In thousands) 
Three Months Ended June 30, 2017:               
Residential real estate   1   $21   $21 
Commercial business   1    103    103 
Total   2   $124   $124 
                
Nine Months Ended June 30, 2017:               
Residential real estate   2   $472   $474 
Land and land development   1    31    32 
Commercial business   1    103    103 
Total   4   $606   $609 
                
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 

 

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.

 

At June 30, 2017 and September 30, 2016, the Company had not committed to lend any additional amounts to customers with outstanding loans classified as TDRs.

 

There were no principal charge-offs recorded as a result of TDRs during the three and nine month periods ended June 30, 2017 and 2016. There was no specific allowance for loan losses related to TDRs modified during the three and nine month periods ended June 30, 2017 and 2016. 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 three and nine month periods ended June 30, 2017 and 2016, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Loan Servicing Rights

 

The Company originates loans to commercial customers under the SBA 7(a) and other programs. During the fiscal year ended September 30, 2016, the Company began selling the guaranteed portion of the SBA loans with servicing retained. Loan servicing rights on originated SBA 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 approximates 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 SBA loans serviced for others was $45.1 million, $13.6 million and $10.7 million at June 30, 2017, September 30, 2016 and June 30, 2016, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $1,000 and $45,000 for the three and nine month periods ended June 30, 2017, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $35,000 and $62,000 for the three and nine month periods ended June 30, 2016, respectively. Net servicing costs (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans of $41,000 and $110,000 for the three and nine month periods ended June 30, 2017, respectively, and $34,000 and $69,000 for the three and nine month periods ended June 30, 2016, respectively, are included in other noninterest income in the consolidated statements of income.

 

An analysis of SBA loan servicing rights for the three and nine month periods ended June 30, 2017 and 2016 are as follows:

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
   2017   2016   2017   2016 
   (In thousands) 
Balance, beginning of period  $783   $156   $310   $- 
Servicing rights resulting from transfers of loans   274    126    781    282 
Amortization   (31)   -    (65)   - 
Change in valuation allowance   -    -    -    - 
                     
Balance, end of period  $1,026   $282   $1,026   $282 

 

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

 

 -28- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

4.Investment in Historic Tax Credit Entity

 

On October 15, 2014, the Bank 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 initially expected to be allocated to the Bank include federal rehabilitation investment credits totaled $4.7 million available under Internal Revenue Code Section 47. Subsequently, during the quarter ended March 31, 2017, the estimate of tax credits increased to $5.0 million and the Company’s investment in equity increased to $4.5 million, or 90% of the anticipated credits to be received.

 

The Bank’s investment in the historic tax credit entity is accounted for using the equity method of accounting. In conjunction with receipts of certificates of occupancy for the project and estimates of historic tax credits to be received, the Company recognized losses in noninterest income of $4.3 million for the three months ended June 30, 2016 and $226,000 and $4.3 million for the nine months ended June 30, 2017 and 2016, respectively. The Company recorded historic tax credits in income tax (benefit) expense of $4.8 million for the quarter ended June 30, 2016 and $249,000 and $4.8 million in the nine months ended June 30, 2017 and 2016, respectively.

 

At June 30, 2017, there were no unfunded capital contribution commitments. At September 30, 2016, the Bank’s remaining unfunded capital contribution commitment of $118,000 was included in other liabilities in the accompanying consolidated balance sheet.

 

5.Deposits

 

Deposits at June 30, 2017 and September 30, 2016 consisted of the following:

 

   June 30,   September 30, 
   2017   2016 
   (In thousands) 
Noninterest-bearing demand deposits  $95,558   $79,859 
NOW accounts   183,596    145,816 
Money market accounts   69,545    60,702 
Savings accounts   90,627    83,911 
Retail time deposits   121,667    127,691 
Brokered time deposits   112,907    81,488 
           
Total  $673,900   $579,467 

 

 -29- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

6.       Supplemental Disclosure for Earnings Per Common Share

 

Earnings per common share information is presented below for the three and nine month periods ended June 30, 2017 and 2016.

