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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)

 

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

 

For the quarterly period ended March 31, 2020

 

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)

 

702 North Shore Drive, Suite 300, Jeffersonville, Indiana 47130

(Address of principal executive offices) (Zip Code)

 

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

 

  501 East Lewis & Clark Parkway, Clarksville, Indiana 47129  
  (Former name, former address and former fiscal year, if changed since last report)  

 

Securities Registered pursuant to Section 12(b) of the Act:

 

Common stock, $0.01 par value per share   FSFG   The NASDAQ Stock Market, LLC  
(Title of each class)   (Trading Symbol)   (Name of each exchange on which registered)  

 

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 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 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.

 

Large Accelerated Filer ¨ Accelerated Filer x
 
Non-accelerated Filer ¨ Smaller Reporting Company  x
 
Emerging Growth Company ¨

 

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

 

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

 

The number of shares outstanding of the registrant’s common stock as of May 4, 2020 was 2,375,324.

 

 

 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

 

INDEX

 

    Page
Part I Financial Information  
     
  Item 1. Financial Statements  
     
  Consolidated Balance Sheets as of March 31, 2020 and September 30, 2019 (unaudited) 3
     
  Consolidated Statements of Income for the three months and six months ended March 31, 2020 and 2019 (unaudited) 4
     
  Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended March 31, 2020 and 2019 (unaudited) 5
     
  Consolidated Statements of Changes in Stockholders’ Equity for the six months ended March 31, 2020 and 2019 (unaudited) 6
     
  Consolidated Statements of Cash Flows for the six months ended March 31, 2020 and 2019 (unaudited) 7
     
  Notes to Consolidated Financial Statements (unaudited) 8-56
     
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 57-68
     
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 69-70
     
  Item 4. Controls and Procedures 71
     
Part II Other Information
     
  Item 1. Legal Proceedings 72
     
  Item 1A. Risk Factors 72
     
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 74
     
  Item 3. Defaults Upon Senior Securities 74
     
  Item 4. Mine Safety Disclosures 74
     
  Item 5. Other Information 75
     
  Item 6. Exhibits 75
     
Signatures 76

 

-2-

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   March 31,   September 30, 
(In thousands, except share and per share data)  2020   2019 
ASSETS          
Cash and due from banks  $11,790   $13,008 
Interest-bearing deposits with banks   10,813    28,424 
Total cash and cash equivalents   22,603    41,432 
           
Interest-bearing time deposits   2,510    2,265 
Securities available for sale, at fair value   184,684    177,302 
Securities held to maturity   2,189    2,336 
           
Loans held for sale, residential mortgage, at fair value   139,084    80,457 
Loans held for sale, Small Business Administration   24,843    15,613 
Loans, net of allowance for loan losses of $11,691 at March 31, 2020 and $10,040 at September 30, 2019   877,276    810,658 
Federal Reserve Bank and Federal Home Loan Bank stock, at cost   16,618    13,040 
Premises and equipment   23,437    19,238 
Other real estate owned, held for sale   1,838    1,893 
Accrued interest receivable:          
Loans   3,320    3,329 
Securities   1,837    1,712 
Cash surrender value of life insurance   31,383    26,546 
Goodwill   9,848    9,848 
Core deposit intangibles   1,309    1,416 
Other assets   25,473    15,494 
Total Assets  $1,368,252   $1,222,579 
           
LIABILITIES          
Deposits:          
Noninterest-bearing  $178,894   $173,072 
Interest-bearing   758,412    661,312 
Total deposits   937,306    834,384 
           
Federal funds purchased   -    4,000 
Borrowings from Federal Home Loan Bank   270,000    222,544 
Other borrowings   19,763    19,729 
Accrued interest payable   787    935 
Advance payments by borrowers for taxes and insurance   1,985    1,906 
Accrued expenses and other liabilities   22,166    17,824 
Total Liabilities   1,252,007    1,101,322 
           
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 2,567,842 shares (2,565,606 at September 30, 2019); outstanding 2,375,324 shares (2,350,229 shares at September 30, 2019)   26    26 
Additional paid-in capital   27,436    27,494 
Retained earnings - substantially restricted   93,425    91,228 
Accumulated other comprehensive income   472    7,296 
Unearned stock compensation   (446)   (446)
Less treasury stock, at cost - 192,518 shares (215,377 shares at September 30, 2019)   (4,254)   (4,545)
Total First Savings Financial Group, Inc. Stockholders' Equity   116,659    121,053 
Noncontrolling interests in subsidiary   (414)   204 
Total Equity   116,245    121,257 
           
Total Liabilities and Equity  $1,368,252   $1,222,579 

 

See notes to consolidated financial statements.

