10-Q 1 tv493372_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 March 31, 2018

 

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 x  
       
  Non-accelerated Filer ¨ Smaller Reporting Company ¨  
       
  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 April 30, 2018 was 2,290,021.

 

 

 

 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

 

INDEX

 

    Page
     
Part I Financial Information  
     
  Item 1.  Financial Statements  
     
  Consolidated Balance Sheets as of March 31, 2018 and September 30, 2017 (unaudited) 3
     
  Consolidated Statements of Income for the three months and six months ended March 31, 2018 and 2017 (unaudited) 4
     
  Consolidated Statements of Comprehensive Income for the three months and six months ended March 31, 2018 and 2017 (unaudited) 5
     
  Consolidated Statements of Changes in Stockholders’ Equity for the six months ended March 31, 2018 and 2017 (unaudited) 6
     
  Consolidated Statements of Cash Flows for the six months ended March 31, 2018 and 2017 (unaudited) 7
     
  Notes to Consolidated Financial Statements (unaudited) 8-49
     
  Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 50-61
     
  Item 3.  Quantitative and Qualitative Disclosures About Market Risk 62-63
     
  Item 4.  Controls and Procedures 64
     
Part II Other Information  
     
  Item 1.  Legal Proceedings 65
     
  Item 1A.  Risk Factors 65
     
  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 66
     
  Item 3.  Defaults Upon Senior Securities 66
     
  Item 4.  Mine Safety Disclosures 66
     
  Item 5.  Other Information 67
     
  Item 6.  Exhibits 67
     
Signatures   68

 

 -2- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   March 31,   September 30, 
(In thousands, except share and per share data)  2018   2017 
         
ASSETS          
Cash and due from banks  $12,457   $11,017 
Interest-bearing deposits with banks   26,573    23,242 
Total cash and cash equivalents   39,030    34,259 
           
Interest-bearing time deposits   2,756    2,435 
Trading account securities, at fair value   5,749    7,175 
Securities available for sale, at fair value   189,732    178,099 
Securities held to maturity   2,725    2,878 
           
Loans held for sale, residential mortgage   330    727 
Loans held for sale, Small Business Administration   21,779    24,908 
Loans, net of allowance for loan losses of $8,864 and $8,092   682,441    586,456 
           
Federal Reserve Bank and Federal Home Loan Bank stock, at cost   9,621    6,936 
Premises and equipment   12,597    11,270 
Other real estate owned, held for sale   -    852 
Accrued interest receivable:          
Loans   2,217    1,907 
Securities   1,657    1,491 
Cash surrender value of life insurance   19,750    18,297 
Goodwill   9,514    7,936 
Core deposit intangibles   2,583    693 
Other assets   6,073    4,814 
           
Total Assets  $1,008,554   $891,133 
           
LIABILITIES          
Deposits:          
Noninterest-bearing  $162,704   $96,283 
Interest-bearing   596,083    573,099 
Total deposits   758,787    669,382 
           
Repurchase agreements   1,350    1,348 
Borrowings from Federal Home Loan Bank   144,223    118,065 
Accrued interest payable   316    283 
Advance payments by borrowers for taxes and insurance   980    1,212 
Accrued expenses and other liabilities   7,071    7,728 
Total Liabilities   912,727    798,018 
           
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 2,560,907 shares (2,559,307 at September 30, 2017); outstanding 2,279,021 shares (2,242,454 shares at September 30, 2017)   26    25 
Additional paid-in capital   27,677    27,798 
Retained earnings - substantially restricted   71,361    67,583 
Accumulated other comprehensive income   2,178    4,158 
Unearned stock compensation   (554)   (571)
Less treasury stock, at cost - 281,886 shares (316,853 shares at September 30, 2017)   (5,524)   (5,878)
Total First Savings Financial Group, Inc. Stockholders' Equity   95,164    93,115 
           
Noncontrolling interests in subsidiary   663    - 
Total Equity   95,827    93,115 
           
Total Liabilities and Equity  $1,008,554   $891,133 

 

See notes to consolidated financial statements.