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
   2017   2016   2017   2016 
   (Dollars in thousands, except per share data) 
Basic:                    
Earnings:                    
Net income  $2,443   $2,227   $6,974   $5,105 
Less: Preferred stock dividends declared   -    -    -    (62)
Net income available to common shareholders  $2,443   $2,227   $6,974   $5,043 
Shares:                    
Weighted average common shares outstanding   2,225,189    2,204,787    2,217,033    2,197,101 
                     
Net income per common share, basic  $1.10   $1.01   $3.15   $2.30 
                     
Diluted:                    
Earnings:                    
Net income available to common shareholders  $2,443   $2,227   $6,974   $5,043 
Shares:                    
Weighted average common shares outstanding   2,225,189    2,204,787    2,217,033    2,197,101 
Add: Dilutive effect of outstanding options   121,773    101,242    121,267    103,733 
Add: Dilutive effect of restricted stock   4,777    -    2,388    - 
Weighted average common shares outstanding as adjusted   2,351,739    2,306,029    2,340,688    2,300,834 
                     
Net income per common share, diluted  $1.04   $0.97   $2.98   $2.19 

 

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

 

Stock options for 51,295 shares of common stock were excluded from the calculation of diluted net income per common share for the nine month period ended June 30, 2017, because their effect was antidilutive. No restricted stock awards were excluded from the calculation of diluted net income per common share for the nine month period ended June 30, 2017. No stock options or restricted stock awards were excluded from the calculation of diluted net income per common share for the three month periods ended June 30, 2017 and 2016 or the nine month period ended June 30, 2016.

 

 -30- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

7.Supplemental Disclosures of Cash Flow Information

 

   Nine Months Ended 
   June 30, 
   2017   2016 
   (In thousands) 
Cash payments for:          
Interest  $3,140   $3,158 
Taxes   301    793 
           
Transfers from loans held for sale to loans   903    1,319 
           
Transfers from loans to foreclosed real estate   163    566 
           
Proceeds from sales of foreclosed real estate financed through loans   189    134 
           
Noncash exercise of stock options   293    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.

 

 -31- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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, 2017 and September 30, 2016. The Company had no liabilities measured at fair value as of June 30, 2017 or September 30, 2016.

 

   Carrying Value 
   Level 1   Level 2   Level 3   Total 
   (In thousands) 
June 30, 2017:                    
Assets Measured - Recurring Basis:                    
Trading account securities  $-   $5,819   $-   $5,819 
                     
Securities available for sale:                    
Agency mortgage-backed  $-   $39,340   $-   $39,340 
Agency CMO   -    14,235    -    14,235 
Privately issued CMO   -    2,059    -    2,059 
Privately issued ABS   -    3,769    -    3,769 
SBA certificates   -    1,050    -    1,050 
Municipal   -    117,566    -    117,566 
Total securities available for sale  $-   $178,019   $-   $178,019 
                     
Assets Measured - Nonrecurring Basis:                    
Impaired loans:                    
Residential real estate  $-   $-   $4,400   $4,400 
Commercial real estate   -    -    5,464    5,464 
Land and land development   -    -    314    314 
Commercial business   -    -    198    198 
Consumer   -    -    194    194 
Total impaired loans  $-   $-   $10,570   $10,570 
                     
Loans held for sale:                    
Residential mortgage loans held for sale  $-   $755   $-   $755 
SBA loans held for sale   -    24,215    -    24,215 
Total loans held for sale  $-   $24,970   $-   $24,970 
                     
Loan servicing rights  $-   $-   $1,026   $1,026 
                     
Other real estate owned, held for sale:                    
Residential real estate  $-   $-   $179   $179 
Commercial real estate   -    -    167    167 
Total other real estate owned  $-   $-   $346   $346 

 

 -32- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

   Carrying Value 
   Level 1   Level 2   Level 3   Total 
   (In thousands) 
September 30, 2016:                    
Assets Measured - Recurring Basis:                    
Trading account securities  $-   $9,255   $-   $9,255 
                     
Securities available for sale:                    
Agency bonds and notes  $-   $1,032   $-   $1,032 
Agency mortgage-backed   -    47,405    -    47,405 
Agency CMO   -    16,095    -    16,095 
Privately-issued CMO   -    2,652    -    2,652 
Privately-issued ABS   -    4,532    -    4,532 
SBA certificates   -    1,227    -    1,227 
Municipal   -    101,550    -    101,550 
Total securities available for sale  $-   $174,493   $-   $174,493 
                     
