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First Savings Financial Group, Inc. - Quarter Report: 2013 December (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 December 31, 2013
 
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, Indiana 47129 
(Address of principal executive offices) (Zip Code)
 
Registrant's telephone number, including area code 1-812-283-0724
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   x       No   ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   x      No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
(Check one):
Large Accelerated Filer  ¨
Accelerated Filer  ¨
 
 
 
 
 
 
Non-accelerated Filer  ¨
Smaller Reporting Company  x
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ¨    No  x
 
The number of shares outstanding of the registrant’s common stock as of January 31, 2014 was 2,259,232.
 
 
 
FIRST SAVINGS FINANCIAL GROUP, INC.
INDEX 
 
 
 
Page
Part I
Financial Information
 
 

 

 

 

 

 

Item 1.  Financial Statements

 

 

 

 

 

 

 
Consolidated Balance Sheets as of December 31, 2013 and September 30, 2013 (unaudited)
 
3
 
 
 
 
 
Consolidated Statements of Income for the three months ended December 31, 2013 and 2012 (unaudited)
 
4
 
 
 
 
 
Consolidated Statements of Comprehensive Income for the three months ended December 31, 2013 and 2012 (unaudited)
 
5
 
 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity for the three months ended December 31, 2013 and 2012 (unaudited)
 
6
 
 
 
 
 
Consolidated Statements of Cash Flows for the three months ended December 31, 2013 and 2012 (unaudited)
 
7
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
 
8-41
 
 
 
 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
42-50
 
 
 
 
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
51-53
 
 
 
 
 
Item 4.  Controls and Procedures
 
54
 
 
 
 
Part II
Other Information
 
 
 
 
 
 
 
Item 1.  Legal Proceedings
 
55
 
 
 
 
 
Item 1A.  Risk Factors
 
55
 
 
 
 
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
56
 
 
 
 
 
Item 3.  Defaults Upon Senior Securities
 
56
 
 
 
 
 
Item 4.  Mine Safety Disclosures
 
56
 
 
 
 
 
Item 5.  Other Information
 
57
 
 
 
 
 
Item 6.  Exhibits
 
57
 
 
 
 
Signatures
 
 
58
  
 
-2-

 
PART I - FINANCIAL INFORMATION
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
December 31,
 
September 30,
 
(In thousands, except share and per share data)
 
2013
 
2013
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Cash and due from banks
 
$
9,171
 
$
9,607
 
Interest-bearing deposits with banks
 
 
10,786
 
 
11,208
 
Total cash and cash equivalents
 
 
19,957
 
 
20,815
 
 
 
 
 
 
 
 
 
Interest-bearing time deposits
 
 
1,500
 
 
1,500
 
Trading account securities, at fair value
 
 
4,154
 
 
3,210
 
Securities available for sale, at fair value
 
 
174,719
 
 
164,167
 
Securities held to maturity
 
 
6,184
 
 
6,417
 
 
 
 
 
 
 
 
 
Loans held for sale
 
 
99
 
 
399
 
Loans, net
 
 
419,021
 
 
408,375
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank stock, at cost
 
 
5,675
 
 
5,500
 
Real estate development and construction
 
 
7,195
 
 
7,178
 
Premises and equipment
 
 
14,918
 
 
14,842
 
Other real estate owned, held for sale
 
 
979
 
 
799
 
Accrued interest receivable:
 
 
 
 
 
 
 
Loans
 
 
1,238
 
 
1,208
 
Securities
 
 
1,484
 
 
1,183
 
Cash surrender value of life insurance
 
 
18,030
 
 
12,933
 
Goodwill
 
 
7,936
 
 
7,936
 
Core deposit intangibles
 
 
1,983
 
 
2,069
 
Other assets
 
 
1,871
 
 
1,924
 
 
 
 
 
 
 
 
 
Total Assets
 
$
686,943
 
$
660,455
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
 
$
47,359
 
$
50,093
 
Interest-bearing
 
 
444,163
 
 
427,633
 
Total deposits
 
 
491,522
 
 
477,726
 
 
 
 
 
 
 
 
 
Repurchase agreements
 
 
1,336
 
 
1,335
 
Borrowings from Federal Home Loan Bank
 
 
102,565
 
 
89,348
 
Other long-term debt
 
 
4,939
 
 
4,973
 
Accrued interest payable
 
 
177
 
 
184
 
Advance payments by borrowers for taxes and insurance
 
 
522
 
 
707
 
Accrued expenses and other liabilities
 
 
3,435
 
 
3,929
 
Total Liabilities
 
 
604,496
 
 
578,202
 
 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Preferred stock of $.01 par value per share
    Authorized 982,880 shares; none issued
 
 
-
 
 
-
 
Senior Non-Cumulative Perpetual Preferred Stock, Series A,
    $.01 par value; Authorized 17,120 shares; issued and outstanding
    17,120 shares; aggregate liquidation preference of $17,120
 
 
-
 
 
-
 
Common stock of $.01 par value per share
    Authorized 20,000,000 shares; issued 2,542,042 shares; outstanding
    2,262,305 shares (2,299,654 shares at September 30, 2013)
 
 
25
 
 
25
 
Additional paid-in capital - preferred
 
 
17,120
 
 
17,120
 
Additional paid-in capital - common
 
 
25,759
 
 
25,464
 
Retained earnings - substantially restricted
 
 
43,668
 
 
42,870
 
Accumulated other comprehensive income
 
 
1,131
 
 
1,468
 
Unearned ESOP shares
 
 
(658)
 
 
(865)
 
Unearned stock compensation
 
 
(357)
 
 
(422)
 
Less treasury stock, at cost - 279,737 shares
    (242,388 shares at September 30, 2013)
 
 
(4,241)
 
 
(3,407)
 
Total Stockholders' Equity
 
 
82,447
 
 
82,253
 
 
 
 
 
 
 
 
 
Total Liabilities and Stockholders' Equity
 
$
686,943
 
$
660,455
 
 
See notes to consolidated financial statements.
 
 
-3-

 
PART I - FINANCIAL INFORMATION
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
Three Months Ended
 
 
 
December 31,
 
(In thousands, except share and per share data)
 
2013
 
2012
 
 
 
 
 
 
 
 
 
INTEREST INCOME
 
 
 
 
 
 
 
Loans, including fees
 
$
5,225
 
$
5,261
 
Securities:
 
 
 
 
 
 
 
Taxable
 
 
1,030
 
 
1,046
 
Tax-exempt
 
 
420
 
 
393
 
Dividend income
 
 
50
 
 
56
 
Interest-bearing deposits with banks
 
 
9
 
 
4
 
Total interest income
 
 
6,734
 
 
6,760
 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
Deposits
 
 
612
 
 
799
 
Repurchase agreements
 
 
1
 
 
2
 
Borrowings from Federal Home Loan Bank
 
 
252
 
 
294
 
Loans payable
 
 
57
 
 
-
 
Total interest expense
 
 
922
 
 
1,095
 
 
 
 
 
 
 
 
 
Net interest income
 
 
5,812
 
 
5,665
 
Provision for loan losses
 
 
301
 
 
452
 
 
 
 
 
 
 
 
 
Net interest income after provision for loan losses
 
 
5,511
 
 
5,213
 
 
 
 
 
 
 
 
 
NONINTEREST INCOME
 
 
 
 
 
 
 
Service charges on deposit accounts
 
 
318
 
 
338
 
Net gain on sales of available for sale securities
 
 
1
 
 
1
 
Net gain on trading account securities
 
 
157
 
 
102
 
Unrealized loss on derivative contract
 
 
(2)
 
 
-
 
Net gain on sales of loans
 
 
77
 
 
107
 
Increase in cash surrender value of life insurance
 
 
97
 
 
78
 
Commission income
 
 
67
 
 
78
 
Real estate lease income
 
 
142
 
 
45
 
Other income
 
 
247
 
 
251
 
Total noninterest income
 
 
1,104
 
 
1,000
 
 
 
 
 
 
 
 
 
NONINTEREST EXPENSE
 
 
 
 
 
 
 
Compensation and benefits
 
 
2,979
 
 
2,816
 
Occupancy and equipment
 
 
633
 
 
485
 
Data processing
 
 
310
 
 
310
 
Advertising
 
 
67
 
 
105
 
Professional fees
 
 
245
 
 
230
 
FDIC insurance premiums
 
 
120
 
 
114
 
Net loss on other real estate owned
 
 
70
 
 
66
 
Other operating expenses
 
 
740
 
 
693
 
Total noninterest expense
 
 
5,164
 
 
4,819
 
Income before income taxes
 
 
1,451
 
 
1,394
 
Income tax expense
 
 
423
 
 
378
 
Net Income
 
$
1,028
 
$
1,016
 
 
 
 
 
 
 
 
 
Preferred stock dividends declared
 
 
43
 
 
43
 
Net Income Available to Common Shareholders
 
$
985
 
$
973
 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic
 
$
0.46
 
$
0.45
 
Diluted
 
$
0.44
 
$
0.43
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
 
 
2,158,106
 
 
2,155,999
 
Diluted
 
 
2,260,658
 
 
2,237,367
 
 
 
 
 
 
 
 
 
Dividends per common share
 
$
0.10
 
$
0.40
 
 
See notes to consolidated financial statements.
 
 
-4-

 
PART I - FINANCIAL INFORMATION
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Three Months Ended
 
 
 
December 31,
 
(In thousands)
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Net Income
 
$
1,028
 
$
1,016
 
 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
 
 
 
 
 
 
 
Unrealized gains (losses) on securities available for sale:
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period
 
 
(509)
 
 
288
 
Income tax (expense) benefit
 
 
173
 
 
(98)
 
Net of tax amount
 
 
(336)
 
 
190
 
 
 
 
 
 
 
 
 
Less: reclassification adjustment for realized gains included in net income
 
 
(1)
 
 
(1)
 
Income tax expense
 
 
-
 
 
-
 
Net of tax amount
 
 
(1)
 
 
(1)
 
 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss)
 
 
(337)
 
 
189
 
 
 
 
 
 
 
 
 
Comprehensive Income
 
$
691
 
$
1,205
 
 
See notes to consolidated financial statements.
 
 
-5-

 
PART I - FINANCIAL INFORMATION
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
Unearned
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
Stock
 
 
 
 
 
 
 
 
 
Preferred
 
Common
 
Additional
 
Retained
 
Comprehensive
 
Compensation
 
Treasury
 
 
 
 
(In thousands, except share and per share data)
 
Stock
 
Stock
 
Paid-in Capital
 
Earnings
 
Income
 
and ESOP
 
Stock
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at October 1, 2012
 
$
-
 
$
25
 
$
42,021
 
$
39,917
 
$
5,609
 
$
(1,880)
 
$
(2,766)
 
 
82,926
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
-
 
 
-
 
 
-
 
 
1,016
 
 
-
 
 
-
 
 
-
 
 
1,016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income
 
 
-
 
 
-
 
 
-
 
 
-
 
 
189
 
 
-
 
 
-
 
 
189
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock dividends
 
 
-
 
 
-
 
 
-
 
 
(43)
 
 
-
 
 
-
 
 
-
 
 
(43)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock dividends ($0.40 per share)
 
 
-
 
 
-
 
 
-
 
 
(877)
 
 
-
 
 
-
 
 
-
 
 
(877)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock compensation expense
 
 
-
 
 
-
 
 
38
 
 
-
 
 
-
 
 
65
 
 
-
 
 
103
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares released by ESOP trust
 
 
-
 
 
-
 
 
198
 
 
-
 
 
-
 
 
218
 
 
-
 
 
416
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase of 11,866 treasury shares
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
(228)
 
 
(228)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2012
 
$
-
 
$
25
 
$
42,257
 
$
40,013
 
$
5,798
 
$
(1,597)
 
$
(2,994)
 
$
83,502
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at October 1, 2013
 
$
-
 
$
25
 
$
42,584
 
$
42,870
 
$
1,468
 
$
(1,287)
 
$
(3,407)
 
$
82,253
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
-
 
 
-
 
 
-
 
 
1,028
 
 
-
 
 
-
 
 
-
 
 
1,028
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
 
 
-
 
 
-
 
 
-
 
 
-
 
 
(337)
 
 
-
 
 
-
 
 
(337)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock dividends
 
 
-
 
 
-
 
 
-
 
 
(43)
 
 
-
 
 
-
 
 
-
 
 
(43)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock dividends ($0.10 per share)
 
 
-
 
 
-
 
 
-
 
 
(187)
 
 
-
 
 
-
 
 
-
 
 
(187)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock compensation expense
 
 
-
 
 
-
 
 
38
 
 
-
 
 
-
 
 
65
 
 
-
 
 
103
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares released by ESOP trust
 
 
-
 
 
-
 
 
257
 
 
-
 
 
-
 
 
207
 
 
-
 
 
464
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase of 37,349 treasury shares
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
(834)
 
 
(834)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2013
 
$
-
 
$
25
 
$
42,879
 
$
43,668
 
$
1,131
 
$
(1,015)
 
$
(4,241)
 
$
82,447
 
 
See notes to consolidated financial statements.
 