 

-3-

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

   Three Months Ended   Six Months Ended 
   March 31,   March 31, 
(In thousands, except share and per share data)  2020   2019   2020   2019 
INTEREST INCOME                    
Loans, including fees  $11,858   $10,211   $23,671   $20,021 
Securities:                    
Taxable   504    727    1,089    1,474 
Tax-exempt   1,027    1,006    2,037    1,976 
Dividend income   151    142    305    263 
Interest-bearing deposits with banks   153    221    358    374 
Total interest income   13,693    12,307    27,460    24,108 
                     
INTEREST EXPENSE                    
Deposits   1,625    1,607    3,374    3,031 
Federal funds purchased   1    -    1    - 
Repurchase agreements   -    1    -    2 
Borrowings from Federal Home Loan Bank   838    520    1,646    998 
Other borrowings   319    318    637    640 
Total interest expense   2,783    2,446    5,658    4,671 
                     
Net interest income   10,910    9,861    21,802    19,437 
Provision for loan losses   1,705    340    2,210    655 
                     
Net interest income after provision for loan losses   9,205    9,521    19,592    18,782 
                     
NONINTEREST INCOME                    
Service charges on deposit accounts   441    449    950    960 
ATM and interchange fees   524    446    1,027    899 
Net gain on sales of available for sale securities and time deposits   7    1    7    1 
Net unrealized loss on equity securities   (29)   -    (27)   - 
Net gain on sales of loans, Small Business Administration   1,229    521    1,990    1,485 
Mortgage banking income   8,272    5,074    24,089    8,363 
Increase in cash surrender value of life insurance   194    147    356    258 
Commission income   83    77    110    134 
Real estate lease income   152    157    303    315 
Net gain (loss) on premises and equipment   (5)   8    (9)   9 
Other income   126    209    324    446 
Total noninterest income   10,994    7,089    29,120    12,870 
                     
NONINTEREST EXPENSE                    
Compensation and benefits   14,907    8,240    32,727    15,497 
Occupancy and equipment   1,989    1,420    3,911    2,745 
Data processing   546    479    1,048    906 
Advertising   1,777    567    3,243    963 
Professional fees   522    504    1,149    964 
FDIC insurance premiums   99    112    103    178 
Net (gain) loss on other real estate owned   (7)   7    (2)   (14)
Other operating expenses   2,242    1,551    4,168    3,057 
Total noninterest expense   22,075    12,880    46,347    24,296 
Income (loss) before income taxes   (1,876)   3,730    2,365    7,356 
Income tax expense (benefit)   (774)   466    (136)   988 
Net Income (Loss)   (1,102)   3,264    2,501    6,368 
Less: net loss attributable to noncontrolling interests   (475)   (269)   (311)   (96)
Net Income (Loss) Attributable to First Savings Financial Group, Inc.  $(627)  $3,533   $2,812   $6,464 
                     
Net income (loss) per share:                    
Basic  $(0.27)  $1.53   $1.20   $2.82 
Diluted  $(0.26)  $1.50   $1.18   $2.73 
                     
Weighted average shares outstanding:                    
Basic   2,355,750    2,307,155    2,348,145    2,295,788 
Diluted   2,379,901    2,360,004    2,381,356    2,366,524 
                     
Dividends per share  $0.17   $0.16   $0.33   $0.31 

 

See notes to consolidated financial statements.

