UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

x

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

 

For the quarterly period ended June 30, 2016

 

OR

 

¨

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

 

For the transition period from                              to                              

 

Commission File No. 1-34155

 

First Savings Financial Group, Inc.

(Exact name of registrant as specified in its charter)

 

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

 

501 East Lewis & Clark Parkway, Clarksville, Indiana 47129

(Address of principal executive offices) (Zip Code)

 

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

 

Not applicable

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

 

INDEX

 

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

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

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

 

See notes to consolidated financial statements.

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

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

 

See notes to consolidated financial statements.

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

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

 

See notes to consolidated financial statements.

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

 

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

 

See notes to consolidated financial statements.

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

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

 

See notes to consolidated financial statements.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

Presentation of Interim Information

 

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

 

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

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

2.

Investment Securities

 

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

 

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

 

Trading Account Securities

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Securities Available for Sale and Held to Maturity

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

3.

Loans and Allowance for Loan Losses

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

		At June 30, 2016												Three Months Ended June 30,																Nine Months Ended June 30,
		Recorded Investment				Unpaid Principal Balance				Related Allowance				2016 Average Recorded Investment				2016 Interest Income Recognized				2015 Average Recorded Investment				2015 Interest Income Recognized				2016 Average Recorded Investment				2016 Interest Income Recognized				2015 Average Recorded Investment				2015 Interest Income Recognized
		(In thousands)
Loans with no related allowance recorded:
Residential real estate		$	4,221			$	4,625			$	-			$	4,929			$	36			$	5,643			$	36			$	5,252			$	109			$	5,663			$	109
Commercial real estate			6,417				6,486				-				6,508				48				6,047				55				6,646				148				5,842				168
Multifamily			-				-				-				-				-				-				-				-				-				-				-
Construction			-				-				-				-				-				-				-				-				-				-				-
Land and land development			-				-				-				-				-				-				-				-				-				-				-
Commercial business			232				223				-				248				2				305				-				299				4				242				1
Consumer			188				192				-				197				1				233				1				202				4				243				4
		$	11,058			$	11,526			$	-			$	11,882			$	87			$	12,048			$	92			$	12,399			$	265			$	11,990			$	282
Loans with an allowance recorded:
Residential real estate		$	80			$	78			$	3			$	72			$	-			$	73			$	-			$	30			$	-			$	129			$	-
Commercial real estate			-				-				-				-				-				22				-				-				-				9				-
Multifamily			-				-				-				-				-				-				-				-				-				-				-
Construction			-				-				-				-				-				-				-				-				-				-				-
Land and land development			-				-				-				-				-				-				-				-				-				-				-
Commercial business			-				-				-				-				-				12				-				-				-				5				-
Consumer			98				98				4				83				-				93				-				78				-				91				-
		$	178			$	176			$	7			$	155			$	-			$	200			$	-			$	108			$	-			$	234			$	-
Total:
Residential real estate		$	4,301			$	4,703			$	3			$	5,001			$	36			$	5,536			$	36			$	5,282			$	109			$	5,792			$	109
Commercial real estate			6,417				6,486				-				6,508				48				6,069				55				6,646				148				5,851				168
Multifamily			-				-				-				-				-				-				-				-				-				-				-
Construction			-				-				-				-				-				-				-				-				-				-				-
Land and land development			-				-				-				-				-				-				-				-				-				-				-
Commercial business			232				223				-				248				2				317				-				299				4				247				1
Consumer			286				290				4				280				1				326				1				280				4				334				4
		$	11,236			$	11,702			$	7			$	12,037			$	87			$	12,248			$	92			$	12,507			$	265			$	12,224			$	282

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

		Nonaccrual Loans				Loans 90+ Days Past Due Still Accruing				Total Nonperforming Loans
		(In thousands)
Residential real estate		$	1,686			$	-			$	1,686
Commercial real estate			1,671				-				1,671
Multifamily			-				-				-
Construction			-				-				-
Land and land development			-				-				-
Commercial business			135				-				135
Consumer			173				-				173
Total		$	3,665			$	-			$	3,665

 

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

 

		Nonaccrual Loans				Loans 90+ Days Past Due Still Accruing				Total Nonperforming Loans
		(In thousands)
Residential real estate		$	1,923			$	155			$	2,078
Commercial real estate			1,855				-				1,855
Multifamily			-				-				-
Construction			-				-				-
Land and land development			-				-				-
Commercial business			210				94				304
Consumer			165				3				168
Total		$	4,153			$	252			$	4,405

