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EX-32.1 - EXHIBIT 32.1 - First Savings Financial Group, Inc.v409374_ex32-1.htm

 

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, 2015

 

OR

 

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

 

For the transition period from_____________________ to__________________

 

Commission File No. 1-34155

 

First Savings Financial Group, Inc.

(Exact name of registrant as specified in its charter)

 

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

 

501 East Lewis & Clark Parkway, Clarksville, Indiana 47129

 

(Address of principal executive offices) (Zip Code)

 

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

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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

 

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

 

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

 

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

 

The number of shares outstanding of the registrant’s common stock as of March 31, 2015 was 2,187,993.

 

 
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

 

INDEX

 

    Page
Part I Financial Information 3
     
  Item 1.  Financial Statements  
     
  Consolidated Balance Sheets as of March 31, 2015 and September 30, 2014 (unaudited) 3
     
  Consolidated Statements of Income for the three months and six months ended March 31, 2015 and 2014 (unaudited) 4
     
  Consolidated Statements of Comprehensive Income for the three months and six months ended March 31, 2015 and 2014 (unaudited) 5
     
  Consolidated Statements of Changes in Stockholders’ Equity for the six months ended March 31, 2015 and 2014 (unaudited) 6
     
  Consolidated Statements of Cash Flows for the six months ended March 31, 2015 and 2014 (unaudited) 7
     
  Notes to Consolidated Financial Statements (unaudited) 8-42
     
  Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 43-54
     
  Item 3.  Quantitative and Qualitative Disclosures About Market Risk 55-57
     
  Item 4.  Controls and Procedures 58
     
Part II Other Information
     
  Item 1.  Legal Proceedings 59
     
  Item 1A.  Risk Factors 59
     
  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 60
     
  Item 3.  Defaults Upon Senior Securities 60
     
  Item 4.  Mine Safety Disclosures 60
     
  Item 5.  Other Information 61
     
  Item 6.  Exhibits 61
     
Signatures 62

   

- 2 -
 

  

PART I - FINANCIAL INFORMATION
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

 

   March 31,   September 30, 
(In thousands, except share and per share data)  2015   2014 
         
ASSETS          
Cash and due from banks  $9,875   $8,853 
Interest-bearing deposits with banks   10,322    11,477 
Total cash and cash equivalents   20,197    20,330 
           
Interest-bearing time deposits   2,235    1,500 
Trading account securities, at fair value   5,229    5,319 
Securities available for sale, at fair value   183,375    184,697 
Securities held to maturity   5,012    5,419 
           
Loans held for sale   320    281 
Loans, net   445,024    433,876 
           
Federal Reserve Bank and Federal Home Loan Bank stock, at cost   7,462    6,517 
Real estate development and construction   7,105    7,202 
Premises and equipment   14,027    14,275 
Other real estate owned, held for sale   552    953 
Accrued interest receivable:          
Loans   1,227    1,276 
Securities   1,283    1,235 
Cash surrender value of life insurance   18,266    18,021 
Goodwill   7,936    7,936 
Core deposit intangibles   1,553    1,725 
Other assets   6,044    2,567 
           
Total Assets  $726,847   $713,129 
           
LIABILITIES          
Deposits:          
Noninterest-bearing  $62,553   $56,092 
Interest-bearing   474,384    477,102 
Total deposits   536,937    533,194 
           
Repurchase agreements   1,340    1,338 
Borrowings from Federal Home Loan Bank   81,554    79,548 
Other long-term debt   4,724    4,812 
Accrued interest payable   179    175 
Advance payments by borrowers for taxes and insurance   747    748 
Accrued expenses and other liabilities   9,667    6,234 
Total Liabilities   635,148    626,049 
           
STOCKHOLDERS' EQUITY          
Preferred stock of $.01 par value per share Authorized 982,880 shares; none issued   -    - 
Senior Non-Cumulative Perpetual Preferred Stock, Series A, $.01 par value; Authorized 17,120 shares; issued and outstanding 17,120 shares; aggregate liquidation preference of $17,120   -    - 
Common stock of $.01 par value per share Authorized 20,000,000 shares; issued 2,542,042 shares; outstanding 2,187,993 shares (2,171,812 shares at September 30, 2014)   25    25 
Additional paid-in capital - preferred   17,120    17,120 
Additional paid-in capital - common   26,495    26,079 
Retained earnings - substantially restricted   49,345    47,175 
Accumulated other comprehensive income   5,251    3,853 
Unearned ESOP shares   (281)   (537)
Unearned stock compensation   (31)   (162)
Less treasury stock, at cost - 354,049 shares (370,230 shares at September 30, 2014)   (6,225)   (6,473)
Total Stockholders' Equity   91,699    87,080 
           
Total Liabilities and Stockholders' Equity  $726,847   $713,129 

 

See notes to consolidated financial statements.

 

- 3 -
 

 

PART I - FINANCIAL INFORMATION
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 

   Three Months Ended   Six Months Ended 
   March 31,   March 31, 
(In thousands, except share and per share data)  2015   2014   2015   2014 
                 
INTEREST INCOME                    
Loans, including fees  $5,350   $5,257   $10,720   $10,482 
Securities:                    
Taxable   992    1,223    2,084    2,253 
Tax-exempt   489    424    960    844 
Dividend income   83    78    146    128 
Interest-bearing deposits with banks   10    8    23    17 
Total interest income   6,924    6,990    13,933    13,724 
                     
INTEREST EXPENSE                    
Deposits   598    598    1,240    1,210 
Repurchase agreements   1    1    2    2 
Borrowings from Federal Home Loan Bank   308    241    548    493 
Loans payable   45    48    93    105 
Total interest expense   952    888    1,883    1,810 
                     
Net interest income   5,972    6,102    12,050    11,914 
Provision for loan losses   212    303    419    604 
                     
Net interest income after provision for loan losses   5,760    5,799    11,631    11,310 
                     
NONINTEREST INCOME                    
Service charges on deposit accounts   305    279    676    597 
Net gain on sales of available for sale securities   -    -    -    1 
Net gain on trading account securities   89    205    160    362 
Unrealized loss on derivative contract   (1)   (3)   (1)   (5)
Net gain on sales of loans   49    42    134    119 
Increase in cash surrender value of life insurance   117    134    245    231 
Commission income   107    73    168    140 
Real estate lease income   150    119    301    261 
Other income   262    533    506    780 
Total noninterest income   1,078    1,382    2,189    2,486 
                     
NONINTEREST EXPENSE                    
Compensation and benefits   2,637    2,730    5,638    5,709 
Occupancy and equipment   652    642    1,256    1,275 
Data processing   348    294    729    604 
Advertising   147    73    253    140 
Professional fees   201    387    515    632 
FDIC insurance premiums   115    102    224    222 
Net loss on other real estate owned   16    38    21    108 
Other operating expenses   760    755    1,614    1,495 
Total noninterest expense   4,876    5,021    10,250    10,185 
Income before income taxes   1,962    2,160    3,570    3,611 
Income tax expense   435    624    843    1,047 
Net Income  $1,527   $1,536   $2,727   $2,564 
                     
Preferred stock dividends declared   43    43    86    86 
Net Income Available to Common Shareholders  $1,484   $1,493   $2,641   $2,478 
                     
Net income per common share:                    
Basic  $0.69   $0.70   $1.24   $1.15 
Diluted  $0.66   $0.66   $1.18   $1.10 
                     
Weighted average common shares outstanding:                    
Basic   2,138,931    2,140,414    2,125,369    2,149,426 
Diluted   2,245,371    2,248,961    2,231,574    2,254,999 
                     
Dividends per common share  $0.12   $0.11   $0.23   $0.21 

 

See notes to consolidated financial statements.

 

- 4 -
 

 

PART I - FINANCIAL INFORMATION
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 

   Three Months Ended   Six Months Ended 
   March 31,   March 31, 
(In thousands)  2015   2014   2015   2014 
                 
Net Income  $1,527   $1,536   $2,727   $2,564 
                     
OTHER COMPREHENSIVE INCOME, NET OF TAX                    
Unrealized gains on securities available for sale:                    
Unrealized holding gains arising during the period   1,173    1,634    2,168    1,102 
Income tax expense   (417)   (575)   (770)   (380)
Net of tax amount   756    1,059    1,398    722 
                     
Less: reclassification adjustment for realized gains included in net income   -    -    -    (1)
Income tax expense   -    -    -    1 
Net of tax amount   -    -    -    - 
                     
Other Comprehensive Income   756    1,059    1,398    722 
                     
Comprehensive Income  $2,283   $2,595   $4,125   $3,286 

 

See notes to consolidated financial statements.

 

- 5 -
 

 

PART I - FINANCIAL INFORMATION
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)

 

                   Accumulated   Unearned         
                   Other   Stock         
   Preferred   Common   Additional   Retained   Comprehensive   Compensation   Treasury     
(In thousands, except share and per share data)  Stock   Stock   Paid-in Capital   Earnings   Income   and ESOP   Stock   Total 
                                 
Six Months Ended March 31, 2014:                                        
Balances at October 1, 2013  $-   $25   $42,584   $42,870   $1,468   $(1,287)  $(3,407)  $82,253 
                                         
Net income   -    -    -    2,564    -    -    -    2,564 
                                         
Other comprehensive loss   -    -    -    -    722    -    -    722 
                                         
Preferred stock dividends   -    -    -    (86)   -    -    -    (86)
                                         
Common stock dividends ($0.21 per share)   -    -    -    (435)   -    -    -    (435)
                                         
Stock compensation expense   -    -    76    -    -    130    -    206 
                                         
Shares released by ESOP trust   -    -    310    -    -    247    -    557 
                                         
Purchase of 106,074 treasury shares   -    -    -    -    -    -    (2,463)   (2,463)
                                         
Balances at March 31, 2014  $-   $25   $42,970   $44,913   $2,190   $(910)  $(5,870)  $83,318 
                                         
Six Months Ended March 31, 2015:                                        
Balances at October 1, 2014  $-   $25   $43,199   $47,175   $3,853   $(699)  $(6,473)  $87,080 
                                         
Net income   -    -    -    2,727    -    -    -    2,727 
                                         
Other comprehensive income   -    -    -    -    1,398    -    -    1,398 
                                         
Preferred stock dividends   -    -    -    (86)   -    -    -    (86)
                                         
Common stock dividends ($0.23 per share)   -    -    -    (471)   -    -    -    (471)
                                         
Stock compensation expense   -    -    108    -    -    131    -    239 
                                         
Shares released by ESOP trust   -    -    397    -    -    256    -    653 
                                         
Stock options exercise - 20,972 shares   -    -    (89)   -    -    -    367    278 
                                         
Purchase of 4,791 treasury shares   -    -    -    -    -    -    (119)   (119)
                                         
Balances at March 31, 2015  $-   $25   $43,615   $49,345   $5,251   $(312)  $(6,225)  $91,699 

 

See notes to consolidated financial statements.