 
-6-

 
PART I - FINANCIAL INFORMATION
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
Three Months Ended
 
 
 
December 31,
 
(In thousands)
 
2013
 
2012
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net income
 
$
1,028
 
$
1,016
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Provision for loan losses
 
 
301
 
 
452
 
Depreciation and amortization
 
 
346
 
 
266
 
Amortization of premiums and accretion of discounts on securities, net
 
 
206
 
 
169
 
(Increase) decrease in trading account securities
 
 
(944)
 
 
131
 
Loans originated for sale
 
 
(2,168)
 
 
(4,100)
 
Proceeds on sales of loans
 
 
2,545
 
 
4,502
 
Net gain on sales of loans
 
 
(77)
 
 
(107)
 
Net realized and unrealized (gain) loss on other real estate owned
 
 
(32)
 
 
49
 
Net gain on sales of available for sale securities
 
 
(1)
 
 
(1)
 
Unrealized loss on derivative contract
 
 
2
 
 
-
 
Increase in cash surrender value of life insurance
 
 
(97)
 
 
(78)
 
Deferred income taxes
 
 
(130)
 
 
(620)
 
ESOP and stock compensation expense
 
 
531
 
 
495
 
Increase in accrued interest receivable
 
 
(331)
 
 
(230)
 
Decrease in accrued interest payable
 
 
(7)
 
 
(16)
 
Change in other assets and liabilities, net
 
 
-
 
 
48
 
Net Cash Provided By Operating Activities
 
 
1,172
 
 
1,976
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Purchase of securities available for sale
 
 
(16,434)
 
 
(35,014)
 
Proceeds from sales of securities available for sale
 
 
303
 
 
801
 
Proceeds from maturities of securities available for sale
 
 
1,243
 
 
7,475
 
Proceeds from maturities of securities held to maturity
 
 
94
 
 
20
 
Principal collected on securities
 
 
3,738
 
 
5,016
 
Net increase in loans
 
 
(11,160)
 
 
(4,367)
 
Purchase of Federal Home Loan Bank stock
 
 
(175)
 
 
-
 
Investment in cash surrender value of life insurance
 
 
(5,000)
 
 
(4,000)
 
Investment in real estate development and construction
 
 
(64)
 
 
(1,046)
 
Purchase of premises and equipment
 
 
(289)
 
 
(372)
 
Net Cash Used In Investing Activities
 
 
(27,744)
 
 
(31,487)
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Net increase (decrease) in deposits
 
 
13,796
 
 
(2,361)
 
Net increase in repurchase agreements
 
 
1
 
 
1
 
Increase in Federal Home Loan Bank line of credit
 
 
8,217
 
 
-
 
Proceeds from Federal Home Loan Bank advances
 
 
73,500
 
 
15,000
 
Repayment of Federal Home Loan Bank advances
 
 
(68,500)
 
 
(18)
 
Proceeds from other long-term debt
 
 
-
 
 
1,114
 
Repayment of other long-term debt
 
 
(34)
 
 
-
 
Net decrease in advance payments by borrowers for taxes and insurance
 
 
(185)
 
 
(173)
 
Purchase of treasury stock
 
 
(851)
 
 
(228)
 
Dividends paid on preferred stock
 
 
(43)
 
 
(43)
 
Dividends paid on common stock
 
 
(187)
 
 
(877)
 
Net Cash Provided By Financing Activities
 
 
25,714
 
 
12,415
 
 
 
 
 
 
 
 
 
Net Decrease in Cash and Cash Equivalents
 
 
(858)
 
 
(17,096)
 
 
 
 
 
 
 
 
 
Cash and cash equivalents at beginning of period
 
 
20,815
 
 
38,791
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents at End of Period
 
$
19,957
 
$
21,695
 
 
See notes to consolidated financial statements.
 
 
-7-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.           Presentation of Interim Information
 
First Savings Financial Group, Inc. (the “Company”) is the savings and loan holding company of First Savings Bank, F.S.B. (the “Bank”), a wholly-owned subsidiary. The Bank is a federally-chartered savings bank which provides a variety of banking services to individuals and business customers through fifteen locations in southern Indiana. The Bank attracts deposits primarily from the general public and uses those funds, along with other borrowings, primarily to originate residential mortgage, commercial mortgage, construction, commercial business and consumer loans, and to a lesser extent, to invest in mortgage-backed securities and other securities.
 
The Bank has three-wholly owned subsidiaries: First Savings Investments, Inc., a Nevada corporation that manages an investment securities portfolio, FFCC, Inc., which is an Indiana corporation that participates in commercial real estate development and leasing, and Southern Indiana Financial Corporation, which is currently inactive. 
 
In the opinion of management, the unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of December 31, 2013, the results of operations for the three-month periods ended December 31, 2013 and 2012, and the cash flows for the three-month periods ended December 31, 2013 and 2012.  All of these adjustments are of a normal, recurring nature.  Such adjustments are the only adjustments included in the unaudited consolidated financial statements.  Interim results are not necessarily indicative of results for a full year.  
 
The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements, conform to general practices within the banking industry and are presented as permitted by the instructions to Form 10-Q.  Accordingly, they do not contain certain information included in the Company’s audited consolidated financial statements and related notes for the year ended September 30, 2013 included in the Company’s Annual Report on Form 10-K.
 
The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries.  All material intercompany balances and transactions have been eliminated in consolidation.  Certain prior period amounts have been reclassified to conform with the current period presentation.
 
 
-8-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
2.           Investment Securities
 
Agency bonds and notes, agency mortgage-backed securities and agency collateralized mortgage obligations (“CMO”) include securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency, and the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal Home Loan Bank (“FHLB”), which are U.S. government-sponsored enterprises.  The Company also holds a pass-through asset-backed security guaranteed by the Small Business Administration (“SBA”) representing participating interests in pools of long-term debentures issued by state and local development companies certified by the SBA.  Privately-issued CMO and asset-backed securities (“ABS”) are complex securities issued by non-government special-purpose entities that are collateralized by residential mortgage loans and residential home equity loans.
 
Investment securities have been classified according to management’s intent. 
 
Trading Account Securities
 
The Company invests in small and medium lot, investment grade municipal bonds through a managed brokered account.  The brokerage account is managed by an investment advisory firm registered with the U.S. Securities and Exchange Commission.  At December 31, 2013 and September 30, 2013, trading account securities recorded at fair value totaled $4.2 million and $3.2 million, respectively, comprised of investment grade municipal bonds.  During the three-months ended December 31, 2013, the Company reported net gains on trading account securities of $157,000, including net realized gains on the sale of securities of $167,000, partially offset by net unrealized losses on securities still held as of the balance sheet date of $10,000.  During the three months ended December 31, 2012, the Company reported net gains on trading account securities of $102,000, including net realized gains on the sale of securities of $110,000 and net unrealized losses on securities still held as of the balance sheet date of $8,000. 
 
 
-9-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
Securities Available for Sale and Held to Maturity
 
The amortized cost of securities available for sale and held to maturity and their approximate fair values are as follows:
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
 
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
 
 
Cost
 
Gains
 
Losses
 
Value
 
 
 
(In thousands)
 
December 31, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency bonds and notes
 
$
14,869
 
$
2
 
$
737
 
$
14,134
 
Agency mortgage-backed
 
 
48,172
 
 
296
 
 
433
 
 
48,035
 
Agency CMO
 
 
25,682
 
 
140
 
 
334
 
 
25,488
 
Privately-issued CMO
 
 
3,783
 
 
729
 
 
2
 
 
4,510
 
Privately-issued ABS
 
 
5,796
 
 
1,911
 
 
2
 
 
7,705
 
SBA certificates
 
 
2,034
 
 
-
 
 
2
 
 
2,032
 
Municipal obligations
 
 
72,407
 
 
1,858
 
 
1,557
 
 
72,708
 
Subtotal – debt securities
 
 
172,743
 
 
4,936
 
 
3,067
 
 
174,612
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
-
 
 
107
 
 
-
 
 
107
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total securities available for sale
 
$
172,743
 
$
5,043
 
$
3,067
 
$
174,719
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed
 
$
593
 
$
45
 
$
-
 
$
638
 
Municipal obligations
 
 
5,591
 
 
165
 
 
50
 
 
5,706
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total securities held to maturity
 
$
6,184
 
$
210
 
$
50
 
$
6,344
 
 
 
-10-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
 
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
 
 
Cost
 
Gains
 
Losses
 
Value
 
 
 
(In thousands)
 
September 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency bonds and notes
 
$
15,877
 
$
10
 
$
690
 
$
15,197
 
Agency mortgage-backed
 
 
41,720
 
 
285
 
 
291
 
 
41,714
 
Agency CMO
 
 
24,200
 
 
199
 
 
325
 
 
24,074
 
Privately-issued CMO
 
 
3,881
 
 
735
 
 
-
 
 
4,616
 
Privately-issued ABS
 
 
5,829
 
 
1,972
 
 
2
 
 
7,799
 
SBA certificates
 
 
2,081
 
 
12
 
 
-
 
 
2,093
 
Municipal obligations
 
 
68,072
 
 
2,057
 
 
1,548
 
 
68,581
 
Subtotal – debt securities
 
 
161,660
 
 
5,270
 
 
2,856
 
 
164,074
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
-
 
 
93
 
 
-
 
 
93
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total securities available for sale
 
$
161,660
 
$
5,363
 
$
2,856
 
$
164,167
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed
 
$
721
 
$
52
 
$
-
 
$
773
 
Municipal
 
 
5,696
 
 
45
 
 
-
 
 
5,741
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total securities held to maturity
 
$
6,417
 
$
97
 
$
-
 
$
6,514
 
 
The amortized cost and fair value of investment securities as of December 31, 2013 by contractual maturity are shown below.  Expected maturities of mortgage-backed securities, CMO and ABS may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.
 
 
 
Available for Sale
 
Held to Maturity
 
 
 
Amortized
 
Fair
 
Amortized
 
Fair
 
 
 
Cost
 
Value
 
Cost
 
Value
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due within one year
 
$
1,655
 
$
1,655
 
$
563
 
$
573
 
Due after one year through five years
 
 
3,959
 
 
4,011
 
 
2,162
 
 
2,235
 
Due after five years through ten years
 
 
21,762
 
 
21,667
 
 
1,683
 
 
1,731
 
Due after ten years
 
 
59,900
 
 
59,509
 
 
1,183
 
 
1,167
 
 
 
 
87,276
 
 
86,842
 
 
5,591
 
 
5,706
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
-
 
 
107
 
 
-
 
 
-
 
CMO
 
 
29,465
 
 
29,998
 
 
-
 
 
-
 
ABS
 
 
5,796
 
 
7,705
 
 
-
 
 
-
 
SBA certificates
 
 
2,034
 
 
2,032
 
 
-
 
 
-
 
Mortgage-backed securities
 
 
48,172
 
 
48,035
 
 
593
 
 
638
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
172,743
 
$
174,719
 
$
6,184
 
$
6,344
 
 
 
-11-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
Information pertaining to investment securities with gross unrealized losses at December 31, 2013, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:
 
 
 
Number
 
 
 
Gross
 
 
 
of Investment
 
Fair
 
Unrealized
 
 
 
Positions
 
Value
 
Losses
 
 
 
(Dollars in thousands)
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuous loss position less than twelve months:
 
 
 
 
 
 
 
 
 
Agency bonds and notes
 
7
 
$
13,430
 
$
737
 
Agency mortgage-backed
 
15
 
 
25,103
 
 
385
 
Agency CMO
 
8
 
 
11,549
 
 
149
 
Privately-issued CMO
 
1
 
 
83
 
 
2
 
Privately-issued ABs
 
1
 
 
32
 
 
2
 
SBA Certificates
 
1
 
 
2,032
 
 
2
 
Municipal obligations
 
46
 
 
27,861
 
 
1,523
 
 
 
 
 
 
 
 
 
 
 
Total less than twelve months
 
79
 
 
80,090
 
 
2,800
 
 
 
 
 
 
 
 
 
 
 
Continuous loss position more than twelve months:
 
 
 
 
 
 
 
 
 
Agency mortgage-backed
 
3
 
 
3,104
 
 
48
 
Agency CMO
 
2
 
 
7,509
 
 
185
 
Municipal obligations
 
1
 
 
216
 
 
34
 
 
 
 
 
 
 
 
 
 
 
Total more than twelve months
 
6
 
 
10,829
 
 
267
 
 
 
 
 
 
 
 
 
 
 
Total securities available for sale
 
85
 
$
90,919
 
$
3,067
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuous loss position less than twelve months:
 
 
 
 
 
 
 
 
 
Municipal obligations
 
1
 
$
1,709
 
$
50
 
 
 
 
 
 
 
 
 
 
 
Total securities held to maturity
 
1
 
$
1,709
 
$
50
 
 
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns 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 investment securities in loss positions at December 31, 2013 had depreciated approximately 3.32% from the Company’s amortized cost basis and are fixed and variable rate securities with a weighted-average yield of 2.10% and a weighted-average coupon rate of 3.27% at December 31, 2013.
 