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

		30-59 Days Past Due				60-89 Days Past Due				90 + Days Past Due				Total Past Due				Current				Total Loans
		(In thousands)
Residential real estate		$	2,145			$	736			$	1,131			$	4,012			$	176,797			$	180,809
Commercial real estate			-				49				94				143				198,723				198,866
Multifamily			-				-				-				-				18,827				18,827
Construction			-				-				-				-				27,131				27,131
Land and land development			371				-				-				371				11,213				11,584
Commercial business			6				-				37				43				37,834				37,877
Consumer			88				7				26				121				27,301				27,422
Total		$	2,610			$	792			$	1,288			$	4,690			$	497,826			$	502,516

 

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

 

		30-59 Days Past Due				60-89 Days Past Due				90 + Days Past Due				Total Past Due				Current				Total Loans
		(In thousands)
Residential real estate		$	3,635			$	1,419			$	1,530			$	6,584			$	176,124			$	182,708
Commercial real estate			1,098				113				139				1,350				171,805				173,155
Multifamily			504				-				-				504				21,169				21,673
Construction			-				-				-				-				16,632				16,632
Land and land development			253				-				-				253				10,846				11,099
Commercial business			15				-				303				318				32,323				32,641
Consumer			81				14				32				127				26,960				27,087
Total		$	5,586			$	1,546			$	2,004			$	9,136			$	455,859			$	464,995

 

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.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Troubled Debt Restructurings

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Loan Servicing Rights

 

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

 

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

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

4.

Real Estate Development and Construction

 

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

 

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

 

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

 

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

 

5.

Investment in Historic Tax Credit Entity

  

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

6.

Supplemental Disclosure for Earnings Per Share

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

7.

Supplemental Disclosures of Cash Flow Information

 

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

 

8.

Fair Value Measurements and Disclosures about Fair Value of Financial Instruments

 

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

 

Level 1:

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

 

Level 2:

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

 

Level 3:

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

		Carrying				Fair Value Measurements Using:
June 30, 2016:		Amount				Level 1				Level 2				Level 3
		(In thousands)
Financial assets:
Cash and due from banks		$	9,602			$	9,602			$	-			$	-
Interest-bearing deposits with banks			15,474				15,474				-				-
Interest-bearing time deposits			3,100				-				3,114				-
Trading account securities			8,802				-				8,802				-
Securities available for sale			175,849				-				175,849				-
Securities held to maturity			3,406				-				3,930				-
Loans, net			494,079				-				-				499,127
Loans held for sale			5,922				-				5,922				-
FRB and FHLB stock			6,936				-				6,936				-
Accrued interest receivable			3,055				-				3,055				-
Loan servicing rights (included in other assets)			282				-				-				282
Investment in historic tax credit entity (included in other assets)			-				-				-				-
Financial liabilities:
Deposits			574,102				-				-				576,521
Short-term repurchase agreements			1,344				-				1,344				-
Borrowings from FHLB			105,265				-				107,593				-
Other long-term debt			4,491				-				4,491				-
Accrued interest payable			187				-				187				-
Advance payments by borrowers for taxes and insurance			741				-				741				-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

		Carrying				Fair Value Measurements Using:
September 30, 2015:		Amount				Level 1				Level 2				Level 3
		(In thousands)
Financial assets:
Cash and due from banks		$	9,884			$	9,884			$	-			$	-
Interest-bearing deposits with banks			15,110				15,110				-				-
Interest-bearing time deposits			3,100				-				3,099				-
Trading account securities			9,044				-				9,044				-
Securities available for sale			178,328				-				178,328				-
Securities held to maturity			4,620				-				5,191				-
Loans, net			457,112				-				-				456,331
Loans held for sale			6,803				-				6,803				-
FRB and FHLB stock			6,720				-				6,720				-
Accrued interest receivable			2,655				-				2,655				-
Investment in historic tax credit entity (included in other assets)			4,169				-				4,169				-
Financial liabilities:
Deposits			533,297				-				-				536,121
Short-term repurchase agreements			1,342				-				1,342				-
Borrowings from FHLB			104,867				-				106,446				-
Other long-term debt			4,632				-				4,632				-
Accrued interest payable			186				-				186				-
Advance payments by borrowers for taxes and insurance			883				-				883				-

 

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:

 

 

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.