 

-4-

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

   Three Months Ended   Six Months Ended 
   March 31,   March 31, 
(In thousands)  2020   2019   2020   2019 
Net Income (Loss)  $(1,102)  $3,264   $2,501   $6,368 
                     
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX                    
Unrealized gains (losses) on securities available for sale:                    
Unrealized holding gains (losses) arising during the period   (7,929)   2,964    (8,677)   4,744 
Income tax benefit (expense)   1,694    (646)   1,858    (1,036)
Net of tax amount   (6,235)   2,318    (6,819)   3,708 
                     
Less: reclassification adjustment for realized gains included in net income   (7)   (1)   (7)   (1)
Income tax expense   2    -    2    - 
Net of tax amount   (5)   (1)   (5)   (1)
                     
                     
Other Comprehensive Income (Loss)   (6,240)   2,317    (6,824)   3,707 
                     
Comprehensive Income (Loss)   (7,342)   5,581    (4,323)   10,075 
Less: comprehensive loss attributable to noncontrolling interests   (475)   (269)   (311)   (96)
                     
Comprehensive Income (Loss) Attributable to First Savings Financial Group, Inc.  $(6,867)  $5,850   $(4,012)  $10,171 

 

See notes to consolidated financial statements.

 

-5-

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

 

(In thousands, except share and per share data)  Common
Stock
   Additional
Paid-in
Capital
   Retained
Earnings
   Accumulated
Other

Comprehensive
Income
   Unearned
Stock
Compensation
   Treasury
Stock
   Noncontrolling
Interests in

Subsidiary
   Total 
Six Months Ended March 31, 2019:                                
 Balances at October 1, 2018  $26   $27,630   $76,523   $382   $(479)  $(5,269)  $1,432   $100,245 
                                         
Net income (loss)   -    -    6,464    -    -    -    (96)   6,368 
                                         
Other comprehensive income   -    -    -    3,707    -    -    -    3,707 
                                         
Common stock dividends - $0.31 per share   -    -    (721)   -    -    -    -    (721)
                                         
Distributions to noncontrolling interests   -    -    -    -    -    -    (95)   (95)
                                         
Restricted stock grants, net of forfeitures - 2,329 shares   -    141    -    -    (141)   -    -    - 
                                         
Stock compensation expense   -    35    -    -    86    -    -    121 
                                         
Stock option exercises - 61,484 shares   -    (306)   -    -    -    1,183    -    877 
                                         
Purchase of 10,968 treasury shares   -    -    -    -    -    (573)   -    (573)
                                         
 Balances at March 31, 2019  $26   $27,500   $82,266   $4,089   $(534)  $(4,659)  $1,241   $109,929 
                                         
Six Months Ended March 31, 2020:                                        

Balances at October 1, 2019

  $26   $27,494   $91,228   $7,296   $(446)  $(4,545)  $204   $121,257 
                                         
Cumulative effect adjustment, adoption of ASU 2016-02   -    -    166    -    -    -    -    166 
                                         
Net income (loss)   -    -    2,812    -    -    -    (311)   2,501 
                                         
Other comprehensive loss   -    -    -    (6,824)   -    -    -    (6,824)
                                         
Common stock dividends - $0.33 per share   -    -    (781)   -    -    -    -    (781)
                                         
Distributions to noncontrolling interests   -    -    -    -    -    -    (307)   (307)
                                         
Restricted stock grants - 1,436 shares   -    95    -    -    (95)   -    -    - 
                                         
Stock compensation expense   -    42    -    -    95    -    -    137 
                                         
Stock option exercises - 28,361 shares   -    (195)   -    -    -    593    -    398 
                                         
Purchase of 4,702 treasury shares   -    -    -    -    -    (302)   -    (302)
                                         
 Balances at March 31, 2020  $26   $27,436   $93,425   $472   $(446)  $(4,254)  $(414)  $116,245 

 

See notes to consolidated financial statements.

 