 

- 6 -
 

 

PART I - FINANCIAL INFORMATION
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

   Six Months Ended 
   March 31, 
(In thousands)  2015   2014 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $2,727   $2,564 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   419    604 
Depreciation and amortization   721    704 
Amortization of premiums and accretion of discounts on securities, net   388    304 
(Increase) decrease in trading account securities   90    (1,889)
Loans originated for sale   (4,436)   (3,396)
Proceeds on sales of loans   4,531    3,855 
Net gain on sales of loans   (134)   (119)
Net realized and unrealized loss on other real estate owned   12    4 
Net gain on sales of available for sale securities   -    (1)
Unrealized loss on derivative contract   1    5 
Increase in cash surrender value of life insurance   (245)   (231)
Deferred income taxes   (247)   (193)
ESOP and stock compensation expense   808    727 
(Increase) decrease in accrued interest receivable   1    (115)
Increase (decrease) in accrued interest payable   4    (2)
Change in other assets and liabilities, net   (91)   555 
Net Cash Provided By Operating Activities   4,549    3,376 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Investment in interest-bearing time deposits   (735)   - 
Purchase of securities available for sale   (11,684)   (27,133)
Proceeds from sales of securities available for sale   -    303 
Proceeds from maturities of securities available for sale   6,117    2,233 
Proceeds from maturities of securities held to maturity   342    384 
Principal collected on securities   8,737    6,842 
Net increase in loans   (11,652)   (21,112)
Purchase of Federal Reserve Bank stock   (945)   - 
Purchase of Federal Home Loan Bank stock   (461)   (175)
Proceeds from redemption of Federal Home Loan Bank stock   461    - 
Investment in cash surrender value of life insurance   -    (5,000)
Investment in historic tax credit entity   (417)   - 
Proceeds from sale of other real estate owned   495    317 
Investment in real estate development and construction   -    (216)
Purchase of premises and equipment   (204)   (316)
Net Cash Used In Investing Activities   (9,946)   (43,873)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net increase in deposits   3,743    46,164 
Net increase in repurchase agreements   2    1 
Increase (decrease) in Federal Home Loan Bank line of credit   (7,994)   1,396 
Proceeds from Federal Home Loan Bank advances   205,000    177,000 
Repayment of Federal Home Loan Bank advances   (195,000)   (182,000)
Repayment of other long-term debt   (88)   (77)
Net decrease in advance payments by borrowers for taxes and insurance   (1)   (53)
Exercise of stock options   278    - 
Purchase of treasury stock   (119)   (2,357)
Dividends paid on preferred stock   (86)   (86)
Dividends paid on common stock   (471)   (435)
Net Cash Provided By Financing Activities   5,264    39,553 
           
Net Decrease in Cash and Cash Equivalents   (133)   (944)
           
Cash and cash equivalents at beginning of year   20,330    20,815 
           
Cash and Cash Equivalents at End of Year  $20,197   $19,871 

 

See notes to consolidated financial statements.

  

- 7 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.Presentation of Interim Information

 

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

 

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

 

The Captive, which is a wholly-owned insurance subsidiary of the Company formed during the fourth fiscal quarter of 2014, is a Nevada corporation that provides property and casualty insurance to the Company, the Bank and the Bank’s active subsidiaries. In addition, the Captive provides reinsurance to seven 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 unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of March 31, 2015, the results of operations for the three- and six-month periods ended March 31, 2015 and 2014, and the cash flows for the six-month periods ended March 31, 2015 and 2014. 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 accompanying 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, 2014 included in the Company’s Annual Report on Form 10-K.

 

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the current period presentation.

  

- 8 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

2.Investment Securities

 

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

 

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

 

Trading Account Securities

 

The Company invests in small and medium lot, investment grade municipal bonds through a managed brokerage account. The brokerage account is managed by an investment advisory firm registered with the U.S. Securities and Exchange Commission. At March 31, 2015 and September 30, 2014, trading account securities recorded at fair value totaled $5.2 million and $5.3 million, respectively, and were comprised of investment grade municipal bonds. During the six-months ended March 31, 2015, the Company reported net gains on trading account securities of $160,000, including net realized gains on the sale of securities of $159,000, and net unrealized gains on securities still held as of the balance sheet date of $1,000. During the three-months ended March 31, 2015, the Company reported net gains on trading account securities of $89,000, including net realized gains on the sale of securities of $83,000 and net unrealized gains on securities still held as of the balance sheet date of $6,000. During the six-months ended March 31, 2014, the Company reported net gains on trading account securities of $362,000, including net realized gains on the sale of securities of $418,000, partially offset by net unrealized losses on securities still held as of the balance sheet date of $56,000. During the three-months ended March 31, 2014, the Company reported net gains on trading account securities of $205,000, including net realized gains on the sale of securities of $252,000, partially offset by net unrealized losses on securities still held as of the balance sheet date of $47,000.

 

- 9 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Securities Available for Sale and Held to Maturity

 

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

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
   (In thousands) 
March 31, 2015:                
Securities available for sale:                    
                     
Agency bonds and notes  $9,083   $24   $6   $9,101 
Agency mortgage-backed   48,508    1,001    13    49,496 
Agency CMO   24,717    150    103    24,764 
Privately-issued CMO   3,159    553    -    3,712 
Privately-issued ABS   5,208    1,572    -    6,780 
SBA certificates   1,619    12    -    1,631 
Municipal obligations   82,732    5,205    46    87,891 
                     
Total securities available for sale  $175,026   $8,517   $168   $183,375 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $402   $33   $-   $435 
Municipal obligations   4,610    648    -    5,258 
                     
Total securities held to maturity  $5,012   $681   $-   $5,693 

 

- 10 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
   (In thousands) 
September 30, 2014:                
Securities available for sale:                    
                     
Agency bonds and notes  $12,269   $12   $190   $12,091 
Agency mortgage-backed   51,845    518    108    52,255 
Agency CMO   29,648    95    259    29,484 
Privately-issued CMO   3,302    618    -    3,920 
Privately-issued ABS   5,552    1,801    -    7,353 
SBA certificates   1,753    9    -    1,762 
Municipal obligations   74,148    3,818    134    77,832 
                     
Total securities available for sale  $178,517   $6,871   $691   $184,697 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $455   $37   $-   $492 
Municipal   4,964    393    -    5,357 
                     
Total securities held to maturity  $5,419   $430   $-   $5,849 

 

The amortized cost and fair value of investment securities as of March 31, 2015 by contractual maturity are shown below. Expected maturities of mortgage-backed securities, CMO and ABS may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.

 

   Available for Sale   Held to Maturity 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost   Value 
   (In thousands) 
                 
Due within one year   $530   $534   $604   $655 
Due after one year through five years   5,374    5,652    1,779    2,093 
Due after five years through ten years   23,662    25,094    1,386    1,579 
Due after ten years   62,249    65,712    841    931 
    91,815    96,992    4,610    5,258 
                     
CMO   27,876    28,476    -    - 
ABS   5,208    6,780    -    - 
SBA certificates   1,619    1,631    -    - 
Mortgage-backed securities   48,508    49,496    402    435 
                     
   $175,026   $183,375   $5,012   $5,693 

 

- 11 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Information pertaining to investment securities with gross unrealized losses at March 31, 2015, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

 

   Number       Gross 
   of Investment   Fair   Unrealized 
   Positions   Value   Losses 
   (Dollars in thousands) 
Securities available for sale:               
                
Continuous loss position less than twelve months:               
Agency mortgage-backed   1   $1,204   $1 
Agency CMO   2    436    6 
Municipal obligations   5    3,115    42 
                
Total less than twelve months   8    4,755    49 
                
Continuous loss position more than twelve months:               
Agency bonds and notes   1    1,995    6 
Agency mortgage-backed   2    2,218    12 
Agency CMO   3    8,664    97 
Municipal obligations   2    1,280    4 
                
Total more than twelve months   8    14,157    119 
                
Total securities available for sale   16   $18,912   $168 

 

At March 31, 2015, the Company did not have any securities held to maturity with an unrealized loss.

 

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

 

The total available for sale debt securities in loss positions at March 31, 2015, which consisted of U.S. government agency notes, mortgage-backed securities and CMOs, and municipal bonds, had depreciated approximately 0.88% from their amortized cost basis and are fixed and variable rate securities with a weighted-average yield of 1.58% and a weighted-average coupon rate of 3.28% at March 31, 2015. All of the agency and municipal securities are issued by U.S. government-sponsored enterprises and municipal governments, and are generally secured by first mortgage loans and municipal project revenues.

 

- 12 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The Company evaluates the existence of a potential credit loss component related to the decline in fair value of the privately-issued CMO and ABS portfolios each quarter using an independent third party analysis. At March 31, 2015, the Company held twenty privately-issued CMO and ABS securities acquired in a 2009 bank acquisition with an aggregate carrying value of $2.8 million and fair value of $4.1 million that have been downgraded to a substandard regulatory classification due to a downgrade of the security’s credit quality rating by various rating agencies.

 

At March 31, 2015, there were no privately-issued CMOs or ABS in loss positions. 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, 2015, 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 notes, 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 six-month period ended March 31, 2015, the Company did not realize any gross gains or losses on sales of available for sale securities. During the six-month period ended March 31, 2014, the Company realized gross gains on sales of available for sale U.S. government agency notes of $1,000. The Company did not realize any gains or losses on sales of available for sale securities during the three-month periods ended March 31, 2015 and 2014.

 

Certain available for sale debt securities were pledged under repurchase agreements and to secure FHLB borrowings at March 31, 2015 and September 30, 2014, and may be pledged to secure federal funds borrowings.

 

- 13 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

3.Loans and Allowance for Loan Losses

 

Loans at March 31, 2015 and September 30, 2014 consisted of the following:

 

   March 31,   September 30, 
   2015   2014 
   (In thousands) 
Real estate mortgage:          
1-4 family residential  $180,155   $182,743 
Commercial   163,855    153,896 
Multifamily residential   23,097    21,286 
Residential construction   17,301    14,528 
Commercial construction   7,791    8,354 
Land and land development   11,738    11,290 
Commercial business loans   30,240    28,448 
Consumer:          
Home equity loans   17,828    17,903 
Auto loans   5,480    5,619 
Other consumer loans   2,211    2,320 
Gross loans   459,696    446,387 
Undisbursed portion of construction loans   (8,110)   (6,271)
Principal loan balance   451,586    440,116 
           
Deferred loan origination fees and costs, net   (48)   10 
Allowance for loan losses   (6,514)   (6,250)
           
Loans, net  $445,024   $433,876 

 

During the six-month period ended March 31, 2015, 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, 2014.