 

 -3- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

   Three Months Ended   Six Months Ended 
   March 31,   March 31, 
(In thousands, except share and per share data)  2018   2017   2018   2017 
                 
INTEREST INCOME                    
Loans, including fees  $8,173   $6,527   $15,860   $12,873 
Securities:                    
Taxable   809    874    1,586    1,811 
Tax-exempt   899    701    1,700    1,328 
Dividend income   149    77    239    156 
Interest-bearing deposits with banks   116    40    187    62 
Total interest income   10,146    8,219    19,572    16,230 
                     
INTEREST EXPENSE                    
Deposits   807    629    1,669    1,241 
Federal funds purchased   -    4    -    7 
Repurchase agreements   1    1    2    2 
Borrowings from Federal Home Loan Bank   615    398    1,125    804 
Total interest expense   1,423    1,032    2,796    2,054 
                     
Net interest income   8,723    7,187    16,776    14,176 
Provision for loan losses   371    375    833    681 
                     
Net interest income after provision for loan losses   8,352    6,812    15,943    13,495 
                     
NONINTEREST INCOME                    
Service charges on deposit accounts   399    306    776    642 
Net gain (loss) on trading account securities   (59)   211    91    (71)
Net gain on sales of loans, residential mortgage   53    87    168    238 
Net gain on sales of loans, Small Business Administration   1,488    949    3,027    1,803 
Increase in cash surrender value of life insurance   106    104    213    213 
Gain on life insurance   -    -    -    189 
Commission income   98    139    226    205 
Real estate lease income   1    -    1    - 
Net gain on sale of premises and equipment   8    16    15    23 
Loss on tax credit investment   -    (226)   -    (226)
Other income   473    275    956    720 
Total noninterest income   2,567    1,861    5,473    3,736 
                     
NONINTEREST EXPENSE                    
Compensation and benefits   4,408    3,657    8,419    7,198 
Occupancy and equipment   923    691    1,665    1,291 
Data processing   1,224    328    1,571    702 
Advertising   178    130    295    237 
Professional fees   493    295    866    500 
FDIC insurance premiums   128    119    247    229 
Net gain on other real estate owned   (22)   (19)   (178)   (109)
Other operating expenses   1,027    865    1,856    1,558 
Total noninterest expense   8,359    6,066    14,741    11,606 
Income before income taxes   2,560    2,607    6,675    5,625 
Income tax expense   338    413    960    1,094 
Net Income   2,222    2,194    5,715    4,531 
Less: net income attributable to noncontrolling interests   576    -    663    - 
Net Income Attributable to First Savings Financial Group, Inc.  $1,646   $2,194   $5,052   $4,531 
                     
Net income per share:                    
Basic  $0.73   $0.99   $2.26   $2.05 
Diluted  $0.69   $0.94   $2.14   $1.94 
                     
Weighted average shares outstanding:                    
Basic   2,251,425    2,220,773    2,239,823    2,212,955 
Diluted   2,370,260    2,344,419    2,363,606    2,336,746 
                     
Dividends per share  $0.15   $0.14   $0.29   $0.27 

 

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   Six Months Ended 
   March 31,   March 31, 
(In thousands)  2018   2017   2018   2017 
                 
Net Income  $2,222   $2,194   $5,715   $4,531 
                     
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX                    
Unrealized gains (losses) on securities available for sale:                    
Unrealized holding gains (losses) arising during the period   (2,023)   868    (3,332)   (4,616)
Income tax benefit (expense)   441    (298)   733    1,623 
Other Comprehensive Income (Loss)   (1,582)   570    (2,599)   (2,993)
                     
Comprehensive Income   640    2,764    3,116    1,538 
Less: comprehensive income attributable to noncontrolling interests   576    -    663    - 
                     
Comprehensive Income Attributable to First Savings Financial Group, Inc.  $64   $2,764   $2,453   $1,538 

 

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                 
               Other   Unearned       Noncontrolling     
   Common   Additional   Retained   Comprehensive   Stock   Treasury   Interest in     
(In thousands, except share and per share data)  Stock   Paid-in Capital   Earnings   Income   Compensation   Stock   Subsidiary   Total 
                                 
Six Months Ended March 31, 2017:                                        
Balances at October 1, 2016  $25   $27,182   $59,499   $5,944   $-   $(6,070)  $-   $86,580 
                                         
Net income   -    -    4,531    -    -    -    -    4,531 
                                         
Other comprehensive loss   -    -    -    (2,993)   -    -    -    (2,993)
                                         
Common stock dividends ($0.27 per share)   -    -    (601)   -    -    -    -    (601)
                                         
Restricted stock grants - 17,265 shares   -    692    -    -    (692)   -    -    - 
                                         