 
-12-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
U.S. government agency bonds and notes, mortgage-backed securities, CMOs, SBA certificates and municipal obligations in loss positions at December 31, 2013 had depreciated approximately 3.32% from the Company’s amortized cost basis as of December 31, 2013.  All of the agency and municipal securities are issued by U.S. government agencies, 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 December 31, 2013, the Company held twenty privately-issued CMO and ABS securities acquired in a 2009 bank acquisition with an aggregate carrying value of $2.7 million and fair value of $4.0 million that have been downgraded to a substandard regulatory classification due to a downgrade of the security’s credit quality rating by various rating agencies. 
 
At December 31, 2013, one privately-issued ABS and one privately-issued CMO that were in loss positions and had depreciated approximately 3.53% from the Company’s carrying value and were collateralized by residential mortgage loans.  These securities had a total fair value of $115,000 and a total unrealized loss of $4,000 at December 31, 2013, and were rated below investment grade by a nationally recognized statistical rating organization (“NRSRO”).  Based on the independent third party analysis of the expected cash flows, management has determined that the decline in value for this security is temporary and, as a result, no other-than-temporary impairment has been recognized on the privately-issued CMO and ABS portfolios.  While the Company did not recognize a credit-related impairment loss at December 31, 2013, additional deterioration in market and economic conditions may have an adverse impact on the credit quality in the future and therefore, require a credit-related impairment charge. 
 
The unrealized losses on agency securities, SBA certificates and municipal bonds relate principally to current interest rates for similar types of securities.  In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.  As management has the ability to hold debt securities to maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.
 
During each of the three-month periods ended December 31, 2013 and 2012, the Company realized gross gains on sales of available for sale U.S. government agency notes of $1,000. 
 
Certain available for sale debt securities were pledged under repurchase agreements at December 31, 2013 and 2012, and may be pledged to secure federal funds borrowings and Federal Home Loan Bank (“FHLB”) borrowings.
 
 
-13-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
3.           Loans and Allowance for Loan Losses
 
Loans at December 31, 2013 and September 30, 2013 consisted of the following:
 
 
 
December 31,
 
September 30,
 
 
 
2013
 
2013
 
 
 
(In thousands)
 
Real estate mortgage:
 
 
 
 
 
 
 
1-4 family residential
 
$
181,632
 
$
184,390
 
Commercial
 
 
128,354
 
 
117,782
 
Multifamily residential
 
 
27,929
 
 
26,759
 
Residential construction
 
 
12,724
 
 
12,537
 
Commercial construction
 
 
6,709
 
 
6,730
 
Land and land development
 
 
11,773
 
 
11,396
 
Commercial business loans
 
 
33,988
 
 
31,627
 
Consumer:
 
 
 
 
 
 
 
Home equity loans
 
 
16,684
 
 
17,133
 
Auto loans
 
 
6,124
 
 
6,519
 
Other consumer loans
 
 
2,870
 
 
3,266
 
Gross loans
 
 
428,787
 
 
418,139
 
Undisbursed portion of construction loans
 
 
(3,901)
 
 
(4,389)
 
Principal loan balance
 
 
424,886
 
 
413,750
 
 
 
 
 
 
 
 
 
Deferred loan origination fees and costs, net
 
 
106
 
 
163
 
Allowance for loan losses
 
 
(5,971)
 
 
(5,538)
 
 
 
 
 
 
 
 
 
Loans, net
 
$
419,021
 
$
408,375
 
 
During the three-month period ended December 31, 2013, 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, 2013.
 
 
-14-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
The following table provides the components of the recorded investment in loans as of December 31, 2013:
 
 
 
Residential  
Real Estate
 
Commercial  
Real Estate
 
Multifamily
 
Construction
 
Land & Land
Development
 
Commercial  
Business
 
Consumer
 
Total
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded Investment in Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal loan balance
 
$
181,632
 
$
128,354
 
$
27,929
 
$
15,532
 
$
11,773
 
$
33,988
 
$
25,678
 
$
424,886
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued interest receivable
 
 
585
 
 
319
 
 
61
 
 
31
 
 
40
 
 
125
 
 
77
 
 
1,238
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net deferred loan origination fees and costs
 
 
395
 
 
(203)
 
 
(37)
 
 
(49)
 
 
(3)
 
 
(9)
 
 
12
 
 
106
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in loans
 
$
182,612
 
$
128,470
 
$
27,953
 
$
15,514
 
$
11,810
 
$
34,104
 
$
25,767
 
$
426,230
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded Investment in Loans as Evaluated for Impairment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
5,638
 
$
5,808
 
$
2,293
 
$
-
 
$
-
 
$
263
 
$
451
 
$
14,453
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
 
 
176,387
 
 
122,662
 
 
25,660
 
 
15,514
 
 
11,810
 
 
33,841
 
 
25,282
 
 
411,156
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired with deteriorated credit quality
 
 
587
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
34
 
 
621
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
 
$
182,612
 
$
128,470
 
$
27,953
 
$
15,514
 
$
11,810
 
$
34,104
 
$
25,767
 
$
426,230
 
 
 
-15-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
The following table provides the components of the recorded investment in loans as of September 30, 2013:
 
 
 
Residential 
Real Estate
 
Commercial 
Real Estate
 
Multifamily
 
Construction
 
Land & Land
Development
 
Commercial 
Business
 
Consumer
 
Total
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded Investment in Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal loan balance
 
$
184,390
 
$
117,782
 
$
26,759
 
$
14,878
 
$
11,396
 
$
31,627
 
$
26,918
 
$
413,750
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued interest receivable
 
 
600
 
 
316
 
 
57
 
 
31
 
 
40
 
 
86
 
 
78
 
 
1,208
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net deferred loan origination fees and costs
 
 
415
 
 
(169)
 
 
(38)
 
 
(46)
 
 
(7)
 
 
(5)
 
 
13
 
 
163
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in loans
 
$
185,405
 
$
117,929
 
$
26,778
 
$
14,863
 
$
11,429
 
$
31,708
 
$
27,009
 
$
415,121
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded Investment in Loans as Evaluated for Impairment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
5,429
 
$
6,091
 
$
2,306
 
$
29
 
$
-
 
$
235
 
$
456
 
$
14,546
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
 
 
179,372
 
 
111,838
 
 
24,472
 
 
14,834
 
 
11,429
 
 
31,473
 
 
26,519
 
 
399,937
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired with deteriorated credit quality
 
 
604
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
34
 
 
638
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
 
$
185,405
 
$
117,929
 
$
26,778
 
$
14,863
 
$
11,429
 
$
31,708
 
$
27,009
 
$
415,121
 
 
 
-16-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
An analysis of the allowance for loan losses as of December 31, 2013 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
 
$
30
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
$
12
 
$
42
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
 
 
630
 
 
3,080
 
 
253
 
 
255
 
 
367
 
 
1,070
 
 
274
 
 
5,929
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired with deteriorated credit quality
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
 
$
660
 
$
3,080
 
$
253
 
$
255
 
$
367
 
$
1,070
 
$
286
 
$
5,971
 
 
An analysis of the allowance for loan losses as of September 30, 2013 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
 
$
30
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
$
6
 
$
36
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
 
 
750
 
 
2,826
 
 
249
 
 
229
 
 
299
 
 
907
 
 
242
 
 
5,502
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired with deteriorated credit quality
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
 
$
780
 
$
2,826
 
$
249
 
$
229
 
$
299
 
$
907
 
$
248
 
$
5,538
 
 
 
-17-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
An analysis of the changes in the allowance for loan losses for the three months ended December 31, 2013 is as follows:
 
 
 
Residential 
Real Estate
 
Commercial 
Real Estate
 
Multifamily
 
Construction
 
Land & Land 
Development
 
Commercial 
Business
 
Consumer
 
Total
 
 
 
(In thousands)
 
Changes in Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
780
 
$
2,826
 
$
249
 
$
229
 
$
299
 
$
907
 
$
248
 
$
5,538
 
Provisions
 
 
(46)
 
 
35
 
 
4
 
 
26
 
 
68
 
 
163
 
 
51
 
 
301
 
Charge-offs
 
 
(76)
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
(30)
 
 
(106)
 
Recoveries
 
 
2
 
 
219
 
 
-
 
 
-
 
 
-
 
 
-
 
 
17
 
 
238
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
 
$
660
 
$
3,080
 
$
253
 
$
255
 
$
367
 
$
1,070
 
$
286
 
$
5,971
 
 
An analysis of the changes in the allowance for loan losses for the three months ended December 31, 2012 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
 
$
908
 
$
2,204
 
$
389
 
$
52
 
$
2
 
$
1,084
 
$
267
 
$
4,906
 
Provisions
 
 
27
 
 
(83)
 
 
29
 
 
9
 
 
43
 
 
413
 
 
14
 
 
452
 
Charge-offs
 
 
(123)
 
 
(11)
 
 
-
 
 
-
 
 
-
 
 
(137)
 
 
(30)
 
 
(301)
 
Recoveries
 
 
39
 
 
25
 
 
-
 
 
-
 
 
-
 
 
-
 
 
14
 
 
78
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
 
$
851
 
$
2,135
 
$
418
 
$
61
 
$
45
 
$
1,360
 
$
265
 
$
5,135
 
 
 
-18-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
The following table presents impaired loans individually evaluated for impairment as of December 31, 2013 and for the three months ended December 31, 2013 and 2012.
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
At December 31, 2013
 
December 31,
 
 
 
 
 
 
 
 
 
2013
 
2013
 
2012
 
2012
 
 
 
Recorded
Investment
 
Unpaid 
Principal 
Balance
 
Related 
Allowance
 
Average 
Recorded 
Investment
 
Interest  
Income  
Recognized
 
 Average 
Recorded 
Investment
 
 Interest  
Income  
Recognized
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
5,847
 
$
6,241
 
$
-
 
$
6,259
 
$
31
 
$
6,728
 
$
35
 
Commercial real estate
 
 
5,808
 
 
5,832
 
 
-
 
 
6,019
 
 
58
 
 
2,053
 
 
20
 
Multifamily
 
 
2,293
 
 
2,234
 
 
-
 
 
2,240
 
 
28
 
 
2,289
 
 
29
 
Construction
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
174
 
 
-
 
Land and land development
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Commercial business
 
 
263
 
 
446
 
 
-
 
 
447
 
 
-
 
 
333
 
 
-
 
Consumer
 
 
298
 
 
311
 
 
-
 
 
323
 
 
2
 
 
259
 
 
2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
14,509
 
$
15,064
 
$
-
 
$
15,288
 
$
119
 
$
11,836
 
$
86
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
60
 
$
55
 
$
30
 
$
55
 
$
-
 
$
118
 
$
-
 
Commercial real estate
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
109
 
 
-
 
Multifamily
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Construction
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Land and land development
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Commercial business
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Consumer
 
 
153
 
 
153
 
 
12
 
 
110
 
 
-
 
 
87
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
213
 
$
208
 
$
42
 
$
165
 
$
-
 
$
314
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
5,907
 
$
6,296
 
$
30
 
$
6,314
 
$
31
 
$
6,846
 
$
35
 
Commercial real estate
 
 
5,808
 
 
5,832
 
 
-
 
 
6,019
 
 
58
 
 
2,162
 
 
20
 
Multifamily
 
 
2,293
 
 
2,234
 
 
-
 
 
2,240
 
 
28
 
 
2,289
 
 
29
 
Construction
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
174
 
 
-
 
Land and land development
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Commercial business
 
 
263
 
 
446
 
 
-
 
 
447
 
 
-
 
 
333
 
 
-
 
Consumer
 
 
451
 
 
464
 
 
12
 
 
433
 
 
2
 
 
346
 
 
2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
14,722
 
$
15,272
 
$
42
 
$
15,453
 
$
119
 
$
12,150
 
$
86
 
 
The Company recognized $41,000 of interest income on an impaired commercial real estate loan using the cash receipts method during the three months ended December 31, 2013.  The Company did not recognize any interest income using the cash receipts method during the three months ended December 31, 2012.
 
 
-19-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
The following table presents impaired loans individually evaluated for impairment as of September 30, 2013.
 
