FINANCIAL GROUP INC.
2 0 1 4 A N N U A L R E P O R T
Dear Shareholders,
For the fifth consecutive year since our initial public offering in fiscal 2009, First Savings
Financial Group, Inc. (“FSFG”) has delivered improved net income, increased earnings per share, and
growth in loans and total assets. In 2014, net income available to common shareholders reached $5.22
million, an increase of 15.3% from the prior year. This resulted in $2.34 earnings per share, diluted, as
compared to $1.99 for 2013, a 17.6% increase. The improvement in earnings was driven primarily by
solid loan growth, improved asset quality and an increase in lower-cost core deposits. Improvements in
asset quality during 2014 included classified assets to total risk-based capital decreasing to 25.4%, non-
performing assets to total assets decreasing to 1.79%, and net charge-offs to average loans decreasing by
18 basis points to 0.12%. Despite the improved asset quality and a 6.76% increase in gross loans, we
continued to build our loan loss reserves to 1.42% of total loans for 2014, up from 1.34%. We will
continue to be conservative in our credit and lending practices, in our belief that such is the optimal
approach to maintaining and improving long-term shareholder value.
In 2014, we undertook an initiative to improve overall efficiencies, enhance customer service and
increase net income. Numerous changes have been implemented in order to streamline workflows, realign
resources and reduce staffing levels where appropriate. As a result of these efforts, we have been able to
reduce our full-time equivalent employees by twelve, or 7.0%, and expect additional progress in 2015.
We also anticipate enhancements to noninterest income during 2015 as a result of this 2014 initiative.
We continued to opportunistically repurchase FSFG common stock and retired a net of 127,842
common shares to treasury during 2014, which resulted in total treasury shares of 370,230, or 14.6% of
the original number of common shares issued in our initial public offering. During the second calendar
quarter of 2014, we increased our quarterly dividend by 10%, to $0.11 per common share, and paid cash
dividends of $0.43 per common share to shareholders during fiscal 2014. This consistent performance and
focus on shareholder value has resulted in FSFG’s common share price increasing for the sixth
consecutive year, including a 10.9% increase during fiscal 2014 and a 149.6% increase since FSFG’s
initial public offering in October 2008. We are hopeful that our consistently strong financial performance
will continue to reward our shareholders with increasing market value.
The annual shareholders meeting of First Savings Financial Group, Inc. will be held on February
24, 2015 at 2:00 p.m. at the Sheraton Riverside Hotel in Jeffersonville, Indiana. I personally invite you to
attend this meeting in order to learn more about our organization and provide you the opportunity to meet
our outstanding staff and directors. I look forward to seeing you there.
Sincerely,
Larry W. Myers
President & Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2014
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 Number: 1-34155
FIRST SAVINGS FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of
incorporation or organization)
37-1567871
(I.R.S. Employer Identification No.)
501 East Lewis & Clark Parkway, Clarksville, Indiana
(Address of principal executive offices)
47129
(Zip Code)
Registrant’s telephone number, including area code: (812) 283-0724
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Name of each exchange on which registered
NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ___ No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes ___ No X
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
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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 by Rule 12b-2 of the
Exchange Act). Yes ___ No X
The aggregate market value of the voting and non-voting common equity held by nonaffiliates was $47.1
million, based upon the closing price of $23.48 per share as quoted on the NASDAQ Stock Market as of the last
business day of the registrant’s most recently completed second fiscal quarter ended March 31, 2014.
The number of shares outstanding of the registrant’s common stock as of December 12, 2014 was
2,175,993.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2015 Annual Meeting of Stockholders are incorporated by reference
in Part III of this Form 10-K.
INDEX
Part I
Page
Item 1.
Business ............................................................................................................................................ 1
Item 1A.
Risk Factors ....................................................................................................................................... 19
Item 1B.
Unresolved Staff Comments ............................................................................................................. 25
Item 2.
Properties .......................................................................................................................................... 26
Item 3.
Legal Proceedings ............................................................................................................................. 27
Item 4.
Mine Safety Disclosures.................................................................................................................... 27
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ......................................................................................................... 28
Item 6.
Selected Financial Data ....................................................................................................................... 30
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .............. 32
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ............................................................ 59
Item 8.
Financial Statements and Supplementary Data ................................................................................... 59
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ............ 59
Item 9A.
Controls and Procedures ..................................................................................................................... 60
Item 9B.
Other Information ................................................................................................................................ 60
Part III
Item 10.
Directors, Executive Officers and Corporate Governance .................................................................. 61
Item 11.
Executive Compensation ..................................................................................................................... 61
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ......................................................................................................................... 62
Item 13.
Certain Relationships and Related Transactions, and Director Independence .................................... 62
Item 14.
Principal Accounting Fees and Services ............................................................................................. 62
Item 15.
Exhibits and Financial Statement Schedules ....................................................................................... 63
Part IV
SIGNATURES
This annual report contains forward-looking statements that are based on assumptions and may describe
future plans, strategies and expectations of First Savings Financial Group, Inc. These forward-looking statements
are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or
similar expressions. First Savings Financial Group’s ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of First
Savings Financial Group and its subsidiary include, but are not limited to, changes in interest rates, national and
regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S.
government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of
the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial
services in First Savings Financial Group’s market area, changes in real estate market values in First Savings
Financial Group’s market area, changes in relevant accounting principles and guidelines and inability of third
party service providers to perform. Additional factors that may affect our results are discussed in Item 1A to this
Annual Report on Form 10-K titled “Risk Factors” below.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements. Except as required by applicable law or regulation, First Savings
Financial Group does not undertake, and specifically disclaims any obligation, to release publicly the result of any
revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the
statements or to reflect the occurrence of anticipated or unanticipated events.
Unless the context indicates otherwise, all references in this annual report to “First Savings Financial
Group,” “Company,” “we,” “us” and “our” refer to First Savings Financial Group and its subsidiaries.
PART I
Item 1.
BUSINESS
General
First Savings Financial Group, Inc., an Indiana corporation, was incorporated in May 2008 to serve as the
holding company for First Savings Bank, F.S.B. (the “Bank” or “First Savings Bank”), a federally-chartered savings
bank. On October 6, 2008, in accordance with a Plan of Conversion adopted by its Board of Directors and approved
by its members, the Bank converted from a mutual savings bank to a stock savings bank and became the wholly-
owned subsidiary of First Savings Financial Group. In connection with the conversion, the Company issued an
aggregate of 2,542,042 shares of common stock at an offering price of $10.00 per share. In addition, in connection
with the conversion, First Savings Charitable Foundation was formed, to which the Company contributed 110,000
shares of common stock and $100,000 in cash. The Company’s common stock began trading on the NASDAQ
Capital Market on October 7, 2008 under the symbol “FSFG”.
In accordance with the Plan of Charter Conversion adopted by the Board of Directors of First
Savings Bank on May 21, 2014, First Savings Bank will operate as an Indiana-charted commercial bank and
become a member the Federal Reserve System following its conversion from a federally-chartered savings
bank effective December 19, 2014. As a result of the Bank’s charter conversion, First Savings Financial
Group will convert to a bank holding company and simultaneously elect financial holding company status
effective December 19, 2014. See Note 26 of the Notes to Consolidated Financial Statements beginning of page F-
1 of this annual report for additional information regarding the charter conversions.
First Savings Financial Group’s principal business activity is the ownership of the outstanding common
stock of First Savings Bank. First Savings Financial Group does not own or lease any property but instead uses the
premises, equipment and other property of First Savings Bank with the payment of appropriate rental fees, as
required by applicable law and regulations, under the terms of an expense allocation agreement. Accordingly, the
information set forth in this annual report including the consolidated financial statements and related financial data
contained herein, relates primarily to the Bank.
2
First Savings Bank operates as a community-oriented financial institution offering traditional financial
services to consumers and businesses in its primary market area. We attract deposits from the general public and
use those funds to originate primarily residential and commercial mortgage loans. We also originate commercial
business loans, residential and commercial construction loans, multi-family loans, land and land development loans,
and consumer loans. We conduct our lending and deposit activities primarily with individuals and small businesses
in our primary market area.
On September 30, 2009, First Savings Bank acquired Community First Bank (“Community First”), an
Indiana-chartered commercial bank. The acquisition expanded First Savings Bank’s presence into Harrison,
Crawford and Washington Counties in Indiana.
On July 6, 2012 First Savings Bank acquired the four Indiana branches of First Federal Savings Bank of
Elizabethtown, Inc. (“First Federal”), a Kentucky-chartered commercial bank, two of which were consolidated into
the existing operations of First Savings Bank immediately subsequent to the acquisition. The acquisition enhanced
First Savings Bank’s presence in Harrison and Floyd Counties in Indiana.
Our website address is www.fsbbank.net. Information on our website should not be considered a part of
this annual report.