 

- 14 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table provides the components of the recorded investment in loans as of March 31, 2015:

 

  

Residential

Real Estate

  

Commercial

Real Estate

  

 

Multifamily

  

 

Construction

  

Land & Land

Development

  

Commercial

Business

  

 

Consumer

  

 

Total

 
   (In thousands) 
                                 
Recorded Investment in Loans:                                     
Principal loan balance  $180,155   $163,855   $23,097   $16,982   $11,738   $30,240   $25,519   $451,586 
                                         
Accrued interest receivable   552    417    55    29    29    88    57    1,227 
                                         
Net deferred loan origination fees and costs   306    (279)   (25)   (50)   4    (7)   3    (48)
                                         
Recorded investment in loans  $181,013   $163,993   $23,127   $16,961   $11,771   $30,321   $25,579   $452,765 
                                         
Recorded Investment in Loans as Evaluated for Impairment:                              
Individually evaluated for impairment  $4,535   $5,671   $-   $-   $-   $369   $327   $10,902 
                                         
Collectively evaluated for impairment   176,004    158,322    23,127    16,961    11,771    29,952    25,221    441,358 
                                         
Acquired with deteriorated credit quality   474    -    -    -    -    -    31    505 
                                         
Ending balance  $181,013   $163,993   $23,127   $16,961   $11,771   $30,321   $25,579   $452,765 

 

- 15 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table provides the components of the recorded investment in loans as of September 30, 2014:

 

  

Residential

Real Estate

  

Commercial

Real Estate

  

 

Multifamily

  

 

Construction

  

Land & Land

Development

  

Commercial

Business

  

 

Consumer

  

 

Total

 
   (In thousands) 
                                 
Recorded Investment in Loans:                        
Principal loan balance  $182,743   $153,896   $21,286   $16,611   $11,290   $28,448   $25,842   $440,116 
                                         
Accrued interest receivable   590    384    53    44    31    111    63    1,276 
                                         
Net deferred loan origination fees and costs   337    (252)   (28)   (54)   4    (9)   12    10 
                                         
Recorded investment in loans  $183,670   $154,028   $21,311   $16,601   $11,325   $28,550   $25,917   $441,402 
                                         
Recorded Investment in Loans as Evaluated for Impairment:                     
Individually evaluated for impairment  $4,866   $5,705   $-   $-   $-   $145   $350   $11,066 
                                         
Collectively evaluated for impairment   178,298    148,323    21,311    16,601    11,325    28,405    25,535    429,798 
                                         
Acquired with deteriorated credit quality   506    -    -    -    -    -    32    538 
                                         
Ending balance  $183,670   $154,028   $21,311   $16,601   $11,325   $28,550   $25,917   $441,402 

 

- 16 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the allowance for loan losses as of March 31, 2015 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

  

 

Multifamily

  

 

Construction

  

Land & Land

Development

  

Commercial

Business

  

 

Consumer

  

 

Total

 
   (In thousands) 
Ending Allowance Balance Attributable to Loans:   

 

           
Individually evaluated for impairment  $10   $1   $-   $-   $-   $48   $6   $65 
                                         
Collectively evaluated for impairment   447    4,108    163    455    316    838    122    6,449 
                                         
Acquired with deteriorated credit quality   -    -    -    -    -    -    -    - 
                                         
Ending balance  $457   $4,109   $163   $455   $316   $886   $128   $6,514 

 

An analysis of the allowance for loan losses as of September 30, 2014 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  $13   $-   $-   $-   $-   $-   $8   $21 
                                         
Collectively evaluated for impairment   564    3,808    146    443    302    795    171    6,229 
                                         
Acquired with deteriorated credit quality   -    -    -    -    -    -    -    - 
                                         
Ending balance  $577   $3,808   $146   $443   $302   $795   $179   $6,250 

 

- 17 -
 

  

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the changes in the allowance for loan losses for the three months ended March 31, 2015 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

  

 

Multifamily

  

 

Construction

  

Land & Land

Development

  

Commercial

Business

  

 

Consumer

  

 

Total

 
   (In thousands) 
Changes in Allowance for Loan Losses:               
Beginning balance  $442   $4,217   $163   $344   $299   $826   $159   $6,450 
Provisions   145    (108)   -    111    17    59    (12)   212 
Charge-offs   (131)   -    -    -    -    -    (41)   (172)
Recoveries   1    -    -    -    -    1    22    24 
                                         
Ending balance  $457   $4,109   $163   $455   $316   $886   $128   $6,514 

 

An analysis of the changes in the allowance for loan losses for the six months ended March 31, 2015 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

  

 

Multifamily

  

 

Construction

  

Land & Land

Development

  

Commercial

Business

  

 

Consumer

  

 

Total

 
   (In thousands) 
Changes in Allowance for Loan Losses:               
Beginning balance  $577   $3,808   $146   $443   $302   $795   $179   $6,250 
Provisions   (2)   301    17    12    14    90    (13)   419 
Charge-offs   (143)   -    -    -    -    -    (73)   (216)
Recoveries   25    -    -    -    -    1    35    61 
                                         
Ending balance  $457   $4,109   $163   $455   $316   $886   $128   $6,514 

  

- 18 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the changes in the allowance for loan losses for the three months ended March 31, 2014 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  $660   $3,080   $253   $255   $367   $1,070   $286   $5,971 
Provisions   (15)   504    18    (33)   (11)   (163)   3    303 
Charge-offs   (21)   (144)   -    -    -    -    (69)   (234)
Recoveries   2    -    -    -    -    -    18    20 
                                         
Ending balance  $626   $3,440   $271   $222   $356   $907   $238   $6,060 

 

An analysis of the changes in the allowance for loan losses for the six months ended March 31, 2014 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  $780   $2,826   $249   $229   $299   $907   $248   $5,538 
Provisions   (61)   539    22    (7)   57    -    54    604 
Charge-offs   (97)   (144)   -    -    -    -    (99)   (340)
Recoveries   4    219    -    -    -    -    35    258 
                                         
Ending balance  $626   $3,440   $271   $222   $356   $907   $238   $6,060 

  

- 19 -
 

 

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, 2015 and for the three and six months ended March 31, 2015 and 2014.

 

    At March 31, 2015     Three Months Ended March 31,     Six Months Ended March 31,  
                      2015      2015      2014      2014     2015     2015      2014      2014  
   

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   $ 4,712     $ 5,319     $ -     $ 5,685     $ 37     $ 6,023     $ 34     $ 5,729     $ 72     $ 6,166     $ 65  
Commercial real estate     5,648       5,687       -       5,689       55       5,822       53       5,702       113       5,934       111  
Multifamily     -       -       -       -       -       2,227       28       -       -       2,234       56  
Construction     -       -       -       -       -       -       -       -       -       -       -  
Land and land development     -       -       -       -       -       -       -       -       -       -       -  
Commercial business     321       306       -       254       1       446       1       216       1       446       1  
Consumer     226       231       -       238       1       298       1       248       3       310       3  
    $ 10,907     $ 11,543     $ -     $ 11,866     $ 94     $ 14,816     $ 117     $ 11,895     $ 189     $ 15,090     $ 236  
                                                                                         
Loans with an allowance recorded:                                                                                        
Residential real estate   $ 75     $ 73     $ 10     $ 142     $ -     $ 55     $ -     $ 152     $ -     $ 55     $ -  
Commercial real estate     23       22       1       6       -       -       -       3       -       -       -  
Multifamily     -       -       -       -       -       -       -       -       -       -       -  
Construction     -       -       -       -       -       -       -       -       -       -       -  
Land and land development     -       -       -       -       -       -       -       -       -       -       -  
Commercial business     48       48       48       12       -       -       -       7       -       -       -  
Consumer     101       101       6       85       -       97       -       91       -       96       -  
    $ 247     $ 244     $ 65     $ 245     $ -     $ 152     $ -     $ 253     $ -     $ 151     $ -  
                                                                                         
Total:                                                                                        
Residential real estate   $ 4,787     $ 5,392     $ 10     $ 5,827     $ 37     $ 6,078     $ 34     $ 5,881     $ 72     $ 6,221     $ 65  
Commercial real estate     5,671       5,709       1       5,695       55       5,822       53       5,705       113       5,934       111  
Multifamily     -       -       -       -       -       2,227       28       -       -       2,234       56  
Construction     -       -       -       -       -       -       -       -       -       -       -  
Land and land development     -       -       -       -       -       -       -       -       -       -       -  
Commercial business     369       354       48       266       1       446       1       223       1       446       1  
Consumer     327       332       6       323       1       395       1       339       3       406       3  
    $ 11,154     $ 11,787     $ 65     $ 12,111     $ 94     $ 14,968     $ 117     $ 12,148     $ 189     $ 15,241     $ 236  

 

The Company recognized $5,000 and $41,000 of interest income on an impaired commercial real estate loan using the cash receipts method during the six-month periods ended March 31, 2015 and 2014, respectively. The Company did not recognize any interest income using the cash receipts method during the three-month periods ended March 31, 2015 and 2014.

 

- 20 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of September 30, 2014.

 

 

 

 

 

 

Recorded

Investment

   Unpaid
Principal
Balance
  

 

Related
Allowance

 
   (In thousands) 
 
Loans with no related allowance recorded:
Residential real estate  $4,974   $5,426   $- 
Commercial real estate   5,705    5,739    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   145    133    - 
Consumer   255    258    - 
                
   $11,079   $11,556   $- 
                
Loans with an allowance recorded:
Residential real estate  $167   $166   $13 
Commercial real estate   -    -    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   -    -    - 
Consumer   95    95    8 
                
   $262   $261   $21 
                
Total:               
Residential real estate  $5,141   $5,592   $13 
Commercial real estate   5,705    5,739    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   145    133    - 
Consumer   350    353    8 
                
   $11,341   $11,817   $21 

 

- 21 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Nonperforming loans consists 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 March 31, 2015:

 

  

 

 

Nonaccrual

Loans

  

Loans 90+

Days

Past Due

Still Accruing

  

 

Total
Nonperforming
Loans

 
   (In thousands) 
             
Residential real estate  $1,893   $625   $2,518 
Commercial real estate   397    -    397 
Multifamily   -    294    294 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   350    106    456 
Consumer   199    24    223 
                
Total  $2,839   $1,049   $3,888 

 

The following table presents the recorded investment in nonperforming loans at September 30, 2014:

 

  

 

 

Nonaccrual

Loans

  

Loans 90+
Days

Past Due

Still Accruing

  

 

Total

Nonperforming

Loans

 
   (In thousands) 
             
Residential real estate  $2,431   $458   $2,889 
Commercial real estate   1,034    -    1,034 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   123    -    123 
Consumer   216    20    236 
                
Total  $3,804   $478   $4,282 

 

- 22 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents the aging of the recorded investment in past due loans at March 31, 2015:

 

  

30-59
Days

Past Due

  

60-89
Days

Past Due

  

90 +

Days

Past Due

  

 

Total

Past Due

  

 

 

Current

  

 

Total

Loans

 
   (In thousands) 
                         
Residential real estate  $3,951   $197   $1,770   $5,918   $175,095   $181,013 
Commercial real estate   1,529    125    196    1,850    162,143    163,993 
Multifamily   -    -    294    294    22,833    23,127 
Construction   -    -    -    -    16,961    16,961 
Land and land development   5    -    -    5    11,766    11,771 
Commercial business   11    31    456    498    29,823    30,321 
Consumer   116    24    61    201    25,378    25,579 
                               