Stock compensation expense   -    24    -    -    52    -    -    76 
                                         
Stock options exercises - 26,858 shares   -    (131)   -    -    -    486    -    355 
                                         
Purchase of 6,456 treasury shares   -    -    -    -    -    (294)   -    (294)
                                         
Balances at March 31, 2017  $25   $27,767   $63,429   $2,951   $(640)  $(5,878)  $-   $87,654 
                                         
Six Months Ended March 31, 2018:                                        
Balances at October 1, 2017  $25   $27,798   $67,583   $4,158   $(571)  $(5,878)  $-   $93,115 
                                         
Net income   -    -    5,052    -    -    -    663    5,715 
                                         
Other comprehensive loss   -    -    -    (2,599)   -    -    -    (2,599)
                                         
Reclassification from AOCI to retained earnings for change in federal tax rate   -    -    (619)   619    -    -    -    - 
                                         
Common stock dividends ($0.29 per share)   -    -    (655)   -    -    -    -    (655)
                                         
Restricted stock grants - 1,000 shares   1    56    -    -    (57)   -    -    - 
                                         
Stock compensation expense   -    32    -    -    74    -    -    106 
                                         
Stock option exercises - 42,296 shares   -    (209)   -    -    -    787    -    578 
                                         
Purchase of 6,729 treasury shares   -    -    -    -    -    (433)   -    (433)
                                         
Balances at March 31, 2018  $26   $27,677   $71,361   $2,178   $(554)  $(5,524)  $663   $95,827 

 

See notes to consolidated financial statements.

 

 -6- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six Months Ended 
   March 31, 
(In thousands)  2018   2017 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $5,715   $4,531 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Provision for loan losses   833    681 
Depreciation and amortization   634    582 
Amortization of premiums and accretion of discounts on securities, net   274    369 
Decrease in trading account securities   1,426    2,867 
Loans originated for sale   (63,144)   (45,648)
Proceeds on sales of loans   71,516    36,895 
Net gain on sales of loans   (3,195)   (2,041)
Net realized and unrealized gain on other real estate owned   (216)   (142)
Gain on life insurance   -    (189)
Increase in cash surrender value of life insurance   (213)   (213)
Net gain on sale of premises and equipment   (15)   (23)
Loss on tax credit investment   -    226 
Deferred income taxes   874    461 
Stock compensation expense   106    76 
Increase in accrued interest receivable   (149)   (321)
Increase in accrued interest payable   32    20 
Change in other assets and liabilities, net   (3,691)   (614)
Net Cash Provided By (Used In) Operating Activities   10,787    (2,483)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Investment in interest-bearing time deposits   (490)   (245)
Proceeds from sales of interest-bearing time deposits   2,741    - 
Proceeds from maturities of interest-bearing time deposits   1,245    990 
Purchase of securities available for sale   (16,161)   (16,282)
Proceeds from sales of securities available for sale   32,262    - 
Proceeds from maturities of securities available for sale   1,280    1,830 
Proceeds from maturities of securities held to maturity   120    114 
Principal collected on securities   7,127    9,056 
Net increase in loans   (62,166)   (31,331)
Proceeds from redemption of Federal Reserve Bank stock   21    - 
Purchase of Federal Home Loan Bank stock   (2,562)   - 
Proceeds from life insurance   540    - 
Proceeds from sale of other real estate owned   606    90 
Purchase of premises and equipment   (643)   (202)
Proceeds from sale of premises and equipment   -    19 
Net cash received in the acquisition of Dearmin Bancorp and FNBO   6,667    - 
Net Cash Used In Investing Activities   (29,413)   (35,961)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net increase (decrease) in deposits   (2,360)   51,778 
Net increase in repurchase agreements   2    2 
Decrease in Federal Home Loan Bank line of credit   (3,842)   (8,583)
Proceeds from Federal Home Loan Bank advances   179,500    - 
Repayment of Federal Home Loan Bank advances   (149,500)   - 
Net increase (decrease) in advance payments by borrowers for taxes and insurance   (232)   4 
Proceeds from exercise of stock options   189    62 
Taxes paid on stock award shares for employees   (46)   - 
Dividends paid on common stock   (314)   (601)
Net Cash Provided By Financing Activities   23,397    42,662 
           
Net Increase in Cash and Cash Equivalents   4,771    4,218 
           
Cash and cash equivalents at beginning of year   34,259    29,342 
           
Cash and Cash Equivalents at End of Year  $39,030   $33,560 

 

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 sixteen 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, municipal bonds and other investment 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.