Market Area
We are located in South Central Indiana along the axis of Interstate 65 and Interstate 64, directly across the
Ohio River from Louisville, Kentucky. We consider Clark, Floyd, Harrison, Crawford and Washington counties,
Indiana, in which all of our offices are located, and the surrounding areas to be our primary market area. The
current top employment sectors in these counties are the private retail, service and manufacturing industries, which
are likely to continue to be supported by the projected growth in population and median household income. These
counties are well-served by barge transportation, rail service, and commercial and general aviation services,
including the United Parcel Service’s major hub, which are located in our primary market area.
Competition
We face significant competition for the attraction of deposits and origination of loans. Our most direct
competition for deposits has historically come from the several financial institutions operating in our primary market
area and from other financial service companies such as securities and mortgage brokerage firms, credit unions and
insurance companies. We also face competition for investors’ funds from money market funds, mutual funds and
other corporate and government securities. At June 30, 2014, which is the most recent date for which data is
available from the Federal Deposit Insurance Corporation, we held approximately 12.41%, 3.01%, 33.99%, 80.83%
and 10.25% of the FDIC-insured deposits in Clark, Floyd, Harrison, Crawford and Washington Counties, Indiana,
respectively. This data does not reflect deposits held by credit unions with which we also compete. In addition,
banks owned by large national and regional holding companies and other community-based banks also operate in
our primary market area. Some of these institutions are larger than us and, therefore, may have greater resources.
Our competition for loans comes primarily from financial institutions in our primary market area and from
other financial service providers, such as mortgage companies, mortgage brokers and credit unions. Competition for
loans also comes from non-depository financial service companies entering the mortgage market, such as insurance
companies, securities companies, and specialty and captive finance companies.
We expect competition to increase in the future as a result of legislative, regulatory and technological
changes and the continuing trend of consolidation in the financial services industry. Technological advances, for
example, have lowered barriers to entry, allowing banks to expand their geographic reach by providing services over
the Internet, and made it possible for non-depository institutions to offer products and services that traditionally have
been provided by banks. Changes in federal law now permit affiliation among banks, securities firms and insurance
companies, which promotes a competitive environment in the financial services industry. Competition for deposits
and the origination of loans could limit our growth in the future.
3
Lending Activities
The Bank is in the process of transforming the composition of its balance sheet from that of a traditional
thrift institution to that of a commercial bank. We intend to continue to emphasize residential lending, primarily
secured by owner-occupied properties, but also to continue concentrating on ways to expand our consumer/retail
banking capabilities and our commercial banking services with a focus on serving small businesses and emphasizing
relationship banking in our primary market area.
The largest segment of our loan portfolio is real estate mortgage loans, primarily one- to four-family
residential loans, including non-owner occupied residential loans that were predominately originated before 2005,
and, to a lesser but growing extent, commercial real estate, multi-family real estate and commercial business loans.
We also originate residential and commercial construction loans, land and land development loans, and consumer
loans. We generally originate loans for investment purposes, although, depending on the interest rate environment
and our asset/liability management goals, we may sell into the secondary market the 25-year and 30-year fixed-rate
residential mortgage loans that we originate. We do not offer, have not offered and have not purchased or acquired
Alt-A, sub-prime or no-documentation loans.
One- to Four-Family Residential Loans. Our origination of residential mortgage loans enables borrowers
to purchase or refinance existing homes located in Clark, Floyd, Harrison, Crawford and Washington Counties,
Indiana, and the surrounding areas. A significant portion of the residential mortgage loans that we had originated
before 2005 are secured by non-owner occupied properties. Loans secured by non-owner occupied properties
generally carry a greater risk of loss than loans secured by owner-occupied properties, and our non-performing loan
balances have increased in recent periods primarily because of delinquencies in our non-owner occupied residential
loan portfolio. See “Item 1A. Risk Factors – Risks Related to Our Business – Our concentration in non-owner
occupied real estate loans may expose us to increased credit risk” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Risk Management – Analysis of Nonperforming and Classified
Assets.” Since 2005, we have de-emphasized non-owner occupied residential mortgage lending and have focused,
and intend to continue to focus, our residential mortgage lending primarily on originating residential mortgage loans
secured by owner-occupied properties.
Our residential lending policies and procedures conform to the secondary market guidelines. We generally
offer a mix of adjustable-rate mortgage loans and fixed-rate mortgage loans with terms of 10 to 30 years. Borrower
demand for adjustable-rate loans compared to fixed-rate loans is a function of the level of interest rates, the
expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees
offered for fixed-rate mortgage loans as compared to an initially discounted interest rate and loan fees for multi-year
adjustable-rate mortgages. The relative amount of fixed-rate mortgage loans and adjustable-rate mortgage loans that
can be originated at any time is largely determined by the demand for each in a competitive environment. The loan
fees, interest rates and other provisions of mortgage loans are determined by us based on our own pricing criteria
and competitive market conditions.
Interest rates and payments on our adjustable-rate mortgage loans generally adjust annually after an initial
fixed period that typically ranges from one to five years. Interest rates and payments on our adjustable-rate loans
generally are adjusted to a rate typically equal to a margin above the one year U.S. Treasury index. The maximum
amount by which the interest rate may be increased or decreased is generally one percentage point per adjustment
period and the lifetime interest rate cap is generally six percentage points over the initial interest rate of the loan.
However, a portion of the adjustable-rate mortgage loan portfolio has a maximum amount by which the interest rate
may be increased or decreased of two percentage points per adjustment period and a lifetime interest rate cap
generally of six percentage points over the initial interest rate of the loan.
While one- to four-family residential real estate loans are normally originated with up to 30-year terms,
such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans
in full either upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average
loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market,
prevailing interest rates and the interest rates payable on outstanding loans on a regular basis. We do not offer loans
with negative amortization and generally do not offer interest-only loans.
4
We generally do not make conventional loans with loan-to-value ratios exceeding 80%, including that for
non-owner occupied residential real estate loans whose loan-to-value ratios generally may not exceed 75%, or 65%
where the borrower has more than five non-owner occupied loans outstanding. Non-owner occupied loans
originated before 2005, however, were generally originated with loan-to-value ratios up to 80%. Loans with loan-
to-value ratios in excess of 80% generally require private mortgage insurance. However, the total balance of
residential mortgage loans secured by one-to-four family residential properties with loan-to-value ratios
exceeding 90% amounted to $12.8 million, of which some do not have private mortgage insurance or
government guaranty. We generally require all properties securing mortgage loans to be appraised by a board-
approved independent appraiser. We also generally require title insurance on all first mortgage loans with principal
balances of $250,000 or more. Borrowers must obtain hazard insurance, and flood insurance is required for all loans
located in flood hazard areas.
At September 30, 2014, our largest one- to four-family residential loan had an outstanding balance of $1.4
million. This loan, which was originated in February 2014 and is secured by a multiple new-construction, non-
owner occupied properties, was performing in accordance with its original terms at September 30, 2014.
Commercial Real Estate Loans. We offer fixed- and adjustable-rate mortgage loans secured by
commercial real estate. Our commercial real estate loans are generally secured by small to moderately-sized office,
retail and industrial properties located in our primary market area and are typically made to small business owners
and professionals such as attorneys and accountants.
We originate fixed-rate commercial real estate loans, generally with terms up to five years and payments
based on an amortization schedule of 15 to 20 years, resulting in “balloon” balances at maturity. We also offer
adjustable-rate commercial real estate loans, generally with terms up to five years and with interest rates typically
equal to a margin above the prime lending rate or the London Interbank Offered Rate (LIBOR). Loans are secured
by first mortgages, generally are originated with a maximum loan-to-value ratio of 80% and often require specified
debt service coverage ratios depending on the characteristics of the project. Rates and other terms on such loans
generally depend on our assessment of credit risk after considering such factors as the borrower’s financial condition
and credit history, loan-to-value ratio, debt service coverage ratio and other factors.
During 2013, we began a commercial real estate lending program 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 terms of the loans are generally consistent with the aforementioned terms of in-market
commercial real estate loans; however, these cannot exceed 70% loan-to-value and loan maturities cannot exceed
the expiration of the underlying leases. In addition, the Company has established guidelines with respect to
concentrations by state, lessee and industry of lessees as a percent of the overall loan portfolio, and as a percent of
capital. The average size of these loans originated was $1.1 million and the portfolio balance was $37.6 million at
September 30, 2014. Our largest such loan, which was originated in August 2014 and secured by a single-tenant
commercial retail building, had an outstanding balance of $2.5 million at September 30, 2014 and was performing in
accordance with its original terms at September 30, 2014.
At September 30, 2014, our largest commercial real estate loan had an outstanding balance of $4.3 million.
This loan, which was originated in December 2012 and is secured by a retail shopping center, was performing in
accordance with its original terms at September 30, 2014.