   Total  $5,612   $377   $2,777   $8,766   $443,999   $452,765 

 

The following table presents the aging of the recorded investment in past due loans at September 30, 2014:

 

  

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  $4,493   $1,639   $1,823   $7,955   $175,715   $183,670 
Commercial real estate   115    54    59    228    153,800    154,028 
Multifamily   297    -    -    297    21,014    21,311 
Construction   -    -    -    -    16,601    16,601 
Land and land development   6    205    -    211    11,114    11,325 
Commercial business   259    -    123    382    28,168    28,550 
Consumer   39    79    72    190    25,727    25,917 
                               
   Total  $5,209   $1,977   $2,077   $9,263   $432,139   $441,402 

 

- 23 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

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

  

 

- 24 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. As of March 31, 2015, 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  $170,437   $145,326   $23,127   $16,961   $11,670   $29,738   $25,152   $422,411 
Special Mention   4,436    13,733    -    -    5    211    77    18,462 
Substandard   5,942    4,934    -    -    96    372    344    11,688 
Doubtful   198    -    -    -    -    -    6    204 
Loss   -    -    -    -    -    -    -    - 
                                         
Total  $181,013   $163,993   $23,127   $16,961   $11,771   $30,321   $25,579   452,765 

 

As of September 30, 2014, 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  $172,822   $138,854   $21,311   $16,601   $11,206   $28,127   $25,471   $414,392 
Special Mention   4,233    10,226    -    -    6    278    89    14,832 
Substandard   6,398    4,948    -    -    113    145    350    11,954 
Doubtful   217    -    -    -    -    -    7    224 
Loss   -    -    -    -    -    -    -    - 
                                         
Total  $183,670   $154,028   $21,311   $16,601   $11,325   $28,550   $25,917   441,402 

 

- 25 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Troubled Debt Restructurings

 

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

 

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

 

The following table summarizes the Company’s recorded investment in TDRs at March 31, 2015 and September 30, 2014. There was no specific reserve included in the allowance for loan losses related to TDRs at March 31, 2015 and September 30, 2014.

 

  

Accruing

  

Nonaccrual

  

Total

 
   (In thousands) 
March 31, 2015:            
Residential real estate  $2,894   $147   $3,041 
Commercial real estate   5,274    -    5,274 
Commercial business   19    -    19 
Consumer   128    -    128 
                
Total  $8,315   $147   $8,462 
                
September 30, 2014:               
Residential real estate  $2,710   $214   $2,924 
Commercial real estate   4,671    696    5,367 
Commercial business   22    -    22 
Consumer   134    -    134 
                
Total  $7,537   $910   $8,447 

 

- 26 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table summarizes information in regard to TDRs that were restructured during the three- and six-month periods ended March 31, 2015 and 2014:

 

  

 

 

Number of
Loans

   Pre-
Modification
Principal
Balance
   Post-
Modification
Principal
Balance
 
   (In thousands) 
March 31, 2015:               
Six Months Ended March 31, 2015:          
Residential real estate   2   $165   $172 
                
Total   2   $165   $172 
                
March 31, 2014:               
Three Months Ended March 31, 2014:          
Residential real estate   1   $42   $42 
                
Total   1   $42   $42 
                
Six Months Ended March 31, 2014:               
Residential real estate   3   $139   $159 
Commercial real estate   1    716    724 
                
Total   4   $855   $883 

 

There were no loans modified in a TDR during the three months ended March 31, 2015.

 

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

 

The Company had not committed to lend any additional amounts as of March 31, 2015 and September 30, 2014 to customers with outstanding loans classified as TDRs at such dates.

 

There were no principal charge-offs recorded as a result of TDRs during the six-month periods ended March 31, 2015 and 2014. There was no specific allowance for loan losses related to TDRs modified during the six-month periods ended March 31, 2015 and 2014. 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 six-month period ended March 31, 2015, the Company did not have any TDRs that were modified within the previous twelve months and for which there was a payment default (defined as more than 90 days past due or in the process of foreclosure). During the six-month period ended March 31, 2014, the Company had two TDRs totaling $489,000 that was modified within the previous twelve months and for which there were a payment default. No charge-offs were recognized for TDRs with subsequent payment defaults for the six-month periods ended March 31, 2015 and 2014.

 

- 27 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

4.Real Estate Development and Construction

 

The Company is developing a parcel of land in New Albany, Indiana for retail purposes through the Bank’s subsidiary, FFCC. The total cost of the development is expected to be approximately $7.7 million, including the $7.5 million paid as of March 31, 2015. The development costs were partially funded by a loan from another financial institution. The development is substantially completed, with only certain tenant improvements in a multi-tenant retail building to be completed for current and future lessees, and nine tenants have commenced occupancy as of March 31, 2015. The development plans provide for up to twelve tenants when fully occupied.

 

Depreciation expense of $49,000 and $98,000 was recognized for real estate development and construction for the three- and six-month periods ended March 31, 2015, respectively. Depreciation expense of $47,000 and $94,000 was recognized for real estate development and construction for the three- and six-month periods ended March 31, 2014, respectively.

  

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

 

5.Investment in Historic Tax Credit Entity

 

On October 15, 2014, the Company entered into an agreement to participate in the rehabilitation of a certified historic structure located in Louisville, Kentucky with a regional commercial developer. As part of the agreement, the Bank committed to invest $4.2 million into a limited liability company organized in the state of Kentucky by the commercial developer, for which it received a 99% equity interest in the entity and will receive an allocation of 99% of the operating profit and losses and any historic tax credits generated by the entity. The tax credits expected to be allocated to the Bank include federal rehabilitation investment credits totaling $4.6 million available under Internal Revenue Code Section 47. The Bank invested $417,000 on October 15, 2014 and has committed to invest an additional $417,000 when the project is 50% completed and the remaining $3.3 million when the project is fully completed and the certificate of occupancy is received. The project is expected to be fully completed in December 2015.

 

The Bank’s investment in the historic tax credit entity is accounted for under the equity method of accounting. At March 31, 2015, the Bank’s investment of $4.2 million was included in other assets and its unfunded capital contribution commitment of $3.8 million was included in other liabilities in the accompanying consolidated balance sheet.

 

- 28 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

5.Supplemental Disclosure for Earnings Per Share

 

When presented, basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Earnings per share information is presented below for the three- and six-month periods ended March 31, 2015 and 2014.

 

   Three Months Ended   Six Months Ended 
   March 31,   March 31, 
   2015   2014   2015   2014 
   (Dollars in thousands, except per share data) 
     
Basic:                    
Earnings:                    
Net income  $1,527   $1,536   $2,727   $2,564 
Less: Preferred stock dividends declared   (43)   (43)   (86)   (86)
                     
Net income available to common shareholders  $1,484   $1,493   $2,641   $2,478 
                     
Shares:                    
Weighted average common shares outstanding   2,138,931    2,140,414    2,125,369    2,149,426 
                     
Net income per common share, basic  $0.69   $0.70   $1.24   $1.15 
                     
Diluted:                    
Earnings:                    
Net income  $1,527   $1,536   $2,727   $2,564 
Less: Preferred stock dividends declared   (43)   (43)   (86)   (86)
                     
Net income available to common shareholders  $1,484   $1,493   $2,641   $2,478 
                     
Shares:                    
Weighted average common shares outstanding   2,138,931    2,140,414    2,125,369    2,149,426 
Add: Dilutive effect of outstanding options   96,436    93,337    96,967    91,359 
Add: Dilutive effect of restricted stock   10,004    15,210    9,238    14,214 
Weighted average common shares outstanding as adjusted   2,245,371    2,248,961    2,231,574    2,254,999 
                     
Net income per common share, diluted  $0.66   $0.66   $1.18   $1.10 

  

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

 

- 29 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

7.Supplemental Disclosures of Cash Flow Information

 

   Six Months Ended 
   March 31, 
   2015   2014 
   (In thousands) 
Cash payments for:          
Interest  $1,953   $1,945 
Taxes   864    620 
           
Transfers from loans to foreclosed real estate   398    776 
           
Proceeds from sales of foreclosed real estate financed through loans   290    496 

 

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

 

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

 

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

 

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

 

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

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets carried at fair value or the lower of cost or fair value. The tables below present the balances of financial assets measured at fair value on a recurring and nonrecurring basis as of March 31, 2015 and September 30, 2014. The Company had no liabilities measured at fair value as of March 31, 2015 or September 30, 2014.

 

- 30 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

   Carrying Value 
   Level 1   Level 2   Level 3   Total 
   (In thousands) 
March 31, 2015:                
Assets Measured - Recurring Basis:                    
Trading account securities  $-   $5,229   $-   $5,229 
                     
Securities available for sale:                    
Agency bonds and notes  $-   $9,101   $-   $9,101 
Agency mortgage-backed   -    49,496    -    49,496 
Agency CMO   -    24,764    -    24,764 
Privately-issued CMO   -    3,712    -    3,712 
Privately-issued ABS   -    6,780    -    6,780 
SBA certificates   -    1,631    -    1,631 
Municipal   -    87,891    -    87,891 
Total securities available for sale  $-   $183,375   $-   $183,375 
                     
Assets Measured - Nonrecurring Basis:                    
Impaired loans:                    
Residential real estate  $-   $-   $4,777   $4,777 
Commercial real estate   -    -    5,670    5,670 
Commercial business   -    -    321    321 
Consumer   -    -    321    321 
Total impaired loans  $-   $-   $11,089   $11,089 
                     
Loans held for sale  $-   $320   $-   $320 
Other real estate owned, held for sale:                    
Residential real estate  $-   $-   $394   $394 
Commercial real estate   -    -    100    100 
Land and land development   -    -    58    58 
Total other real estate owned  $-   $-   $552   $552 

 

- 31 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

   Carrying Value 
   Level 1   Level 2   Level 3   Total 
   (In thousands) 
September 30, 2014:                
Assets Measured - Recurring Basis:                    
Trading account securities  $-   $5,319   $-   $5,319 
                     
Securities available for sale:                    
Agency bonds and notes  $-   $12,091   $-   $12,091 
Agency mortgage-backed   -    52,255    -    52,255 
Agency CMO   -    29,484    -    29,484 
Privately-issued CMO   -    3,920    -    3,920 
Privately-issued ABS   -    7,353    -    7,353 
SBA certificates   -    1,762         1,762 
Municipal   -    77,832    -    77,832 
Total securities available for sale  $-   $184,697   $-   $184,697 
                     
Interest rate cap contract  $-   $1   $-   $1 
                     
Assets Measured - Nonrecurring Basis:                    
Impaired loans:                    
Residential real estate  $-   $-   $5,128   $5,128 
Commercial real estate   -    -    5,705    5,705 
Commercial business   -    -    145    145 
Consumer   -    -    342    342 
Total impaired loans  $-   $-   $11,320   $11,320 
                     
Loans held for sale  $-   $281   $-   $281 
                     
Other real estate owned, held for sale:                    
Residential real estate  $-   $-   $518   $518 
Commercial real estate   -    -    377    377 
Land and land development   -    -    58    58 
Total other real estate owned  $-   $-   $953   $953 

 

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 the lower of cost or fair value. These adjustments may include unobservable parameters. Any such valuation adjustments have been applied consistently over time.