 

Other Assets

 

For equity method investments, such as the Company’s investment in the historic tax credit entity, where a quoted market value is not available, the carrying amount is a reasonable estimate of fair value. However, subsequent to the recognition of the historic tax credits (as discussed in Note 5), management has determined that its investment in the historic tax credit entity has no residual value and therefore has recorded an impairment loss for the amount of the investment as of June 30, 2016.

  

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

 

Deposits

 

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

 

Borrowed Funds

 

Borrowed funds include borrowings from the FHLB, 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.

 

 

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 nine-month period ended June 30, 2016 amounted to $628,000. Compensation expense recognized for the three- and nine-month periods ended June 30, 2015 amounted to $122,000 and $722,000, respectively. The ESOP loan was repaid in full during the quarter ended December 31, 2015 and all shares have been allocated to participants in the plan therefore no compensation expense was recognized for the three-month period ended June 30, 2016. Company common stock held by the ESOP trust at June 30, 2016 and September 30, 2015 was as follows:

 

		June 30,				September 30,
		2016				2015
Allocated shares			173,249				164,409
Unearned shares			-				19,691
Total ESOP shares			173,249				184,100
Fair value of unearned shares		$	-			$	669,000

 

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.

 

 

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 vested ratably over a five-year period from the grant date. Compensation expense was measured based on the fair market value of the restricted stock at the grant date and was recognized ratably over the period during which the shares were earned (the vesting period). Compensation expense related to restricted stock recognized for the three- and nine-month periods ended June 30, 2015 amounted to $31,000 and $162,000, respectively. The restricted stock fully vested in May 2015 therefore no compensation expense related to restricted stock was recognized for the three- and nine-month periods ended June 30, 2016.

 

There were no restricted shares granted or vested during the nine-month period ended June 30, 2016. There were 19,610 restricted shares that vested during the nine-month period ended June 30, 2015. The total fair value of restricted shares that vested during the nine-month period ended June 30, 2015 was $575,000. At June 30, 2016 there was no unrecognized compensation expense related to nonvested restricted shares.

 

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.

 

A summary of stock option activity under the Plan as of June 30, 2016, and changes during the nine-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, 2015			213,260			$	13.25				4.6			$	4,425
Granted			-				-
Exercised			(26,210	)		$	13.25							$	580
Forfeited or expired			-				-
Outstanding at June 30, 2016			187,050			$	13.25				3.9			$	3,982
Exercisable at June 30, 2016			187,050			$	13.25				3.9			$	3,982

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The Company recognized compensation expense related to stock options of $18,000 and $95,000 for the three- and nine-month periods ended June 30, 2015, respectively. All stock options granted under the Plan were fully vested in May 2015, therefore the Company did not recognize any compensation expense related to stock options for the three- and nine-month periods ended June 30, 2016. At June 30, 2016, there was no unrecognized compensation expense related to nonvested stock options.

 

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 were 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, could have fluctuated on a quarterly basis during the first ten quarters during which the Series A Preferred Stock was outstanding and could have adjusted between 1.0% and 5.0% per annum, in order 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 had not increased relative to the Baseline, at the beginning of the tenth calendar quarter, the Company would have 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 was to be fixed 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 would then have increased to 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 portion of the nineteenth dividend period that ended February 11, 2016 was 1.0% and the weighted average dividend rate for the nine-month period ended June 30, 2016 was 1.0%.

 

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

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The Series A Preferred Stock could 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 agreed to register the Series A Preferred Stock under certain circumstances set forth in the Purchase Agreement. The Series A Preferred Stock was not subject to any contractual restrictions on transfer.

 

The Series A Preferred Stock was redeemed by the Company for the full liquidation amount of $17,120,000 on February 11, 2016.

 

 

12.

Recent Accounting Pronouncements

 

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

 

In May 2014, the FASB issued Accounting Standards Update (“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 customers 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 was originally effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. However, with the issuance of ASU No. 2015-14 in August 2015, the FASB deferred the effective date of ASU No. 2014-09 by one year for all entities, making the amendments effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Companies have the option to apply ASU No. 2014-09 as of the original effective date. 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.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In particular, the guidance revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with fair value of financial instruments. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. 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 February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance supersedes existing guidance on accounting for leases with the main difference being that operating leases are to be recorded in the statement of financial position as right-of-use assets and lease liabilities, initially measured at the present value of the lease payments. For operating leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the guidance is permitted. In transition, entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. 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.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting.  The guidance is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  For public business entities, the guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted.  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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326). The update replaces the incurred loss methodology for recognizing credit losses under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. For the Company, the amendments in the update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently assessing the impact the guidance will have upon adoption.