 

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. In accordance with Q2’s operating agreement, the Bank was allocated the first $1.7 million of Q2’s cumulative net income with any additional profits and losses allocated 51% to the Bank and 49% to Q2’s minority members.

 

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 ten 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 March 31, 2018, the results of operations for the three- and six-month periods ended March 31, 2018 and 2017, and the cash flows for the six-month periods ended March 31, 2018 and 2017. 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, 2017 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.Acquisition of Dearmin Bancorp and The First National Bank of Odon

 

On February 9, 2018, the Company acquired Dearmin Bancorp, Inc. (“Dearmin”) and its majority owned subsidiary, The First National Bank of Odon (“FNBO”), a full service community bank located in Odon, Indiana. The acquisition expanded the Company’s presence into Daviess County, Indiana. The Company expects to benefit from growth in this market area as well as from expansion of the banking services provided to the existing customers of FNBO. Cost savings are also expected for the combined bank through economies of scale, efficiencies and the consolidation of business operations.

 

Pursuant to the terms of the merger agreement, FNBO stockholders received $265.00 in cash for each share of FNBO common stock for total cash consideration of $10.6 million. Under the acquisition method of accounting, the purchase price is assigned to the assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. In accounting for the acquisition, the excess of cost over the fair value of the acquired net assets of $1.6 million has been recorded as goodwill. Transaction and integration costs related to the acquisition totaling $1.3 million were expensed as incurred for the three- and six-month periods ended March 31, 2018.

 

Following is a condensed balance sheet showing the estimated fair values of the assets acquired and liabilities assumed, based on management’s preliminary analysis, as of the date of acquisition:

 

   (In thousands) 
     
Cash and due from banks  $1,310 
Interest-bearing deposits with banks   15,957 
Interest-bearing time deposits with banks   3,817 
Investment securities   39,978 
Loans, net   34,467 
Premises and equipment   1,125 
Goodwill arising in the acquisition   1,578 
Core deposit intangible   2,083 
Other assets   2,656 
Total assets acquired   102,971 
      
Deposit accounts   91,765 
Net deferred tax liabilities   233 
Other liabilities   373 
Total liabilities assumed   92,371 
      
Total consideration   $10,600 

 

In accounting for the acquisition, $2.1 million was assigned to a core deposit intangible which is amortized over a weighted-average estimated economic life of 7.9 years. It is not anticipated that the core deposit intangible will have a significant residual value. No amount of the goodwill or the core deposit intangible arising in the acquisition is deductible for income tax purposes.

 

 -9- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. On the acquisition date, no loans were identified with evidence of deterioration of credit quality since origination. Loans acquired not subject to ASC 310-30 include non-impaired loans with a fair value of $34.5 million and gross contractual amounts receivable of $41.5 million at the date of acquisition.

 

The following unaudited pro forma combined results of operations assumes that the acquisition was consummated on October 1, 2016:

 

   Three Months Ended   Six Months Ended 
   March 31,   March 31, 
   2018   2017   2018   2017 
   (Dollars in thousands, except per share data) 
                 
Interest income  $10,435   $8,972   $20,614   $17,725 
Interest expense   1,426    1,055    2,820    2,103 
Net interest income   9,009    7,917    17,794    15,622 
Provision for loan losses   371    390    833    711 
Net interest income after provision for loan losses   8,638    7,527    16,961    14,911 
Noninterest income   2,657    2,048    5,745    4,108 
Noninterest expense   7,612    8,025    14,814    14,260 
Income before income taxes   3,683    1,550    7,982    4,759 
Income tax expense    661    8   1,384    738 
                     
Net income   3,022    1,542    6,508    4,021 
                     
Net income attributable to noncontrolling interests in subsidiary   576    -    663    - 
                     
Net income attributable to First Savings Financial Group, Inc.  $2,446   $1,542   $5,845   $4,021 
                     
Weighted average common shares outstanding, basic   2,251,425    2,220,773    2,239,823    2,212,955 
                     
Net income per common share, basic  $1.09   $0.69   $2.61   $1.82 
                     
Weighted average common shares outstanding, basic   2,251,425    2,220,773    2,239,823    2,212,955 
Add: Dilutive effect of outstanding options   113,176    120,402    117,518    122,529 
Add: Dilutive effect of restricted stock   5,659    3,244    6,265    1,262 
Weighted average common shares outstanding, as adjusted   2,370,260    2,344,419    2,363,606    2,336,746 
                     