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. There were no changes in the valuation techniques and related inputs used for assets measured at fair value during the six-month period ended March 31, 2015.

 

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. 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.

 

Derivative Financial Instruments. Derivative financial instruments consist of an interest rate cap contract. As such, significant fair value inputs can generally be verified by counterparties and do not involve significant management judgments (Level 2 inputs).

 

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 March 31, 2015 and September 30, 2014, the significant unobservable inputs used in the fair value measurement of impaired loans included a discount from appraised value ranging from 0.0% to 15.0% and estimated costs to sell the collateral ranging from 0.0% to 6.0%. During the three-month period ended March 31, 2015, the Company recognized provisions for loan losses of $49,000 for impaired loans. No provision for loan losses was recognized for the three-month period ended March 31, 2014 for impaired loans. During the six-month periods ended March 31, 2015 and 2014, the Company recognized provisions for loan losses of $49,000 and $2,000, respectively, for impaired loans.

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Loans Held for Sale. Loans held for sale are carried at the lower of cost or market value. The portfolio is comprised of residential real estate loans and fair value is based on specific prices of underlying contracts for sales to investors. The fair value of loans held for sale is classified as Level 2 in the fair value hierarchy.

 

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 March 31, 2015, the significant unobservable inputs used in the fair value measurement of other real estate owned included a discount from appraised value ranging from 15.0% to 56.5% with a weighted average of 23.2%. At September 30, 2014, the significant unobservable inputs used in the fair value measurement of other real estate owned included a discount from appraised value ranging from 13.3% to 50.0% with a weighted average of 18.7%. The Company recognized charges of $3,000 and $33,000 to write down other real estate owned to fair value for the three and six months ended March 31, 2015, respectively. The Company recognized charges of $65,000 and $102,000 to write down other real estate owned to fair value for the three and six months ended March 31, 2014, respectively.

 

Transfers Between Categories. There were no transfers into or out of Level 3 financial assets for the six-month periods ended March 31, 2015 and 2014. In addition, there were no transfers into or out of Levels 1 and 2 of the fair value hierarchy during the six-month periods ended March 31, 2015 and 2014.

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

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: 
March 31, 2015:  Amount   Level 1   Level 2   Level 3 
   (In thousands) 
                 
Financial assets:                    
Cash and due from banks  $9,875   $9,875   $-   $- 
Interest-bearing deposits with banks   10,322    10,322    -    - 
Interest-bearing time deposits   2,235    -    2,239    - 
Trading account securities   5,229    -    5,229    - 
Securities available for sale   183,375    -    183,375    - 
Securities held to maturity   5,012    -    5,693    - 
                     
Loans, net   445,024    -    -    444,998 
                     
Loans held for sale   320    -    320    - 
FRB and FHLB stock   7,462    -    7,462    - 
Accrued interest receivable   2,510    -    2,510    - 
Investment in historic tax credit entity (included in other assets)   4,169    -    4,169    - 
                     
Financial liabilities:                    
Deposits   536,937    -    -    540,128 
Short-term repurchase agreements   1,340    -    1,340    - 
Borrowings from FHLB   81,554    -    83,260    - 
Other long-term debt   4,724    -    4,724    - 
Accrued interest payable   179    -    179    - 
Advance payments by borrowers for taxes and insurance   747    -    747    - 

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

   Carrying   Fair Value Measurements Using: 
September 30, 2014:  Amount   Level 1   Level 2   Level 3 
   (In thousands) 
                 
Financial assets:                    
Cash and due from banks  $8,853   $8,853   $-   $- 
Interest-bearing deposits with banks   11,477    11,477    -    - 
Interest-bearing time deposits   1,500    -    1,496    - 
Trading account securities   5,319    -    5,319    - 
Securities available for sale   184,697    -    184,697    - 
Securities held to maturity   5,419    -    5,849    - 
                     
Loans, net   433,876    -    -    434,023 
                     
Loans held for sale   281    -    281    - 
FHLB stock   6,517    -    6,517    - 
Accrued interest receivable   2,511    -    2,511    - 
Interest rate cap (included in other assets)   1    -    1    - 
                     
Financial liabilities:                    
Deposits   533,194    -    -    535,364 
Short-term repurchase agreements   1,338    -    1,338    - 
Borrowings from FHLB   79,548    -    79,455    - 
Other long-term debt   4,812    -    4,812    - 
Accrued interest payable   175    -    175    - 
Advance payments by borrowers for taxes and insurance   748    -    748    - 

 

The carrying amounts in the preceding tables are included in the consolidated balance sheets under the applicable captions. 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:

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

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. For FRB and FHLB stock, which are restricted equity securities, the carrying amount is a reasonable estimate of fair value because they are not marketable.

 

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.

 

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, repurchase agreements and other long-term debt. 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, FHLB line of credit borrowings and other debt, the carrying value is a reasonable estimate of fair value.

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

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 three- and six-month periods ended March 31, 2015 amounted to $113,000 and $600,000, respectively. Compensation expense recognized for the three- and six-month periods ended March 31, 2014 amounted to $93,000 and $521,000, respectively. Company common stock held by the ESOP trust at March 31, 2015 and September 30, 2014 was as follows:

 

   March 31,   September 30, 
   2015   2014 
         
Allocated shares   157,972    132,339 
Unearned shares   28,073    53,706 
Total ESOP shares   186,045    186,045 
           
Fair value of unearned shares  $813,000   $1,341,000 

 

10.Stock Based Compensation Plans

 

The Company’s 2010 Equity Incentive Plan (“Plan”), which the Company’s shareholders approved in February 2010, provides for the award of stock options, restricted shares and performance shares.  The aggregate number of shares of the Company’s common stock available for issuance under the Plan may not exceed 355,885 shares.  The Company may grant both non-statutory and statutory (i.e., incentive) stock options that may not have a term exceeding ten years.  An award of a performance share is a grant of a right to receive shares of the Company’s common stock contingent upon the achievement of specific performance criteria or other objectives set at the grant date.  Awards granted under the Plan may be granted either alone, in addition to, or in tandem with any other award granted under the Plan.  The terms of the Plan include a provision whereby all unearned options and shares become immediately exercisable and fully vested upon a change in control.

  

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

In April 2010, the Company funded a trust, administered by an independent trustee, which acquired 101,681 common shares in the open market at a price per share of $13.60 for a total cost of $1.4 million. These acquired common shares were later granted to directors, officers and key employees in the form of restricted stock in May 2010 at a price per share of $13.25 for a total of $1.3 million. The difference between the purchase price and grant price of the common shares issued as restricted stock, totaling $41,000, was recognized by the Company as a reduction of additional paid in capital. The restricted stock vests ratably over a five-year period from the grant date. Compensation expense is measured based on the fair market value of the restricted stock at the grant date and is recognized ratably over the period during which the shares are earned (the vesting period). Compensation expense related to restricted stock recognized for the three- and six-month periods ended March 31, 2015 amounted to $63,000 and $131,000, respectively. Compensation expense related to restricted stock recognized for the three- and six-month periods ended March 31, 2014 amounted to $65,000 and $130,000, respectively. A summary of the Company’s nonvested restricted shares activity under the Plan as of March 31, 2015 and changes during the six-month period then ended is presented below.

 

       Weighted 
   Number   Average 
   of   Grant Date 
   Shares   Fair Value 
         
Nonvested at October 1, 2014   19,610   $13.25 
Granted   -    - 
Vested   (717)  $13.25 
Forfeited   -    - 
           
Nonvested at March 31, 2015   18,893   $13.25 

 

There were 717 restricted shares that vested during the six-month period ended March 31, 2015, upon the retirement of a director. The total fair value of restricted shares that vested during the six-month period ended March 31, 2015 was $18,000. There were no restricted shares granted or vested during the six-month period ended March 31, 2014. At March 31, 2015, there was $31,000 of total unrecognized compensation expense related to nonvested restricted shares. The compensation expense is expected to be recognized over the remaining vesting period of 0.13 years.

 

In May 2010, the Company awarded 177,549 incentive and 76,655 non-statutory stock options to directors, officers and key employees. The options granted vest ratably over five years and are exercisable in whole or in part for a period up to ten years from the date of the grant. Compensation expense is measured based on the fair market value of the options at the grant date and is recognized ratably over the period during which the shares are earned (the vesting period). The weighted average fair value at the grant date for options granted in 2010 was $3.09, as determined at the date of grant using the Binomial option pricing model.

 

- 39 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

A summary of stock option activity under the Plan as of March 31, 2015, and changes during the six-month period then ended is presented below.

       Weighted   Weighted     
       Average   Average     
   Number   Exercise   Remaining   Aggregate 
   of   Price   Contractual   Intrinsic 
   Shares   Per Share   Term (years)   Value 
   (Dollars in thousands, except per share data) 
                 
Outstanding at October 1, 2014   234,232   $13.25    5.6   $2,743 
Granted   -    -           
Exercised   (20,972)  $13.25       $ 250
Forfeited or expired   -    -           
                     
Outstanding at March 31, 2015   213,260   $13.25    5.1   $3,348 
                     
Exercisable at March 31, 2015   166,009   $13.25    5.1   $2,606 

 

There were no stock options granted or exercised during the six-month period ended March 31, 2014. The Company recognized compensation expense related to stock options of $37,000 and $76,000 for the three- and six-month periods ended March 31, 2015, respectively. The Company recognized compensation expense related to stock options of $38,000 and $76,000 for the three- and six-month periods ended March 31, 2014. At March 31, 2015, there was $18,000 of unrecognized compensation expense related to nonvested stock options, which will be recognized over the remaining vesting period of 0.13 years.

 

- 40 -
 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

11.Preferred Stock

 

On August 11, 2011, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with the United States Department of the Treasury, pursuant to which the Company issued 17,120 shares of the its Senior Non-Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), having a liquidation amount per share equal to $1,000, for a total purchase price of $17,120,000. The Purchase Agreement was entered into, and the Series A Preferred Stock was issued, pursuant to the Small Business Lending Fund (“SBLF”) program, a $30 billion fund established under the Small Business Jobs Act of 2010, that encourages lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion.

