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Section 1: 10-Q (FORM 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended June 30, 2018

 

OR

 

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

 

For the transition period from                                 to                                           

 

Commission File No. 1-34155

 

First Savings Financial Group, Inc.

(Exact name of registrant as specified in its charter)

 

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

 

501 East Lewis & Clark Parkway, Clarksville, Indiana 47129

(Address of principal executive offices) (Zip Code)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The number of shares outstanding of the registrant’s common stock as of July 31, 2018 was 2,292,021.

 

 

 

 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

 

INDEX

 

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

 

 -2- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   June 30,   September 30, 
(In thousands, except share and per share data)  2018   2017 
         
ASSETS          
Cash and due from banks  $13,725   $11,017 
Interest-bearing deposits with banks   24,277    23,242 
Total cash and cash equivalents   38,002    34,259 
           
Interest-bearing time deposits   2,756    2,435 
Trading account securities, at fair value   -    7,175 
Securities available for sale, at fair value   208,071    178,099 
Securities held to maturity   2,687    2,878 
           
Loans held for sale, residential mortgage   3,002    727 
Loans held for sale, Small Business Administration   22,274    24,908 
Loans, net of allowance for loan losses of $9,026 and $8,092   693,858    586,456 
           
Federal Reserve Bank and Federal Home Loan Bank stock, at cost   9,621    6,936 
Premises and equipment   12,608    11,270 
Other real estate owned, held for sale   64    852 
Accrued interest receivable:          
Loans   2,405    1,907 
Securities   2,107    1,491 
Cash surrender value of life insurance   19,861    18,297 
Goodwill   9,511    7,936 
Core deposit intangibles   2,463    693 
Other assets   6,056    4,814 
           
Total Assets  $1,035,346   $891,133 
           
LIABILITIES          
Deposits:          
Noninterest-bearing  $156,827   $96,283 
Interest-bearing   677,927    573,099 
Total deposits   834,754    669,382 
           
Repurchase agreements   1,351    1,348 
Borrowings from Federal Home Loan Bank   90,000    118,065 
Accrued interest payable   428    283 
Advance payments by borrowers for taxes and insurance   808    1,212 
Accrued expenses and other liabilities   9,136    7,728 
Total Liabilities   936,477    798,018 
           
STOCKHOLDERS' EQUITY          
Preferred stock of $.01 par value per share; authorized 1,000,000 shares; none issued   -    - 
Common stock of $.01 par value per share; authorized 20,000,000 shares; issued 2,560,907 shares (2,559,307 at September 30, 2017); outstanding 2,292,021 shares (2,242,454 shares at September 30, 2017)   26    25 
Additional paid-in capital   27,612    27,798 
Retained earnings - substantially restricted   74,123    67,583 
Accumulated other comprehensive income   1,665    4,158 
Unearned stock compensation   (517)   (571)
Less treasury stock, at cost - 268,886 shares (316,853 shares at September 30, 2017)   (5,269)   (5,878)
Total First Savings Financial Group, Inc. Stockholders' Equity   97,640    93,115 
           
Noncontrolling interests in subsidiary   1,229    - 
Total Equity   98,869    93,115 
           
Total Liabilities and Equity  $1,035,346   $891,133 

 

See notes to consolidated financial statements.

 

 -3- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
(In thousands, except share and per share data)  2018   2017   2018   2017 
                 
INTEREST INCOME                    
Loans, including fees  $8,866   $6,908   $24,726   $19,781 
Securities:                    
Taxable   1,201    880    2,787    2,691 
Tax-exempt   920    754    2,620    2,082 
Dividend income   107    79    346    235 
Interest-bearing deposits with banks   112    43    299    105 
Total interest income   11,206    8,664    30,778    24,894 
                     
INTEREST EXPENSE                    
Deposits   1,222    689    2,891    1,930 
Federal funds purchased   -    14    -    21 
Repurchase agreements   1    1    3    3 
Borrowings from Federal Home Loan Bank   476    428    1,601    1,232 
Total interest expense   1,699    1,132    4,495    3,186 
                     
Net interest income   9,507    7,532    26,283    21,708 
Provision for loan losses   266    321    1,099    1,002 
                     
Net interest income after provision for loan losses   9,241    7,211    25,184    20,706 
                     
NONINTEREST INCOME                    
Service charges on deposit accounts   461    329    1,237    971 
Net gain on sales of available for sale securities   99    30    99    30 
Other than temporary impairment loss on securities   (95)   -    (95)   - 
Net gain (loss) on trading account securities   (48)   184    43    113 
Net gain on sales of loans, residential mortgage   91    104    259    342 
Net gain on sales of loans, Small Business Administration   1,558    938    4,585    2,741 
Increase in cash surrender value of life insurance   112    105    325    318 
Gain on life insurance   -    -    -    189 
Commission income   99    78    325    283 
Income (loss) on tax credit investment   340    -    340    (226)
Other income   637    355    1,609    1,098 
Total noninterest income   3,254    2,123    8,727    5,859 
                     
NONINTEREST EXPENSE                    
Compensation and benefits   5,113    3,837    13,532    11,035 
Occupancy and equipment   894    699    2,559    1,990 
Data processing   408    329    1,979    1,031 
Advertising   162    126    457    363 
Professional fees   370    419    1,236    919 
FDIC insurance premiums   135    113    382    342 
Net (gain) loss on other real estate owned   7    (14)   (171)   (123)
Other operating expenses   1,033    796    2,889    2,354 
Total noninterest expense   8,122    6,305    22,863    17,911 
Income before income taxes   4,373    3,029    11,048    8,654 
Income tax expense   696    586    1,656    1,680 
Net Income   3,677    2,443    9,392    6,974 
Less: net income attributable to noncontrolling interests   571    -    1,234    - 
Net Income Attributable to First Savings Financial Group, Inc.  $3,106   $2,443   $8,158   $6,974 
                     
Net income per share:                    
Basic  $1.37   $1.10   $3.62   $3.15 
Diluted  $1.31   $1.04   $3.44   $2.98 
                     
Weighted average shares outstanding:                    
Basic   2,274,951    2,225,189    2,251,387    2,217,033 
Diluted   2,378,839    2,351,739    2,369,710    2,340,688 
                     
Dividends per share  $0.15   $0.14   $0.44   $0.41 

 

See notes to consolidated financial statements.