 

 

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, 2015 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 nine-month period ended June 30, 2016, 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, 2015.

 

Comparison of Financial Condition at June 30, 2016 and September 30, 2015

 

Cash and Cash Equivalents. Cash and cash equivalents increased $82,000, from $25.0 million at September 30, 2015 to $25.1 million at June 30, 2016.

 

Loans. Net loans receivable increased $37.0 million, from $457.1 million at September 30, 2015 to $494.1 million at June 30, 2016, due primarily to increases in construction and permanent commercial real estate loans of $10.5 million and $25.6 million, respectively, which more than offset a decrease in multi-family loans of $2.8 million.

 

Trading Account Securities. Trading account securities decreased $242,000, from $9.0 million at September 30, 2015 to $8.8 million at June 30, 2016. 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.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

 

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Securities Available for Sale. Securities available for sale decreased $2.5 million, from $178.3 million at September 30, 2015 to $175.8 million at June 30, 2016, due primarily to calls and maturities of $5.4 million and principal repayments of $10.2 million, which more than offset purchases of $10.9 million. The decrease in securities available for sale, primarily in U.S. government agency and sponsored enterprises securities, was due primarily to calls and the proceeds received were used to fund loan growth during the nine-month period ended June 30, 2016.

 

Securities Held to Maturity. Investment securities held-to-maturity decreased $1.2 million, from $4.6 million at September 30, 2015 to $3.4 million at June 30, 2016. There were no purchases of securities held to maturity, and partial calls and principal repayments on mortgage-backed securities and municipal obligations totaled $1.3 million during the nine-month period ended June 30, 2016.

 

Deposits. Total deposits increased $40.8 million, from $533.3 million at September 30, 2015 to $574.1 million at June 30, 2016, due primarily to increases in time deposits, interest-bearing demand deposit accounts, savings accounts and non-interest bearing demand deposit accounts of $16.4 million, $8.4 million, $7.7 million and $7.3 million, respectively. The increase in time deposits is due primarily to an increase in brokered certificates of deposits of $21.5 million. Management utilizes 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 $80.9 million at June 30, 2016 and $59.4 million at September 30, 2015.

 

Borrowings. Borrowings from the FHLB increased $398,000, from $104.9 million at September 30, 2015 to $105.3 million at June 30, 2016. Borrowings from the FHLB have increased in order to provide funding for loan originations.

 

Stockholders’ Equity. Stockholders’ equity decreased $10.2 million, from $94.4 million at September 30, 2015 to $84.2 million at June 30, 2016. The decrease in stockholders’ equity is due to the redemption of $17.1 million of preferred stock in February 2016 (as discussed in Note 11 in the accompanying Notes to the Consolidated Financial Statements), which was partially offset by increases in retained earnings and accumulated other comprehensive income. Retained earnings increased $4.2 million due to net income available to common shareholders of $5.0 million, partially offset by common stock cash dividends of $823,000. Accumulated other comprehensive income increased $1.8 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 stockholders’ equity) per common share was $38.18 at June 30, 2016 as compared to $35.37 at September 30, 2015. Tangible book value (common stockholders’ equity, less goodwill and core deposit intangibles) per common share, a non-GAAP financial measure, was $34.07 at June 30, 2016 as compared to $31.11 at September 30, 2015.

 

 

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 Nine Months Ended June 30, 2016 and 2015

 

Overview. The Company reported net income of $5.1 million and net income available to common shareholders of $5.0 million, or $2.19 per diluted share, for the nine-month period ended June 30, 2016 compared to net income of $4.9 million and net income available to common shareholders of $4.8 million, or $2.14 per diluted share, for the nine-month period ended June 30, 2015. The annualized return on average assets, average equity and average common stockholders’ equity were 0.90%, 7.69% and 8.49%, respectively, for the nine-month period ended June 30, 2016. The annualized return on average assets, average equity and average common stockholders’ equity were 0.91%, 7.28% and 8.98%, respectively, for the nine-month period ended June 30, 2015.