 

Holders of the Series A Preferred Stock are entitled to receive non-cumulative dividends, payable quarterly, on each January 1, April 1, July 1 and October 1, beginning October 1, 2011. The dividend rate, as a percentage of the liquidation amount, can fluctuate on a quarterly basis during the first ten quarters during which the Series A Preferred Stock is outstanding and may be adjusted between 1.0% and 5.0% per annum, to reflect the amount of change in the Bank’s level of Qualified Small Business Lending (“QSBL”) (as defined in the Purchase Agreement) over the baseline level calculated under the terms of the Purchase Agreement (“Baseline”).  In addition to the dividend, in the event the Bank’s level of QSBL has not increased relative to the Baseline, at the beginning of the tenth calendar quarter, the Company will be subject to an additional lending incentive fee equal to 2.0% per annum. For the eleventh dividend period through the eighteenth dividend period, inclusive, and that portion of the nineteenth dividend period before, but not including, the four and one half (4½) year anniversary of the date of issuance, the dividend rate will be fixed at between 1.0% and 7.0% per annum based upon the increase in QSBL as compared to the Baseline. After four and one half (4½) years from issuance, the dividend rate will increase to nine 9.0%. Based upon the Bank’s level of QSBL over the Baseline for purposes of calculating the dividend rate for the initial dividend period, the dividend rate for the initial dividend period ended September 30, 2011 was 4.84%. The dividend rate for the fifteenth dividend period ended March 31, 2015 was 1.0% and the weighted average dividend rate for the six-month period ended March 31, 2015 was 1.0%. The dividend rate for the sixteenth dividend period through the eighteenth dividend period will be 1.0%.

 

The Series A Preferred Stock is non-voting, except in limited circumstances. In the event that the Company fails to timely make five dividend payments, whether or not consecutive, the holder of the Series A Preferred Stock will have the right, but not the obligation, to appoint a representative as an observer on the Company’s board of directors.

 

The Series A Preferred Stock may be redeemed at any time at the Company’s option, at a redemption price of one hundred percent (100%) of the liquidation amount plus accrued but unpaid dividends to the date of redemption for the current period, subject to the approval of its federal banking regulator.

 

The Series A Preferred Stock was issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. The Company has agreed to register the Series A Preferred Stock under certain circumstances set forth in the Purchase Agreement. The Series A Preferred Stock is not subject to any contractual restrictions on transfer.

 

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FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

12.Recent Accounting Pronouncements

 

The following are summaries of recently issued accounting pronouncements that impact the accounting and reporting practices of the Company:

 

In January 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The objective of the amendments in this update is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The amendments in the update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor, and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in the update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The update provides a five-step revenue recognition model for all revenue arising from contracts with customer and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are included in the scope of other standards). The guidance requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and must be applied either retrospectively or using the modified retrospective approach. Early adoption is not permitted. Management is evaluating the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position or results of operations.

 

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Safe Harbor Statement for Forward-Looking Statements

 

This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; rather they are statements based on the Company’s current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

 

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company's actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed herein and in our Annual Report on Form 10-K for the year ended September 30, 2014 under “Part II, Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

 

Critical Accounting Policies

 

During the six-month period ended March 31, 2015, there was no significant change in the Company's critical accounting policies or the application of critical accounting policies as disclosed in the Company's Annual Report on Form 10-K for the year ended September 30, 2014.

 

Comparison of Financial Condition at March 31, 2015 and September 30, 2014

 

Cash and Cash Equivalents. Cash and cash equivalents decreased $133,000, from $20.3 million at September 30, 2014 to $20.2 million at March 31, 2015.

 

Loans. Net loans receivable increased $11.1 million, from $433.9 million at September 30, 2014 to $445.0 million at March 31, 2015, due primarily to increases in commercial real estate, multi-family and commercial business loans of $10.0 million, $1.8 million and $1.8 million, respectively, which more than offset a decrease in residential mortgage loans of $2.6 million. The decrease in residential mortgage loans is primarily due to loan payoffs that have not been replaced by new originations, as the Company’s primary lending focus continues to be the origination of commercial related loans.

 

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Trading Account Securities. Trading account securities decreased by $90,000, from $5.3 million at September 30, 2014 to $5.2 million at March 31, 2015. Trading account securities are comprised of investment grade municipal bonds and the portfolio is managed by an investment advisory firm registered with the U.S. Securities and Exchange Commission.

 

Securities Available for Sale. Securities available for sale decreased $1.3 million, from $184.7 million at September 30, 2014 to $183.4 million at March 31, 2015, due primarily to maturities of $6.1 million and principal repayments of $8.7 million, partially offset by purchases of $11.7 million. The decrease in securities available for sale, primarily in U.S. government agency and sponsored enterprises securities, including mortgage-backed securities and CMOs was due primarily to principal repayments.

 

Securities Held to Maturity. Investment securities held-to-maturity decreased $407,000, from $5.4 million at September 30, 2014 to $5.0 million at March 31, 2015. There were no purchases of securities held to maturity, and partial calls and principal repayments on mortgage-backed securities totaled $404,000 during the six-month period ended March 31, 2015.

 

Other Assets. Other assets increased $3.5 million, from $2.5 million at September 30, 2014 to $6.0 million at March 31, 2015, due primarily to the Bank’s $4.2 million commitment to invest in a historic tax credit entity. See Note 5 of the Notes to Consolidated Financial Statements beginning on page 8 of this quarterly report for additional information regarding the investment in the historic tax credit entity.

 

Deposits. Total deposits increased $3.7 million, from $533.2 million at September 30, 2014 to $536.9 million at March 31, 2015, due primarily to increases in non-interest bearing demand deposits, certificates of deposit and savings accounts of $6.5 million, $5.2 million, $1.7 million, respectively, which more than offset decreases in interest-bearing demand deposit accounts and money market accounts of $6.5 million and $3.1 million, respectively, during the period. The increase in certificates of deposit is due to an increase of $14.3 million in brokered certificates of deposits, which more than offset decreases in various maturity classes of retail certificates of deposits. The decrease in retail certificates of deposits is primarily attributed to maturities that customers are investing in more liquid deposit accounts given the low interest rate environment. Management continues to utilize brokered certificates of deposit in order to take advantage of historically low interest rates, provide short-term liquidity, replace attrition of retail certificates of deposit and provide funding for loan originations. Brokered certificates of deposit totaled $72.1 million at March 31, 2015 and $57.8 million at September 30, 2014.

 

Borrowings. Borrowings from the FHLB increased $2.1 million, from $79.5 million at September 30, 2014 to $81.6 million at March 31, 2015. Borrowings from the FHLB have increased in order to provide funding for loan originations.

 

- 44 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Stockholders’ Equity. Stockholders’ equity increased $4.6 million, from $87.1 million at September 30, 2014 to $91.7 million at March 31, 2015. Retained earnings increased $2.2 million due to net income available to common shareholders of $2.6 million, partially offset by common stock cash dividends of $471,000. Accumulated other comprehensive income increased $1.4 million as a result of an increase in net unrealized gains on securities available for sale, which is due to changes in the yield curve and long-term rate forecasts. Book value (common shareholders’ equity) per common share was $34.09 at March 31, 2015 as compared to $32.21 at September 30, 2014. Tangible book value (common shareholders’ equity, less goodwill and core deposit intangibles) per common share was $29.75 at March 31, 2015 as compared to $27.76 at September 30, 2014.

 

Results of Operations for the Six Months Ended March 31, 2015 and 2014

 

Overview. The Company reported net income of $2.7 million and net income available to common shareholders of $2.6 million, or $1.18 per diluted share, for the six-month period ended March 31, 2015 compared to net income of $2.6 million and net income available to common shareholders of $2.5 million, or $1.10 per diluted share, for the six-month period ended March 31, 2014. The annualized return on average assets, average equity and average common stockholders’ equity were 0.75%, 6.09% and 7.53%, respectively, for the six-month period ended March 31, 2015.

 

Net Interest Income. Net interest income increased $136,000, or 1.1%, for the six-month period ended March 31, 2015 compared to the same period in 2014. Average interest-earnings assets increased $32.7 million and average interest-bearing liabilities increased $21.5 million when comparing the two periods. The tax-equivalent interest rate spread was 3.75% for 2015 compared to 3.89% for 2014.

 

Total interest income increased $209,000, or 1.5%, when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $32.7 million, from $624.2 million for 2014 to $656.9 million for 2015, which more than offset the change in interest income due to a decrease in the average tax-equivalent yield on interest-earning assets from 4.55% for 2014 to 4.41% for 2015. The average balance of loans, total investment securities and interest-bearing deposits with banks increased $23.4 million, $4.4 million and $3.5 million, respectively, when comparing the two periods.

 

Total interest expense increased $73,000, or 4.1%, due primarily to an increase in the average balance of interest-bearing liabilities of $21.5 million, from $545.9 million for 2014 to $567.4 million for 2015. The average cost of interest-bearing liabilities was 0.66% for each of the six-month periods ended March 31, 2015 and 2014. The average balance of total interest-bearing deposits increased $16.6 million and the average balance of borrowings increased $4.9 million when comparing the two periods.

 

- 45 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Average Balance Sheets. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs for the six-month periods ended March 31, 2015 and 2014. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material. Tax exempt income on loans and investment securities has been calculated on a tax equivalent basis using a federal marginal tax rate of 34%.

 

   Six Months Ended March 31, 
   2015   2014 
   Average 
Balance
   Interest
and
Dividends
   Yield/
Cost
   Average 
Balance
   Interest
and
Dividends
   Yield/
Cost
 
   (Dollars in thousands) 
Assets:                              
Interest-bearing deposits with banks  $15,526   $23    0.30%  $11,992   $17    0.28%
Loans   448,299    10,764    4.80    424,883    10,524    4.95 
Investment securities   135,345    3,015    4.46    134,059    3,038    4.53 
Agency mortgage-backed securities   50,718    524    2.07    47,632    494    2.07 
FRB and FHLB stock   7,024    146    4.16    5,629    128    4.55 
Total interest-earning assets   656,912    14,472    4.41    624,195    14,201    4.55 
                               
Non-interest-earning assets   66,346              59,094           
Total assets  $723,258             $683,289           
                               
Liabilities and equity:                              
NOW accounts  $113,443   $113    0.20%  $116,248   $122    0.21%
Money market deposit accounts   80,426    125    0.31    71,818    120    0.33 
Savings accounts   70,692    22    0.06    68,776    21    0.06 
Time deposits   200,000    980    0.98    191,076    947    0.99 
Total interest-bearing deposits   464,561    1,240    0.53    447,918    1,210    0.54 
                               
Borrowings (1)   102,833    643    1.25    97,978    600    1.22 
Total interest-bearing liabilities   567,394    1,883    0.66    545,896    1,810    0.66 
                               
Non-interest-bearing deposits   57,470              49,076           
Other non-interest-bearing liabilities   8,859              4,969           
Total liabilities   633,723              599,941           
                               
Total equity   89,535              83,348           
Total liabilities and equity  $723,258             $683,289           
Net interest income       $12,589             $12,391      
Interest rate spread             3.75%             3.89%
Net interest margin             3.83%             3.97%
Average interest-earning assets to average interest-bearing liabilities             115.78%             114.34%

 

 

(1) Includes FHLB borrowings, repurchase agreements and other long-term debt.

 

- 46 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income for the six-month periods ended March 31, 2015 and 2014. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each.