 

 -4- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
(In thousands)  2018   2017   2018   2017 
                 
Net Income  $3,677   $2,443   $9,392   $6,974 
                     
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX                    
Unrealized gains (losses) on securities available for sale:                    
Unrealized holding gains (losses) arising during the period   (545)   2,307    (3,851)   (2,309)
Income tax benefit (expense)   35    (800)   742    823 
Net of tax amount   (510)   1,507    (3,109)   (1,486)
                     
Less: reclassification adjustment for realized gains included in net income   (99)   (30)   (99)   (30)
Income tax expense   26    10    26    10 
Net of tax amount   (73)   (20)   (73)   (20)
                     
Less: reclassification adjustment for other-than-temporary impairment loss on securities included in net income   95    -    95    - 
Income tax benefit   (25)   -    (25)   - 
Net of tax amount   70    -    70    - 
                     
Other Comprehensive Income (Loss)   (513)   1,487    (3,112)   (1,506)
                     
Comprehensive Income   3,164    3,930    6,280    5,468 
Less: comprehensive income attributable to noncontrolling interests   571    -    1,234    - 
                     
Comprehensive Income Attributable to First Savings Financial Group, Inc.  $2,593   $3,930   $5,046   $5,468 

 

See notes to consolidated financial statements.

 

 -5- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

 

               Accumulated                 
               Other   Unearned       Noncontrolling     
   Common   Additional   Retained   Comprehensive   Stock   Treasury   Interest in     
(In thousands, except share and per share data)  Stock   Paid-in Capital   Earnings   Income   Compensation   Stock   Subsidiary   Total 
                                 
Nine Months Ended June 30, 2017:                                        
Balances at October 1, 2016  $25   $27,182   $59,499   $5,944   $-   $(6,070)  $-   $86,580 
                                         
Net income   -    -    6,974    -    -    -    -    6,974 
                                         
Other comprehensive loss   -    -    -    (1,506)   -    -    -    (1,506)
                                         
Common stock dividends - $0.41 per share   -    -    (915)   -    -    -    -    (915)
                                         
Restricted stock grants - 17,265 shares   -    692    -    -    (692)   -    -    - 
                                         
Stock compensation expense   -    39    -    -    86    -    -    125 
                                         
Stock option exercises - 26,858 shares   -    (131)   -    -    -    486    -    355 
                                         
Purchase of 6,456 treasury shares   -    -    -    -    -    (294)   -    (294)
                                         
Balances at June 30, 2017  $25   $27,782   $65,558   $4,438   $(606)  $(5,878)  $-   $91,319 
                                         
Nine Months Ended June 30, 2018:                                        
Balances at October 1, 2017  $25   $27,798   $67,583   $4,158   $(571)  $(5,878)  $-   $93,115 
                                         
Net income   -    -    8,158    -    -    -    1,234    9,392 
                                         
Other comprehensive loss   -    -    -    (3,112)   -    -    -    (3,112)
                                         
Reclassification from AOCI to retained earnings for change in federal tax rate   -    -    (619)   619    -    -    -    - 
                                         
Preferred stock dividends   -    -    -    -    -    -    -    - 
                                         
Common stock dividends - $0.44 per share   -    -    (999)   -    -    -    -    (999)
                                         
Distributions to noncontrolling interests   -    -    -    -    -    -    (5)   (5)
                                         
Restricted stock grants - 1,000 shares   1    56    -    -    (57)   -    -    - 
                                         
Stock compensation expense   -    50    -    -    111    -    -    161 
                                         
Stock option exercises - 55,296 shares   -    (292)   -    -    -    1,042    -    750 
                                         
Purchase of 6,729 treasury shares   -    -    -    -    -    (433)   -    (433)
                                         
Balances at June 30, 2018  $26   $27,612   $74,123   $1,665   $(517)  $(5,269)  $1,229   $98,869 

 

See notes to consolidated financial statements.

 