 
 
Recorded 
Investment
 
Unpaid 
Principal 
Balance
 
Related 
Allowance
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
5,647
 
$
5,975
 
$
-
 
Commercial real estate
 
 
6,091
 
 
6,099
 
 
-
 
Multifamily
 
 
2,306
 
 
2,246
 
 
-
 
Construction
 
 
29
 
 
13
 
 
-
 
Land and land development
 
 
-
 
 
-
 
 
-
 
Commercial business
 
 
235
 
 
235
 
 
-
 
Consumer
 
 
361
 
 
357
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
14,669
 
$
14,925
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
59
 
$
55
 
$
30
 
Commercial real estate
 
 
-
 
 
-
 
 
-
 
Multifamily
 
 
-
 
 
-
 
 
-
 
Construction
 
 
-
 
 
-
 
 
-
 
Land and land development
 
 
-
 
 
-
 
 
-
 
Commercial business
 
 
-
 
 
-
 
 
-
 
Consumer
 
 
95
 
 
95
 
 
6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
154
 
$
150
 
$
36
 
 
 
 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
5,706
 
$
6,030
 
$
30
 
Commercial real estate
 
 
6,091
 
 
6,099
 
 
-
 
Multifamily
 
 
2,306
 
 
2,246
 
 
-
 
Construction
 
 
29
 
 
13
 
 
-
 
Land and land development
 
 
-
 
 
-
 
 
-
 
Commercial business
 
 
235
 
 
235
 
 
-
 
Consumer
 
 
456
 
 
452
 
 
6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
14,823
 
$
15,075
 
$
36
 
 
 
-20-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
Nonperforming loans consists of nonaccrual loans and loans over 90 days past due and still accruing interest.  The following table presents the recorded investment in nonperforming loans at December 31, 2013:
 
 
 
Nonaccrual 
Loans
 
Loans 90+ 
Days  
Past Due  
Still Accruing
 
Total 
Nonperforming 
Loans
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
3,129
 
$
587
 
$
3,716
 
Commercial real estate
 
 
1,019
 
 
6
 
 
1,025
 
Multifamily
 
 
-
 
 
-
 
 
-
 
Construction
 
 
-
 
 
-
 
 
-
 
Land and land development
 
 
-
 
 
-
 
 
-
 
Commercial business
 
 
247
 
 
14
 
 
261
 
Consumer
 
 
307
 
 
39
 
 
346
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
4,702
 
$
646
 
$
5,348
 
 
The following table presents the recorded investment in nonperforming loans at September 30, 2013:
 
 
 
Nonaccrual
Loans
 
Loans 90+
Days
Past Due
Still Accruing
 
Total
Nonperforming
Loans
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
3,519
 
$
143
 
$
3,662
 
Commercial real estate
 
 
4,817
 
 
-
 
 
4,817
 
Multifamily
 
 
-
 
 
-
 
 
-
 
Construction
 
 
29
 
 
-
 
 
29
 
Land and land development
 
 
-
 
 
-
 
 
-
 
Commercial business
 
 
218
 
 
-
 
 
218
 
Consumer
 
 
310
 
 
21
 
 
331
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
8,893
 
$
164
 
$
9,057
 
 
 
-21-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
The following table presents the aging of the recorded investment in past due loans at December 31, 2013:
 
 
 
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
 
$
5,262
 
$
1,067
 
$
2,393
 
$
8,722
 
$
173,890
 
$
182,612
 
Commercial real estate
 
 
474
 
 
441
 
 
72
 
 
987
 
 
127,483
 
 
128,470
 
Multifamily
 
 
-
 
 
-
 
 
-
 
 
-
 
 
27,953
 
 
27,953
 
Construction
 
 
-
 
 
-
 
 
-
 
 
-
 
 
15,514
 
 
15,514
 
Land and land development
 
 
16
 
 
-
 
 
-
 
 
16
 
 
11,794
 
 
11,810
 
Commercial business
 
 
-
 
 
-
 
 
261
 
 
261
 
 
33,843
 
 
34,104
 
Consumer
 
 
264
 
 
83
 
 
136
 
 
483
 
 
25,284
 
 
25,767
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
6,016
 
$
1,591
 
$
2,862
 
$
10,469
 
$
415,761
 
$
426,230
 
 
The following table presents the aging of the recorded investment in past due loans at September 30, 2013: 
 
 
 
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
 
$
2,981
 
$
1,333
 
$
2,466
 
$
6,780
 
$
178,625
 
$
185,405
 
Commercial real estate
 
 
295
 
 
211
 
 
667
 
 
1,173
 
 
116,756
 
 
117,929
 
Multifamily
 
 
35
 
 
-
 
 
-
 
 
35
 
 
26,743
 
 
26,778
 
Construction
 
 
-
 
 
-
 
 
-
 
 
-
 
 
14,863
 
 
14,863
 
Land and land development
 
 
9
 
 
-
 
 
-
 
 
9
 
 
11,420
 
 
11,429
 
Commercial business
 
 
-
 
 
14
 
 
234
 
 
248
 
 
31,460
 
 
31,708
 
Consumer
 
 
186
 
 
53
 
 
223
 
 
462
 
 
26,547
 
 
27,009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
3,506
 
$
1,611
 
$
3,590
 
$
8,707
 
$
406,414
 
$
415,121
 
 
 
-22-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, public information, historical payment experience, credit documentation, and current economic 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 institution’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 institution 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.
 
 
-23-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  As of December 31, 2013, 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
 
$
171,488
 
$
117,616
 
$
27,953
 
$
15,514
 
$
11,665
 
$
32,861
 
$
25,047
 
$
402,144
 
Special Mention
 
 
3,386
 
 
4,440
 
 
-
 
 
-
 
 
33
 
 
700
 
 
114
 
 
8,673
 
Substandard
 
 
7,400
 
 
6,414
 
 
-
 
 
-
 
 
112
 
 
338
 
 
546
 
 
14,810
 
Doubtful
 
 
338
 
 
-
 
 
-
 
 
-
 
 
-
 
 
205
 
 
60
 
 
603
 
Loss
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
182,612
 
$
128,470
 
$
27,953
 
$
15,514
 
$
11,810
 
$
34,104
 
$
25,767
 
$
426,230
 
 
As of September 30, 2013, 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
 
$
173,350
 
$
109,311
 
$
26,778
 
$
14,863
 
$
11,283
 
$
30,920
 
$
26,272
 
$
392,777
 
Special Mention
 
 
4,519
 
 
2,104
 
 
-
 
 
-
 
 
146
 
 
373
 
 
114
 
 
7,256
 
Substandard
 
 
7,190
 
 
6,033
 
 
-
 
 
-
 
 
-
 
 
210
 
 
568
 
 
14,001
 
Doubtful
 
 
346
 
 
481
 
 
-
 
 
-
 
 
-
 
 
205
 
 
55
 
 
1,087
 
Loss
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
185,405
 
$
117,929
 
$
26,778
 
$
14,863
 
$
11,429
 
$
31,708
 
$
27,009
 
$
415,121
 
 
 
-24-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
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 in 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 in 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 December 31, 2013 and September 30, 2013.  There was no specific reserve included in the allowance for loan losses related to TDRs at December 31, 2013 and September 30, 2013.
 
 
 
Accruing
 
Nonaccrual
 
Total
 
 
 
(In thousands)
 
December 31, 2013:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
2,778
 
$
335
 
$
3,113
 
Commercial real estate
 
 
4,789
 
 
721
 
 
5,510
 
Multifamily
 
 
2,293
 
 
-
 
 
2,293
 
Commercial business
 
 
16
 
 
13
 
 
29
 
Consumer
 
 
144
 
 
-
 
 
144
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
10,020
 
$
1,069
 
$
11,089
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2013:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
2,187
 
$
777
 
$
2,964
 
Commercial real estate
 
 
1,274
 
 
4,029
 
 
5,303
 
Multifamily
 
 
2,306
 
 
-
 
 
2,306
 
Commercial business
 
 
17
 
 
13
 
 
30
 
Consumer
 
 
146
 
 
-
 
 
146
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
5,930
 
$
4,819
 
$
10,749
 
 
 
-25-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
The following table summarizes information in regard to TDRs that were restructured during the three-month periods ended December 31, 2013 and 2012:
 
 
 
Number of
Loans
 
Pre-
Modification
Principal
Balance
 
Post-
Modification
Principal
Balance
 
 
 
(In thousands)
 
December 31, 2013:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
 
2
 
$
97
 
$
117
 
Commercial real estate
 
 
1
 
 
716
 
 
724
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
3
 
$
813
 
$
841
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
 
1
 
$
16
 
$
16
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
1
 
$
16
 
$
16
 
 
For the TDRs listed above, the terms of modification included reduction of the stated interest rate and extension of the maturity date where the debtor was unable to access funds elsewhere at a market interest rate for debt with similar risk characteristics.
 
The Company had not committed to lend any additional amounts as of December 31, 2013 and September 30, 2013 to customers with outstanding loans classified as TDRs.
 
During the three-month period ended December 31, 2013, the Company had one TDR with a balance of $276,000 that was modified within the previous twelve months for which there was a payment default (defined as more than 90 days past due or in the process of foreclosure).  As of December 31, 2013 this loan was 90 days past due and still accruing interest.  During the three-month period ended December 31, 2012, the Company had one TDR with a balance of $75,000 that was modified within the previous twelve months for which there was a payment default (defined as more than 90 days past due).  This loan was on nonaccrual status as of December 31, 2012.

4.           Real Estate Development and Construction
 
The Company is developing a parcel of land in New Albany, Indiana for retail purposes through the Bank’s subsidiary, FFCC.  The total cost of the development is expected to be approximately $7.6 million, including the $7.3 million paid as of December 31, 2013.  The development costs were partially funded by a loan from another financial institution.  The development is substantially completed, with only certain tenant improvements in a multi-tenant retail building to be completed for current and future lessees, and eight tenants have commenced occupancy as of December 31, 2013.
 
Development and construction period interest of $22,000 was capitalized as part of the real estate carrying value during the three months ended December 31, 2012.
 
Depreciation expense of $87,000 and $12,000 was recognized for real estate development and construction for the three-month periods ended December 31, 2013 and 2012, respectively.
 
 
-26-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
5.           Supplemental Disclosure for Earnings Per Share
 
When presented, basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.  Earnings per share information is presented below for the three-month periods ended December 31, 2013 and 2012.
 
 
 
Three Months Ended
 
 
 
December 31,
 
(Dollars in thousands, except per share data)
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Earnings:
 
 
 
 
 
 
 
Net income
 
$
1,028
 
$
1,016
 
Less: Preferred stock dividends declared
 
 
(43)
 
 
(43)
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
 
$
985
 
$
973
 
 
 
 
 
 
 
 
 
Shares:
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
2,158,106
 
 
2,155,999
 
 
 
 
 
 
 
 
 
Net income per common share, basic
 
$
0.46
 
$
0.45
 
 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
Earnings:
 
 
 
 
 
 
 
Net income
 
$
1,028
 
$
1,016
 
Less: Preferred stock dividends declared
 
 
(43)
 
 
(43)
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
 
$
985
 
$
973
 
 
 
 
 
 
 
 
 
Shares:
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
2,158,106
 
 
2,155,999
 
Add: Dilutive effect of outstanding options
 
 
89,362
 
 
66,438
 
Add: Dilutive effect of nonvested restricted stock
 
 
13,190
 
 
14,930
 
Weighted average shares outstanding, as adjusted
 
 
2,260,658
 
 
2,237,367
 
 
 
 
 
 
 
 
 
Net income per common share, diluted
 
$
0.44
 
$
0.43
 
 
Unearned ESOP and nonvested restricted stock shares are not considered as outstanding for purposes of computing weighted average common shares outstanding.
 
 
-27-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
6.             Supplemental Disclosures of Cash Flow Information
 
 
 
Three Months Ended
 
 
 
December 31,
 
 
 
2013
 
2012
 
 
 
(In thousands)
 
Cash payments for:
 
 
 
 
 
 
 
Interest
 
$
999
 
$
1,284
 
Taxes
 
 
-
 
 
100
 
 
 
 
 
 
 
 
 
Transfers from loans to foreclosed real estate
 
 
558
 
 
238
 
 
 
 
 
 
 
 
 
Proceeds from sales of foreclosed real estate
    financed through loans
 
 
410
 
 
121
 

7.
Fair Value Measurements and Disclosures about Fair Value of Financial Instruments
 
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements, provides the framework for measuring fair value.  That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy under FASB ASC Topic 820 are described as follows:
 
Level 1:
Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets.  A quoted market price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.
 
Level 2:
Inputs to the valuation methodology include quoted market prices for similar assets or liabilities in active markets; quoted market prices for identical or similar assets or liabilities in markets that are not active; or inputs that are derived principally from or can be corroborated by observable market data by correlation or other means.
 
Level 3:
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.  Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
 
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets carried at fair value or the lower of cost or fair value.  The table below presents the balances of financial assets measured at fair value on a recurring and nonrecurring basis as of December 31, 2013 and September 30, 2013.  The Company had no liabilities measured at fair value as of December 31, 2013 or September 30, 2013.
 