Construction Loans. We originate construction loans for one-to four-family homes and, to a lesser extent,
commercial properties such as small industrial buildings, warehouses, retail shops and office units. Construction
loans are typically for a term of 12 months with monthly interest only payments. Except for speculative loans,
discussed below, repayment of construction loans typically comes from the proceeds of a permanent mortgage loan
for which a commitment is typically in place when the construction loan is originated. We originate construction
loans to a limited group of well-established builders in our primary market area and we limit the number of projects
with each builder. Interest rates on these loans are generally tied to the prime lending rate. Construction loans,
other than land development loans, generally will not exceed the lesser of 80% of the appraised value or 90% of the
direct costs, excluding items such as developer fees, operating deficits or other items that do not relate to the direct
development of the project. Generally, commercial construction loans require the personal guarantee of the owners
of the business. We also offer construction loans for the financing of pre-sold homes, which convert into permanent
5
loans at the end of the construction period. Such loans generally have a six-month construction period with interest
only payments due monthly, followed by an automatic conversion to a 15-year to 30-year permanent loan with
monthly payments of principal and interest. Occasionally, a construction loan to a builder of a speculative home
will be converted to a permanent loan if the builder has not secured a buyer within a limited period of time after the
completion of the home. We generally disburse funds on a percentage-of-completion basis following an inspection
by a third party inspector.
We also originate speculative construction loans to builders who have not identified a buyer or lessee for
the completed property at the time of origination. At September 30, 2014, we had approved commitments for
speculative construction loans of $4.8 million, of which $3.4 million was outstanding. We require a maximum loan-
to-value ratio of 80% for speculative construction loans. At September 30, 2014, our largest construction loan
relationship was for a commitment of $2.0 million, of which $2.0 million was outstanding. This loan, which was
originated in February 2014 and is secured by a hotel, was performing in accordance with its original terms at
September 30, 2014.
Land and Land Development Loans. On a limited basis, we originate loans to developers for the purpose
of developing vacant land in our primary market area, typically for residential subdivisions. Land development
loans are generally interest-only loans for a term of 18 to 24 months. We generally require a maximum loan-to-
value ratio of 75% of the appraisal market value upon completion of the project. We generally do not require any
cash equity from the borrower if there is sufficient indicated equity in the collateral property. Development plats
and cost verification documents are required from borrowers before approving and closing the loan. Our loan
officers are required to personally visit the proposed development site and the sites of competing developments. We
also originate loans to individuals secured by undeveloped land held for investment purposes. At September 30,
2014, our largest land development loan had an outstanding balance of $1.2 million. This loan, which was
originated in June 2013, was performing in accordance with its original terms at September 30, 2014.
Multi-Family Real Estate Loans. We offer multi-family mortgage loans that are generally secured by
properties in our primary market area. Multi-family loans are secured by first mortgages and generally are
originated with a maximum loan-to-value ratio of 80% and generally require specified debt service coverage ratios
depending on the characteristics of the project. Rates and other terms on such loans generally depend on our
assessment of the credit risk after considering such factors as the borrower’s financial condition and credit history,
loan-to-value ratio, debt service coverage ratio and other factors. At September 30, 2014, our largest multi-family
mortgage loan had an outstanding balance of $2.3 million. This loan, which was originated in August 2010, was
performing in accordance with its original terms at September 30, 2014.
Consumer Loans. Although we offer a variety of consumer loans, our consumer loan portfolio consists
primarily of home equity loans, both fixed-rate amortizing term loans with terms up to 15 years and adjustable rate
lines of credit with interest rates equal to a margin above the prime lending rate. Consumer loans typically have
shorter maturities and higher interest rates than traditional one-to four-family lending. We typically do not make
home equity loans with loan-to-value ratios exceeding 90%, including any first mortgage loan balance. We also
offer auto and truck loans, personal loans and small boat loans. The procedures for underwriting consumer loans
include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and
payments on the proposed loan. Although the applicant’s creditworthiness is a primary consideration, the
underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.
At September 30, 2014, our largest consumer loan was a home equity line of credit with a commitment of $500,000,
of which $288,000 was outstanding. This loan, which was originated in November 2004 and is secured by a first
mortgage on a personal residence, was performing in accordance with its original terms at September 30, 2014.
Commercial Business Loans. We typically offer commercial business loans to small businesses located in
our primary market area. Commercial business loans are generally secured by equipment and general business
assets. Key loan terms and covenants vary depending on the collateral, the borrower’s financial condition, credit
history and other relevant factors, and personal guarantees are typically required as part of the loan commitment. At
September 30, 2014, our largest commercial business loan was for a commitment of $5.0 million, of which $5.0
million was outstanding. This loan, which was originated in July 2008 and most recently renewed in January 2014
and is secured by contract assignments and accounts receivable, was performing in accordance with its original
terms at September 30, 2014.
6
Loan Underwriting Risks
Adjustable-Rate Loans. While we anticipate that adjustable-rate loans will better offset the adverse effects
of an increase in interest rates as compared to fixed-rate mortgages, an increased monthly mortgage payment
required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in
delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high
interest rate environment. In addition, although adjustable-rate mortgage loans make our asset base more responsive
to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate
adjustment limits.
Non-Owner Occupied Residential Real Estate Loans. Loans secured by rental properties represent a
unique credit risk to us and, as a result, we adhere to special underwriting guidelines. Of primary concern in non-
owner occupied real estate lending is the consistency of rental income of the property. Payments on loans secured
by rental properties often depend on the maintenance of the property and the payment of rent by its tenants.
Payments on loans secured by rental properties often depend on successful operation and management of the
properties. As a result, repayment of such loans may be subject to adverse conditions in the real estate market or the
economy. To monitor cash flows on rental properties, we require borrowers and loan guarantors, if any, to provide
annual financial statements and we consider and review a rental income cash flow analysis of the borrower and
consider the net operating income of the property, the borrower’s expertise, credit history and profitability, and the
value of the underlying property. We generally require collateral on these loans to be a first mortgage along with an
assignment of rents and leases. Until recently, if the borrower had multiple loans for rental properties with us, the
loans were not cross-collateralized. If the borrower holds loans on more than four rental properties, a loan officer or
collection officer is generally required to inspect these properties annually to determine if they are being properly
maintained and rented. We have generally limited these loan relationships to an aggregate total of $500,000.
Multi-Family and Commercial Real Estate Loans. Loans secured by multi-family and commercial real
estate generally have larger balances and involve a greater degree of risk than one- to four-family residential
mortgage loans. Of primary concern in multi-family and commercial real estate lending is the borrower’s
creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income
properties often depend on successful operation and management of the properties. As a result, repayment of such
loans may be subject to adverse conditions in the real estate market or the economy. To monitor cash flows on
income properties, we require borrowers and loan guarantors, if any, to provide annual financial statements on
multi-family and commercial real estate loans. In addition, some loans may contain covenants regarding ongoing
cash flow coverage requirements. In reaching a decision on whether to make a multi-family or commercial real
estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating
income of the property, the borrower’s expertise, credit history and profitability, and the value of the underlying
property. An environmental survey or environmental risk insurance is obtained when the possibility exists that
hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that
handled hazardous materials.
Construction and Land and Land Development Loans. Construction financing is generally considered to
involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a
construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of
construction and the estimated cost of construction. During the construction phase, a number of factors could result
in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to
advance funds beyond the amount originally committed to permit completion of the building. If the estimate of
value proves to be inaccurate, we may be confronted, at or before the maturity of the loan, with a building having a
value which is insufficient to assure full repayment if liquidation is required. If we are forced to foreclose on a
building before or at completion due to a default, we may be unable to recover all of the unpaid balance of, and
accrued interest on, the loan as well as related foreclosure and holding costs. In addition, speculative construction
loans, which are loans made to home builders who, at the time of loan origination, have not yet secured an end buyer
for the home under construction, typically carry higher risks than those associated with traditional construction
loans. These increased risks arise because of the risk that there will be inadequate demand to ensure the sale of the
property within an acceptable time. As a result, in addition to the risks associated with traditional construction
loans, speculative construction loans carry the added risk that the builder will have to pay the property taxes and
other carrying costs of the property until an end buyer is found. Land and land development loans have substantially
similar risks to speculative construction loans.
7
Consumer Loans. Consumer loans may entail greater risk than do residential mortgage loans, particularly
in the case of consumer loans that are secured by assets that depreciate rapidly, such as motor vehicles and boats. In
such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment
for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection
efforts against the borrower. In the case of home equity loans, real estate values may be reduced to a level that is
insufficient to cover the outstanding loan balance after accounting for the first mortgage loan balance. Consumer
loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely
affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application
of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount
that can be recovered on such loans.