 

Net Interest Income. Net interest income increased $552,000, or 3.1%, for the nine-month period ended June 30, 2016 as compared to the same period in 2015. Average interest-earnings assets increased $30.9 million and average interest-bearing liabilities increased $18.0 million when comparing the two periods. The tax-equivalent interest rate spread was 3.67% for 2016 compared to 3.74% for 2015.

 

Total interest income increased $847,000, or 4.1%, when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $30.9 million, from $657.9 million for 2015 to $688.8 million for 2016, which more than offset the change in interest income due to a decrease in the average tax-equivalent yield on interest-earning assets, from 4.40% for 2015 to 4.38% for 2016. The average balance of loans and interest-bearing deposits with banks increased $30.9 million and $4.9 million, respectively, which more than offset a decrease in the average balance of total investment securities of $4.6 million when comparing the two periods.

 

Total interest expense increased $295,000, or 10.5%, due to an increase in the average cost of interest-bearing liabilities, from 0.66% for 2015 to 0.71% for 2016, and an increase in the average balance of interest-bearing liabilities of $18.0 million, from $565.5 million for 2015 to $583.5 million for 2016.

 

 

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 nine-month periods ended June 30, 2016 and 2015. 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%.

 

		Nine Months Ended June 30,
		2016												2015
		Average Balance				Interest and Dividends				Yield/ Cost				Average Balance				Interest and Dividends				Yield/ Cost
		(Dollars in thousands)
Assets:
Interest-bearing deposits with banks		$	21,117			$	84				0.53	%		$	16,253			$	35				0.29	%
Loans			480,551				16,865				4.68				449,641				16,070				4.77
Investment securities			131,424				4,690				4.76				135,102				4,584				4.52
Agency mortgage-backed securities			48,922				777				2.12				49,825				778				2.08
FRB and FHLB stock			6,833				231				4.51				7,068				223				4.21
Total interest-earning assets			688,847				22,647				4.38				657,889				21,690				4.40
Non-interest-earning assets			68,215												66,747
Total assets		$	757,062											$	724,636
Liabilities and equity:
NOW accounts		$	145,812			$	226				0.21	%		$	114,000			$	170				0.20	%
Money market deposit accounts			57,308				110				0.26				79,581				170				0.28
Savings accounts			79,013				41				0.07				71,628				34				0.06
Time deposits			196,179				1,492				1.01				201,101				1,460				0.97
Total interest-bearing deposits			478,312				1,869				0.52				466,310				1,834				0.52
Borrowings (1)			105,233				1,242				1.57				99,223				982				1.32
Total interest-bearing liabilities			583,545				3,111				0.71				565,533				2,816				0.66
Non-interest-bearing deposits			74,098												59,603
Other non-interest-bearing liabilities			10,920												9,326
Total liabilities			668,563												634,462
Total equity			88,499												90,174
Total liabilities and equity		$	757,062											$	724,636
Net interest income						$	19,536											$	18,874
Interest rate spread											3.67	%											3.74	%
Net interest margin											3.78	%											3.83	%
Average interest-earning assets to average interest-bearing liabilities											118.05	%											116.33	%

 

(1)

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

 

 

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 nine-month periods ended June 30, 2016 and 2015. 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.

 

		Nine Months Ended June 30, 2016 Compared to Nine Months Ended June 30, 2015
		Increase (Decrease) Due to
		Rate				Volume				Net
		(In thousands)
Interest income:
Interest-bearing deposits with banks		$	37			$	13			$	49
Loans			(301	)			1,096				795
Investment securities			217				(111	)			106
Agency mortgage-backed securities			(20	)			19				(1	)
Other interest-earning assets			15				(7	)			8
Total interest-earning assets			(52	)			1,010				957
Interest expense:
Deposits			-				35				35
Borrowings (1)			197				63				260
Total interest-bearing liabilities			197				98				295
Net increase (decrease) in net interest income		$	(249	)		$	912			$	662

 

(1)

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

 

Provision for Loan Losses. The provision for loan losses was $428,000 for the nine-month period ended June 30, 2016 compared to $627,000 for the same period in 2015. The decrease in the provision for loans losses for 2016 as compared to the prior period was due primarily to an improvement in asset quality and a decrease in net charge-offs when comparing the two periods.

 

The Company recognized net charge-offs of $83,000 for the nine-month period ended June 30, 2016 compared to net charge-offs of $357,000 for the same period in 2015.