 
-28-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
 
 
Carrying Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
 
Total
 
 
 
(In thousands)
 
December 31, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets Measured - Recurring Basis:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading account securities
 
$
-
 
$
4,154
 
$
-
 
$
4,154
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency bonds and notes
 
$
-
 
$
14,134
 
$
-
 
$
14,134
 
Agency mortgage-backed
 
 
-
 
 
48,035
 
 
-
 
 
48,035
 
Agency CMO
 
 
-
 
 
25,488
 
 
-
 
 
25,488
 
Privately-issued CMO
 
 
-
 
 
4,510
 
 
-
 
 
4,510
 
Privately-issued ABS
 
 
-
 
 
7,705
 
 
 
 
 
7,705
 
SBA certificates
 
 
-
 
 
2,032
 
 
 
 
 
2,032
 
Municipal
 
 
-
 
 
72,708
 
 
-
 
 
72,708
 
Equity securities
 
 
107
 
 
-
 
 
-
 
 
107
 
Total securities available for sale
 
$
107
 
$
174,612
 
$
-
 
$
174,719
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate cap contract
 
$
-
 
$
10
 
$
-
 
$
10
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets Measured - Nonrecurring Basis:
 
 
 
 
 
 
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
-
 
$
-
 
$
5,877
 
$
5,877
 
Commercial real estate
 
 
-
 
 
-
 
 
5,808
 
 
5,808
 
Multifamily
 
 
-
 
 
-
 
 
2,293
 
 
2,293
 
Commercial business
 
 
-
 
 
-
 
 
263
 
 
263
 
Consumer
 
 
-
 
 
-
 
 
439
 
 
439
 
Total impaired loans
 
$
-
 
$
-
 
$
14,680
 
$
14,680
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
 
$
-
 
$
99
 
$
-
 
$
99
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other real estate owned, held for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
-
 
$
-
 
$
611
 
$
611
 
Commercial real estate
 
 
-
 
 
-
 
 
345
 
 
345
 
Land and land development
 
 
-
 
 
-
 
 
23
 
 
23
 
Total other real estate owned
 
$
-
 
$
-
 
$
979
 
$
979
 
 
 
-29-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
 
 
Carrying Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
(In thousands)
 
September 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets Measured - Recurring Basis:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading account securities
 
$
-
 
$
3,210
 
$
-
 
$
3,210
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency bonds and notes
 
$
-
 
$
15,197
 
$
-
 
$
15,197
 
Agency mortgage-backed
 
 
-
 
 
41,714
 
 
-
 
 
41,714
 
Agency CMO
 
 
-
 
 
24,074
 
 
-
 
 
24,074
 
Privately-issued CMO
 
 
-
 
 
4,616
 
 
-
 
 
4,616
 
Privately-issued ABS
 
 
-
 
 
7,799
 
 
-
 
 
7,799
 
SBA certificates
 
 
-
 
 
2,093
 
 
 
 
 
2,093
 
Municipal
 
 
-
 
 
68,581
 
 
-
 
 
68,581
 
Equity securities
 
 
93
 
 
-
 
 
-
 
 
93
 
Total securities available for sale
 
$
93
 
$
164,074
 
$
-
 
$
164,167
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate cap contract
 
$
-
 
$
11
 
$
-
 
$
11
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets Measured - Nonrecurring Basis:
 
 
 
 
 
 
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
-
 
$
-
 
$
5,676
 
$
5,676
 
Commercial real estate
 
 
-
 
 
-
 
 
6,091
 
 
6,091
 
Multifamily
 
 
-
 
 
-
 
 
2,306
 
 
2,306
 
Construction
 
 
-
 
 
-
 
 
29
 
 
29
 
Commercial business
 
 
-
 
 
-
 
 
235
 
 
235
 
Consumer
 
 
-
 
 
-
 
 
450
 
 
450
 
Total impaired loans
 
$
-
 
$
-
 
$
14,787
 
$
14,787
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
 
$
-
 
$
399
 
$
-
 
$
399
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other real estate owned, held for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
-
 
$
-
 
$
397
 
$
397
 
Commercial real estate
 
 
-
 
 
-
 
 
375
 
 
375
 
Multifamily
 
 
-
 
 
-
 
 
27
 
 
27
 
Total other real estate owned
 
$
-
 
$
-
 
$
799
 
$
799
 
 
Fair value is based upon quoted market prices where available.  If quoted market prices are not available, fair value is based on internally developed models or obtained from third parties that primarily use, as inputs, observable market-based parameters or a matrix pricing model that employs the Bond Market Association’s standard calculations for cash flow and price/yield analysis and observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, or the lower of cost or fair value.  These adjustments may include unobservable parameters.  Any such valuation adjustments have been applied consistently over time. 
 
 
-30-

 
 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.  There were no changes in the valuation techniques and related inputs used for assets measured at fair value during the three-month periods ended December 31, 2013 and 2012.
 
Trading Account Securities and Securities Available for Sale.  Securities classified as trading and available for sale are reported at fair value on a recurring basis.  These securities are classified as Level 1 of the valuation hierarchy where quoted market prices from reputable third-party brokers are available in an active market.  If quoted market prices are not available, the Company obtains fair value measurements from an independent pricing service.  These securities are reported using Level 2 inputs and the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.  Changes in fair value of trading account securities are reported in noninterest income.  Changes in fair value of securities available for sale are recorded in other comprehensive income, net of income tax effect.
 
Derivative Financial Instruments.  Derivative financial instruments consist of an interest rate cap contract.  As such, significant fair value inputs can generally be verified by counterparties and do not involve significant management judgments (Level 2 inputs).
 
Impaired Loans.  Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.  The fair value of impaired loans is classified as Level 3 in the fair value hierarchy. 
 
Impaired loans are measured at the present value of estimated future cash flows using the loan's effective interest rate or the fair value of the collateral if the loan is a collateral-dependent loan.  Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable, and its fair value is generally determined based on real estate appraisals or other independent evaluations by qualified professionals.  The appraisals are then discounted to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral.  At December 31, 2013, the significant unobservable inputs used in the fair value measurement of impaired loans included a discount from appraised value ranging from 0.0% to 15.0% and estimated costs to sell the collateral ranging from 0.0% to 6.0%.  During the three-month period ended December 31, 2013, the Company recognized provisions for loan losses of $2,000 for impaired loans.  No provisions for loan losses were recognized for the three-month period ended December 31, 2012 for impaired loans.
 
Loans Held for Sale.  Loans held for sale are carried at the lower of cost or market value.  The portfolio is comprised of residential real estate loans and fair value is based on specific prices of underlying contracts for sales to investors.  These measurements are carried at Level 2.
 
 
-31-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
Other Real Estate Owned.  Other real estate owned held for sale is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.  Fair value of other real estate owned is classified as Level 3 in the fair value hierarchy. 
 
Other real estate owned is reported at fair value less estimated costs to dispose of the property.  The fair values are determined by real estate appraisals which are then discounted to reflect management’s estimate of the fair value of the property given current market conditions and the condition of the collateral.  At December 31, 2013, the significant unobservable inputs used in the fair value measurement of other real estate owned included a discount from appraised value ranging from 0.0% to 15.0% and estimated costs to sell the property ranging from 0.0% to 6.0%.  The Company recognized charges of $37,000 and $47,000 to write down other real estate owned to fair value for the three months ended December 31, 2013 and 2012, respectively.
 
Transfers Between Categories.  There were no transfers into or out of the Company's Level 3 financial assets for the three-month periods ended December 31, 2013 and 2012.  In addition, there were no transfers into or out of Levels 1 and 2 of the fair value hierarchy during the three-month periods ended December 31, 2013 and 2012.
 
 
-32-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
GAAP requires disclosure of fair value information about financial instruments for interim reporting periods, whether or not recognized in the consolidated balance sheet.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.  The carrying amounts and estimated fair values of the Company's financial instruments are as follows:
 
 
 
Carrying
 
Fair Value Measurements Using:
 
December 31, 2013:
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
9,171
 
$
9,171
 
$
-
 
$
-
 
Interest-bearing deposits with banks
 
 
10,786
 
 
10,786
 
 
-
 
 
-
 
Interest-bearing time deposits
 
 
1,500
 
 
-
 
 
1,482
 
 
-
 
Trading account securities
 
 
4,154
 
 
-
 
 
4,154
 
 
-
 
Securities available for sale
 
 
174,719
 
 
107
 
 
174,612
 
 
-
 
Securities held to maturity
 
 
6,184
 
 
-
 
 
6,344
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans, net
 
 
419,021
 
 
-
 
 
-
 
 
424,412
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
 
 
99
 
 
-
 
 
99
 
 
-
 
Federal Home Loan Bank stock
 
 
5,675
 
 
-
 
 
5,675
 
 
-
 
Accrued interest receivable
 
 
2,722
 
 
-
 
 
2,722
 
 
-
 
Interest rate cap (included in
    other assets)
 
 
10
 
 
-
 
 
10
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
 
 
491,522
 
 
-
 
 
-
 
 
490,872
 
Short-term repurchase agreements
 
 
1,336
 
 
-
 
 
1,336
 
 
-
 
Borrowings from Federal Home
    Loan Bank
 
 
102,565
 
 
-
 
 
102,818
 
 
-
 
Other long-term debt
 
 
4,939
 
 
-
 
 
4,939
 
 
-
 
Accrued interest payable
 
 
177
 
 
-
 
 
177
 
 
-
 
Advance payments by borrowers
    for taxes and insurance
 
 
522
 
 
-
 
 
522
 
 
-
 
 
 
-33-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
 
 
Carrying
 
Fair Value Measurements Using:
 
September 30, 2013:
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
9,607
 
$
9,607
 
$
-
 
$
-
 
Interest-bearing deposits with banks
 
 
11,208
 
 
11,208
 
 
-
 
 
-
 
Interest-bearing time deposits
 
 
1,500
 
 
-
 
 
1,475
 
 
-
 
Trading account securities
 
 
3,210
 
 
-
 
 
3,210
 
 
-
 
Securities available for sale
 
 
164,167
 
 
93
 
 
164,074
 
 
-
 
Securities held to maturity
 
 
6,417
 
 
-
 
 
6,514
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans, net
 
 
408,375
 
 
-
 
 
-
 
 
413,629
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
 
 
399
 
 
-
 
 
399
 
 
-
 
Federal Home Loan Bank stock
 
 
5,500
 
 
-
 
 
5,500
 
 
-
 
Accrued interest receivable
 
 
2,391
 
 
-
 
 
2,391
 
 
-
 
Interest rate cap (included in
    other assets)
 
 
11
 
 
-
 
 
11
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
 
 
477,726
 
 
-
 
 
-
 
 
477,094
 
Short-term repurchase agreements
 
 
1,335
 
 
-
 
 
1,335
 
 
-
 
Borrowings from Federal Home
     Loan Bank
 
 
89,348
 
 
-
 
 
87,932
 
 
-
 
Other long-term debt
 
 
4,973
 
 
-
 
 
4,973
 
 
-
 
Accrued interest payable
 
 
184
 
 
-
 
 
184
 
 
-
 
Advance payments by borrowers
    for taxes and insurance
 
 
707
 
 
-
 
 
707
 
 
-
 
 
The carrying amounts in the preceding tables are included in the consolidated balance sheets under the applicable captions.  The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:
 
 
-34-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
Cash and Cash Equivalents
 
For cash and short-term instruments, including cash and due from banks and interest-bearing deposits with banks, the carrying amount is a reasonable estimate of fair value.
 
Debt and Equity Securities and Interest-Bearing Time Deposits
 
For marketable equity securities, the fair values are based on quoted market prices.  For debt securities and interest-bearing time deposits, the Company obtains fair value measurements from an independent pricing service and the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.  For FHLB stock, a restricted equity security, the carrying amount is a reasonable estimate of fair value because it is not marketable.
 
Loans
 
The fair value of loans, excluding loans held for sale, is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and terms.  Impaired loans are valued at the lower of their carrying value or fair value, as previously described.  The carrying amount of accrued interest receivable approximates its fair value.
 
The fair value of loans held for sale is estimated based on specific prices of underlying contracts for sales to investors, as previously described.
 
Deposits
 
The fair value of demand and savings deposits and other transaction accounts is the amount payable on demand at the balance sheet date.  The fair value of fixed-maturity time deposits is estimated by discounting the future cash flows using the rates currently offered for deposits with similar remaining maturities.  The carrying amount of accrued interest payable approximates its fair value.
 
Borrowed Funds
 
Borrowed funds include borrowings from the FHLB, repurchase agreements and other long-term debt.  Fair value for FHLB advances and long-term repurchase agreements is estimated by discounting the future cash flows at current interest rates for FHLB advances of similar maturities.  For short-term repurchase agreements, FHLB line of credit borrowings and other debt, the carrying value is a reasonable estimate of fair value.
 
Derivative Financial Instruments
 
For derivative financial instruments, the fair values generally represent an estimate of the amount the Company would receive or pay upon termination of the agreement at the reporting date, taking into account the current interest rates, and exclusive of any accrued interest.
 