-6-

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six Months Ended 
   March 31, 
(In thousands)  2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $2,501   $6,368 
Adjustments to reconcile net income to net cash used in operating activities:          
Provision for loan losses   2,210    655 
Depreciation and amortization   761    860 
Amortization of premiums and accretion of discounts on securities, net   269    240 
Amortization and accretion of fair value adjustments on loans, net   (475)   (318)
Loans originated for sale   (1,111,120)   (200,737)
Proceeds on sales of loans   1,065,708    191,800 
Net realized and unrealized gain on loans held for sale   (25,247)   (7,762)
Net realized and unrealized gain on other real estate owned   (13)   (25)
Net gain on sales of available for sale securities and time deposits   (7)   (1)
Increase in cash surrender value of life insurance   (356)   (258)
Net loss on equity securities   27    - 
Net (gain) loss on sale of premises and equipment   9    (9)
Deferred income taxes   415    279 
Stock compensation expense   139    120 
Increase in accrued interest receivable   (116)   (315)
Increase (decrease) in accrued interest payable   (148)   582 
Change in other assets and liabilities, net   (565)   (1,178)
Net Cash Used In Operating Activities   (66,008)   (9,699)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Investment in interest-bearing time deposits   (490)   (690)
Proceeds from sales and maturities of interest-bearing time deposits   245    245 
Purchase of securities available for sale   (27,406)   (18,296)
Proceeds from sales of securities available for sale   3,180    226 
Proceeds from maturities of securities available for sale   4,150    3,505 
Proceeds from maturities of securities held to maturity   139    132 
Principal collected on securities   3,753    12,354 
Net increase in loans   (68,638)   (59,358)
Purchase of Federal Home Loan Bank stock   (3,578)   (575)
Investment in cash surrender value of life insurance   (4,481)   (6,000)
Proceeds from sale of other real estate owned   68    123 
Purchase of premises and equipment   (5,345)   (7,992)
Proceeds from sales of premises and equipment   118    51 
Net Cash Used In Investing Activities   (98,285)   (76,275)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net increase in deposits   102,922    13,658 
Net decrease in federal funds purchased   (4,000)   - 
Net increase in repurchase agreements   -    1 
Increase (decrease) in Federal Home Loan Bank line of credit   (12,544)   5,938 
Proceeds from Federal Home Loan Bank advances   240,000    95,000 
Repayment of Federal Home Loan Bank advances   (180,000)   (30,000)
Net increase in advance payments by borrowers for taxes and insurance   79    56 
Proceeds from exercise of stock options   148    337 
Taxes paid on stock award shares for employees   (53)   (32)
Dividends paid on common stock   (781)   (721)
Distributions to noncontrolling interests   (307)   (95)
Net Cash Provided By Financing Activities   145,464    84,142 
Net Decrease in Cash and Cash Equivalents   (18,829)   (1,832)
           
Cash and cash equivalents at beginning of period   41,432    42,274 
           
Cash and Cash Equivalents at End of Period  $22,603   $40,442 

 

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 16 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.

 

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 11 other third-party insurance captives for which insurance may not be currently available or economically feasible in the insurance marketplace.

 

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.

 

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of March 31, 2020, the results of operations for the three- and six-month periods ended March 31, 2020 and 2019, and the cash flows for the six-month periods ended March 31, 2020 and 2019. 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, 2019 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.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.

 

-9-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Securities Available for Sale and Held to Maturity

 

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

 

  

 

Amortized
Cost

   Gross
Unrealized Gain
   Gross
Unrealized
Losses
  

 

Fair

Value

 
   (In thousands) 
March 31, 2020:                
Securities available for sale:                    
                     
Agency mortgage-backed  $8,855   $479   $-   $9,334 
Agency CMO   8,427    91    80    8,438 
Privately-issued CMO   1,063    6    40    1,029 
Privately-issued ABS   949    43    56    936 
SBA certificates   718    30    3    745 
Municipal bonds   164,013    2,020    1,831    164,202 
                     
Total securities available for sale  $184,025   $2,669   $2,010   $184,684 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $93   $6   $-   $99 
Municipal bonds   2,096    326    -    2,422 
                     
Total securities held to maturity  $2,189   $332   $-   $2,521 

  

The Company obtains pricing for its available for sale securities portfolio from an independent third party pricing service approximately 10 days prior to each month end. Due to significant market movements at the end of March 2020 in response to the COVID-19 pandemic, the values obtained for the available for sale securities portfolio showed a significant decrease compared to the prior quarter. However, based on changes in the market subsequent to the valuation date management believes the decrease in the valuation of the available for sale securities portfolio would have been partially mitigated at March 31, 2020.