 

The recorded investment in nonperforming loans was $3.7 million at June 30, 2016 compared to $4.4 million at September 30, 2015 and $5.0 million at June 30, 2015. Nonperforming loans at June 30, 2016 include nonaccrual loans of $3.7 million. There were no loans over 90 days past due but still accruing interest at June 30, 2016.

 

 

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 $72.0 million, from $467.5 million at June 30, 2015 to $539.5 million at June 30, 2016, primarily due to increases in permanent commercial real estate and commercial real estate construction of $37.9 million and $27.7 million, respectively. 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 primarily leased to investment grade national-brand retailers. At June 30, 2016, $82.1 million, or 41.4% of the commercial real estate loan portfolio and 15.2% of the total loan portfolio, consisted of these loans as compared to $47.8 million, or 29.7%, of the commercial real estate loan portfolio and 10.2% of the total loan portfolio, at June 30, 2015.

 

The allowance for loan losses was $7.0 million at June 30, 2016 compared to $6.6 million at September 30, 2015 and $6.5 million at June 30, 2015. 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 $4.0 million for the nine-month period ended June 30, 2016 as compared to the same period in 2015. The decrease was due primarily to the $4.3 million impairment loss on the historic tax credit entity investment during the 2016 period (as discussed in Note 5 in the accompanying Notes to the Consolidated Financial Statements) and the $831,000 gain on life insurance policies during the 2015 period, which more than offset increases in net gain on sale of loans and net gain on trading account securities of $606,000 and $508,000, respectively. The increase in net gain on sale of loans is due primarily to the sale of loans guaranteed by the SBA.

 

Noninterest Expense. Noninterest expenses increased $1.3 million for the nine-month period ended June 30, 2016 as compared to the same period in 2015. The increase was due primarily to increases in compensation and benefits and data processing expense of $956,000 and $171,000, respectively. The increase in compensation and benefits expense is due primarily to increased staffing as a result of the Company’s enhanced focus on its SBA lending activities, and normal salary, wage and benefits increases, which more than offset decreases in ESOP compensation and stock compensation expenses. The ESOP loan was repaid in full during the quarter ended December 31, 2015 and as a result, no ESOP compensation expense was recognized for the quarters ended March 31 and June 30, 2016. In addition, the restricted stock and stock options awarded under the Company’s 2010 Equity Incentive Plan fully vested in May 2015 and as a result, no stock compensation expense was recognized in the nine-month period ended June 30, 2016.

 

Income Tax Expense. The Company recognized an income tax benefit of $3.5 million for the nine-month period ended June 30, 2016 compared to income tax expense of $1.2 million, for an effective tax rate of 19.1%, for the same period in 2015. The tax benefit for the 2016 period was due to the recognition of $4.8 million in historic tax credits during the 2016 period (as discussed in Note 5 in the accompanying Notes to the Consolidated Financial Statements).

 

 

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 June 30, 2016 and 2015

 

Overview. The Company reported net income and net income available to common shareholders of $2.2 million, or $0.97 per diluted share, for the three-month period ended June 30, 2016 compared to net income and net income available to common shareholders of $2.2 million, or $0.95 per diluted share, for the three-month period ended June 30, 2015. The annualized return on average assets, average equity and average common stockholders’ equity were 1.15%, 10.87% and 10.87%, respectively, for the three-month period ended June 30, 2016. The annualized return on average assets, average equity and average common stockholders’ equity were 1.21%, 9.60% and 11.82%, respectively, for the three-month period ended June 30, 2015.

 

Net Interest Income. Net interest income increased $325,000, or 5.4%, for the three-month period ended June 30, 2016 compared to the same period in 2015. Average interest-earnings assets increased $43.7 million and average interest-bearing liabilities increased $41.6 million when comparing the two periods. The tax-equivalent interest rate spread was 3.67% for 2016 compared to 3.72% for 2015.

 

Total interest income increased $507,000, or 7.3%, when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $43.7 million, from $659.8 million for 2015 to $703.5 million for 2016, and an increase in the average tax-equivalent yield on interest-earning assets, from 4.38% for 2015 to 4.41% for 2016. The average balance of loans and interest-bearing deposits with banks increased $45.3 million and $670,000, respectively, which more than offset a decrease in the average balance of total investment securities of $2.0 million when comparing the two periods.

 

Total interest expense increased $182,000, or 20.2%, due to an increase in the average cost of interest-bearing liabilities, from 0.66% for 2015 to 0.74% for 2016, and an increase in the average balance of interest-bearing liabilities of $41.6 million, from $561.8 million for 2015 to $603.4 million for 2016.