 
-35-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
8.           Employee Stock Ownership Plan
 
On October 6, 2008, the Company established a leveraged employee stock ownership plan (“ESOP”) covering substantially all employees.  The ESOP trust acquired 203,363 shares of Company common stock at a cost of $10.00 per share financed by a term loan with the Company.  The employer loan and the related interest income are not recognized in the consolidated financial statements as the debt is serviced from Company contributions.  Dividends payable on allocated shares are charged to retained earnings and are satisfied by the allocation of cash dividends to participant accounts or by utilizing the dividends as additional debt service on the ESOP loan.  Dividends payable on unallocated shares are not considered dividends for financial reporting purposes.  Shares held by the ESOP trust are allocated to participant accounts based on the ratio of the current year principal and interest payments to the total of the current year and future years’ principal and interest to be paid on the employer loan.  Compensation expense is recognized based on the average fair value of shares released for allocation to participant accounts during the year with a corresponding credit to stockholders’ equity.  Compensation expense recognized for the three-month periods ended December 31, 2013 and 2012 amounted to $428,000 and $393,000, respectively.  Company common stock held by the ESOP trust at December 31, 2013  and September 30, 2013 was as follows:
 
 
 
December 31,
 
September 30,
 
 
 
 
2013
 
2013
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
Allocated shares
 
 
123,819
 
 
103,116
 
 
Unearned shares
 
 
65,792
 
 
86,495
 
 
Total ESOP shares
 
 
189,611
 
 
189,611
 
 
 
 
 
 
 
 
 
 
 
Fair value of unearned shares
 
$
1,503,000
 
$
1,946,000
 
 

9.
Stock Based Compensation Plans
 
The Company’s 2010 Equity Incentive Plan (“Plan”), which the Company’s shareholders approved in February 2010, provides for the award of stock options, restricted shares and performance shares.  The aggregate number of shares of the Company’s common stock available for issuance under the Plan may not exceed 355,885 shares.  The Company may grant both non-statutory and statutory (i.e., incentive) stock options that may not have a term exceeding ten years.  An award of a performance share is a grant of a right to receive shares of the Company’s common stock contingent upon the achievement of specific performance criteria or other objectives set at the grant date.  Awards granted under the Plan may be granted either alone, in addition to, or in tandem with any other award granted under the Plan.  The terms of the Plan include a provision whereby all unearned options and shares become immediately exercisable and fully vested upon a change in control. 
 
 
-36-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
In April 2010, the Company funded a trust, administered by an independent trustee, which acquired 101,681 common shares in the open market at a price per share of $13.60 for a total cost of $1.4 million.  These acquired common shares were later granted to directors, officers and key employees in the form of restricted stock in May 2010 at a price per share of $13.25 for a total of $1.3 million.  The difference between the purchase price and grant price of the common shares issued as restricted stock, totaling $41,000, was recognized by the Company as a reduction of additional paid in capital.  The restricted stock vests ratably over a five-year period from the grant date.  Compensation expense is measured based on the fair market value of the restricted stock at the grant date and is recognized ratably over the period during which the shares are earned (the vesting period).  Compensation expense related to restricted stock recognized for each of the three-month periods ended December 31, 2013 and 2012 amounted to $65,000.  A summary of the Company’s nonvested restricted shares activity under the Plan as of December 31, 2013 and changes during the three-month period then ended is presented below. 
 
 
 
 
 
 
Weighted
 
 
 
Number
 
Average
 
 
 
of
 
Grant Date
 
 
 
Shares
 
Fair Value
 
 
 
 
 
 
 
 
 
Nonvested at October 1, 2013
 
 
39,230
 
$
13.25
 
Granted
 
 
-
 
 
-
 
Vested
 
 
-
 
 
-
 
Forfeited
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
Nonvested at December 31, 2013
 
 
39,230
 
$
13.25
 
 
There were no restricted shares granted or vested during the three-month periods ended December 31, 2013 and 2012.  At December 31, 2013, there was $357,000 of total unrecognized compensation expense related to nonvested restricted shares.  The compensation expense is expected to be recognized over the remaining vesting period of 1.4 years.
 
In May 2010, the Company awarded 177,549 incentive and 76,655 non-statutory stock options to directors, officers and key employees.  The options granted vest ratably over five years and are exercisable in whole or in part for a period up to ten years from the date of the grant.  Compensation expense is measured based on the fair market value of the options at the grant date and is recognized ratably over the period during which the shares are earned (the vesting period). The weighted average fair value at the grant date for options granted in 2010 was $3.09, as determined at the date of grant using the Binomial option pricing model.
 
 
-37-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
A summary of stock option activity under the Plan as of December 31, 2013, and changes during the three-month period then ended is presented below.
 
 
 
 
 
Weighted
 
Weighted
 
 
 
 
 
Number
 
Average
 
Average
 
 
 
 
 
Exercise
 
Exercise
 
Remaining
 
Aggregate
 
 
 
of
 
Price
 
Contractual
 
Intrinsic
 
 
 
Shares
 
Per Share
 
Term
 
Value
 
 
 
(Dollars in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at October 1, 2013
 
 
245,232
 
$
13.25
 
 
6.6
 
$
2,268
 
Granted
 
 
-
 
 
-
 
 
 
 
 
 
 
Exercised
 
 
-
 
 
-
 
 
 
 
 
 
 
Forfeited or expired
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at December 31, 2013
 
 
245,232
 
$
13.25
 
 
6.4
 
$
2,354
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable at December 31, 2013
 
 
147,141
 
$
13.25
 
 
6.4
 
$
1,413
 
 
There were no stock options granted or exercised during the three-month periods ended December 31, 2013 and 2012.  The Company recognized compensation expense related to stock options of $38,000 for each of three-month periods ended December 31, 2013 and 2012.  At December 31, 2013, there was $208,000 of unrecognized compensation expense related to nonvested stock options, which will be recognized over the remaining vesting period of 1.4 years. 
 
 
-38-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
10.          Preferred Stock
 
On August 11, 2011, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with the United States Department of the Treasury, pursuant to which the Company issued 17,120 shares of the its Senior Non-Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), having a liquidation amount per share equal to $1,000, for a total purchase price of $17,120,000. The Purchase Agreement was entered into, and the Series A Preferred Stock was issued, pursuant to the Small Business Lending Fund (“SBLF”) program, a $30 billion fund established under the Small Business Jobs Act of 2010, that encourages lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion.
 
Holders of the Series A Preferred Stock are entitled to receive non-cumulative dividends, payable quarterly, on each January 1, April 1, July 1 and October 1, beginning October 1, 2011. The dividend rate, as a percentage of the liquidation amount, can fluctuate on a quarterly basis during the first ten quarters during which the Series A Preferred Stock is outstanding and may be adjusted between 1.0% and 5.0% per annum, to reflect the amount of change in the Bank’s level of Qualified Small Business Lending (“QSBL”) (as defined in the Purchase Agreement) over the baseline level calculated under the terms of the Purchase Agreement (“Baseline”).  In addition to the dividend, in the event the Bank’s level of QSBL has not increased relative to the Baseline, at the beginning of the tenth calendar quarter, the Company will be subject to an additional lending incentive fee equal to 2.0% per annum. For the eleventh dividend period through the eighteenth dividend period, inclusive, and that portion of the nineteenth dividend period before, but not including, the four and one half (4½) year anniversary of the date of issuance, the dividend rate will be fixed at between 1.0% and 7.0% per annum based upon the increase in QSBL as compared to the Baseline. After four and one half (4½) years from issuance, the dividend rate will increase to nine 9.0%.  Based upon the Bank’s level of QSBL over the Baseline for purposes of calculating the dividend rate for the initial dividend period, the dividend rate for the initial dividend period ended September 30, 2011 was 4.84%.  The dividend rate for the tenth dividend period ended December 31, 2013 was 1.0% and the weighted average dividend rate for the three-month period ended December 31, 2013 was 1.0%.  The dividend rate for the eleventh dividend period through the eighteenth dividend period will be 1.0%.
 
The Series A Preferred Stock is non-voting, except in limited circumstances. In the event that the Company fails to timely make five dividend payments, whether or not consecutive, the holder of the Series A Preferred Stock will have the right, but not the obligation, to appoint a representative as an observer on the Company’s board of directors.
 
The Series A Preferred Stock may be redeemed at any time at the Company’s option, at a redemption price of one hundred percent (100%) of the liquidation amount plus accrued but unpaid dividends to the date of redemption for the current period, subject to the approval of its federal banking regulator.
 
The Series A Preferred Stock was issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. The Company has agreed to register the Series A Preferred Stock under certain circumstances set forth in the Purchase Agreement. The Series A Preferred Stock is not subject to any contractual restrictions on transfer.
 
 
-39-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
11.          Recent Accounting Pronouncements
 
The following are summaries of recently issued accounting pronouncements that impact the accounting and reporting practices of the Company:
 
In December 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-11, Balance Sheet (Topic 210). The update requires an entity to disclose information about offsetting and related arrangements to enable users of the financial statements to understand the effect of netting arrangements on the entity’s financial position.  The scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements.  ASU No. 2013-01 was issued in January 2013 to address implementation issues and clarify the scope of ASU No. 2011-11.  The amendments in the updates are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, with disclosures required by the amendments provided retrospectively for all comparative periods presented.  The adoption of these updates did not have a material impact on the Company’s consolidated financial position or results of operations.
 
In October 2012, the FASB issued ASU No. 2012-06, Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution.  The update indicates that when a reporting entity initially recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs, the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification.  Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets).  The amendments in the update are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012, and should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption.  Early adoption is permitted.  The adoption of this update did not have a material impact on the Company’s consolidated financial position or results of operations.
 
 
-40-

 
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
 
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  The update does not change the current requirements for reporting net income or other comprehensive income in financial statements.  The amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.  For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts.  For public entities, the amendments in the update are effective prospectively for reporting periods beginning after December 15, 2012.  Early adoption is permitted.  The adoption of this update did not have a material impact on the Company’s consolidated financial position or results of operations.
 
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  The amendments in ASU No. 2013-11 to Topic 740, Income Taxes, provide guidance on the financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial position or results of operations.
 
In January 2014, the FASB issued ASU No. 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.  The objective of the amendments in this update is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized.  The amendments in the update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.  Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor, and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.  The amendments in the update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial position or results of operations.
 
 
-41-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I - ITEM 2
 
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 

Safe Harbor Statement for Forward-Looking Statements

 
This report may contain forward-looking statements within the meaning of the federal securities laws.  These statements are not historical facts; rather they are statements based on the Company’s current expectations regarding its business strategies and their intended results and its future performance.  Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.
 
Forward-looking statements are not guarantees of future performance.  Numerous risks and uncertainties could cause or contribute to the Company's actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements.  Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; the ability to successfully integrate the operations of Community First; and changes in accounting principles and guidelines.  Additional factors that may affect our results are discussed herein and in our Annual Report on Form 10-K for the year ended September 30, 2013 under “Part II, Item 1A. Risk Factors.”  These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements.  Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.
 
Critical Accounting Policies
 
During the three-month period ended December 31, 2013, there was no significant change in the Company's critical accounting policies or the application of critical accounting policies as disclosed in the Company's Annual Report on Form 10-K for the year ended September 30, 2013.
 
Comparison of Financial Condition at December 31, 2013 and September 30, 2013
 
Cash and Cash Equivalents.  Cash and cash equivalents decreased $858,000, from $20.8 million at September 30, 2013 to $20.0 million at December 31, 2013.
 
Loans.  Net loans receivable increased $10.6 million, from $408.4 million at September 30, 2013 to $419.0 million at December 31, 2013, primarily due to increases in commercial real estate, commercial business and multi-family residential loans of $10.6 million, $2.4 million and $1.2 million, respectively, which more than offset decreases in residential permanent loans and consumer loans of $2.8 million and $1.2 million, respectively.  The decreases in residential mortgage and consumer loans are primarily due to loan payoffs that have not been replaced by new originations.
 
 
-42-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I - ITEM 2
 
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
Trading Account Securities.  Trading account securities increased by $944,000 from $3.2 million at September 30, 2013 to $4.2 million at December 31, 2013.  Trading account securities are comprised of investment grade municipal bonds. 
 
Securities Available for Sale.  Securities available for sale increased $10.5 million from $164.2 million at September 30, 2013 to $174.7 million at December 31, 2013 due primarily to purchases of $16.4 million, partially offset by maturities and calls of $1.2 million, principal repayments of $3.6 million and sales of $302,000. The increase in securities available for sale, primarily in U.S. government agency and sponsored enterprises securities, including mortgage-backed securities and CMOs, and municipal bonds was primarily funded by the decrease in cash and cash equivalents and increases in deposits and borrowings from the FHLB.
 
Securities Held to Maturity.  Investment securities held-to-maturity decreased $233,000 from $6.4 million at September 30, 2013 to $6.2 million at December 31, 2013 due primarily to principal repayments on mortgage-backed securities.
 
Cash Surrender Value of Life Insurance.  Cash surrender value of life insurance increased $5.1 million, from $12.9 million at September 30, 2013 to $18.0 million at December 31, 2013 primarily as the result of an investment in bank-owned life insurance of $5.0 million in December 2013.
 