Net income per common share, diluted  $1.03   $0.66   $2.47   $1.72 

 

 -10- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

In addition to combining the historical results of operations, the pro forma calculations consider the purchase accounting adjustments and nonrecurring charges directly related to the acquisition and the related tax effects. The 2018 pro forma information was adjusted to exclude $1.3 million of acquisition-related costs incurred during the period and the 2017 pro forma information was adjusted to include those costs. The pro forma calculations do not include any anticipated cost savings as a result of the acquisition. The pro forma results of operations are presented for informational purposes only and are not necessarily indicative of the actual results of operations that would have occurred had the FNBO acquisition actually been consummated on October 1, 2016, or results that may occur in the future.

 

3.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 pass-through asset-backed securities 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 March 31, 2018 and September 30, 2017, trading account securities recorded at fair value totaled $5.7 million and $7.2 million, respectively, and were comprised of investment grade municipal bonds. During the three-month period ended March 31, 2018, the Company reported a net loss on trading account securities of $59,000. During the three-month period ended March 31, 2017, the Company reported a net gain on trading account securities of $211,000. During the six-month period ended March 31, 2018, the Company reported a net gain on trading account securities of $91,000. During the six-month period ended March 31, 2017, the Company reported a net loss on trading account securities of $71,000.

 

 -11- 

 

 

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:

 

   Amortized
Cost		   Gross
Unrealized
Gain		   Gross
Unrealized
Losses		   Fair
 Value		 
   (In thousands) 
March 31, 2018:                    
Securities available for sale:                    
                     
Agency mortgage-backed  $37,159   $175   $511   $36,823 
Agency CMO   12,665    10    277    12,398 
Privately-issued CMO   1,602    172    50    1,724 
Privately-issued ABS   2,241    662    -    2,903 
SBA certificates   1,405    84    2    1,487 
Municipal bonds   131,824    3,325    752    134,397 
                     
Total securities available for sale  $186,896   $4,428   $1,592   $189,732 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $146   $11   $-   $157 
Municipal bonds   2,579    305    -    2,884 
                     
Total securities held to maturity  $2,725   $316   $-   $3,041 

 

 -12- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

   Amortized
Cost		   Gross
Unrealized
Gain		   Gross
Unrealized
Losses		   Fair
 Value		 
   (In thousands) 
September 30, 2017:                    
Securities available for sale:                    
                     
Agency mortgage-backed  $36,439   $382   $85   $36,736 
Agency CMO   14,605    37    66    14,576 
Privately-issued CMO   1,825    204    28    2,001 
Privately-issued ABS   2,691    757    -    3,448 
SBA certificates   913    -    1    912 
Municipal bonds   115,193    5,409    176    120,426 
                     
Total securities available for sale  $171,666   $6,789   $356   $178,099 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $179   $16   $-   $195 
Municipal bonds   2,699    412    -    3,111 
                     
Total securities held to maturity  $2,878   $428   $-   $3,306 

 

The amortized cost and fair value of investment securities as of March 31, 2018 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
Cost		   Fair
Value		   Amortized
Cost		   Fair
Value		 
   (In thousands) 
Due within one year  $4,021   $4,102   $238   $266 
Due after one year through five years   16,303    16,886    987    1,103 
Due after five years through ten years   27,829    28,547    965    1,084 
Due after ten years   83,671    84,862    389    431 
CMO   14,267    14,122    -    - 
ABS   2,241    2,903    -    - 
SBA certificates   1,405    1,487    -    - 
Mortgage-backed securities   37,159    36,823    146    157 
                     
   $186,896   $189,732   $2,725   $3,041 

 

 -13- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Information pertaining to investment securities with gross unrealized losses at March 31, 2018 and September 30, 2017, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

 

   Number of
Investment
Positions		   Fair
Value		   Gross
Unrealized
Losses		 
   (Dollars in thousands) 
March 31, 2018:               
Securities available for sale:               
                
Continuous loss position less than twelve months:               
Agency mortgage-backed   18   $22,500   $328 
Agency CMO   6    5,815    111 
Privately-issued CMO   2    83    50 
SBA certificates   1    712    2 
Municipal bonds   71    30,970    450 
                
Total less than twelve months   98    60,080    941 
                
Continuous loss position more than twelve months:               
Agency mortgage-backed   6    5,518    183 
Agency CMO   7    6,348    166 
Municipal bonds   5    4,689    302 
                