 -6- 

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine Months Ended 
   June 30, 
(In thousands)  2018   2017 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $9,392   $6,974 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Provision for loan losses   1,099    1,002 
Depreciation and amortization   995    871 
Amortization of premiums and accretion of discounts on securities, net   118    516 
Decrease in trading account securities   7,175    3,436 
Loans originated for sale   (87,277)   (67,128)
Proceeds on sales of loans   94,208    52,145 
Net gain on sales of loans   (4,844)   (3,083)
Net realized and unrealized gain on other real estate owned   (212)   (168)
Net gain on sales of available for sale securities   (99)   (30)
Other than temporary impairment loss on securities   95    - 
Gain on life insurance   -    (189)
Increase in cash surrender value of life insurance   (325)   (318)
Net gain on sale of premises and equipment   (20)   (30)
(Income) loss on tax credit investment   (340)   226 
Deferred income taxes   883    1,293 
Stock compensation expense   161    125 
Increase in accrued interest receivable   (787)   (702)
Increase in accrued interest payable   144    70 
Change in other assets and liabilities, net   (394)   (755)
Net Cash Provided By (Used In) Operating Activities   19,972    (5,745)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Investment in interest-bearing time deposits   (490)   (445)
Proceeds from sales of interest-bearing time deposits   2,741    - 
Proceeds from maturities of interest-bearing time deposits   1,245    990 
Purchase of securities available for sale   (44,482)   (26,422)
Proceeds from sales of securities available for sale   37,315    4,255 
Proceeds from maturities of securities available for sale   1,280    2,830 
Proceeds from maturities of securities held to maturity   150    139 
Principal collected on securities   11,542    13,047 
Net increase in loans   (74,357)   (48,644)
Proceeds from redemption of Federal Reserve Bank stock   21    - 
Purchase of Federal Home Loan Bank stock   (2,562)   - 
Proceeds from life insurance   540    - 
Proceeds from sale of other real estate owned   606    186 
Purchase of premises and equipment   (918)   (389)
Proceeds from sale of premises and equipment   20    19 
Net cash received in the acquisition of Dearmin Bancorp and FNBO   6,667    - 
Net Cash Used In Investing Activities   (60,682)   (54,434)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net increase in deposits   73,607    94,433 
Net increase in repurchase agreements   3    2 
Decrease in Federal Home Loan Bank line of credit   (18,065)   (21,633)
Proceeds from Federal Home Loan Bank advances   209,500    15,000 
Repayment of Federal Home Loan Bank advances   (219,500)   (15,000)
Net decrease in advance payments by borrowers for taxes and insurance   (404)   (22)
Proceeds from exercise of stock options   362    62 
Taxes paid on stock award shares for employees   (46)   - 
Dividends paid on common stock   (999)   (915)
Distributions to noncontrolling interests   (5)   - 
Net Cash Provided By Financing Activities   44,453    71,927 
           
Net Increase in Cash and Cash Equivalents   3,743    11,748 
           
Cash and cash equivalents at beginning of year   34,259    29,342 
           
Cash and Cash Equivalents at End of Year  $38,002   $41,090 

 

See notes to consolidated financial statements.

 

 -7- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.Presentation of Interim Information

 

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

 

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

 

On April 25, 2017, the Bank formed Q2 Business Capital, LLC (“Q2”), which is an Indiana limited liability company that specializes in the origination and servicing of U.S. Small Business Administration (“SBA”) loans. The Bank owns 51% of Q2 with the option to purchase the minority interest between July 1, 2020 and September 30, 2020. In accordance with Q2’s operating agreement, the Bank was allocated the first $1.7 million of Q2’s cumulative net income with any additional profits and losses allocated 51% to the Bank and 49% to Q2’s minority members.

 

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

 

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of June 30, 2018, the results of operations for the three- and nine-month periods ended June 30, 2018 and 2017, and the cash flows for the nine-month periods ended June 30, 2018 and 2017. All of these adjustments are of a normal, recurring nature. Such adjustments are the only adjustments included in the unaudited consolidated financial statements. Interim results are not necessarily indicative of results for a full year.

 

The unaudited consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements, conform to general practices within the banking industry and are presented as permitted by the instructions to Form 10-Q. Accordingly, they do not contain certain information included in the Company’s audited consolidated financial statements and related notes for the year ended September 30, 2017 included in the Company’s Annual Report on Form 10-K.

 

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

 

 -8- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

2.Acquisition of Dearmin Bancorp and The First National Bank of Odon

 

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

 

Pursuant to the terms of the merger agreement, FNBO stockholders received $265.00 in cash for each share of FNBO common stock for total cash consideration of $10.6 million. Under the acquisition method of accounting, the purchase price is assigned to the identifiable assets acquired and liabilities assumed based on their fair values, net of applicable income tax effects. In accounting for the acquisition, the excess of cost over the fair value of the acquired net assets of $1.6 million, based on management’s initial preliminary valuation, has been recorded as goodwill. Transaction and integration costs related to the acquisition totaling $1.3 million were expensed as incurred for the nine-month period ended June 30, 2018. No transaction and integration costs were recognized for the three-month period ended June 30, 2018.

 

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

 

    (In thousands) 
      
Cash and due from banks  $1,310 
Interest-bearing deposits with banks   15,957 
Interest-bearing time deposits with banks   3,817 
Investment securities   39,978 
Loans   34,467 
Premises and equipment   1,125 
Goodwill arising in the acquisition   1,575 
Net deferred tax asset   2,083 
Other assets   2,659 
Total assets acquired   102,971 
      
Deposit accounts   91,765 
Net deferred tax liabilities   233 
Other liabilities   373 
Total liabilities assumed   92,371 
      
Total consideration  $10,600 

 

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

 

 -9- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

The following unaudited pro forma combined results of operations for the three- and nine-month periods ended June 30, 2018 and 2017 assumes that the acquisition was consummated on October 1, 2016:

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
   2018   2017   2018   2017 
   (Dollars in thousands, except per share data) 
                 
Interest income  $10,435   $9,415   $20,614   $27,141 
Interest expense   1,426    1,155    2,820    3,258 
Net interest income   9,009    8,260    17,794    23,883 
Provision for loan losses   371    331    833    1,042 
Net interest income after provision for loan losses   8,638    7,929    16,961    22,841 
Noninterest income   2,657    2,301    5,745    6,409 
Noninterest expense   7,612    6,981    14,814    21,240 
Income before income taxes   3,683    3,249    7,982    8,010 
Income tax expense   661    638    1,384    1,377 
                     
Net income   3,022    2,611    6,508    6,633 
                     
Net income attributable to noncontrolling interests in subsidiary   571    -    1,234    - 
                     
Net income attributable to First Savings Financial Group  $2,446   $2,611   $5,845   $6,633 
                     
Weighted average common shares outstanding, basic   2,274,951    2,225,189    2,251,387    2,217,033 
                     