 

   Six Months Ended March 31, 2015
Compared to
Six Months Ended March 31, 2014
 
   Increase (Decrease)
Due to
     
   Rate   Volume   Net 
       (In thousands)     
Interest income:               
Interest-bearing deposits with banks  $1   $5   $6 
Loans   (293)   533    240 
Investment securities   (60)   37    (23)
Agency mortgage-backed securities   -    30    30 
Other interest-earning assets   (10)   28    18 
Total interest-earning assets   (362)   633    271 
                
Interest expense:               
Deposits   (30)   60    30 
Borrowings (1)   14    29    43 
Total interest-bearing liabilities   (16)   89    73 
Net increase (decrease) in net interest income  $(346)  $544   $198 

 

 

(1) Includes FHLB borrowings, repurchase agreements and other long-term debt.

 

Provision for Loan Losses. The provision for loan losses was $419,000 for the six-month period ended March 31, 2015 compared to $604,000 for the same period in 2014. The decrease in the provision for loans losses for 2015 as compared to the prior period was due primarily to a decrease in nonperforming loans when comparing the two periods.

 

The Company recognized net charge-offs of $155,000 for the six-month period ended March 31, 2015 compared to net charge-offs of $82,000 for the same period in 2014.

 

The recorded investment in nonperforming loans was $3.9 million at March 31, 2015 compared to $4.3 million at September 30, 2014 and $5.2 million at March 31, 2014. Nonperforming loans at March 31, 2015 include nonaccrual loans of $2.8 million and loans totaling $1.1 million that are over 90 days past due, but still accruing interest. These loans are still accruing interest because the estimated value of the collateral and collection efforts are deemed sufficient to ensure their full recovery. The decrease in nonperforming loans from September 30, 2014 to March 31, 2015 is due primarily to a single commercial real estate loan with an outstanding balance of $696,000 that was reclassified from nonaccrual to accruing status as of December 31, 2014. At March 31, 2015, this loan, with an outstanding balance of $690,000, was current and performing according to the restructured terms.

 

- 47 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Gross loans receivable increased $19.1 million from $440.6 million at March 31, 2014 to $459.7 million at March 31, 2015, primarily due to increases in permanent commercial real estate and commercial real estate construction loans of $20.6 million and $3.8 million, respectively, which more than offset a decrease in multi-family loans of $5.0 million. The increase in commercial real estate loans when comparing the two periods is due primarily to an increase in loans originated to high net worth individuals that are secured by low loan-to-value, single-tenant commercial properties located outside of the Company’s primary market area and that are leased to investment grade national-brand retailers. At March 31, 2015, $47.2 million, or 28.8% of the commercial real estate loan portfolio and 10.3% of the total loan portfolio, consisted of these loans, compared to $24.8 million, or 17.3% of the commercial real estate loan portfolio and 5.6% of the total loan portfolio, at March 31, 2014.

 

The allowance for loan losses was $6.5 million at March 31, 2015 compared to $6.3 million at September 30, 2014 and $6.1 million at March 31, 2014. Management has deemed these amounts as adequate on those dates based on its best estimate of probable known and inherent loan losses. The consistent application of management’s allowance for loan losses methodology resulted in an increase in the level of the allowance for loan losses consistent with changes in the loan portfolio and overall economic conditions.

 

Noninterest Income. Noninterest income decreased $297,000 for the six-month period ended March 31, 2015 as compared to the same period in 2014. The decrease was due primarily to decreases in other income and net gain on trading account securities of $274,000 and $202,000, respectively, which more than offset increases in service charges on deposit accounts, real estate lease income and commission income of $79,000, $40,000 and $28,000, respectively. The decrease in other income is due primarily to a litigation settlement of $277,000 received in the March 2014 quarter as a partial recovery of losses on commercial bond investments recognized by Community First Bank in 2008.

 

Noninterest Expense. Noninterest expenses increased $65,000 for the six-month period ended March 31, 2015 as compared to the same period in 2014. The increase was due primarily to increases in data processing, advertising and other operating expenses of $125,000, $113,000 and $119,000, respectively, which more than offset decreases in professional fees, net loss on other real estate owned and compensation and benefits expense of $117,000, $87,000 and $71,000, respectively. The increase in data processing expense is due primarily to contract termination costs of $68,000 incurred during the December 2014 quarter. The increase in other operating expenses is due primarily to provisions for insurance claims of $85,000 during the 2015 period for the Captive. The decrease in professional fees expense is due primarily to $201,000 of expense incurred in the 2014 period for consulting services related to a revenue enhancement and operating expense efficiencies project.

 

Income Tax Expense. The Company recognized income tax expense of $843,000 for the six months ended March 31, 2015, for an effective tax rate of 23.6%, compared to income tax expense of $1.0 million, for an effective tax rate of 29.0%, for the same period in 2014. The decreases in income tax expense and the effective tax rate for the 2015 period were due primarily to the tax effect of the Captive, which was formed in September 2014.

 

- 48 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Results of Operations for the Three Months Ended March 31, 2015 and 2014

 

Overview. The Company reported net income and net income available to common shareholders of $1.5 million, or $0.66 per diluted share, for the three-month period ended March 31, 2015 compared to net income and net income available to common shareholders of $1.5 million, or $0.66 per diluted share, for the three-month period ended March 31, 2014. The annualized return on average assets, average equity and average common stockholders’ equity were 0.84%, 6.76% and 8.33%, respectively, for the three-month period ended March 31, 2015.

 

Net Interest Income. Net interest income decreased $130,000, or 2.1%, for the three-month period ended March 31, 2015 compared to the same period in 2014. Average interest-earnings assets increased $24.4 million and average interest-bearing liabilities increased $10.7 million when comparing the two periods. The tax-equivalent interest rate spread was 3.69% for 2015 as compared to 3.91% for 2014.

 

Total interest income decreased $66,000, or 0.9%, when comparing the two periods due primarily to a decrease in the average tax-equivalent yield on interest-earning assets from 4.55% for 2014 to 4.36% for 2015, which more than offset the change in interest income due to an increase in the average balance of interest-earning assets of $24.4 million, from $635.6 million for 2014 to $660.0 million for 2015. The average balance of loans and interest-bearing deposits with banks increased $21.7 million and $3.7 million, respectively, which more than offset a decrease in the average balance of total investment securities of $2.9 million, when comparing the two periods.

 

Total interest expense increased $64,000, or 7.1%, due primarily to an increase in the average balance of interest-bearing liabilities of $10.7 million, from $558.2 million for 2014 to $568.9 million for 2015, and an increase in the average cost of interest-bearing liabilities from 0.64% for 2014 to 0.67% for 2015. The average balance of borrowings increased $10.3 million and the average balance of total interest-bearing deposits increased $369,000 when comparing the two periods.

 

- 49 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Average Balance Sheets. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs for the three-month periods ended March 31, 2015 and 2014. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material. Tax exempt income on loans and investment securities has been calculated on a tax equivalent basis using a federal marginal tax rate of 34%.

 

   Three Months Ended March 31, 
   2015   2014 
   Average 
Balance
   Interest
and
Dividends
   Yield/
Cost
   Average 
Balance
   Interest
and
Dividends
   Yield/
Cost
 
   (Dollars in thousands) 
Assets:                              
Interest-bearing deposits with banks  $16,185   $10    0.25%  $12,446   $8    0.26%
Loans   452,403    5,372    4.75    430,674    5,278    4.90 
Investment securities   134,109    1,479    4.41    136,870    1,591    4.65 
Agency mortgage-backed securities   49,856    254    2.04    49,968    274    2.19 
FRB and FHLB stock   7,462    83    4.45    5,675    78    5.50 
Total interest-earning assets   660,015    7,198    4.36    635,633    7,229    4.55 
                               
Non-interest-earning assets   67,800              60,632           
Total assets  $727,815             $696,265           
                               
Liabilities and equity:                              
NOW accounts  $111,328   $52    0.19%  $115,800   $58    0.20%
Money market deposit accounts   80,330    62    0.31    71,751    59    0.33 
Savings accounts   71,204    11    0.06    69,478    11    0.06 
Time deposits   199,067    473    0.95    204,531    470    0.92 
Total interest-bearing deposits   461,929    598    0.52    461,560    598    0.52 
                               
Borrowings (1)   106,965    354    1.32    96,689    290    1.20 
Total interest-bearing liabilities   568,894    952    0.67    558,249    888    0.64 
                               
Non-interest-bearing deposits   58,157              49,438           
Other non-interest-bearing liabilities   10,357              4,954           
Total liabilities   637,408              612,641           
                               
Total equity   90,407              83,624           
Total liabilities and equity  $727,815             $696,265           
Net interest income       $6,246             $6,341      
Interest rate spread             3.69%             3.91%
Net interest margin             3.79%             3.99%
Average interest-earning assets to average interest-bearing liabilities             116.02%             113.86%

 

 

(1) Includes FHLB borrowings, repurchase agreements and other long-term debt.

 

- 50 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income for the three-month periods ended March 31, 2015 and 2014. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each.

 

   Three Months Ended March 31, 2015
Compared to
Three Months Ended March 31, 2014
 
   Increase (Decrease)
Due to
     
   Rate   Volume   Net 
       (In thousands)     
Interest income:               
Interest-bearing deposits with banks  $-   $2   $2 
Loans   (145)   239    94 
Investment securities   (81)   (31)   (112)
Agency mortgage-backed securities   (19)   (1)   (20)
Other interest-earning assets   (8)   13    5 
Total interest-earning assets   (253)   222    (31)
                
Interest expense:               
Deposits   -    -    - 
Borrowings (1)   31    33    64 
Total interest-bearing liabilities   31    33    64 
Net increase (decrease) in net interest income  $(284)  $189   $(95)

 

 

(1) Includes FHLB borrowings, repurchase agreements and other long-term debt.

 

Provision for Loan Losses. The provision for loan losses was $212,000 for the three-month period ended March 31, 2015 compared to $303,000 for the same period in 2014. The decrease in the provision for loans losses for 2015 as compared to the prior period was due primarily to a decrease in nonperforming loans when comparing the two periods.

 

The Company recognized net charge-offs of $148,000 for the three-month period ended March 31, 2015 compared to net charge-offs of $214,000 for the same period in 2014.

 

- 51 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Noninterest Income. Noninterest income decreased $304,000 for the three-month period ended March 31, 2015 as compared to the same period in 2014. The decrease was due primarily to decreases in other income and net gain on trading account securities of $271,000 and $116,000, respectively, which more than offset increases in commission income, real estate lease income and services charges on deposit accounts of $34,000, $31,000 and $26,000, respectively. The decrease in other income is due primarily to a litigation settlement of $277,000 received in the March 2014 quarter as a partial recovery of losses on commercial bond investments recognized by Community First Bank in 2008.

 

Noninterest Expense. Noninterest expenses decreased $145,000 for the three-month period ended March 31, 2015 as compared to the same period in 2014. The decrease was due primarily to decreases in professional fees and compensation and benefits expense of $186,000 and $93,000, respectively, which more than offset increases in advertising and data processing expenses of $74,000 and $54,000, respectively. The decrease in professional fees expense is due primarily to $167,000 of expense incurred in the March 2014 quarter for consulting services related to the revenue enhancement and operating expense efficiencies project.