Total more than twelve months   18    16,555    651 
                
Total securities available for sale   116   $76,635   $1,592 
                
September 30, 2017:               
Securities available for sale:               
                
Continuous loss position less than twelve months:               
Agency mortgage-backed   12   $13,332   $85 
Agency CMO   9    9,062    52 
Privately-issued CMO   2    113    28 
Municipal bonds   9    6,522    157 
                
Total less than twelve months   32    29,029    322 
                
Continuous loss position more than twelve months:               
Agency CMO   3    2,605    14 
SBA certificates   1    912    1 
Municipal bonds   1    513    19 
                
Total more than twelve months   5    4,030    34 
                
Total securities available for sale   37   $33,059   $356 

 

At March 31, 2018 and September 30, 2017, the Company did not have any securities held to maturity with an unrealized loss.

 

 -14- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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 March 31, 2018, which consisted of U.S. government agency mortgage backed securities and CMOs, privately issued CMOs, SBA certificates and municipal bonds, had a fair value as a percentage of amortized cost of 97.99%. 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 March 31, 2018, the Company held fifteen privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $1.7 million and fair value of $2.2 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. (“NRSROs”)

 

At March 31, 2018, two privately-issued CMO were in loss positions and had depreciated approximately 37.31% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $83,000 and a total unrealized loss of $50,000 at March 31, 2018, 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 March 31, 2018, 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, SBA certificates 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 six-month periods ended March 31, 2018 and 2017, the Company did not realize any gross gains or losses on sales of available for sale securities. Securities and interest-bearing time deposits acquired in the FNBO transaction with a fair value of $35.0 million were sold within a short period following the merger, resulting in no gain or loss for financial reporting purposes.

 

Certain available for sale debt securities were pledged under repurchase agreements and to secure FHLB borrowings at March 31, 2018 and September 30, 2017, and may be pledged to secure federal funds borrowings.

 

 -15- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

4.Loans and Allowance for Loan Losses

 

Loans at March 31, 2018 and September 30, 2017 consisted of the following:

 

   March 31,
2018		   September 30,
2017		 
   (In thousands) 
Real estate mortgage:          
1-4 family residential  $191,144   $171,863 
Commercial   318,259    273,106 
Multifamily residential   27,520    21,121 
Residential construction   18,907    15,088 
Commercial construction   22,492    18,385 
Land and land development   10,003    9,733 
Commercial business   64,009    52,724 
           
Consumer:          
Home equity   24,103    22,939 
Auto   11,693    7,057 
Other consumer   2,897    2,323 
Total Loans   691,027    594,339 
           
Deferred loan origination fees and costs, net   278    209 
Allowance for loan losses   (8,864)   (8,092)
           
Loans, net  $682,441   $586,456 

 

During the six-month period ended March 31, 2018, 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, 2017.

 

The recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $1.6 million for both March 31, 2018 and September 30, 2017.

 

 -16- 

 

 

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 March 31, 2018:

 

   Residential
Real Estate		   Commercial
Real Estate		   Multifamily   Construction   Land & Land
Development		   Commercial
Business		   Consumer   Total 
   (In thousands) 
                                 
Recorded Investment in Loans:                           
Principal loan balance  $191,144   $318,259   $27,520   $41,399   $10,003   $64,009   $38,693   $691,027 
                                         
Accrued interest receivable   513    1,114    47    168    35    271    69    2,217 
                                         
Net deferred loan origination fees and costs   6    126    (9)   (40)   3    218    (26)   278 
                                         
Recorded investment in loans  $191,663   $319,499   $27,558   $41,527   $10,041   $64,498   $38,736   $693,522 
                                         
Recorded Investment in Loans as Evaluated for Impairment:                                        
Individually evaluated for impairment  $5,089   $6,710   $-   $-   $28   $349   $259   $12,435 
                                         
Collectively evaluated for impairment   186,574    312,789    27,558    41,527    10,013    64,149    38,477    681,087 
                                         
Ending balance  $191,663   $319,499   $27,558   $41,527   $10,041   $64,498   $38,736   $693,522 

 

 -17- 

 

 

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, 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  $171,863   $273,106   $21,121   $33,473   $9,733   $52,724   $32,319   $594,339 
                                         
Accrued interest receivable   493    929    37    137    31    221    59    1,907 
                                         