Net income per common share, basic  $1.09   $1.17   $2.61   $2.99 
                     
Weighted average common shares outstanding, basic   2,274,951    2,225,189    2,251,387    2,217,033 
Add: Dilutive effect of outstanding options   96,662    121,773    111,382    121,267 
Add: Dilutive effect of restricted stock   7,226    4,777    6,941    2,388 
Weighted average common shares outstanding, as adjusted   2,378,839    2,351,739    2,369,710    2,340,688 
                     
Net income per common share, diluted  $1.03   $1.11   $2.47   $2.83 

 

 -10- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

In addition to combining the historical results of operations, the pro forma calculations consider the purchase accounting adjustments and nonrecurring charges directly related to the acquisition and the related tax effects. The pro forma information for the nine months ended June 30, 2018 was adjusted to exclude $1.3 million of acquisition-related costs incurred during the period and the pro forma information for the nine months ended June 30, 2017 was adjusted to include those costs. The pro forma calculations do not include any anticipated cost savings as a result of the acquisition. The pro forma results of operations are presented for informational purposes only and are not necessarily indicative of the actual results of operations that would have occurred had the FNBO acquisition actually been consummated on October 1, 2016, or results that may occur in the future.

 

3.Investment Securities

 

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

 

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

 

Trading Account Securities

 

Prior to June 30, 2018, the Company invested in small and medium lot, investment grade municipal bonds through a managed brokerage account. The brokerage account was managed by an investment advisory firm registered with the U.S. Securities and Exchange Commission. At September 30, 2017, trading account securities recorded at fair value totaled $7.2 million and were comprised of investment grade municipal bonds. During May 2018, the Company ceased its trading activity and had no trading account securities at June 30, 2018. During the three-month period ended June 30, 2018, the Company reported a net loss on trading account securities of $48,000. During the three-month period ended June 30, 2017, the Company reported a net gain on trading account securities of $184,000. During the nine-month period ended June 30, 2018, the Company reported a net gain on trading account securities of $43,000. During the nine-month period ended June 30, 2017, the Company reported a net gain on trading account securities of $113,000.

 

 -11- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Securities Available for Sale and Held to Maturity

 

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

 

   Amortized
Cost
   Gross
Unrealized
Gain
   Gross
Unrealized
Losses
   Fair
Value
 
   (In thousands) 
June 30, 2018:                    
Securities available for sale:                    
                     
Agency bonds and notes  $9,868   $1   $-   $9,869 
Agency mortgage-backed   44,637    126    583    44,180 
Agency CMO   11,364    7    290    11,081 
Privately-issued CMO   1,470    157    51    1,576 
Privately-issued ABS   1,827    390    -    2,217 
SBA certificates   1,356    58    6    1,408 
Municipal bonds   135,394    3,039    693    137,740 
                     
Total securities available for sale  $205,916   $3,778   $1,623   $208,071 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $139   $9   $-   $148 
Municipal bonds   2,548    304    -    2,852 
                     
Total securities held to maturity  $2,687   $313   $-   $3,000 

 

 -12- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

The amortized cost and fair value of investment securities as of June 30, 2018 by contractual maturity are shown below. CMO, ABS, SBA certificates, and mortgage-backed securities which do not have a single maturity date are shown separately.

 

   Available for Sale   Held to Maturity 
   Amortized
Cost
   Fair
Value
   Amortized
Cost
   Fair
Value
 
   (In thousands) 
Due within one year  $4,020   $4,077   $238   $266 
Due after one year through five years   16,587    17,066    992    1,111 
Due after five years through ten years   38,449    39,119    929    1,044 
Due after ten years   86,206    87,347    389    431 
CMO   12,834    12,657    -    - 
ABS   1,827    2,217    -    - 
SBA certificates   1,356    1,408    -    - 
Mortgage-backed securities   44,637    44,180    139    148 
                     
   $205,916   $208,071   $2,687   $3,000 

 

 -13- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

   Number of
Investment
Positions
   Fair
Value
   Gross
Unrealized
Losses
 
   (Dollars in thousands) 
June 30, 2018:               
Securities available for sale:               
                
Continuous loss position less than twelve months:               
Agency mortgage-backed   20   $30,781   $380 
Agency CMO   6    5,633    119 
SBA certificates   1    664    6 
Municipal bonds   68    29,400    370 
                
Total less than twelve months   95    66,478    875 
                
Continuous loss position more than twelve months:               
Agency mortgage-backed   7    6,170    203 
Agency CMO   7    5,246    171 
Privately-issued CMO   2    74    51 
Municipal bonds   7    5,941    323 
                
Total more than twelve months   23    17,431    748 
                
Total securities available for sale   118   $83,909   $1,623 
                
September 30, 2017:               
Securities available for sale:               
                
Continuous loss position less than twelve months:               
Agency mortgage-backed   12   $13,332   $85 
Agency CMO   9    9,062    52 
Privately-issued CMO   2    113    28 
Municipal bonds   9    6,522    157 
                
Total less than twelve months   32    29,029    322 
                
Continuous loss position more than twelve months:               
Agency CMO   3    2,605    14 
SBA certificates   1    912    1 
Municipal bonds   1    513    19 
                
Total more than twelve months   5    4,030    34 
                
Total securities available for sale   37   $33,059   $356 

 

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

 

 -14- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

The total available for sale debt securities in loss positions at June 30, 2018, which consisted of U.S. government agency mortgage backed securities and CMOs, privately issued CMOs, SBA certificates and municipal bonds, had a fair value as a percentage of amortized cost of 98.16%. All of the agency and municipal securities are issued by U.S. government-sponsored enterprises and municipal governments, and are generally secured by first mortgage loans and municipal project revenues.