 

Income Tax Expense. The Company recognized income tax expense of $435,000 for the three months ended March 31, 2015, for an effective tax rate of 22.2%, compared to income tax expense of $624,000, for an effective tax rate of 28.9%, for the same period in 2014. The decreases in income tax expense and the effective tax rate for the 2015 period were due primarily to the tax effect of the Captive, which was formed in September 2014.

 

- 52 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Liquidity and Capital Resources

 

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Bank’s primary sources of funds are customer deposits, proceeds from loan repayments, maturing securities and FHLB borrowings. While loan repayments and maturities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, general economic conditions and competition. At March 31, 2015, the Bank had cash and cash equivalents of $20.2 million, trading account securities with a fair value of $5.2 million and securities available-for-sale with a fair value of $183.4 million. If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB, borrowing capacity on a federal funds purchased line of credit facility with another financial institution and additional collateral eligible for repurchase agreements.

 

The Bank’s primary investing activity is the origination of commercial real estate and one-to-four family mortgage loans and, to a lesser extent, consumer, multi-family, commercial business and residential and commercial real estate construction loans. The Bank also invests in U.S. government agency and sponsored enterprises securities, mortgage backed securities and collateralized mortgage obligations issued by U.S. government agencies and sponsored enterprises, and municipal bonds.

 

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. If these maturing deposits do not remain with the Bank, we will be required to seek other sources of funds, including other certificates of deposit and borrowings.

 

The Company is a separate legal entity from the Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations, to pay any dividends and to repurchase any of its outstanding common stock. The Company’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company in any calendar year cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years. During the six months ended March 31, 2015 the Bank declared and paid dividends to the Company totaling $8.5 million. At March 31, 2015, the Company (unconsolidated basis) had liquid assets of $15.1 million.

 

Capital Management. The Bank is required to maintain specific amounts of capital pursuant to regulatory requirements. As of March 31, 2015, the Bank was in compliance with all regulatory capital requirements that were effective as of such date, with Tier 1 capital (to average total assets), common equity Tier 1 capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets) and total capital (to risk-weighted assets) ratios of 8.27%, 12.29%, 12.29% and 13.54%, respectively. The regulatory requirements at that date were 5.0%, 6.5%, 8.0% and 10.0%, respectively, in order to be categorized as “well capitalized” under applicable regulatory guidelines. At March 31, 2015, the Bank was considered “well-capitalized” under applicable regulatory guidelines.

 

- 53 -
 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Off-Balance Sheet Arrangements

 

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with GAAP, are not recorded on the Company's financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are primarily used to manage customers’ requests for funding and take the form of loan commitments and letters of credit. A further presentation of the Company’s off-balance sheet arrangements is presented in the Company’s Annual Report on Form 10-K for the year ended September 30, 2014.

 

For the six-months ended March 31, 2015, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Company's financial condition, results of operations or cash flows.

 

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I – ITEM 3

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

 

Qualitative Aspects of Market Risk. Market risk is the risk that the estimated fair value of our assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that our net income will be significantly reduced by interest rate changes.

 

The Company’s principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates by operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates. In order to reduce the exposure to interest rate fluctuations, the Company has developed strategies to manage its liquidity, shorten its effective maturities of certain interest-earning assets and decrease the interest rate sensitivity of its asset base. Management has sought to decrease the average maturity of its assets by emphasizing the origination of short-term residential mortgage, commercial mortgage and commercial business loans, all of which are retained by the Company for its portfolio. The Company relies on retail deposits as its primary source of funds. Management believes the primary use of retail deposits, complimented with a modest allocation of brokered certificates of deposit and FHLB borrowings, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds.

 

Quantitative Aspects of Market Risk. Potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits and extending loans. Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Our earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve Board. Furthermore, the Company does not engage in hedging activities or purchase high-risk derivative instruments and also is not subject to foreign currency exchange rate risk or commodity price risk.

 

An element in our ongoing process is to measure and monitor interest rate risk using a Net Interest Income at Risk simulation to model the interest rate sensitivity of the balance sheet and to quantify the impact of changing interest rates on the Company. The model quantifies the effects of various possible interest rate scenarios on projected net interest income over a one-year horizon. The model assumes a semi-static balance sheet and measures the impact on net interest income relative to a base case scenario of hypothetical changes in interest rates over twelve months and provides no effect given to any steps that management might take to counter the effect of the interest rate movements. The scenarios include prepayment assumptions, changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates in order to capture the impact from re-pricing, yield curve, option, and basis risks.

 

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I – ITEM 3

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

 

Results of our simulation modeling, which assumes an immediate and sustained parallel shift in market interest rates, project that the Company’s net interest income could change as follows over a one-year horizon, relative to our base case scenario.

 

   At March 31, 2015   At September, 2014 
Immediate Change  One Year Horizon   One Year Horizon 
in the Level  Dollar   Percent   Dollar   Percent 
of Interest Rates  Change   Change   Change   Change 
   (Dollars in thousands) 
300bp  $1,218    2.53%  $(1,754)   (7.04)%
200bp   870    1.81    (1,132)   (4.54)
100bp   362    0.75    (552)   (2.22)
Static   -    -    -    - 
(100)bp   (1,670)   (3.47)   (239)   (0.96)

 

At March 31, 2015, our simulated exposure to an increase in interest rates shows that an immediate and sustained increase in rates of 1.00% will increase our net interest income by $362,000 or 0.75% over a one year horizon compared to a flat interest rate scenario. Furthermore, rate increases of 2.00% and 3.00% would cause net interest income to increase by 1.81% and 2.53%, respectively.

 

The Company also has longer term interest rate risk exposure, which may not be appropriately measured by Net Interest Income at Risk modeling, and therefore uses an Economic Value of Equity (“EVE”) interest rate sensitivity analysis in order to evaluate the impact of its interest rate risk on earnings and capital. This is measured by computing the changes in net EVE for its cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. EVE modeling involves discounting present values of all cash flows for on and off balance sheet items under different interest rate scenarios and provides no effect given to any steps that management might take to counter the effect of the interest rate movements. The discounted present value of all cash flows represents the Company’s EVE and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. The amount of base case EVE and its sensitivity to shifts in interest rates provide a measure of the longer term re-pricing and option risk in the balance sheet.

 

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I – ITEM 3

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

 

Results of our simulation modeling, which assumes an immediate and sustained parallel shift in market interest rates, project that Company’s EVE could change as follows, relative to our base case scenario.

 

   At March 31, 2015 
Immediate Change  Economic Value of Equity   Economic Value of Equity as a 
in the Level  Dollar   Dollar   Percent   Percent of Present Value of Assets 
of Interest Rates  Amount   Change   Change   EVE Ratio   Change 
   (Dollars in thousands) 
300bp  $107,226   $(4,625)   (4.13)%   16.42%   97bp
200bp   113,934    2,083    1.86    16.75    130bp
100bp   116,973    5,122    4.58    16.59    114bp
Static   111,851    -    -    15.45    -bp
(100)bp   101,172    (10,679)   (9.55)   13.77    (168)bp

 

   At September 30, 2014 
Immediate Change  Economic Value of Equity   Economic Value of Equity as a 
in the Level  Dollar   Dollar   Percent   Percent of Present Value of Assets 
of Interest Rates  Amount   Change   Change   EVE Ratio   Change 
   (Dollars in thousands) 
300bp  $106,910   $(14,317)   (11.81)%   16.91%   (28)bp
200bp   114,585    (6,642)   (5.48)   17.44    25bp
100bp   122,696    1,469    1.21    17.92    73bp
Static   121,227    -    -    17.19    -bp
(100)bp   111,206    (10,021)   (8.27)   15.52    (167)bp

 

The previous table indicates that at March 31, 2015, the Company would expect an increase in its EVE in the event of a sudden and sustained 100 to 200 basis point increase but a decrease in EVE in the event of a sudden and sustained 300 basis point increase and/or a 100 basis point decrease in prevailing interest rates. The expected decrease in the Company’s EVE given a larger increase in rates is primarily attributable to the relatively high percentage of fixed-rate loans in the Company’s loan portfolio, which at March 31, 2015 comprised approximately 46.0% of the loan portfolio.

 

The models are driven by expected behavior in various interest rate scenarios and many factors besides market interest rates affect the Company’s net interest income and EVE. For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand its overall sensitivity to market interest rate changes. Therefore, as with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables and it’s recognized that the model outputs are not guarantees of actual results. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table.

 

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 4

 

CONTROLS AND PROCEDURES

 

Controls and Procedures

 

The Company’s management, including the Company’s principal executive officer and the Company’s principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on their evaluation, the principal executive officer and the principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that information required to be disclosed in reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s Rules and Forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

During the quarter ended March 31, 2015, there were no changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

 

OTHER INFORMATION

 

Item 1.Legal Proceedings

 

The Company is not a party to any legal proceedings. Periodically, there have been various claims and lawsuits involving the Bank, mainly as a plaintiff, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank’s business. The Bank is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition or results of operations.

 

Item 1A.Risk Factors

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2014 which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors described in our Annual Report on Form 10-K, however, these are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

 

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

 

OTHER INFORMATION

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

The following table presents information regarding the Company’s stock repurchase activity during the quarter ended March 31, 2015:

 

Period  (a)
Total number of
shares (or units)
purchased
   (b)
Average price 
paid per share
(or unit)
   (c)
Total number of shares
(or units) purchased as
part of publicly
announced plans or
programs (1)
   (d)
Maximum number (or
appropriate dollar value) of
shares (or units) that may yet
be purchased under the plans
or programs
 
January 1, 2015 through
January 31, 2015
   -   $-    -    83,073 
February 1, 2015 through
February 28, 2015
   -   $-    -    83,073 
March 1, 2015 through
March 31, 2015
   -   $-    -    83,073 
Total   -   $-    -    83,073 

 

 

(1) On November 16, 2012, the Company announced that its Board of Directors authorized a stock repurchase program to acquire up to 230,217 shares, or 10.0% of the Company’s outstanding common stock. Under the program, repurchases are to be conducted through open market purchases or privately negotiated transactions, and are to be made from time to time depending on market conditions and other factors. There is no guarantee as to the exact number of shares to be repurchased by the Company. Repurchased shares will be held in treasury.

 

Item 3.Defaults upon Senior Securities

 

Not applicable.

 

Item 4.Mine Safety Disclosures

 

Not applicable.

 

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

 

OTHER INFORMATION

 

Item 5.Other Information

 

None.

 

Item 6.Exhibits

 

31.1Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 

31.2Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 

32.1Section 1350 Certification of Chief Executive Officer

 

32.2Section 1350 Certification of Chief Financial Officer

 

  101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders Equity, (v) the Consolidated Statements of Cash Flows and (vi) related notes

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  FIRST SAVINGS FINANCIAL GROUP, INC.
  (Registrant)
     
Dated  May 15, 2015 BY: /s/ Larry W. Myers
    Larry W. Myers
    President and Chief Executive Officer
     
Dated  May 15, 2015 BY: /s/ Anthony A. Schoen
  Anthony A. Schoen
    Chief Financial Officer

 

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