Net deferred loan origination fees and costs   50    26    (15)   (17)   2    184    (21)   209 
                                         
Recorded investment in loans  $172,406   $274,061   $21,143   $33,593   $9,766   $53,129   $32,357   $596,455 
                                         
Recorded Investment in Loans as Evaluated for Impairment:                                        
Individually evaluated for impairment  $4,969   $5,477   $-   $-   $30   $192   $196   $10,864 
                                         
Collectively evaluated for impairment   167,437    268,584    21,143    33,593    9,736    52,937    32,161    585,591 
                                         
Ending balance  $172,406   $274,061   $21,143   $33,593   $9,766   $53,129   $32,357   $596,455 

 

 -18- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the allowance for loan losses as of March 31, 2018 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  $17   $-   $-   $-   $-   $-   $20   $37 
                                         
Collectively evaluated for impairment   231    6,182    146    985    230    927    126    8,827 
                                         
Ending balance  $248   $6,182   $146   $985   $230   $927   $146   $8,864 

 

An analysis of the allowance for loan losses as of September 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  $2   $-   $-   $-   $-   $-   $21   $23 
                                         
Collectively evaluated for impairment   250    5,739    106    810    223    839    102    8,069 
                                         
Ending balance  $252   $5,739   $106   $810   $223   $839   $123   $8,092 

 

 -19- 

 

 

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 March 31, 2018 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  $233   $6,106   $102   $903   $219   $816   $132   $8,511 
Provisions   17    76    44    82    11    110    31    371 
Charge-offs   (11)   -    -    -    -    -    (32)   (43)
Recoveries   9    -    -    -    -    1    15    25 
                                         
Ending balance  $248   $6,182   $146   $985   $230   $927   $146   $8,864 

 

An analysis of the changes in the allowance for loan losses for the six months ended March 31, 2018 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  $252   $5,739   $106   $810   $223   $839   $123   $8,092 
Provisions   (1)   443    40    175    7    87    82    833 
Charge-offs   (24)   -    -    -    -    -    (84)   (108)
Recoveries   21    -    -    -    -    1    25    47 
                                         
Ending balance  $248   $6,182   $146   $985   $230   $927   $146   $8,864 

 

 -20- 

 

 

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 March 31, 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  $312   $5,313   $105   $1,026   $261   $310   $92   $7,419 
Provisions   19    557    11    (323)   6    62    43    375 
Charge-offs   (22)   -    -    -    -    (25)   (44)   (91)
Recoveries   2    -    -    -    -    1    12    15 
                                         
Ending balance  $311   $5,870   $116   $703   $267   $348   $103   $7,718 

 

An analysis of the changes in the allowance for loan losses for the six months ended March 31, 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   10    710    7    (142)   (28)   75    49    681 
Charge-offs   (39)   -    -    -    -    (25)   (62)   (126)
Recoveries   5    -    -    -    -    14    22    41 
                                         
Ending balance  $311   $5,870   $116   $703   $267   $348   $103   $7,718 

 

 -21- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of March 31, 2018 and for the three and six months ended March 31, 2018 and 2017.

 

   At March 31, 2018   Three Months Ended March 31,   Six Months Ended March 31, 
               2018   2018   2017   2017   2018   2018   2017   2017 
   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  $4,784   $5,267   $-   $5,247   $35   $4,255   $37   $5,136   $71   $4,191   $70 
Commercial real estate   6,710    6,895    -    6,941    80    6,230    51    6,610    144    6,288    99 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   28    29    -    29    -    254    -    29    -    247    - 
Commercial business   349    358    -    361    4    211    1    291    6    214    3 
Consumer   143    150    -    121    1    158    1    110    2    165    2 
   $12,014   $12,699   $-   $12,699   $120   $11,108   $90   $12,176   $223   $11,105   $174 
                                                        
Loans with an allowance recorded:                                          
Residential real estate  $305   $329   $17   $255   $-   $468   $-   $272   $-   $460   $- 
Commercial real estate   -    -    -    -    -    -    -    -    -    -    - 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   -    -    -    -    -    -    -    -    -    -    - 
Commercial business   -    -    -    -    -    -    -    -    -    -    - 
Consumer   116    116    20    129    -    82    -    124    -    83    - 
   $421   $445   $37   $384   $-   $550   $-   $396   $-   $543   $- 
                                                        
Total:                                          
Residential real estate  $5,089   $5,596   $17   $5,502