Deposits.  Total deposits increased $13.8 million from $477.7 million at September 30, 2013 to $491.5 million at December 31, 2013 primarily due to an increase in certificates of deposit, interest-bearing demand deposit accounts, and savings accounts of $13.4 million, $3.1 million, and $1.4 million, respectively, which more than offset decreases in noninterest-bearing demand deposit accounts of $2.7 million and money market deposit accounts of $1.4 million during the period. The increase in certificates of deposit is primarily due to an increase of $17.5 million in brokered certificates of deposits, which more than offset decreases in various maturity classes of retail certificates of deposit. The decrease in retail certificates of deposits is primarily attributed to maturities that customers are investing in more liquid accounts given the low interest rate environment. Management has increased the level of brokered certificates of deposit  in order to take advantage of historically low interest rates, provide short-term liquidity, replace attrition of retail certificates of deposit, and provide funding for the loan portfolio growth, purchases of available for sale securities and the investment in additional bank-owned life insurance. 
 
Borrowings.  Borrowings from the FHLB increased $13.3 million from $89.3 million at September 30, 2013 to $102.6 million at December 31, 2013.  Management has increased the level of FHLB advances in order to take advantage of historically low interest rates, provide short-term liquidity and provide funding for the loan portfolio growth, purchases of available for sale securities and the investment in additional bank-owned life insurance. 
 
 
-43-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I - ITEM 2
 
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
Stockholders’ Equity.  Stockholders’ equity increased $194,000 from $82.3 million at September 30, 2013 to $82.4 million at December 31, 2013.  Retained earnings increased $798,000 due to net income available to common shareholders of $985,000, partially offset by common stock cash dividends of $187,000.  Other comprehensive income decreased $337,000 as a result of a decrease in net unrealized gains on securities available for sale, which is due to changes in the yield curve and long-term rate forecasts. The Company also repurchased 37,349 shares of common stock on the open market for a total cost of $834,000 during the three-month period ended December 31, 2013. Book value (common shareholders’ equity) per common share was $28.88 at December 31, 2013 as compared to $28.32 at September 30, 2013. Tangible book value (common shareholders’ equity) per common share was $24.49 at December 31, 2013 as compared to $23.97 at September 30, 2013.
 
Results of Operations for the Three Months Ended December 31, 2013 and 2012
 
Overview.  The Company reported net income of $1.0 million and net income available to common shareholders of $985,000, or $0.44 per diluted share, for the three-month period ended December 31, 2013 compared to net income of $1.0 million and net income available to common shareholders of $973,000, or $0.43 per diluted share, for the three-month period ended December 31, 2012.  The annualized return on average assets, average equity and average common stockholders’ equity were 0.61%, 4.95% and 6.23%, respectively, for the three-month period ended December 31, 2013.  
 
Net Interest Income.  Net interest income increased $147,000, or 2.6%, for the three-month period ended December 31, 2013 compared to the same period in 2012. Average interest-earnings assets increased $37.1 million and average interest-bearing liabilities increased $30.5 million when comparing the two periods.  The tax-equivalent interest rate spread was 3.86% for 2013 as compared to 3.99% for 2012.
 
Total interest income decreased $26,000, or 0.4%, when comparing the two periods due primarily to a decrease in the average tax-equivalent yield on interest-earning assets from 4.86% for 2012 to 4.55% for 2013, which more than offset the change in interest income due to an increase in the average balance of interest-earning assets of $37.1 million from $575.9 million for 2012 to $613.0 million for 2013. The average balance of loans, investment securities and interest-bearing deposits with banks increased $25.0 million, $7.7 million and $4.2 million, respectively, when comparing the two periods.
 
Total interest expense decreased $173,000, or 15.7%, due primarily to a decrease in the average cost of interest-bearing liabilities from 0.87% for 2012 to 0.69% for 2013, which more than offset the change in interest expense due to an increase in the average balance of interest-bearing liabilities of $30.5 million from $503.3 million for 2012 to $533.8 million for 2013. The average cost of interest-bearing liabilities decreased for 2013 primarily as a result of lower market interest rates as compared to 2012 and the repricing of certificates of deposit and borrowings at lower market interest rates as they matured. The average balance of borrowings increased $37.3 million while the average balance of total deposits decreased $6.8 million when comparing the two periods. 
 
 
-44-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I - ITEM 2
 
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
Average Balance Sheets.  The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs for the three-month periods ended December 31, 2013 and 2012.  The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented.  Nonaccrual loans are included in average balances only.  Loan fees are included in interest income on loans and are not material.  Tax exempt income on loans and investment securities has been calculated on a tax equivalent basis using a federal marginal tax rate of 34%.
 
 
 
Three Months Ended December 31,
 
 
 
 
2013
 
 
2012
 
 
 
 
 
 
Interest
 
 
 
 
 
 
Interest
 
 
 
 
 
 
Average
 
and
 
Yield/
 
 
Average
 
and
 
Yield/
 
 
 
 
Balance
 
Dividends
 
Cost
 
 
Balance
 
Dividends
 
Cost
 
 
 
 
(Dollars in thousands)
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with banks
 
$
11,547
 
$
9
 
 
0.31
%
 
$
7,320
 
$
4
 
 
0.22
%
 
Loans
 
 
419,217
 
 
5,247
 
 
5.01
 
 
 
394,193
 
 
5,290
 
 
5.37
 
 
Investment securities
 
 
131,310
 
 
1,446
 
 
4.40
 
 
 
125,375
 
 
1,422
 
 
4.54
 
 
Agency mortgage-backed securities
 
 
45,347
 
 
220
 
 
1.94
 
 
 
43,562
 
 
219
 
 
2.01
 
 
Federal Home Loan Bank stock
 
 
5,584
 
 
50
 
 
3.58
 
 
 
5,400
 
 
56
 
 
4.15
 
 
Total interest-earning assets
 
 
613,005
 
 
6,972
 
 
4.55
 
 
 
575,850
 
 
6,991
 
 
4.86
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-earning assets
 
 
57,739
 
 
 
 
 
 
 
 
 
64,252
 
 
 
 
 
 
 
 
Total assets
 
$
670,744
 
 
 
 
 
 
 
 
$
640,102
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOW accounts
 
$
116,686
 
$
64
 
 
0.22
%
 
$
101,858
 
$
98
 
 
0.38
%
 
Money market deposit accounts
 
 
71,884
 
 
60
 
 
0.33
 
 
 
64,534
 
 
78
 
 
0.48
 
 
Savings accounts
 
 
68,089
 
 
11
 
 
0.06
 
 
 
63,256
 
 
20
 
 
0.13
 
 
Time deposits
 
 
177,913
 
 
477
 
 
1.07
 
 
 
211,701
 
 
603
 
 
1.14
 
 
Total interest-bearing deposits
 
 
434,572
 
 
612
 
 
0.56
 
 
 
441,349
 
 
799
 
 
0.72
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Borrowings (1)
 
 
99,239
 
 
310
 
 
1.25
 
 
 
61,960
 
 
296
 
 
1.91
 
 
Total interest-bearing liabilities
 
 
533,811
 
 
922
 
 
0.69
 
 
 
503,309
 
 
1,095
 
 
0.87
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing deposits
 
 
48,723
 
 
 
 
 
 
 
 
 
48,015
 
 
 
 
 
 
 
 
Other non-interest-bearing liabilities
 
 
5,133
 
 
 
 
 
 
 
 
 
5,485
 
 
 
 
 
 
 
 
Total liabilities
 
 
587,667
 
 
 
 
 
 
 
 
 
556,809
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total equity
 
 
83,077
 
 
 
 
 
 
 
 
 
83,293
 
 
 
 
 
 
 
 
Total liabilities and equity
 
$
670,744
 
 
 
 
 
 
 
 
$
640,102
 
 
 
 
 
 
 
 
Net interest income
 
 
 
 
$
6,050
 
 
 
 
 
 
 
 
$
5,896
 
 
 
 
 
Interest rate spread
 
 
 
 
 
 
 
 
3.86
%
 
 
 
 
 
 
 
 
3.99
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin
 
 
 
 
 
 
 
 
3.95
%
 
 
 
 
 
 
 
 
4.10
%
 
Average interest-earning assets to
    average interest-bearing liabilities
 
 
 
 
 
 
 
 
114.84
%
 
 
 
 
 
 
 
 
114.41
%
 
 

(1)  Includes FHLB borrowings, repurchase agreements and other long-term debt.
 
 
-45-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I - ITEM 2
 
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
Rate/Volume Analysis.  The following table sets forth the effects of changing rates and volumes on our net interest income for the three-month periods ended December 31, 2013 and 2012.  The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume).  The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).  The net column represents the sum of the prior columns.  Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each.
 
 
 
Three Months Ended December 31, 2013
 
 
 
Compared to
 
 
 
Three Months Ended December 31, 2012
 
 
 
Increase (Decrease)
 
 
 
 
 
 
Due to
 
 
 
 
 
 
Rate
 
Volume
 
Net
 
 
 
(In thousands)
 
Interest income:
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with banks
 
$
2
 
$
3
 
$
5
 
Loans
 
 
(814)
 
 
771
 
 
(43)
 
Investment securities
 
 
(45)
 
 
69
 
 
24
 
Agency mortgage-backed securities
 
 
(5)
 
 
6
 
 
1
 
Other interest-earning assets
 
 
(8)
 
 
2
 
 
(6)
 
Total interest-earning assets
 
 
(870)
 
 
851
 
 
(19)
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 
 
 
 
 
 
Deposits
 
 
(175)
 
 
(12)
 
 
(187)
 
Borrowings (1)
 
 
(19)
 
 
33
 
 
14
 
Total interest-bearing liabilities
 
 
(194)
 
 
21
 
 
(173)
 
Net increase (decrease) in net interest income
 
$
(676)
 
$
830
 
$
154
 
 

(1)  Includes FHLB borrowings, repurchase agreements and other long-term debt.
 
Provision for Loan Losses.  The provision for loan losses was $301,000 for the three-month period ended December 31, 2013 compared to $452,000 for the same period in 2012. The decrease in the provision for loans losses for 2013 as compared to the prior period was due primarily to net recoveries in the 2013 period and a decrease in nonperforming loans when comparing the two periods.
 
The Company recognized net recoveries of $132,000 for the three-month period ended December 31, 2013 compared to net charge-offs of $223,000 for the same period in 2012.
 
 
-46-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I - ITEM 2
 
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
The recorded investment in nonperforming loans was $5.3 million at December 31, 2013 compared to $9.1 million at September 30, 2013 and $6.5 million at December 31, 2012. Nonperforming loans at December 31, 2013 include nonaccrual loans of $4.7 million and loans totaling $646,000 that are over 90 days past due, but still accruing interest. These loans are still accruing interest because the estimated value of the collateral and collection efforts are deemed sufficient to ensure their full recovery. The decrease in nonperforming loans from September 30, 2013 to December 31, 2013 is due primarily to a single commercial real estate loan with an outstanding balance of $4.0 million that was reclassified from nonaccrual to accruing status as of December 31, 2013. This loan was current at December 31, 2013 and performed according to the restructured terms for six consecutive months.
 
Gross loans receivable increased $25.5 million from $403.3 million at December 31, 2012 to $428.8 million at December 31, 2013, primarily due to an increase in commercial real estate loans of $33.6 million, which more than offset a decrease in residential permanent loans of $7.0 million.  The increase in commercial real estate loans when comparing the two periods is due primarily to a commercial real estate lending program started in January 2013 that is focused on loans to high net worth individuals that are secured by low loan-to-value, single-tenant commercial properties that are leased to investment grade national-brand retailers. This program is designed to diversify the Company’s geographic and credit risk profile given the geographic dispersion of the loans and collateral, and the investment grade credit of the national-brand lessees.  The balance of this portfolio was $20.4 million at December 31, 2013.  
 
The allowance for loan losses was $6.0 million at December 31, 2013 compared to $5.5 million at September 30, 2013 and $5.1 million at December 31, 2012.  Management has deemed these amounts as adequate on those dates based on its best estimate of probable known and inherent loan losses.  The consistent application of management’s allowance for loan losses methodology resulted in an increase in the level of the allowance for loan losses consistent with changes in the loan portfolio and overall economic conditions.
 
Noninterest Income.  Noninterest income increased $104,000 for the three-month period ended December 31, 2013 as compared to the same period in 2012.  The increase was due primarily to increases in real estate lease income and net gain on trading account securities of $97,000 and $55,000, respectively, which more than offset decreases in net gain on sales of loans and service charges on deposit accounts of $30,000 and $20,000, respectively.  There were eight active tenants in the real estate development at December 31, 2013, described above in Note 4 of the Notes to Consolidated Financial Statements, compared to two active tenants at December 31, 2012.
 