Commercial Business Loans. Unlike residential mortgage loans, which generally are made on the basis of
the borrower’s ability to make repayment from his or her employment income or other income, and which are
secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher
risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the
borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may
depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate
over time, may be difficult to appraise and may fluctuate in value.
Loan Originations, Sales and Purchases. Loan originations come from a number of sources. The primary
sources of loan originations are existing customers, walk-in traffic, advertising and referrals from customers. We
generally sell in the secondary market long-term fixed-rate residential mortgage loans that we originate. We have
not historically sold whole loans, other than long-term fixed-rate residential mortgage loans in the secondary market,
or participation interests in loans; however, we have increasingly sold participation interests in commercial real
estate and commercial business loans since 2011. At September 30, 2014, $24.6 million of loans included sold
participation interests of $11.3 million, for a net position of $13.3 million outstanding in our portfolio.
We have not historically purchased whole loans or participation interests in order to supplement our
lending portfolio; however, we acquired four brokered whole loans during the year ended September 30, 2012. The
loans were purchased at an average of 0.90% of their principal balance and are secured by multi-family and retail
shopping centers located in Indiana. At September 30, 2014, three of these loans remained outstanding with a total
principal balance of $4.3 million and were performing in accordance with their original terms.
In addition, we have acquired participation interests of loans in four lending relationships in recent years.
At September 30, 2014, we had participation interests of loans totaling $6.0 million and our largest participation
interest with a single borrower was $2.2 million. This loan, which was originated in June 2011 and is secured by a
local county hospital facility, was performing in accordance with its original terms at September 30, 2014.
We may sell participation interests in loans originated by us or purchase participation interests in loans
originated by other financial institutions from time to time depending on various factors. Our decision to sell or
purchase loans is based on prevailing market interest rate conditions, interest rate management, regulatory lending
restrictions and liquidity needs.
Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory
underwriting standards and loan origination procedures established by our Board of Directors and management.
Certain of our employees have been granted individual lending limits, which vary depending on the individual, the
type of loan and whether the loan is secured or unsecured. Generally, all loan requests for lending relationships that
exceed the individual officer lending limits, which is generally $250,000 secured or $50,000 unsecured, require
committee or Board of Directors approval. Loans resulting in aggregated lending relationships in excess of
$250,000 secured and $50,000 unsecured but less than $1.0 million require approval by the Officer Loan Committee
and loans resulting in aggregated lending relationships in excess of $1.0 million but less than $2.5 million require
approval of the Executive Loan Committee. The Executive Loan Committee consists of the President, Area
President, Chief Operations Officer, Chief of Credit Administration, Senior Lending Officer and VP of Commercial
Lending and the Officer Loan Committee consists of the same but also includes certain other officers designated by
the Board of Directors. Loans resulting in aggregated lending relationships in excess of $2.5 million require
approval by both the Executive Loan Committee and the Board of Directors.
8
Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s
related entities is limited, by regulation, to generally 15% of our stated capital and reserves. At September 30, 2014,
our regulatory limit on loans to one borrower was $10.3 million. At that date, our largest lending relationship was
for a commitment of $7.7 million, of which $6.1 million was outstanding, and was performing according to its
original terms at that date. This loan relationship is secured by various commercial real estate properties and land
intended for future development.
Loan Commitments. We issue commitments for residential and commercial mortgage loans conditioned
upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to
lend to our customers. Generally, our loan commitments expire after 30 days. See Note 18 of the Notes to
Consolidated Financial Statements beginning on page F-1 of this annual report.
Investment Activities
We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations,
securities of various U.S. government agencies and sponsored enterprises and of state and municipal governments,
mortgage-backed securities, collateralized mortgage obligations and certificates of deposit of federally insured
institutions. Within certain regulatory limits, we also may invest a portion of our assets in other permissible
securities. As a member of the Federal Home Loan Bank of Indianapolis, we also are required to maintain an
investment in Federal Home Loan Bank of Indianapolis stock.
At September 30, 2014, our investment portfolio consisted primarily of U.S. government agency and
sponsored enterprises securities, mortgage backed securities and collateralized mortgage obligations issued by U.S.
government agencies and sponsored enterprises, municipal securities, SBA certificates and privately-issued
collateralized mortgage obligations and asset-backed securities. We have invested $5.0 million in a managed
brokerage account that invests in small and medium lot, investment grade municipal bonds and these
securities are classified as trading account securities. The brokerage account is managed by an investment
advisory firm registered with the U.S. Securities and Exchange Commission. At September 30, 2014, trading
account securities recorded at fair value totaled $5.3 million, comprised of investment grade municipal bonds.
Our investment objectives are to provide and maintain liquidity, to establish an acceptable level of interest
rate and credit risk, and to provide an alternate source of low-risk investments at a favorable return when loan
demand is weak. Our Board of Directors has the overall responsibility for the investment portfolio, including
approval of the investment policy. Messrs. Myers, our President and Chief Executive Officer, and Schoen, our
Chief Financial Officer, are responsible for implementation of the investment policy and monitoring our investment
performance. Our Board of Directors reviews the status of our investment portfolio on a quarterly basis, or more
frequently if warranted.
Deposit Activities and Other Sources of Funds
General. Deposits, borrowings, and loan and investment security repayments are the major sources of our
funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds,
while deposit inflows and outflows, loan prepayments and investment security calls are significantly influenced by
general interest rates and money market conditions.
Deposit Accounts. Deposits are attracted from within our primary market area through the offering of a
broad selection of deposit instruments, including non-interest-bearing demand deposits (such as checking accounts),
interest-bearing demand accounts (such as NOW and money market accounts), regular savings accounts and
certificates of deposit. Deposit account terms vary according to the minimum balance required, the time periods the
funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit
accounts, we consider the rates offered by our competition, our liquidity needs, profitability to us, matching deposit
and loan products and customer preferences and concerns. We generally review our deposit mix and pricing
weekly. Our deposit pricing strategy has typically been to offer competitive rates on all types of deposit products,
and to periodically offer special rates in order to attract deposits of a specific type or term.
9
Borrowings. We use advances from the Federal Home Loan Bank of Indianapolis to supplement our
investable funds. The Federal Home Loan Bank functions as a central reserve bank providing credit for member
financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank of
Indianapolis and are authorized to apply for advances on the security of such stock and certain of our mortgage loans
and other assets (principally securities which are obligations of the United States, U.S. government agencies or U.S.
government-sponsored enterprises), provided certain standards related to creditworthiness have been met. Advances
are made under several different programs, each having its own interest rate and range of maturities. Depending on
the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net
worth or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness. We have a federal
funds purchased line of credit facility with another financial institution that is subject to continued borrower
eligibility and is intended to support short-term liquidity needs. We also utilize retail repurchase agreements as
sources of borrowings and may use brokered certificates of deposits and broker repurchase agreements from time to
time depending on our liquidity needs and pricing of these facilities versus other funding alternatives.
Personnel
As of September 30, 2014, we had 148 full-time employees and 20 part-time employees, none of whom is
represented by a collective bargaining unit. We believe our relationship with our employees is good.
Subsidiaries
The Company has two wholly-owned subsidiaries, First Savings Bank and First Savings Insurance Risk
Management, Inc. The Bank has three subsidiaries, Southern Indiana Financial Corporation and FFCC, Inc., both of
which are organized as Indiana corporations, and First Savings Investments, Inc., a Nevada corporation. Southern
Indiana Financial Corporation is an independent insurance agency, offering various types of annuities and life
insurance policies, but is currently inactive. FFCC, Inc. participates in the development and leasing of commercial
real estate. First Savings Investments, Inc. holds and manages an investment securities portfolio. First Savings
Insurance Risk Management, Inc., an insurance subsidiary of the Company formed during the fourth fiscal
quarter of 2014, is a Nevada corporation that provides property and casualty insurance to the Company, the
Bank and the Bank’s active subsidiaries. In addition, the Captive provides reinsurance to seven other third-
party insurance captives for which insurance may not be currently available or economically feasible in the
insurance marketplace.
REGULATION AND SUPERVISION
General
First Savings Bank, as a federal savings association, is currently subject to extensive regulation,
examination and supervision by the Office of the Comptroller of the Currency, as its primary federal regulator, and
by the Federal Deposit Insurance Corporation as the insurer of its deposits. First Savings Bank is a member of the
Federal Home Loan Bank System and its deposit accounts are insured up to applicable limits by the Deposit
Insurance Fund of the Federal Deposit Insurance Corporation. First Savings Bank must file reports with the Office
of the Comptroller of the Currency concerning its activities and financial condition in addition to obtaining
regulatory approvals before entering into certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the Office of the Comptroller of the Currency to evaluate First
Savings Bank’s safety and soundness and compliance with various regulatory requirements. This regulatory
structure is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities
and examination policies, including policies with respect to the classification of assets and the establishment of an
adequate allowance for loan losses for regulatory purposes. Any change in such policies, whether by the Office of
the Comptroller of the Currency, the Federal Deposit Insurance Corporation or Congress, could have a material
adverse impact on First Savings Financial Group and First Savings Bank and their operations.