 

The Company evaluates the existence of a potential credit loss component related to the decline in fair value of the privately issued CMO and ABS portfolios each quarter using an independent third party analysis. At June 30, 2018, the Company held fourteen privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $1.3 million and fair value of $1.7 million that have been downgraded to a substandard regulatory classification due to the security’s credit quality rating by various nationally recognized statistical rating organizations (“NRSROs”).

 

At June 30, 2018, two privately-issued CMO were in loss positions and had depreciated approximately 5.55% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $74,000 and a total unrealized loss of $51,000 at June 30, 2018, and were rated below investment grade by NRSROs. Based on the independent third party analysis of the expected cash flows, management has determined that no other-than-temporary impairment is required to be recognized on the remaining privately issued CMO and ABS portfolios. While the Company does not anticipate additional credit-related impairment losses at June 30, 2018, additional deterioration in market and economic conditions may have an adverse impact on the credit quality in the future and therefore, require a credit related impairment charge.

 

During the three-month period ended June 30, 2018, the Company recognized an other-than-temporary write-down charge to earnings of $95,000 representing the total amortized cost of a privately-issued CMO. The security was determined to be other-than-temporarily impaired and the Company does not anticipate recovering its investment in the security.

 

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

 

 -15- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

During the three- and nine-month periods ended June 30, 2018, the Company realized gross gains on sales of available for sale securities of $99,000. During the three- and nine-month periods ended June 30, 2017, the Company realized gross gains on sales of available for sale securities of $96,000 and gross losses of $66,000. Securities and interest-bearing time deposits acquired in the FNBO transaction with a fair value of $35.0 million were sold within a short period of time following the merger, resulting in no gain or loss for financial reporting purposes.

 

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

 

4.Loans and Allowance for Loan Losses

 

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

 

   June 30,  2018   September 30, 2017 
   (In thousands) 
Real estate mortgage:          
1-4 family residential  $194,462   $171,863 
Commercial   341,093    273,106 
Multifamily residential   28,436    21,121 
Residential construction   17,009    15,088 
Commercial construction   7,783    18,385 
Land and land development   9,541    9,733 
Commercial business   65,632    52,724 
           
Consumer:          
Home equity   23,675    22,939 
Auto   12,035    7,057 
Other consumer   2,914    2,323 
Total Loans   702,580    594,339 
           
Deferred loan origination fees and costs, net   304    209 
Allowance for loan losses   (9,026)   (8,092)
           
Loans, net  $693,858   $586,456 

 

During the nine-month period ended June 30, 2018, there was no significant change in the Company’s lending activities or methodology used to estimate the allowance for loan losses as disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017.

 

At June 30, 2018 and September 30, 2017, the recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $1.5 million and $1.6 million, respectively.

 

 -16- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table provides the components of the recorded investment in loans as of June 30, 2018:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands) 
                                 
Recorded Investment in Loans:                                        
Principal loan balance  $194,462   $341,093   $28,436   $24,792   $9,541   $65,632   $38,624   $702,580 
                                         
Accrued interest receivable   540    1,259    102    140    23    274    67    2,405 
                                         
Net deferred loan origination fees and costs   (30)   120    (22)   13    3    248    (28)   304 
                                         
Recorded investment in loans  $194,972   $342,472   $28,516   $24,945   $9,567   $66,154   $38,663   $705,289 
                                         
Recorded Investment in Loans as Evaluated for Impairment:                                        
Individually evaluated for impairment  $5,035   $7,125   $-   $-   $27   $343   $274   $12,804 
                                         
Collectively evaluated for impairment   189,937    335,347    28,516    24,945    9,540    65,811    38,389    692,485 
                                         
Ending balance  $194,972   $342,472   $28,516   $24,945   $9,567   $66,154   $38,663   $705,289 

 

 -17- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

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

 

 -18- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the allowance for loan losses as of June 30, 2018 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Ending Allowance Balance Attributable to Loans:                                        
Individually evaluated for impairment  $17   $324   $-   $-   $-   $-   $6   $347 
                                         
Collectively evaluated for impairment   330    6,241    193    512    192    998    213    8,679 
                                         
Ending balance  $347   $6,565   $193   $512   $192   $998   $219   $9,026 

 

An analysis of the allowance for loan losses as of September 30, 2017 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Ending Allowance Balance Attributable to Loans:                                        
Individually evaluated for impairment  $2   $-   $-   $-   $-   $-   $21   $23 
                                         
Collectively evaluated for impairment   250    5,739    106    810    223    839    102    8,069 
                                         
Ending balance  $252   $5,739   $106   $810   $223   $839   $123   $8,092 

 

 -19- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the changes in the allowance for loan losses for the three months ended June 30, 2018 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Changes in Allowance for Loan Losses:                                        
Beginning balance  $248   $6,182   $146   $985   $230   $927   $146   $8,864 
Provisions   147    383    47    (473)   (38)   60    140    266 
Charge-offs   (69)   -    -    -    -    -    (83)   (152)
Recoveries   21    -    -    -    -    11    16    48 
                                         
Ending balance  $347   $6,565   $193   $512   $192   $998   $219   $9,026 

 

An analysis of the changes in the allowance for loan losses for the nine months ended June 30, 2018 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Changes in Allowance for Loan Losses:                                        
Beginning balance  $252   $5,739   $106   $810   $223   $839   $123   $8,092 
Provisions   146    826    87    (298)   (31)   147    222    1,099 
Charge-offs   (93)   -    -    -    -    -    (167)   (260)
Recoveries   42    -    -    -    -    12    41    95 
                                         
Ending balance  $347   $6,565   $193   $512   $192   $998   $219   $9,026 

 