 

-10-

 

 

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, 2019:                   
Securities available for sale:                    
                     
Agency mortgage-backed  $13,743   $366   $12   $14,097 
Agency CMO   8,834    221    7    9,048 
Privately-issued CMO   1,242    142    2    1,382 
Privately-issued ABS   1,022    156    -    1,178 
SBA certificates   1,119    41    6    1,154 
Municipal bonds   141,995    8,465    17    150,443 
                     
Total securities available for sale  $167,955   $9,391   $44   $177,302 
                     
Securities held to maturity:                    
                     
Agency mortgage-backed  $102   $7   $  -   $109 
Municipal bonds   2,234    327    -    2,561 
                     
Total securities held to maturity  $2,336   $334   $-   $2,670 

 

The amortized cost and fair value of investment securities as of March 31, 2020 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  $4,304   $4,371   $244   $277 
Due after one year through five years   26,250    26,564    999    1,141 
Due after five years through ten years    25,012    25,431    718    844 
Due after ten years   108,447    107,836    135    160 
CMO   9,490    9,467    -    - 
ABS   949    936    -    - 
SBA certificates   718    745    -    - 
Mortgage-backed securities   8,855    9,334    93    99 
                     
   $184,025   $184,684   $2,189   $2,521 

 

-11-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

Information pertaining to investment securities with gross unrealized losses at March 31, 2020 and September 30, 2019, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

 

   Number of
Investment
Positions
  

 

Fair

Value

   Gross
Unrealized
Losses
 
   (Dollars in thousands) 
March 31, 2020:            
Securities available for sale:               
                
Continuous loss position less than twelve months:               
Agency CMO   3   $3,877   $80 
Privately-issued CMO   3    947    28 
Privately-issued ABS   2    489    56 
Municipals   103    58,572    1,831 
                
Total less than twelve months   111    63,885    1,995 
                
Continuous loss position more than twelve months:               
Privately-issued CMO   1    23   12 
SBA certificates   1    259    3 
                
Total more than twelve months   2    282    15 
                
Total securities available for sale   113   $64,167   $2,010 
     
September 30, 2019:    
Securities available for sale:               
                
Continuous loss position less than twelve months:               
Agency mortgage-backed   3   $1,248   $1 
Agency CMO   1    1,962    1 
Municipal bonds   3    1,694    16 
                
Total less than twelve months   7    4,904    18 
                
Continuous loss position more than twelve months:               
Agency mortgage-backed   2    785    11 
Agency CMO   2    956    6 
Privately-issued CMO   1    33    2 
SBA certificates   1    451    6 
Municipal bonds   1    140    1 
                
Total more than twelve months   7    2,365    26 
                
Total securities available for sale   14   $7,269   $44 

 

At March 31, 2020 and September 30, 2019, the Company did not have any securities held to maturity with an unrealized loss.

 

-12-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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

 

The total available for sale debt securities in loss positions at March 31, 2020, 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 96.96%. All of the agency and municipal securities are issued by U.S. government-sponsored enterprises and municipal governments, and are generally secured by first mortgage loans and municipal project revenues.

 

The Company evaluates the existence of a potential credit loss component related to the decline in fair value of the privately issued CMO and ABS portfolios each quarter using an independent third party analysis. At March 31, 2020, the Company held twelve privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $984,000 and fair value of $959,000 that have been downgraded to a substandard regulatory classification due to the security’s credit quality rating by various nationally recognized statistical rating organizations (“NRSROs”).

 

At March 31, 2020, four privately-issued CMO securities and two privately-issued ABS were in a loss position and had depreciated approximately 6.16% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $1.5 million and a total unrealized loss of $96,000 at March 31, 2020. The two privately-issued ABS and one privately-issued CMO were rated below investment grade by NRSROs, and had a total fair value of $948,000 and a total unrealized loss of $28,000. The remaining three privately-issued CMO securities were rated above investment grade by NRSROs, and had a total fair value of $511,000 and a total unrealized loss of $68,000. Based on the independent third party analysis of the expected cash flows, management determined that no other-than-temporary impairment was required to be recognized on the privately issued CMO and ABS portfolios at March 31, 2020. While the Company does not anticipate additional credit-related impairment losses at March 31, 2020, additional deterioration in market and economic conditions may have an adverse impact on the credit quality of the portfolio, and therefore, require a credit related impairment charge in the future.

 

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.

 

-13-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

During the three and six-month periods ended March 31, 2020, the Company realized gross gains on sales of available for sale securities of $15,000, and gross losses of $8,000. During the three and six-month periods ended March 31, 2019, the Company realized gross gains on sales of available for sale securities of $1,000, and no gross losses.