10
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) made
extensive changes to the regulation of First Savings Bank. Under the Dodd-Frank Act, the Office of Thrift
Supervision was eliminated and responsibility for the supervision and regulation of federal savings associations such
as First Savings Bank was transferred to the Office of the Comptroller of the Currency on July 21, 2011. The Office
of the Comptroller of the Currency is the agency that is primarily responsible for the regulation and supervision of
national banks. Additionally, the Dodd-Frank Act created a new Consumer Financial Protection Bureau as an
independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau assumed
responsibility for the implementation of the federal financial consumer protection and fair lending laws and
regulations and has authority to impose new requirements. However, institutions of less than $10 billion in assets,
such as First Savings Bank, will continue to be examined for compliance with consumer protection and fair lending
laws and regulations by, and be subject to the enforcement authority of, their prudential regulators.
Certain of the regulatory requirements that are or will be applicable to First Savings Bank and First Savings
Financial Group are described below. This description of statutes and regulations is not intended to be a complete
explanation of such statutes and regulations and their effects on First Savings Bank and First Savings Financial
Group.
Federal Banking Regulation
Business Activities. The activities of federal savings banks, such as First Savings Bank, are governed by
federal laws and regulations. Those laws and regulations delineate the nature and extent of the business activities in
which federal savings banks may engage. In particular, certain lending authority for federal savings banks, e.g.,
commercial, non-residential real property loans and consumer loans, is limited to a specified percentage of the
institution’s capital or assets.
Capital Requirements. The applicable capital regulations require savings associations to meet three
minimum capital standards: a 1.5% tangible capital to total assets ratio, a 4% Tier 1 capital to total assets leverage
ratio (3% for institutions receiving the highest rating on the CAMELS examination rating system) and an 8% risk-
based capital ratio. In addition, the prompt corrective action standards discussed below also establish, in effect, a
minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest rating on the
CAMELS system) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard.
The regulations also require that, in meeting the tangible, leverage and risk- based capital standards, institutions
must generally deduct investments in and loans to subsidiaries engaged in activities as principal that are not
permissible for a national bank.
The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total
capital (which is defined as core capital and supplementary capital less certain specified deductions from total
capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-
weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet activities, recourse obligations, residual interests and direct credit substitutes, are
multiplied by a risk-weight factor of 0% to 100%, assigned by the capital regulation based on the risks believed
inherent in the type of asset. Tier 1 (core) capital is generally defined as common stockholders’ equity (including
retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in
equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit
card relationships. The components of supplementary capital (Tier 2 capital) include cumulative preferred stock,
long-term perpetual preferred stock, mandatory convertible debt securities, subordinated debt and intermediate
preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and
up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values.
Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.
The Office of the Comptroller of the Currency also has authority to establish individual minimum capital
requirements in appropriate cases upon a determination that an institution’s capital level is or may become
inadequate in light of the particular risks or circumstances. At September 30, 2014, First Savings Bank met each of
its capital requirements.
11
Basel III. On July 9, 2013, the federal bank regulatory agencies issued a final rule that will revise their
risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with
agreements that were reached by the Basel Committee on Banking Supervision (“Basel III”) and certain provisions
of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies with
total consolidated assets of $500 million or more and top-tier savings and loan holding companies.
The rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted
assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted
assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on
nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or
construction of real property.
The rule also includes changes in what constitutes regulatory capital, some of which are subject to a
transition period. These changes include the phasing-out of certain instruments as qualifying capital. In addition,
Tier 2 capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights,
certain deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of common
stock will be required to be deducted from capital, subject to a transition period. Finally, common equity Tier 1
capital will include accumulated other comprehensive income (which includes all unrealized gains and losses on
available for sale debt and equity securities), subject to a transition period and a one-time opt-out election.
The new capital requirements also include changes in the risk-weights of assets to better reflect credit risk
and other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial
real estate acquisition, development and construction loans and non-residential mortgage loans that are 90 days past
due or otherwise on nonaccrual status; a 20% (up from 0%) credit conversion factor for the unused portion of a
commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250% risk weight
(up from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital; and
increased risk-weights (from 0% to up to 600%) for equity exposures.
Finally, the rule limits capital distributions and certain discretionary bonus payments if the banking
organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to
risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.
The final rule becomes effective on January 1, 2015. The capital conservation buffer requirement will be
phased in beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing each year until fully
implemented at 2.5% on January 1, 2019.
The federal banking agencies have not proposed rules implementing the final liquidity framework of Basel
III, and have not determined to what extent they will apply to U.S. banks that are not large, internationally active
banks.
It is management’s belief that, as of September 30, 2014, First Savings Financial Group and First Savings
Bank would have met all capital adequacy requirements under Basel III on a fully phased-in basis if such
requirements were currently effective.
Prompt Corrective Regulatory Action. The Office of the Comptroller of the Currency is required to take
certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s
degree of undercapitalization. Generally, a savings association that has a ratio of total capital to risk weighted assets
of less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a ratio of core capital to
total assets of less than 4% (3% or less for institutions with the highest examination rating) is considered to be
“undercapitalized.” A savings association that has a total risk-based capital ratio of less than 6%, a Tier 1 capital
ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized” and a
savings association that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically
undercapitalized.” Subject to a narrow exception, the Office of the Comptroller of the Currency is required to
appoint a receiver or conservator within specified time frames for an institution that is “critically undercapitalized.”
The regulation also provides that a capital restoration plan must be filed with the Office of the Comptroller of the
Currency within 45 days of the date a savings association is deemed to have received notice that it is
“undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must
be guaranteed by any parent holding company up to the lesser of 5% of the savings association’s total assets when it
was deemed to be undercapitalized or the amount necessary to achieve compliance with applicable capital
12
requirements. In addition, numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on
growth, capital distributions and expansion. The Office of the Comptroller of the Currency could also take any one
of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of
senior executive officers and directors. Significantly and critically undercapitalized institutions are subject to
additional mandatory and discretionary measures.
The previously discussed Basel III regulations that will increase capital requirements will also amend the
prompt correction action categories accordingly, effective January 1, 2015.
Insurance of Deposit Accounts. First Savings Bank’s deposits are insured up to applicable limits by the
Deposit Insurance Fund of the Federal Deposit Insurance Corporation. Under the Federal Deposit Insurance
Corporation’s existing risk-based assessment system, insured institutions are assigned to one of four risk categories
based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions
paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned. On
February 7, 2011, the Federal Deposit Insurance Corporation issued final rules, effective April 1, 2011,
implementing changes to the assessment rules. The changes resulted from the Dodd-Frank Act’s directive to base
assessments on an institution’s total assets less tangible capital instead of deposits, as had been the Federal Deposit
Insurance Corporation’s practice. The base assessment rates currently range from two and one half to 45 basis points
of total capital less tangible assets, depending upon the particular institution’s risk category. The rate schedules will
automatically adjust in the future when the Deposit Insurance Fund reaches certain milestones. No institution may
pay a dividend if in default of the federal deposit insurance assessment.
Due to difficult economic conditions in 2008 and 2009, deposit insurance per account owner was raised to
$250,000. That change was made permanent by the Dodd-Frank Act.
The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated
insured deposits to 1.35% of estimated insured deposits. The Federal Deposit Insurance Corporation must seek to
achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed
to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the
discretion of the Federal Deposit Insurance Corporation.
The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant
increase in insurance premiums would likely have an adverse effect on the operating expenses and results of
operations of First Savings Bank. Management cannot predict what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations
or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance
Corporation or the Office of the Comptroller of the Currency. The management of First Savings Bank does not
know of any practice, condition or violation that might lead to termination of deposit insurance.
Loans to One Borrower. Federal law provides that savings associations are generally subject to the limits
on loans to one borrower applicable to national banks. Generally, subject to certain exceptions, a savings association
may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired
capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by
specified readily-marketable collateral.
Qualified Thrift Lender Test. Federal law requires savings associations to meet a qualified thrift lender
test. Under the test, a savings association is required to either qualify as a “domestic building and loan association”
under the Internal Revenue Code or maintain at least 65% of its “portfolio assets” (total assets less: (i) specified
liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to
conduct business) in certain “qualified thrift investments” (primarily residential mortgages and related investments,
including certain mortgage-backed securities but also including education, credit card and small business loans) in at
least nine months out of each 12-month period.