Assets Measured - Nonrecurring Basis:                    
Impaired loans:                    
Residential real estate  $-   $-   $4,299   $4,299 
Commercial real estate   -    -    6,298    6,298 
Land and land development   -    -    241    241 
Commercial business   -    -    231    231 
Consumer   -    -    244    244 
Total impaired loans  $-   $-   $11,313   $11,313 
                     
Loans held for sale:                    
Residential mortgage loans held for sale  $-   $384   $-   $384 
SBA loans held for sale   -    5,087    -    5,087 
Total loans held for sale  $-   $5,471   $-   $5,471 
                     
Loan servicing rights  $-   $-   $310   $310 
                     
Other real estate owned, held for sale:                    
Residential real estate  $-   $-   $397   $397 
Commercial real estate   -    -    122    122 
Total other real estate owned  $-   $-   $519   $519 

 

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.

 

 -33- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

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, 2017.

 

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, 2017 and September 30, 2016, the significant unobservable inputs used in the fair value measurement of impaired loans included discounts 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 periods ended June 30, 2017 and 2016, the Company recognized provisions for loan losses of $139,000 and $3,000, respectively, for impaired loans. During the nine month periods ended June 30, 2017 and 2016, the Company recognized provisions for loan losses of $181,000 and $3,000, respectively, for impaired loans.

 

 -34- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Loans Held for Sale. Loans held for sale are carried at the lower of cost or market value. The portfolio is comprised of residential mortgage loans and SBA loans. 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 SBA 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. At June 30, 2017, the significant unobservable inputs used in the fair value measurement of loan servicing rights included discount rates ranging from 8.41% to 12.93% with a weighted average of 11.41% and prepayment speed assumptions ranging from 3.34% to 8.78% with a weighted average rate of 6.81%. At September 30, 2016, the significant unobservable inputs used in the fair value measurement of loan servicing rights included discount rates ranging from 8.54% to 14.46% with a weighted average of 12.27% and prepayment speed assumptions ranging from 4.25% to 8.71% with a weighted average rate of 6.75%. 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. The Company did not recognize any impairment charges on loan servicing rights for the three and nine month periods ended June 30, 2017 and 2016.

 

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, 2017, 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 16.1% to 34.2% with a weighted average of 28.6%. At September 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 15.0% to 34.2% with a weighted average of 24.6%. The Company recognized charges of $3,000 and $13,000 to write-down other real estate owned to fair value for the three and nine months ended June 30, 2017, respectively. 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 months ended June 30, 2016, respectively.

 

Transfers Between Categories. There were no transfers into or out of Level 3 financial assets for the three and nine month periods ended June 30, 2017 and 2016.

 

 -35- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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.

 

   Carrying   Fair Value Measurements Using: 
June 30, 2017:  Amount   Level 1   Level 2   Level 3 
   (In thousands)
                 
Financial assets:                    
Cash and due from banks  $10,926   $10,926   $-   $- 
Interest-bearing deposits with banks   30,164    30,164    -    - 
Interest-bearing time deposits   2,555    -    2,556    - 
Trading account securities   5,819    -    5,819    - 
Securities available for sale   178,019    -    178,019    - 
Securities held to maturity   2,955    -    3,343    - 
                     
Loans, net   564,771    -    -    557,854 
                     
Residential  mortgage loans held for sale   755    -    755    - 
SBA loans held for sale   24,215    -    24,215    - 
FRB and FHLB stock   6,936    n/a    n/a    n/a 
Accrued interest receivable   3,508    -    3,508    - 
Loan servicing rights (included in other assets)   1,026    -    -    1,026 
                     
Financial liabilities:                    
Deposits   673,900    -    -    674,560 
Repurchase agreements   1,347    -    1,347    - 
Borrowings from FHLB   100,000    -    99,766    - 
Accrued interest payable   265    -    265    - 
Advance payments by borrowers for taxes and insurance   992    -    992    - 

 

 -36- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

   Carrying   Fair Value Measurements Using: 
September 30, 2016:  Amount   Level 1   Level 2   Level 3 
   (In thousands) 
                 