 

 

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 June 30, 2016 and 2015. 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 June 30,
		2016												2015
		Average Balance				Interest and Dividends				Yield/ Cost				Average Balance				Interest and Dividends				Yield/ Cost
		(Dollars in thousands)
Assets:
Interest-bearing deposits with banks		$	18,378			$	22				0.48	%		$	17,708			$	12				0.27	%
Loans			497,601				5,820				4.68				452,324				5,306				4.69
Investment securities			130,605				1,586				4.86				134,616				1,569				4.66
Agency mortgage-backed securities			50,020				259				2.07				48,039				254				2.11
FRB and FHLB stock			6,936				77				4.44				7,157				77				4.30
Total interest-earning assets			703,540				7,764				4.41				659,844				7,218				4.38
Non-interest-earning assets			68,387												67,549
Total assets		$	771,927											$	727,393
Liabilities and equity:
NOW accounts		$	147,699			$	75				0.20	%		$	115,114			$	57				0.20	%
Money market deposit accounts			57,615				37				0.26				77,890				45				0.23
Savings accounts			82,211				15				0.07				73,500				12				0.07
Time deposits			207,399				563				1.09				203,303				480				0.94
Total interest-bearing deposits			494,924				690				0.56				469,807				594				0.51
Borrowings (1)			108,485				425				1.57				92,003				339				1.47
Total interest-bearing liabilities			603,409				1,115				0.74				561,810				933				0.66
Non-interest-bearing deposits			75,336												63,870
Other non-interest-bearing liabilities			11,201												10,260
Total liabilities			689,946												635,940
Total equity			81,981												91,453
Total liabilities and equity		$	771,927											$	727,393
Net interest income						$	6,649											$	6,285
Interest rate spread											3.67	%											3.72	%
Net interest margin											3.78	%											3.81	%
Average interest-earning assets to average interest-bearing liabilities											116.59	%											117.45	%

 

(1)

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

 

 

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 June 30, 2016 and 2015. 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 June 30, 2016 Compared to Three Months Ended June 30, 2015
		Increase (Decrease) Due to
		Rate				Volume				Net
		(In thousands)
Interest income:
Interest-bearing deposits with banks		$	10			$	-			$	10
Loans			(11	)			525				514
Investment securities			57				(40	)			17
Agency mortgage-backed securities			(5	)			10				5
Other interest-earning assets			1				(1	)			-
Total interest-earning assets			52				494				546
Interest expense:
Deposits			62				34				96
Borrowings (1)			23				63				86
Total interest-bearing liabilities			85				97				182
Net increase (decrease) in net interest income		$	(33	)		$	397			$	364

 

(1)

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

 

Provision for Loan Losses. The provision for loan losses was $303,000 for the three-month period ended June 30, 2016, compared to $208,000 for the same period in 2015. The increase in the provision for loans losses for 2016 as compared to the prior period was due primarily to growth in the loan portfolio. Gross loans increased approximately $37.8 million during the three-month period ended June 30, 2016 compared to an increase of approximately $7.8 million during the three-month period ended June 30, 2015.

 

The Company recognized net charge-offs of $85,000 for the three-month period ended June 30, 2016 compared to net charge-offs of $202,000 for the same period in 2015.

 

 

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 $4.5 million for the three-month period ended June 30, 2016 as compared to the same period in 2015. The decrease was due primarily to the aforementioned $4.3 million impairment loss on the historic tax credit entity investment during the 2016 quarter and $831,000 gain on life insurance policies during the 2015 quarter, which more than offset increases in net gain on sale of loans and net gain on trading account securities and of $413,000 and $240,000, respectively. The increase in net gain on sale of loans is due primarily to the sale of loans guaranteed by the SBA.

 

Noninterest Expense. Noninterest expenses increased $393,000 for the three-month period ended June 30, 2016 as compared to the same period in 2015. The increase was due primarily to increases in compensation and benefits and data processing expenses of $226,000 and $133,000, respectively. The increase in compensation and benefits expense is due primarily to increased staffing as a result of the Company’s enhanced focus on its SBA lending activities, and normal salary, wage and benefits increases, which more than offset a decrease in ESOP compensation expense. The ESOP loan was repaid in full during the quarter ended December 31, 2015 and as a result, no ESOP compensation expense was recognized for the quarter ended June 30, 2016. The increase in data processing expense is due primarily to the replacement of customer magnetic strip debit cards with EMV chip debit cards during the quarter ended June 30, 2016.