13
A savings association that fails the qualified thrift lender test is subject to certain operating restrictions. The
Dodd-Frank Act specifies that failing the qualified thrift lender test is a violation of law that could result in an
enforcement action and dividend limitations. As of September 30, 2014, First Savings Bank maintained 84.93% of
its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test.
Limitation on Capital Distributions. Federal regulations impose limitations upon all capital distributions
by a savings association, including cash dividends, payments to repurchase its shares and payments to shareholders
of another institution in a cash-out merger. Under the regulations, an application to and the prior approval of the
Office of the Comptroller of the Currency is required before any capital distribution if the institution does not meet
the criteria for “expedited treatment” of applications under Office of the Comptroller of the Currency regulations
(i.e., generally, examination and Community Reinvestment Act ratings in the two top categories), the total capital
distributions for the calendar year exceed net income for that year plus the amount of retained net income for the
preceding two years, the institution would be undercapitalized following the distribution or the distribution would
otherwise be contrary to a statute, regulation or agreement with the Office of the Comptroller of the Currency. If an
application is not required, the institution must still provide 30 days prior written notice to the Board of Governors
of the Federal Reserve System of the capital distribution if, like First Savings Bank, it is a subsidiary of a holding
company, as well as an informational notice filing to the Office of the Comptroller of the Currency. If First Savings
Bank’s capital ever fell below its regulatory requirements or the Office of the Comptroller of the Currency notified it
that it was in need of increased supervision, its ability to make capital distributions could be restricted. In addition,
the Office of the Comptroller of the Currency could prohibit a proposed capital distribution by any institution, which
would otherwise be permitted by the regulation, if the Office of the Comptroller of the Currency determines that
such distribution would constitute an unsafe or unsound practice.
Standards for Safety and Soundness. The federal banking agencies have adopted Interagency Guidelines
prescribing Standards for Safety and Soundness in various areas such as internal controls and information systems,
internal audit, loan documentation and credit underwriting, interest rate exposure, asset growth and quality, earnings
and compensation, fees and benefits. The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository institutions before capital becomes
impaired. If the Office of the Comptroller of the Currency determines that a savings association fails to meet any
standard prescribed by the guidelines, the Office of the Comptroller of the Currency may require the institution to
submit an acceptable plan to achieve compliance with the standard.
Community Reinvestment Act. All federal savings associations have a responsibility under the
Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including
low- and moderate-income neighborhoods. An institution’s failure to satisfactorily comply with the provisions of the
Community Reinvestment Act could result in denials of regulatory applications. Responsibility for administering the
Community Reinvestment Act, unlike other fair lending laws, is not being transferred to the Consumer Financial
Protection Bureau. First Savings Bank received a “satisfactory” Community Reinvestment Act rating in its most
recently completed examination.
Transactions with Related Parties. Federal law limits First Savings Bank’s authority to engage in
transactions with “affiliates” (e.g., any entity that controls or is under common control with First Savings Bank,
including First Savings Financial Group and their other subsidiaries). The aggregate amount of covered transactions
with any individual affiliate is limited to 10% of the capital and surplus of the savings association. The aggregate
amount of covered transactions with all affiliates is limited to 20% of the savings association’s capital and surplus.
Certain transactions with affiliates are required to be secured by collateral in an amount and of a type specified by
federal law. The purchase of low quality assets from affiliates is generally prohibited. Transactions with affiliates
must generally be on terms and under circumstances that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings associations
are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding
companies and no savings association may purchase the securities of any affiliate other than a subsidiary.
14
The Sarbanes-Oxley Act of 2002 generally prohibits loans by First Savings Financial Group to its executive
officers and directors. However, the law contains a specific exception for loans by a depository institution to its
executive officers and directors in compliance with federal banking laws. Under such laws, First Savings Bank’s
authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such
persons control, is limited. The laws limit both the individual and aggregate amount of loans that First Savings Bank
may make to insiders based, in part, on First Savings Bank’s capital level and requires that certain board approval
procedures be followed. Such loans are required to be made on terms substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans
made pursuant to a benefit or compensation program that is widely available to all employees of the institution and
does not give preference to insiders over other employees. Loans to executive officers are subject to additional
limitations based on the type of loan involved.
Enforcement. The Office of the Comptroller of the Currency currently has primary enforcement
responsibility over savings associations and has authority to bring actions against the institution and all institution-
affiliated parties, including shareholders, and any attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful actions likely to have an adverse effect on an insured institution. Formal enforcement action
may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to
institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of
violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The Federal
Deposit Insurance Corporation has the authority to recommend to the Office of the Comptroller of the Currency that
enforcement action be taken with respect to a particular savings association. If action is not taken by the Office of
the Comptroller of the Currency, the Federal Deposit Insurance Corporation has authority to take such action under
certain circumstances. Federal law also establishes criminal penalties for certain violations.
Assessments. Savings associations are required to pay assessments to the Office of the Comptroller of the
Currency to fund the agency’s operations. The Comptroller of the Currency assessments paid by First Savings Bank
for the fiscal year ended September 30, 2014 totaled $177,000.
Federal Home Loan Bank System. First Savings Bank is a member of the Federal Home Loan Bank
System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central
credit facility primarily for member institutions. First Savings Bank, as a member of the Federal Home Loan Bank
of Indianapolis, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. First
Savings Bank was in compliance with this requirement with an investment in Federal Home Loan Bank stock at
September 30, 2014 of $6.5 million.
Federal Reserve Board System. The Federal Reserve Board regulations require savings associations to
maintain non-interest earning reserves against their transaction accounts (primarily Negotiable Order of Withdrawal
(NOW) and regular checking accounts). The regulations generally provide that reserves be maintained against
aggregate transaction accounts as follows for 2014: a 3% reserve ratio is assessed on net transaction accounts up to
and including $89.0 million; a 10% reserve ratio is applied above $89.0 million. The first $13.3 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. First Savings Bank complies with the foregoing requirements. The amounts are adjusted annually and,
for 2015, will require a 3% ratio for up to $103.6 million and an exemption of $14.5 million. In October 2008, the
Federal Reserve Board began paying interest on certain reserve balances.
15
Other Regulations
First Savings Bank’s operations are also subject to federal laws applicable to credit transactions, including the:
•
Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
•
• Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to
enable the public and public officials to determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it serves;
Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit;
Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting
agencies;
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection
agencies; and
rules and regulations of the various federal agencies charged with the responsibility of implementing
such federal laws.
•
•
•
The operations of First Savings Bank also are subject to laws such as the:
• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial
•
records and prescribes procedures for complying with administrative subpoenas of financial records;
Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic
deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the
use of automated teller machines and other electronic banking services; and
• Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,”
such as digital check images and copies made from that image, the same legal standing as the original
paper check.
Holding Company Regulation
General. As a savings and loan holding company, First Savings Financial Group is subject to Federal
Reserve Board regulations, examinations, supervision, reporting requirements and regulations regarding its
activities. In addition, the Federal Reserve Board has enforcement authority over First Savings Financial Group and
its non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve Board to
restrict or prohibit activities that are determined to be a serious risk to First Savings Bank.
Pursuant to federal law and regulations, a savings and loan holding company such as First Savings
Financial Group may generally engage in the activities permitted for financial holding companies under Section 4(k)
of the Bank Holding Company Act (including insurance and investment banking) and certain other activities that
have been authorized for savings and loan holding companies by regulation. The Dodd-Frank Act provided that
saving and loan holding companies may only engage in activities exclusively permitted for financial holding
companies if they meet the criteria applicable to a bank holding company that seeks financial holding company
status. First Savings Financial Group met such criteria and elected to become a financial holding company on
September 24, 2014.
Federal law prohibits a savings and loan holding company from, directly or indirectly or through one or
more subsidiaries, acquiring more than 5% of the voting stock of another savings association, or savings and loan
holding company thereof, without prior written approval of the Federal Reserve Board or from acquiring or
retaining, with certain exceptions, more than 5% of a non-subsidiary holding company or savings association. A
savings and loan holding company is also prohibited from acquiring more than 5% of a company engaged in
activities other than those authorized by federal law or acquiring or retaining control of a depository institution that
is not insured by the FDIC. In evaluating applications by holding companies to acquire savings associations, the
Federal Reserve Board must consider the financial and managerial resources and future prospects of the company
and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of
the community and competitive factors.
16
The Federal Reserve Board is prohibited from approving any acquisition that would result in a multiple
savings and loan holding company controlling savings associations in more than one state, except: (i) the approval
of interstate supervisory acquisitions by savings and loan holding companies; and (ii) the acquisition of a savings
association in another state if the laws of the state of the target savings association specifically permit such
acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company
acquisitions.