 -20- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the changes in the allowance for loan losses for the three months ended June 30, 2017 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Changes in Allowance for Loan Losses:                                        
Beginning balance  $311   $5,870   $116   $703   $267   $348   $103   $7,718 
Provisions   201    (386)   (21)   117    (66)   461    (15)   321 
Charge-offs   (41)   -    -    -    -    -    (25)   (66)
Recoveries   4    -    -    -    -    -    18    22 
                                         
Ending balance  $475   $5,484   $95   $820   $201   $809   $111   $7,995 

 

An analysis of the changes in the allowance for loan losses for the nine months ended June 30, 2017 is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Multifamily   Construction  

Land & Land

Development

  

Commercial

Business

   Consumer   Total 
   (In thousands)     
Changes in Allowance for Loan Losses:                                        
Beginning balance  $335   $5,160   $109   $845   $295   $284   $94   $7,122 
Provisions   211    324    (14)   (25)   (94)   536    64    1,002 
Charge-offs   (80)   -    -    -    -    (25)   (87)   (192)
Recoveries   9    -    -    -    -    14    40    63 
                                         
Ending balance  $475   $5,484   $95   $820   $201   $809   $111   $7,995 

 

 -21- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of June 30, 2018 and for the three and nine months ended June 30, 2018 and 2017.

 

   At June 30, 2018   Three Months Ended June 30,   Nine Months Ended June 30, 
               2018   2018   2017   2017   2018   2018   2017   2017 
  

Recorded

Investment

   Unpaid
Principal
Balance
   Related
Allowance
  
Average
Recorded
Investment
  

Interest

Income

Recognized

  

Average

Recorded

Investment

  

Interest

Income

Recognized

  

 

Average

Recorded

Investment

  

Interest

Income

Recognized

  

Average

Recorded

Investment

  

Interest

Income

Recognized

 
   (In thousands) 
Loans with no related allowance recorded:
Residential real estate  $4,524   $5,025   $-   $4,964   $37   $4,371   $36   $5,054   $108   $4,264   $106 
Commercial real estate   6,605    6,795    -    6,847    81    5,731    50    6,677    225    6,085    149 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   27    28    -    29    -    270    1    29    -    254    1 
Commercial business   343    352    -    355    3    206    1    309    9    211    4 
Consumer   135    136    -    139    1    120    1    118    3    151    3 
   $11,634   $12,336   $-   $12,334   $122   $10,698   $89   $12,187   $345   $10,965   $263 
                                                        
Loans with an allowance recorded:                                          
Residential real estate  $511   $526   $17   $376   $-   $406   $-   $308   $-   $444   $- 
Commercial real estate   520    543    324    136    -    -    -    54    -    -    - 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   -    -    -    -    -    -    -    -    -    -    - 
Commercial business   -    -    -    -    -    -    -    -    -    -    - 
Consumer   139    145    6    145    -    88    -    133    -    86    - 
   $1,170   $1,214   $347   $657   $-   $494   $-   $495   $-   $530   $- 
                                                        
Total:                                                       
Residential real estate  $5,035   $5,551   $17   $5,340   $37   $4,777   $36   $5,362   $108   $4,708   $106 
Commercial real estate   7,125    7,338    324    6,983    81    5,731    50    6,731    225    6,085    149 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   27    28    -    29    -    270    1    29    -    254    1 
Commercial business   343    352    -    355    3    206    1    309    9    211    4 
Consumer   274    281    6    284    1    208    1    251    3    237    3 
   $12,804   $13,550   $347   $12,991   $122   $11,192   $89   $12,682   $345   $11,495   $263 

 

The Company did not recognize any interest income using the cash receipts method during the three- and nine-month periods ended June 30, 2018 and 2017.

 -22- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of September 30, 2017.

 

  

Recorded

Investment

   Unpaid
Principal
Balance
   Related
Allowance
 
   (In thousands) 
Loans with no related allowance recorded:
Residential real estate  $4,745   $4,980   $- 
Commercial real estate   5,477    5,645    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   30    30    - 
Commercial business   192    199    - 
Consumer   95    95    - 
   $10,539   $10,949   $- 
                
Loans with an allowance recorded:
Residential real estate  $224   $268   $2 
Commercial real estate   -    -    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   -    -    - 
Commercial business   -    -    - 
Consumer   101    101    21 
   $325   $369   $23 
                
Total:               
Residential real estate  $4,969   $5,248   $2 
Commercial real estate   5,477    5,645    - 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   30    30    - 
Commercial business   192    199    - 
Consumer   196    196    21 
   $10,864   $11,318   $23 

 

 -23- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Nonperforming loans consist of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at June 30, 2018:

 

  

Nonaccrual

Loans

  

Loans 90+
Days

Past Due

Still Accruing

   Total
Nonperforming
Loans
 
   (In thousands) 
Residential real estate  $2,608   $-   $2,608 
Commercial real estate   593    -    593 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   27    -    27 
Commercial business   -    124    124 
Consumer   187    -    187 
                
Total  $3,415   $124   $3,539 

 

The following table presents the recorded investment in nonperforming loans at September 30, 2017:

 

  

Nonaccrual

Loans

  

Loans 90+
Days

Past Due

Still Accruing

   Total
Nonperforming
Loans
 
   (In thousands) 
Residential real estate  $2,358   $83   $2,441 
Commercial real estate   1,253    -    1,253 
Multifamily   -    -    - 
Construction   -    -    - 
Land and land development   30    -    30 
Commercial business   81    -    81 
Consumer   101    10    111 
                
Total  $3,823   $93   $3,916 

 

 -24- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents the aging of the recorded investment in past due loans at June 30, 2018:

 

  

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  $1,952   $675   $1,698   $4,325   $190,647   $194,972 
Commercial real estate   1,549    -    -    1,549    340,923    342,472 
Multifamily   -    -    -    -    28,516    28,516 
Construction   -    -    -    -    24,945    24,945 
Land and land development   103    -    -    103    9,464    9,567 
Commercial business   26    -    124    150    66,004    66,154 
Consumer   94    14    33    141    38,522    38,663 
                               