 

Certain available for sale debt securities were pledged under repurchase agreements and to secure FHLB borrowings at March 31, 2020 and September 30, 2019, and may be pledged to secure federal funds borrowings.

 

3.Loans and Allowance for Loan Losses

 

Loans at March 31, 2020 and September 30, 2019 consisted of the following:

 

   March 31,
 2020
   September 30,
2019
 
   (In thousands) 
Real estate mortgage:          
1-4 family residential  $196,378   $198,067 
Commercial   483,368    436,020 
Multifamily residential   39,068    38,226 
Residential construction   9,542    12,545 
Commercial construction   10,414    6,995 
Land and land development   10,192    10,536 
Commercial business   88,091    73,034 
           
Consumer:          
Home equity   35,892    28,651 
Auto   13,052    13,347 
Other consumer   2,298    2,663 
Total Loans   888,295    820,084 
           
Deferred loan origination fees and costs, net   672    614 
Allowance for loan losses   (11,691)   (10,040)
           
Loans, net  $877,276   $810,658 

 

During the six-month period ended March 31, 2020, there was no significant change in the Company’s lending activities or the 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, 2019. Certain qualitative factors used to determine the allowance for loan losses at March 31, 2020 were increased due to economic uncertainties related to the novel coronavirus (“COVID-19”).

 

At March 31, 2020 and September 30, 2019, the Bank did not own any residential real estate properties where physical possession has been obtained. At March 31, 2020 and September 30, 2019, the recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $1.4 million and $1.3 million, respectively.

 

-14-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table provides the components of the recorded investment in loans as of March 31, 2020:

 

  

Residential
Real Estate

  

Commercial

Real Estate

  

 

Multifamily

  

 

Construction

  

Land & Land
Development

  

Commercial
Business

  

 

Consumer

  

 

Total

 
   (In thousands) 
Recorded Investment in Loans:                                        
Principal loan balance  $196,378   $483,368   $39,068   $19,956   $10,192   $88,091   $51,242   $888,295 
                                         
Accrued interest receivable   550    1,935    88    94    21    508    124    3,320 
                                         
Net deferred loan origination fees and costs   (103)   444    (36)   18    (4)   380    (27)   672 
                                         
Recorded investment in loans  $196,825   $485,747   $39,120   $20,068   $10,209   $88,979   $51,339   $892,287 
                                         
                                         
Recorded Investment in Loans as Evaluated for Impairment:                                        
Individually evaluated for impairment  $5,501   $11,320   $702   $-   $1   $2,066   $224   $19,814 
                                         
Collectively evaluated for impairment   191,324    474,427    38,418    20,068    10,208    86,913    51,115    872,473 
                                         
Ending balance  $196,825   $485,747   $39,120   $20,068   $10,209   $88,979   $51,339   $892,287 

 

-15-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table provides the components of the recorded investment in loans as of September 30, 2019:

 

   Residential
Real Estate
   Commercial
Real Estate
  

 

Multifamily

  

 

Construction

   Land & Land
Development
   Commercial
Business
  

 

Consumer

  

 

Total

 
   (In thousands) 
Recorded Investment in Loans:                                        
Principal loan balance  $198,067   $436,020   $38,226   $19,540   $10,536   $73,034   $44,661   $820,084 
                                         
Accrued interest receivable   627    1,922    99    117    29    448    87    3,329 
                                         
Net deferred loan origination fees and costs   (98)   408    (33)   3    (1)   366    (31)   614 
                                         
Recorded investment in loans  $198,596   $438,350   $38,292   $19,660   $10,564   $73,848   $44,717   $824,027 
                                         
                                         
Recorded Investment in Loans as Evaluated for Impairment:                                        
Individually evaluated for impairment  $4,448   $7,647   $-   $-   $-   $105   $234   $12,434 
                                         
Collectively evaluated for impairment   194,148    430,703    38,292    19,660    10,564    73,743    44,483    811,593 
                                         
 Ending balance  $198,596   $438,350   $38,292   $19,660   $10,564   $73,848   $44,717   $824,027 

 

-16-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the allowance for loan losses as of March 31, 2020 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  $-   $1,645   $-   $-   $-   $556   $-   $2,201 
                                         