Capital Requirements. Savings and loan holding companies are not currently subject to specific regulatory
capital requirements. The Dodd-Frank Act, however, required the Federal Reserve Board to promulgate
consolidated capital requirements for depository institution holding companies (subject to an exception for bank
holding companies with less than $500 million in consolidated assets). Such consolidated capital requirements must
be no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions
themselves, subject to certain grandfathering rules. The BASEL III final capital rules implement this requirement of
the Dodd-Frank Act. Savings and loan holding companies will become subject to such consolidated regulatory
capital requirements on January 1, 2015.
Source of Strength. The Dodd-Frank Act also extends the “source of strength” doctrine to savings and
loan holding companies. The Federal Reserve Board must promulgate regulations implementing the “source of
strength” policy that holding companies act as a source of strength to their subsidiary depository institutions by
providing capital, liquidity and other support in times of financial stress.
A federal savings association must notify the Federal Reserve Board prior to paying a dividend to its parent
savings and loan holding company. The Federal Reserve Board may disapprove a dividend if, among other things,
the Federal Reserve Board determines that the federal savings association would be undercapitalized on a pro forma
basis or the dividend is determined to raise safety or soundness concerns.
Acquisition of First Savings Financial Group. Under the Federal Change in Bank Control Act, a notice
must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert,
seeks to acquire direct or indirect “control” of a savings and loan holding company or savings association. Under
certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or
more of the outstanding voting stock of the company or institution, unless the Federal Reserve Board has found that
the acquisition will not result in a change of control of First Savings Financial Group. Under the Change in Control
Act, the Federal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into
consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust
effects of the acquisition. Any company that acquires control would then be subject to regulation as a savings and
loan holding company.
Federal Securities Laws
First Savings Financial Group’s common stock is registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended. First Savings Financial Group is subject to the
information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act
of 1934, as amended.
Federal Taxation
INCOME TAXATION
General. We report our income on a fiscal year basis using the accrual method of accounting. The federal
income tax laws apply to us in the same manner as to other corporations with some exceptions, including
particularly our reserve for bad debts discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules applicable to us. For its 2014
fiscal year, First Savings Bank’s maximum federal income tax rate was 34%.
17
First Savings Financial Group and First Savings Bank have entered into a tax allocation agreement.
Because First Savings Financial Group owns 100% of the issued and outstanding capital stock of First Savings
Bank, First Savings Financial Group and First Savings Bank are members of an affiliated group within the meaning
of Section 1504(a) of the Internal Revenue Code, of which group First Savings Financial Group is the common
parent corporation. As a result of this affiliation, First Savings Bank may be included in the filing of a consolidated
federal income tax return with First Savings Financial Group and, if a decision to file a consolidated tax return is
made, the parties agree to compensate each other for their individual share of the consolidated tax liability and/or
any tax benefits provided by them in the filing of the consolidated federal income tax return.
Our Federal income tax returns have not been audited during the last five years.
Bad Debt Reserves. For fiscal years beginning before June 30, 1996, thrift institutions that qualified under
certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A
reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real
property improved or to be improved, under the percentage of taxable income method or the experience method.
The reserve for nonqualifying loans was computed using the experience method. Federal legislation enacted in 1996
repealed the reserve method of accounting for bad debts and the percentage of taxable income method for tax years
beginning after 1995 and required savings institutions to recapture or take into income certain portions of their
accumulated bad debt reserves. Approximately $4.6 million of our accumulated bad debt reserves would not be
recaptured into taxable income unless First Savings Bank makes a “non-dividend distribution” to First Savings
Financial Group as described below.
Distributions. If First Savings Bank makes “non-dividend distributions” to First Savings Financial Group,
the distributions will be considered to have been made from First Savings Bank’s unrecaptured tax bad debt
reserves, including the balance of its reserves as of December 31, 1987, to the extent of the “non-dividend
distributions,” and then from First Savings Bank’s supplemental reserve for losses on loans, to the extent of those
reserves, and an amount based on the amount distributed, but not more than the amount of those reserves, will be
included in First Savings Bank’s taxable income. Non-dividend distributions include distributions in excess of First
Savings Bank’s current and accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of First
Savings Bank’s current or accumulated earnings and profits will not be so included in First Savings Bank’s taxable
income.
The amount of additional taxable income triggered by a non-dividend distribution is an amount that, when
reduced by the tax attributable to the income, is equal to the amount of the distribution. Therefore, if First Savings
Bank makes a non-dividend distribution to First Savings Financial Group, approximately one and one-half times the
amount of the distribution not in excess of the amount of the reserves would be includable in income for federal
income tax purposes, assuming a 34% federal corporate income tax rate. First Savings Bank does not intend to pay
dividends that would result in a recapture of any portion of its bad debt reserves.
State Taxation
Indiana. Indiana imposes an 8.5% franchise tax based on a financial institution’s adjusted gross income as
defined by statute. The Indiana franchise tax rate will be reduced to 8.0%, 7.5%, 7.0%, 6.5%, 6.5%, 6.25%, 6.0%,
5.5%, 5.0% and 4.9% for the Company’s tax years ending September 30, 2015, 2016, 2017, 2018, 2019, 2020, 2021,
2022, 2023, and 2024 and years thereafter, respectively. In computing adjusted gross income, deductions for
municipal interest, U.S. Government interest, the bad debt deduction computed using the reserve method and
pre-1990 net operating losses are disallowed.
Our state income tax returns have not been audited during the last five years.
18
Item 1A. RISK FACTORS
Our concentration in non-owner occupied residential real estate loans may expose us to increased
credit risk.
At September 30, 2014, $36.6 million, or 20.0% of our residential mortgage loan portfolio and 8.2% of our
total loan portfolio, consisted of loans secured by non-owner occupied residential properties. Loans secured by non-
owner occupied properties generally expose a lender to greater risk of non-payment and loss than loans secured by
owner occupied properties because repayment of such loans depend primarily on the tenant’s continuing ability to
pay rent to the property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property
owner’s ability to repay the loan without the benefit of a rental income stream. In addition, the physical condition of
non-owner occupied properties is often below that of owner occupied properties due to lax property maintenance
standards, which has a negative impact on the value of the collateral properties. Furthermore, some of our non-
owner occupied residential loan borrowers have more than one loan outstanding with us. At September 30, 2014,
we had 12 non-owner occupied residential loan relationships, each having an outstanding balance over $500,000,
with aggregate outstanding balances of $11.6 million. Consequently, an adverse development with respect to one
credit relationship may expose us to a greater risk of loss compared to an adverse development with respect to an
owner occupied residential mortgage loan. At September 30, 2014, non-performing non-owner occupied residential
loans amounted to $908,000. Non-owner occupied residential properties held as real estate owned amounted to
$348,000 at September 30, 2014. For more information about the credit risk we face, see “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Risk Management.”
Our recent emphasis on commercial real estate lending and commercial business lending may expose
us to increased lending risks.
At September 30, 2014, $182.3 million, or 40.9%, of our loan portfolio consisted of commercial real estate
loans and commercial business loans. Subject to market conditions, we intend to increase our origination of these
loans. Commercial real estate loans generally expose a lender to greater risk of non-payment and loss than one- to
four-family residential mortgage loans because repayment of the loans often depends on the successful operation of
the property and the income stream of the borrowers. Commercial real estate loans also typically involve larger loan
balances to single borrowers or groups of related borrowers both at origination and at maturity because many of our
commercial real estate loans are not fully-amortizing, but result in “balloon” balances at maturity. Commercial
business loans expose us to additional risks since they typically are made on the basis of the borrower’s ability to
make repayments from the cash flow of the borrower’s business and are secured by non-real estate collateral that
may depreciate over time. In addition, some of our commercial borrowers have more than one loan outstanding
with us. Consequently, an adverse development with respect to one loan or one credit relationship may expose us to
a greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage
loan. At September 30, 2014, non-performing commercial business loans and non-performing commercial real
estate loans totaled $123,000 and $1.0 million, respectively. For more information about the credit risk we face, see
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk
Management.”
Our unseasoned commercial real estate loan and commercial business loan portfolios may expose us
to increased lending risks.
A significant amount of our commercial real estate loans and commercial business loans are unseasoned,
meaning that they were originated recently. Our limited experience with these loans does not provide us with a
significant payment history pattern with which to judge future collectability. Furthermore, these loans have not been
subjected to unfavorable economic conditions. As a result, it may be difficult to predict the future performance of
this part of our loan portfolio. These loans may have delinquency or charge-off levels above our expectations,
which could adversely affect our future performance.
19
Our construction loan and land and land development loan portfolios may expose us to increased
credit risk.