Total  $3,724   $689   $1,855   $6,268   $699,021   $705,289 

 

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

 

  

30-59

Days

Past Due

  

60-89

Days

Past Due

  

90 +

Days

Past Due

  

Total

Past Due

   Current  

Total

Loans

 
   (In thousands) 
Residential real estate  $2,288   $1,255   $1,540   $5,083   $167,323   $172,406 
Commercial real estate   -    -    -    -    274,061    274,061 
Multifamily   176    -    -    176    20,967    21,143 
Construction   -    -    -    -    33,593    33,593 
Land and land development   48    -    30    78    9,688    9,766 
Commercial business   201    -    -    201    52,928    53,129 
Consumer   29    11    10    50    32,307    32,357 
                               
Total  $2,742   $1,266   $1,580   $5,588   $590,867   $596,455 

 

 -25- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

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

 

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

 

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

 

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

 

 -26- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. As of June 30, 2018, 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  $189,811   $334,414   $28,009   $24,945   $9,540   $63,711   $38,607   $689,037 
Special Mention   -    355    -    -    -    -    -    355 
Substandard   5,017    7,703    507    -    27    2,443    56    15,753 
Doubtful   144    -    -    -    -    -    -    144 
Loss   -    -    -    -    -    -    -    - 
                                         
Total  $194,972   $342,472   $28,516   $24,945   $9,567   $66,154   $38,663   $705,289 

 

As of September 30, 2017, 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  $165,192   $268,481   $20,299   $33,500   $9,736   $52,398   $32,172   $581,778 
Special Mention   895    1,982    844    93    -    641    53    4,508 
Substandard   6,152    3,598    -    -    30    90    111    9,981 
Doubtful   167    -    -    -    -    -    21    188 
Loss   -    -    -    -    -    -    -    - 
                                         
Total  $172,406   $274,061   $21,143   $33,593   $9,766   $53,129   $32,357   $596,455 

 

 -27- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Troubled Debt Restructurings

 

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

 

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

 

The following table summarizes the Company’s recorded investment in TDRs at June 30, 2018 and September 30, 2017. There was no specific reserve included in the allowance for loan losses related to TDRs at June 30, 2018 and September 30, 2017.

 

   Accruing   Nonaccrual   Total 
   (In thousands) 
June 30, 2018:               
Residential real estate  $2,427   $25   $2,452 
Commercial real estate   6,532    73    6,605 
Commercial business   343    -    343 
Consumer   87    -    87 
Total  $9,389   $98   $9,487 
                
September 30, 2017:               
Residential real estate  $2,610   $25   $2,635 
Commercial real estate   4,225    1,253    5,478 
Commercial business   111    82    193 
Consumer   95    -    95 
Total  $7,041   $1,360   $8,401 

 

 -28- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table summarizes information in regard to TDRs that were restructured during the three- and nine-month periods ended June 30, 2018 and 2017:

 

  

Number of

Loans

  

Pre-

Modification

Principal

Balance

  

Post-

Modification

Principal

Balance

 
   (In thousands) 
Three Months Ended June 30, 2018:               
Total   -   $-   $- 
                
Nine Months Ended June 30, 2018:               
Residential real estate   1   $140   $120 
Commercial real estate   1    1,674    1,674 
Commercial business   1    170    170 
Consumer   1    3    3 
Total   4   $1,987   $1,967 
                
Three Months Ended June 30, 2017:               
Residential real estate   1   $21   $21 
Commercial business   1    103    103 
Total   2   $124   $124 
                
Nine Months Ended June 30, 2017:               
Residential real estate   2   $472   $474 
Land and land development   1    31    32 
Commercial business   1    103    103 
Total   4   $606   $609 

 

No loans were modified as TDRs during the three-month period ended June 30, 2018. For the TDRs listed above, the terms of modification included deferral of contractual principal and interest payments, reduction of the stated interest rate and extension of the maturity date where the debtor was unable to access funds elsewhere at a market interest rate for debt with similar risk characteristics.

 

At June 30, 2018 and September 30, 2017, the Company had committed to lend $1,000 and $17,000, respectively, to customers with outstanding loans classified as TDRs.

 

There were no principal charge-offs recorded as a result of TDRs during the three- and nine-month periods ended June 30, 2018 and 2017. There was no specific allowance for loan losses related to TDRs modified during the three- and nine-month periods ended June 30, 2018 and 2017. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan.

 

During the three- and nine-month periods ended June 30, 2018 and 2017, the Company did not have any TDRs that were modified within the previous twelve months and for which there was a payment default.

 

 -29- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Loan Servicing Rights

 

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

 

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

 

The unpaid principal balance of SBA loans serviced for others was $113.5 million, $61.2 million and $45.1 million at June 30, 2018, September 30, 2017 and June 30, 2017, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $3,000 and $12,000 for the three- and nine-month periods ended June 30, 2018, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $1,000 and $45,000 for the three- and nine-month periods ended June 30, 2017, respectively. Net servicing income (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans were $240,000 and $581,000 for the three- and nine-month periods ended June 30, 2018, respectively. Net servicing costs (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans were $41,000 and $110,000 for the three- and nine-month periods ended June 30, 2017, respectively. Net servicing income and costs are included in other noninterest income in the consolidated statements of income.