Collectively evaluated for impairment   400    5,290    499    366    203    2,031    701    9,490 
                                         
Ending balance  $400   $6,935   $499   $366   $203   $2,587   $701   $11,691 

 

An analysis of the allowance for loan losses as of September 30, 2019 is as follows:

 

  

Residential
Real Estate

  

Commercial
Real Estate

  

 

Multifamily

  

 

Construction

  

Land & Land
Development

  

Commercial
Business

  

 

Consumer

  

 

Total

 
   (In thousands)     
Ending Allowance Balance Attributable to Loans:                                
Individually evaluated for impairment  $10   $512   $-   $-   $-   $-   $23   $545 
                                         
Collectively evaluated for impairment   328    5,869    478    421    209    1,639    551    9,495 
                                         
Ending balance  $338   $6,381   $478   $421   $209   $1,639   $574   $10,040 

 

-17-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the changes in the allowance for loan losses for the three months ended March 31, 2020 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  $339   $6,694   $481   $395   $201   $1,753   $667   $10,530 
Provisions   54    348    18    (29)   2    1,229    83    1,705 
Charge-offs   (4)   (107)   -    -    -    (396)   (62)   (569)
Recoveries   11    -    -    -    -    1    13    25 
                                         
Ending balance  $400   $6,935   $499   $366   $203   $2,587   $701   $11,691 

 

An analysis of the changes in the allowance for loan losses for the six months ended March 31, 2020 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  $338   $6,381   $478   $421   $209   $1,639   $574   $10,040 
Provisions   78    623    21    (55)   (6)   1,338    211    2,210 
Charge-offs   (36)   (115)   -    -    -    (396)   (126)   (673)
Recoveries   20    46    -    -    -    6    42    114 
                                         
Ending balance  $400   $6,935   $499   $366   $203   $2,587   $701   $11,691 

 

-18-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

An analysis of the changes in the allowance for loan losses for the three months ended March 31, 2019 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  $249   $6,716   $158   $693   $219   $1,288   $297   $9,620 
Provisions   (28)   (20)   74    (178)   18    246    228    340 
Charge-offs   (9)   -    -    -    -    -    (39)   (48)
Recoveries   8    -    -    -    -    1    13    22 
                                         
Ending balance  $220   $6,696   $232   $515   $237   $1,535   $499   $9,934 

 

An analysis of the changes in the allowance for loan losses for the six months ended March 31, 2019 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  $274   $6,825   $195   $580   $210   $1,041   $198   $9,323 
Provisions   (58)   (129)   37    (65)   27    493    350    655 
Charge-offs   (10)   -    -    -    -    -    (81)   (91)
Recoveries   14    -    -    -    -    1    32    47 
                                         
Ending balance  $220   $6,696   $232   $515   $237   $1,535   $499   $9,934 

 

-19-

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of March 31, 2020 and for the three and six months ended March 31, 2020 and 2019.

 

   At March 31, 2020   Three Months Ended March 31,   Six Months Ended March 31, 
               2020   2020   2019   2019   2020   2020   2019   2019 
  

 

 

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  $5,501   $5,961   $-   $5,338   $34   $5,132   $29   $5,215   $61   $5,203   $63 
Commercial real estate   4,430    4,594    -    5,399    47    6,616    80    5,402    109    6,675    162 
Multifamily   702    703    -    352    -    -    -    234    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   1    1    -    1    -    -    -    -    -    12    - 
Commercial business   497    602    -    347    -    277    2    267    1    283    4 
Consumer   66    66    -    75    -    118    1    77    2    119    2 
   $11,197   $11,927   $-   $11,512   $81   $12,143   $112   $11,195   $173   $12,292   $231 
                                                        
Loans with an allowance recorded:                                                       
Residential real estate  $-   $-   $-   $55   $-   $91   $-   $39   $-   $172   $- 
Commercial real estate   6,890    7,048    1,645    4,611    -    2,104    -    3,953    -    1,722    - 
Multifamily   -    -    -    -    -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    -    -    -    -    - 
Land and land development   -    -    -    -    -    -    -    -    -    -    - 
Commercial business   1,569    1,881    556    940    -    20    -    627    -    11    - 
Consumer   158    160    -    183    -    153    -    174    -    164    - 
   $8,617   $9,089   $2,201   $5,789   $-