 

Income Tax Expense. The Company recognized an income tax benefit of $4.4 million for the three-month period ended June 30, 2016 compared to income tax expense of $318,000, for an effective tax rate of 12.6%, for the same period in 2015. The tax benefit for the 2016 period was due to the aforementioned recognition of $4.8 million in historic tax credits during the 2016 period (as discussed in Note 5 in the accompanying Notes to the Consolidated Financial Statements).

 

 

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 June 30, 2016, the Bank had cash and cash equivalents of $25.1 million, trading account securities with a fair value of $8.8 million and securities available-for-sale with a fair value of $175.8 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 nine months ended June 30, 2016 the Bank declared and paid dividends to the Company totaling $3.5 million. At June 30, 2016, the Company (unconsolidated basis) had liquid assets of $776,000.

 

Capital Management. The Bank is required to maintain specific amounts of capital pursuant to regulatory requirements. As of June 30, 2016, 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 8.50%, 10.76%, 10.76% and 11.93%, 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 June 30, 2016, the Bank was considered “well-capitalized” under applicable regulatory guidelines.

 

 

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, 2015.

 

For the nine-months ended June 30, 2016, 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.

 

 

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.

 

 

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 June 30, 2016								At September, 2015
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		$	1,217				4.80	%		$	868				3.55	%
200bp			831				3.28				581				2.38
100bp			469				1.85				283				1.16
Static			-				-				-				-
(100)bp			(741	)			(2.92	)			(580	)			(2.37	)

 

At June 30, 2016, 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 $469,000, or 1.85%, 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 3.28% and 4.80%, respectively. Conversely, an immediate and sustained decrease in rates of 1.00% will decrease our net interest income by $741,000, or 2.92%, over a one year horizon compared to a flat interest rate scenario.

 

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.

 

 

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 EVE could change as follows, relative to our base case scenario.

 

		At June 30, 2016
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		$	124,238			$	1,294				1.05	%			17.50	%			185	bp
200bp			129,000				6,056				4.93				17.47				182	bp
100bp			129,148				6,204				5.05				16.90				125	bp
Static			122,944				-				-				15.65				-	bp
(100)bp			108,093				(14,851	)			(12.08	)			13.61				(204	)bp

 

		At September 30, 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		$	115,083			$	(3,895	)			(3.27	)%			17.12	%			117	bp
200bp			121,443				2,465				2.07				17.35				140	bp
100bp			124,613				5,635				4.74				17.16				121	bp
Static			118,978				-				-				15.95				-	bp
(100)bp			107,037				(11,941	)			(10.04	)			14.44				(151	)bp

 

The previous table indicates that at June 30, 2016, the Company would expect a decrease in its EVE in the event of a sudden and sustained 100 basis point decrease in prevailing interest rates, but would expect an increase in its EVE in the event of a sudden and sustained 100 to 300 basis point increase in prevailing interest rates. The Company has a relatively high percentage of fixed-rate loans in the Company’s loan portfolio, which at June 30, 2016 comprised approximately 38.5% of the loan portfolio. The percentage of fixed-rate loans in the Company’s loan portfolio was 44.4% at September 30, 2015.

 

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 is 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 time deposits could deviate significantly from those assumed in calculating the table.

 

 

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 June 30, 2016, 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.

 

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, 2015 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.

 

 

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 June 30, 2016:

 

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
April 1, 2016  through April 30, 2016			-			$	-				-				73,657
May 1, 2016 through May 31, 2016			-			$	-				-				73,657
June 1, 2016 through June 30, 2016			-			$	-				-				73,657
Total			-			$	-				-				73,657

_______________

(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.

 

FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

 

OTHER INFORMATION

 

Item 5.

Other Information

 

None.

 

Item 6.

Exhibits

 

31.1

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

 

31.2

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

 

32.1

Section 1350 Certification of Chief Executive Officer

 

32.2

Section 1350 Certification of Chief Financial Officer

 

101

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, 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

 

 

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  August 15, 2016	BY:	/s/ Larry W. Myers
		Larry W. Myers
		President and Chief Executive Officer
Dated  August 15, 2016	BY:	/s/ Anthony A. Schoen
		Anthony A. Schoen
		Chief Financial Officer