 

An analysis of SBA loan servicing rights for the three- and nine-month periods ended June 30, 2018 and 2017 is as follows:

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
   2018   2017   2018   2017 
   (In thousands) 
Balance, beginning of period  $2,116   $783   $1,389   $310 
Servicing rights resulting from transfers of loans   430    274    1,297    781 
Amortization   (83)   (31)   (223)   (65)
(Increase) decrease in valuation allowance   (18)   -    (18)   - 
                     
Balance, end of period  $2,445   $1,026   $2,445   $1,026 
                     
Valuation allowance, end of period  $18   $-   $18   $- 

 

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

 

 -30- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

5.Investment in Historic Tax Credit Entity

 

On October 15, 2014, the Bank entered into an agreement to participate in the rehabilitation of a certified historic structure located in Louisville, Kentucky with a regional commercial developer. As part of the agreement, the Bank committed to invest $4.2 million into a limited liability company organized in Kentucky by the commercial developer, for which it received a 99% equity interest in the entity and will receive an allocation of 99% of the operating profit and losses and any historic tax credits generated by the entity. The tax credits initially expected to be allocated to the Bank include federal rehabilitation investment credits totaled $4.7 million available under Internal Revenue Code Section 47. Subsequently, during the three-month period ended March 31, 2017, the estimate of tax credits increased to $5.0 million and the Company’s investment in equity increased to $4.5 million, or 90% of the anticipated credits to be received.

 

The Bank’s investment in the historic tax credit entity is accounted for using the equity method of accounting. During the three- and nine-month periods ended June 30, 2018, the Bank recognized income related to distributions from the historic tax credit entity of $340,000. During the nine-month period ended June 30, 2017, the Company recognized impairment losses in noninterest income of $226,000 and recorded historic tax credits as an offset to income tax expense of $249,000.

 

6.Deposits

 

Deposits at June 30, 2018 and September 30, 2017 consisted of the following:

 

  

June 30,

2018

  

September 30,

2017

 
   (In thousands) 
Noninterest-bearing demand deposits  $156,827   $96,283 
NOW accounts   171,506    182,068 
Money market accounts   116,830    70,775 
Savings accounts   122,017    90,360 
Retail time deposits   124,732    123,010 
Brokered time deposits   142,842    106,886 
           
Total  $834,754   $669,382 

 

 -31- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

7.Supplemental Disclosure for Earnings Per Share

 

Earnings per share information is presented below for the three- and nine-month periods ended June 30, 2018 and 2017.

 

   Three Months Ended   Nine Months Ended 
   June 30,   June 30, 
   2018   2017   2018   2017 
   (Dollars in thousands, except per share data) 
Basic:                    
Earnings:                    
Net income attributable to First Savings Financial Group, Inc.  $3,106   $2,443   $8,158   $6,974 
Shares:                    
Weighted average common shares outstanding, basic   2,274,951    2,225,189    2,251,387    2,217,033 
                     
Net income per common share, basic  $1.37   $1.10   $3.62   $3.15 
                     
Diluted:                    
Earnings:                    
Net income attributable to First Savings Financial Group, Inc.  $3,106   $2,443   $8,158   $6,974 
Shares:                    
Weighted average common shares outstanding, basic   2,274,951    2,225,189    2,251,387    2,217,033 
Add: Dilutive effect of outstanding options   96,662    121,773    111,382    121,267 
Add: Dilutive effect of restricted stock   7,226    4,777    6,941    2,388 
Weighted average common shares outstanding, as adjusted   2,378,839    2,351,739    2,369,710    2,340,688 
                     
Net income per common share, diluted  $1.31   $1.04   $3.44   $2.98 

 

Nonvested restricted stock shares are not considered as outstanding for purposes of computing weighted average common shares outstanding.

 

There were no antidilutive restricted stock awards excluded from the calculation of diluted net income per share for the three- and nine-month periods ended June 30, 2018 and 2017. Stock options for 4,800 shares of common stock were excluded from the calculation of diluted net income per common share for the three- and nine-month periods ended June 30, 2018, because their effect was antidilutive. Stock options for 51,295 shares of common stock were excluded from the calculation of diluted net income per common share for the nine-month period ended June 30, 2017, because their effect was antidilutive. No stock options were excluded from the calculation of diluted net income per common share for the three-month period ended June 30, 2017.

 

 -32- 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

8.Supplemental Disclosures of Cash Flow Information

 

   Nine Months Ended 
   June 30, 
   2018   2017 
   (In thousands) 
Cash payments for:          
Interest  $4,348   $3,140 
Income taxes (net of refunds received)   1,762    301 
           
Transfers from loans held for sale to loans   509    903 
           
Transfers from loans to foreclosed real estate   69    163 
           
Proceeds from sales of foreclosed real estate financed through loans   427    189 
           
Noncash exercise of stock options   387    293 

 

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

 

FASB 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.

 

 -33- 

 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets carried at fair value or the lower of cost or fair value. The tables below present the balances of financial assets measured at fair value on a recurring and nonrecurring basis as of June 30, 2018 and September 30, 2017. The Company had no liabilities measured at fair value as of June 30, 2018 or September 30, 2017.

 

   Carrying Value 
   Level 1   Level 2   Level 3   Total 
   (In thousands) 
June 30, 2018:                    
Assets Measured - Recurring Basis:                    
Securities available for sale:                    
Agency bond and notes  $-   $9,869   $-   $9,869 
Agency mortgage-backed   -    44,180    -    44,180 
Agency CMO   -    11,081    -    11,081 
Privately issued CMO   -    1,576    -    1,576 
Privately issued ABS   -    2,217    -    2,217 
SBA certificates   -    1,408    -    1,408 
Municipal   -    137,740    -    137,740 
Total securities available for sale  $-   $208,071   $-   $208,071 
                     
Assets Measured - Nonrecurring Basis:                    
Impaired loans:                    
Residential real estate  $-   $-   $5,018   $5,018 
Commercial real estate   -    -    6,801    6,801 
Land and land development   -    -    27    27