Noninterest Expense.  Noninterest expenses increased $345,000 for the three-month period ended December 31, 2013 as compared to the same period in 2012. The increase was due primarily to increases in compensation and benefits expense, occupancy and equipment expense, and other operating expenses of $163,000, $148,000 and $47,000, respectively, which more than offset a decrease in advertising expense of $38,000. The increase in compensation and benefits expense is due primarily to normal salary, wages and benefits increases, and increased ESOP compensation expense. ESOP compensation expense for the quarters ended December 31, 2013 and 2012 included approximately $341,000 and $323,000, respectively, of additional expense due to the accelerated repayment of the ESOP loan. The increase in occupancy and equipment expense is due primarily to the Bank’s new branch location in New Albany, Indiana, which opened in August 2013.
 
 
-47-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I - ITEM 2
 
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
Income Tax Expense.  The Company recognized income tax expense of $423,000 for the three-months ended December 31, 2013, for an effective tax rate of 29.2%, compared to income tax expense of $378,000, for an effective tax rate of 27.1%, for the same period in 2012.
 
 
-48-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I - ITEM 2
 
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
Liquidity and Capital Resources
 
Liquidity Management.  Liquidity is the ability to meet current and future financial obligations of a short-term nature.  The Bank’s primary sources of funds are customer deposits, proceeds from loan repayments, maturing securities and FHLB advances.  While loan repayments and maturities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, general economic conditions and competition.  At December 31, 2013, the Bank had cash and cash equivalents of $20.0 million, trading account securities with a fair value of $4.2 million and securities available-for-sale with a fair value of $174.7 million.  If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB, borrowing capacity on a federal funds purchased line of credit facility with another financial institution and additional collateral eligible for repurchase agreements.
 
The Bank’s primary investing activity is the origination of one-to-four family mortgage loans and, to a lesser extent, consumer, multi-family, commercial real estate, commercial business and residential construction loans. The Bank also invests in U.S. government agency and sponsored enterprises securities, mortgage backed securities and collateralized mortgage obligations issued by U.S. government agencies and sponsored enterprises, and municipal bonds. 
 
The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. 
 
The Company is a separate legal entity from the Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations, to pay any dividends and to repurchase any of its outstanding common stock.  The Company’s primary source of income is dividends received from the Bank.  The amount of dividends that the Bank may declare and pay to the Company in any calendar year cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years.  The Bank must also file prior notice with the Federal Reserve Board before the Bank may declare and pay dividends to the Company.  During the three months ended December 31, 2013 the Bank declared and paid dividends to the Company totaling $5.0 million.  At December 31, 2013, the Company had liquid assets of $5.6 million.
 
Capital Management.  The Bank is required to maintain specific amounts of capital pursuant to regulatory requirements.  As of December 31, 2013, the Bank was in compliance with all regulatory capital requirements that were effective as of such date, with Tier 1 capital (to adjusted total assets), Tier 1 capital (to risk-weighted assets) and total capital (to risk-weighted assets) ratios of 9.41%, 14.25% and 15.51%, respectively.  The regulatory requirements at that date were 5.0%, 6.0% and 10.0%, respectively, in order to be categorized as “well capitalized” under applicable regulatory guidelines.  At December 31, 2013, the Bank was considered “well-capitalized” under applicable regulatory guidelines.
 
 
-49-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I - ITEM 2
 
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
Off-Balance Sheet Arrangements
 
In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with GAAP, are not recorded on the Company's financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk.  Such transactions are primarily used to manage customers’ requests for funding and take the form of loan commitments and letters of credit.  A further presentation of the Company’s off-balance sheet arrangements is presented in the Company’s Annual Report on Form 10-K for the year ended September 30, 2013.
 
For the three-months ended December 31, 2013, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Company's financial condition, results of operations or cash flows.
 
 
-50-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I – ITEM 3
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 
Qualitative Aspects of Market Risk.  Market risk is the risk that the estimated fair value of our assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that our net income will be significantly reduced by interest rate changes. 
 
The Company’s principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates by operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates. In order to reduce the exposure to interest rate fluctuations, the Company has developed strategies to manage its liquidity, shorten its effective maturities of certain interest-earning assets and decrease the interest rate sensitivity of its asset base. Management has sought to decrease the average maturity of its assets by emphasizing the origination of short-term residential mortgage, commercial mortgage and commercial business loans, all of which are retained by the Company for its portfolio. The Company relies on retail deposits as its primary source of funds. Management believes the primary use of retail deposits, complimented with a modest allocation of brokered certificates of deposit and FHLB borrowings, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds.
 
Quantitative Aspects of Market Risk.  Potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits and extending loans. Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Our earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve Board.  Furthermore, the Company does not engage in hedging activities or purchase high-risk derivative instruments and also is not subject to foreign currency exchange rate risk or commodity price risk.
 
An element in our ongoing process is to measure and monitor interest rate risk using a Net Interest Income at Risk simulation to model the interest rate sensitivity of the balance sheet and to quantify the impact of changing interest rates on the Company.  The model quantifies the effects of various possible interest rate scenarios on projected net interest income over a one-year horizon. The model assumes a semi-static balance sheet and measures the impact on net interest income relative to a base case scenario of hypothetical changes in interest rates over twelve months and provides no effect given to any steps that management might take to counter the effect of the interest rate movements.  The scenarios include prepayment assumptions, changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates in order to capture the impact from re-pricing, yield curve, option, and basis risks. 
 
 
-51-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I – ITEM 3
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 
Results of our simulation modeling as of September 30, 2013, which assumes an immediate and sustained parallel shift in market interest rates, project that the Company’s net interest income could change as follows over a one-year horizon, relative to our base case scenario. Given the timing of the release of this information, the information as of December 31, 2013 is unavailable for inclusion in this report. Management believes that there have been no material changes in the market risk of the Company’s asset and liability positions since September 30, 2013.
 
 
 
At September 30, 2013
 
 
Immediate Change
 
One Year Horizon
 
 
in the Level
 
Dollar
 
Percent
 
 
of Interest Rates
 
Change
 
Change
 
 
 
 
(Dollars in thousands)
 
 
300bp
 
$
(99)
 
 
(0.45)
%
 
200bp
 
 
(111)
 
 
(0.50)
 
 
100bp
 
 
(69)
 
 
(0.31)
 
 
Static
 
 
-
 
 
-
 
 
(100)bp
 
 
260
 
 
1.17
 
 
 
At September 30, 2013, our simulated exposure to an increase in interest rates shows that an immediate and sustained increase in rates of 1.00% will decrease our net interest income by $69,000 or 0.31% over a one year horizon compared to a flat interest rate scenario. Furthermore, rate increases of 2.00% and 3.00% would cause net interest income to decrease by 0.50% and 0.45%, respectively.
 
The Company also has longer term interest rate risk exposure, which may not be appropriately measured by Net Interest Income at Risk modeling, and therefore uses an Economic Value of Equity (“EVE”) interest rate sensitivity analysis in order to evaluate the impact of its interest rate risk on earnings and capital.  This is measured by computing the changes in net EVE for its cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates.  EVE modeling involves discounting present values of all cash flows for on and off balance sheet items under different interest rate scenarios and provides no effect given to any steps that management might take to counter the effect of the interest rate movements.  The discounted present value of all cash flows represents the Company’s EVE and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items.  The amount of base case EVE and its sensitivity to shifts in interest rates provide a measure of the longer term re-pricing and option risk in the balance sheet.
 
 
-52-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I – ITEM 3
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 
Results of our simulation modeling as of September 30, 2013, which assumes an immediate and sustained parallel shift in market interest rates, project that Company’s EVE could change as follows, relative to our base case scenario. Given the timing of the release of this information, the information as of December 31, 2013 is unavailable for inclusion in this report. Management believes that there have been no material changes in the market risk of the Company’s asset and liability positions since September 30, 2013. 
 
 
 
At September 30, 2013
 
Immediate Change
 
Economic Value of Equity
 
 
Economic Value of Equity as a
 
in the Level
 
Dollar
 
Dollar
 
Percent
 
 
Percent of Present Value of Assets
 
of Interest Rates
 
Amount
 
Change
 
Change
 
 
EVE Ratio
 
 
Change
 
 
 
(Dollars in thousands)
 
300bp
 
$
77,012
 
$
(25,354)
 
 
(24.77)
%
 
 
13.07
%
 
 
(246)bp
 
200bp
 
 
85,452
 
 
(16,914)
 
 
(16.52)
 
 
 
13.97
 
 
 
(156)bp
 
100bp
 
 
95,583
 
 
(6,783)
 
 
(6.63)
 
 
 
15.02
 
 
 
(51)bp
 
Static
 
 
102,366
 
 
-
 
 
-
 
 
 
15.53
 
 
 
- bp
 
(100)bp
 
 
95,248
 
 
(7,118)
 
 
(6.95)
 
 
 
14.26
 
 
 
(127)bp
 
 
The previous table indicates that at September 30, 2013, the Company would expect a decrease in its EVE in the event of a sudden and sustained 100 to 300 basis point increase and/or 100 basis point decrease in prevailing interest rates. The expected decrease in the Company’s EVE given a larger increase in rates is primarily attributable to the relatively high percentage of fixed-rate loans in the Company’s loan portfolio, which at September 30, 2013 comprised approximately 55.2% of the loan portfolio. The percentage of fixed-rate loans in the Company’s loan portfolio was 53.9% at December 31, 2013.
 
The models are driven by expected behavior in various interest rate scenarios and many factors besides market interest rates affect the Company’s net interest income and EVE.  For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand its overall sensitivity to market interest rate changes.  Therefore, as with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables and it’s recognized that the model outputs are not guarantees of actual results.  For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates.  Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.  Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset.  Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table.
 
 
-53-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART I - ITEM 4
 
CONTROLS AND PROCEDURES
 
Controls and Procedures
 
The Company’s management, including the Company’s principal executive officer and the Company’s principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended.  Based on their evaluation, the principal executive officer and the principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that information required to be disclosed in reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s Rules and Forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
 
During the quarter ended December 31, 2013, there were no changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
-54-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART II
 
OTHER INFORMATION
 
Item 1.           Legal Proceedings
 
The Company is not a party to any legal proceedings.  Periodically, there have been various claims and lawsuits involving the Bank, mainly as a plaintiff, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank’s business.  The Bank is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition or operations.
 
Item 1A. Risk Factors
 
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2013 which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors described in our Annual Report on Form 10-K, however, these are not the only risks that we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
 
 
-55-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART II
 
OTHER INFORMATION
 
Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table presents information regarding the Company’s stock repurchase activity during the quarter ended December 31, 2013:
 
 
 
 
 
 
 
(c)
 
(d)
 
 
 
 
 
 
 
Total number of shares
 
Maximum number (or
 
 
 
(a)
 
(b)
 
(or units) purchased as
 
appropriate dollar value) of
 
 
 
Total number of
 
Average price
 
part of publicly
 
shares (or units) that may yet
 
 
 
shares (or units)
 
paid per share
 
announced plans or
 
be purchased under the plans
 
Period
 
purchased
 
(or unit)
 
programs (1)
 
or programs
 
October 1, 2013 throug
October 31, 2013
 
 
22,700
 
$
22.13
 
 
22,700
 
 
204,006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
November 1, 2013 through
November 30, 2013
 
 
12,396
 
$
22.64
 
 
12,396
 
 
191,610
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 1, 2013 through
December 31, 2013
 
 
2,253
 
$
22.91
 
 
2,253
 
 
189,357
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
37,349
 
$
22.35
 
 
37,349
 
 
189,357
 
 __________________________
(1)  On November 16, 2012, the Company announced that its Board of Directors authorized a stock repurchase program to acquire up to 230,217 shares, or 10.0% of the Company’s outstanding common stock.  Under the program, repurchases are to be conducted through open market purchases or privately negotiated transactions, and are to be made from time to time depending on market conditions and other factors. There is no guarantee as to the exact number of shares to be repurchased by the Company. Repurchased shares will be held in treasury.
 
Item 3.           Defaults upon Senior Securities
 
Not applicable.
 
Item 4.           Mine Safety Disclosures
 
Not applicable.
 
 
-56-

 
FIRST SAVINGS FINANCIAL GROUP, INC.
PART II
 
OTHER INFORMATION
 
Item 5.
Other Information
 
None.
 
Item 6.
Exhibits
 
 
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
 
 
 
 
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
 
 
 
 
32.1
Section 1350 Certification of Chief Executive Officer
 
 
 
 
32.2
Section 1350 Certification of Chief Financial Officer
 
 
 
 
101*
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language):  (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) related notes
____________________
* Furnished, not filed.
 
 
-57-

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
FIRST SAVINGS FINANCIAL GROUP, INC.
 
(Registrant)
 
 
 
Dated  February 14, 2014
BY:
/s/ Larry W. Myers
 
 
Larry W. Myers
 
 
President and Chief Executive Officer
 
 
 
Dated  February 14, 2014
BY:
/s/ Anthony A. Schoen
 
 
Anthony A. Schoen
 
 
Chief Financial Officer
 
 
-58-