Financial assets:                    
Cash and due from banks  $11,449   $11,449   $-   $- 
Interest-bearing deposits with banks   17,893    17,893    -    - 
Interest-bearing time deposits   3,100    -    3,114    - 
Trading account securities   9,255    -    9,255    - 
Securities available for sale   174,493    -    174,493    - 
Securities held to maturity   3,166    -    3,654    - 
                     
Loans, net   518,611    -    -    522,560 
                     
Residential mortgage loans held for sale   384    -    384    - 
SBA loans held for sale   5,087    -    5,087    - 
FRB and FHLB stock   6,936    n/a    n/a    n/a 
Accrued interest receivable   2,806    -    2,806    - 
Loan servicing rights (included in other assets)   310    -    -    312 
                     
Financial liabilities:                    
Deposits   579,467    -    -    581,844 
Short-term repurchase agreements   1,345    -    1,345    - 
Borrowings from FHLB   121,633    -    123,794    - 
Accrued interest payable   195    -    195    - 
Advance payments by borrowers for taxes and insurance   1,014    -    1,014    - 

 

The carrying amounts in the preceding tables are included in the consolidated balance sheets under the applicable captions. The fair value of financial instruments with off-balance-sheet risk is not material. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:

 

 -37- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Cash and Cash Equivalents

 

For cash and short-term instruments, including cash and due from banks and interest-bearing deposits with banks, the carrying amount is a reasonable estimate of fair value.

 

Investment Securities and Interest-Bearing Time Deposits

 

For debt securities and interest-bearing time deposits, the Company obtains fair value measurements from an independent pricing service 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.

 

Loans

 

The fair value of loans, excluding loans held for sale, is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and terms. Impaired loans are valued at the lower of their carrying value or fair value, as previously described. The carrying amount of accrued interest receivable approximates its fair value.

 

The fair value of loans held for sale is estimated based on specific prices of underlying contracts for sales to investors, as previously described.

 

FRB and FHLB Stock

 

It is not practical to determine the fair value of FRB and FHLB stock due to restrictions placed on transferability.

 

Loan Servicing Rights

 

The fair value of loan serving rights is determined by a valuation model employed by an independent third party using market-based discount rate and prepayment assumptions, as previously described.

 

Deposits

 

The fair value of demand and savings deposits and other transaction accounts is the amount payable on demand at the balance sheet date. The fair value of fixed-maturity time deposits is estimated by discounting the future cash flows using the rates currently offered for deposits with similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.

 

Borrowed Funds

 

Borrowed funds include borrowings from the FHLB and repurchase agreements. Fair value for FHLB advances and long-term repurchase agreements is estimated by discounting the future cash flows at current interest rates for FHLB advances of similar maturities. For short-term repurchase agreements and FHLB line of credit borrowings, the carrying value is a reasonable estimate of fair value.

 

 -38- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

9.Employee Stock Ownership Plan

 

On October 6, 2008, the Company established a leveraged employee stock ownership plan (“ESOP”) covering substantially all employees. The ESOP trust acquired 203,363 shares of Company common stock at a cost of $10.00 per share financed by a term loan with the Company. The employer loan and the related interest income are not recognized in the consolidated financial statements because the debt is serviced from Company contributions. Dividends payable on allocated shares are charged to retained earnings and are satisfied by the allocation of cash dividends to participant accounts or by utilizing the dividends as additional debt service on the ESOP loan. Dividends payable on unallocated shares are not considered dividends for financial reporting purposes. Shares held by the ESOP trust are allocated to participant accounts based on the ratio of the current year principal and interest payments to the total of the current year and future years’ principal and interest to be paid on the employer loan. Compensation expense is recognized based on the average fair value of shares released for allocation to participant accounts during the year with a corresponding credit to stockholders’ equity. Compensation expense recognized for the nine month period ended June 30, 2016 amounted to $628,000. The ESOP loan was repaid in full during the quarter ended December 31, 2015 and all shares have been allocated to participants in the plan therefore no compensation expense was recognized for the three month periods ended June 30, 2017 and 2016 and the nine month period ended June 30, 2017. The ESOP trust held 161,987 and 172,870 shares of Company common stock at June 30, 2017 and September 30, 2016, respectively.