At September 30, 2014, $34.2 million, or 7.7% of our loan portfolio consisted of construction loans, and
land and land development loans, and $4.8 million, or 20.5% of the construction loan portfolio, consisted of
speculative construction loans at that date. While recently the demand for construction loans has declined due to the
decline in the housing market and tighter lending standards, historically, construction loans, including speculative
construction loans, have been a material part of our loan portfolio. Speculative construction loans are loans made to
builders who have not identified a buyer for the completed property at the time of loan origination. Subject to
market conditions, we intend to continue to emphasize the origination of construction loans and land and land
development loans. These loan types generally expose a lender to greater risk of nonpayment and loss than
residential mortgage loans because the repayment of such loans often depends on the successful operation or sale of
the property and the income stream of the borrowers and such loans typically involve larger balances to a single
borrower or groups of related borrowers. In addition, many borrowers of these types of loans have more than one
loan outstanding with us so an adverse development with respect to one loan or credit relationship can expose us to
significantly greater risk of non-payment and loss. Furthermore, we may need to increase our allowance for loan
losses through future charges to income as the portfolio of these types of loans grows, which would hurt our
earnings. For more information about the credit risk we face, see “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Risk Management.”
We may suffer losses in our loan portfolio despite our underwriting practices.
Our results of operations are significantly affected by the ability of borrowers to repay their loans. Lending
money is an essential part of the banking business. However, borrowers do not always repay their loans. The risk of
non-payment is historically small, but if nonpayment levels are greater than anticipated, our earnings and overall
financial condition, as well as the value of our common stock, could be adversely affected. No assurance can be
given that our underwriting practices or monitoring procedures and policies will reduce certain lending risks. Loan
losses can cause insolvency and failure of a financial institution and, in such an event, our stockholders could lose
their entire investment. In addition, future provisions for loan losses could materially and adversely affect
profitability. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency
laws, may limit the amount that can be recovered on these loans. For more information about the credit risk we
face, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk
Management.”
Our allowance for loan losses may not be adequate to cover actual losses.
Like all financial institutions, we maintain an allowance for loan losses to provide for probable incurred
losses due to loan defaults, non-performance, and other qualitative factors. Our allowance for loan losses is based on
our historical loss experience as well as an evaluation of the risks associated with our loan portfolio, including the
size and composition of the loan portfolio, loan portfolio performance, fair value of collateral securing the loans,
current economic conditions and geographic concentrations within the portfolio. Our allowance for loan losses may
not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely
affect its financial results. For more information about our analysis and determination of allowance for loan losses,
see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk
Management.”
If an other-than-temporary-impairment is recorded in connection with our investment portfolio it
could have a negative impact on our profitability.
Our investment portfolio consists primarily of U.S. government agency and sponsored enterprises
securities, mortgage backed securities and collateralized mortgage obligations issued by U.S. government agencies
and sponsored enterprises, municipal bonds, and privately-issued collateralized mortgage obligations and asset-
backed securities. We must evaluate these securities for other-than-temporary impairment loss (“OTTI”) on a
periodic basis. The privately-issued collateralized mortgage obligations and asset-backed securities exhibit signs of
weakness, which may necessitate an OTTI charge in the future should the financial condition of the pools deteriorate
further. Also, given the current economic environment and possible further deterioration in economic conditions,
we may need to record an OTTI charge for our other investments should the issuers of those securities experience
financial difficulties. Any future OTTI charges could significantly impact our earnings.
20
A return of recessionary conditions could result in increases in our level of non-performing loans
and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses
and lower earnings.
A return of recessionary conditions and/or continued negative developments in the domestic and
international credit markets may significantly affect the markets in which we do business, the value of our loans and
investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and
increased unemployment levels may result in higher than expected loan delinquencies, increases in our levels of
non-performing and classified assets and a decline in demand for our products and services. These negative events
may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.
Changing interest rates may hurt our earnings and asset value.
Our net interest income is the interest we earn on loans and investments less the interest we pay on our
deposits and borrowings. Our net interest margin is the difference between the yield we earn on our assets and the
interest rate we pay for deposits and our other sources of funding. Changes in interest rates—up or down—could
adversely affect our net interest margin and, as a result, our net interest income. Although the yield we earn on our
assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise
or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in
duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest
rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to
contract until the yield catches up. Changes in the slope of the “yield curve”—or the spread between short-term and
long-term interest rates—could also reduce our net interest margin. Normally, the yield curve is upward sloping,
meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than
our assets, when the yield curve flattens or even inverts, we could experience pressure on our net interest margin as
our cost of funds increases relative to the yield we can earn on our assets. Also, interest rate decreases can lead to
increased prepayments of loans and mortgage-backed securities as borrowers refinance their loans to reduce
borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such
repayment proceeds into lower yielding investments, which would likely hurt our income. At September 30, 2014,
approximately $216.5 million, or 48.5% of the total loan portfolio, consisted of fixed-rate mortgage loans. This
investment in fixed-rate mortgage loans exposes the Company to increased levels of interest rate risk.
Changes in interest rates also affect the value of our interest-earning assets, and in particular our securities
portfolio. Generally, the value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized
gains and losses on securities available for sale are reported as a separate component of equity, net of tax. Decreases
in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect
on stockholders’ equity. For further discussion of how changes in interest rates could impact us, see “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations —Risk Management —
Interest Rate Risk Management.”
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of
loans and other sources could have a material adverse effect on our liquidity. Our access to funding sources in
amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial
services industry in general. Factors that could detrimentally impact our access to liquidity sources include a
decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Our
ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe
disruption of the financial markets or negative views and expectations about the prospects for the financial services
industry as a whole.
21
If the goodwill that we recorded in connection with a business acquisition becomes impaired, it could
have a negative impact on our profitability.
Goodwill represents the amount of acquisition cost over the fair value of net assets we acquired in the
purchase of another financial institution. We review goodwill for impairment at least annually, or more frequently if
events or changes in circumstances indicate the carrying value of the asset might be impaired. We determine
impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results
of operations in the periods in which they become known. At September 30, 2014, our goodwill totaled $7.9
million. While we have recorded no such impairment charges since we initially recorded the goodwill, there can be
no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-
downs, which may have a material adverse effect on our financial condition and results of operations.
Regulation of the financial services industry is undergoing major changes and future legislation
could increase our cost of doing business or harm our competitive position.
In 2010 and 2011, in response to the financial crisis and recession that began in 2008, significant regulatory
and legislative changes resulted in broad reform and increased regulation impacting financial institutions. The Dodd-
Frank Act has created a significant shift in the way financial institutions operate. The Dodd-Frank Act also creates a
new federal agency to administer consumer protection and fair lending laws, a function that was formerly performed
by the depository institution regulators. The Dodd-Frank Act contains various other provisions designed to enhance
the regulation of depository institutions. The full impact of the Dodd-Frank Act on our business and operations will
not be known for years until regulations implementing the statute are written and adopted. The Dodd-Frank Act may
have a material impact on our operations, particularly through increased regulatory burden and compliance costs.
Any future legislative changes could have a material impact on our profitability, the value of assets held for
investment or collateral for loans. Future legislative changes could require changes to business practices or force us
to discontinue businesses and potentially expose us to additional costs, liabilities, enforcement action and
reputational risk.
In addition to the enactment of the Dodd-Frank Act, the federal regulatory agencies have taken stronger
supervisory actions against financial institutions that have experienced increased loan losses and other weaknesses
as a result of the recent economic crisis. The actions include entering into written agreements and cease and desist
orders that place certain limitations on operations. Federal bank regulators have also been using with more
frequency their ability to impose individual minimum capital requirements on banks, which requirements may be
higher than those required under the Dodd-Frank Act or that would otherwise qualify a bank as being “well
capitalized” under applicable prompt corrective action regulations. If we were to become subject to a regulatory
agreement or higher individual minimum capital requirements, such action may have a negative impact on our
ability to execute our business plan, as well as our ability to grow, pay dividends or engage in mergers and
acquisitions and may result in restrictions in our operations.
Additionally, in early July 2013, the Federal Reserve approved revisions to their capital adequacy
guidelines and prompt corrective action rules that implement the revised standards of Basel III, and address relevant
provisions of the Dodd-Frank Act. Basel III and the regulations of the federal banking agencies require bank holding
companies and banks to undertake significant activities to demonstrate compliance with the new and higher capital
standards. Compliance with these rules will impose additional costs on the Company and the Bank.
Increased and/or special FDIC assessments will hurt our earnings.
The recent economic recession has caused a high level of bank failures, which has dramatically increased
FDIC resolution costs and led to a significant reduction in the balance of the Deposit Insurance Fund. As a result,
the FDIC has significantly increased the initial base assessment rates paid by financial institutions for deposit
insurance. Additional increases in the base assessment rate or additional special assessments would negatively
impact our earnings.
22
Strong competition within our primary market area could hurt our profits and slow growth.
We face intense competition both in making loans and attracting deposits. This competition has made it
more difficult for us to make new loans and attract deposits. Price competition for loans and deposits might result in
us earning less on our loans and paying more on our deposits, which would reduce net interest income. Competition
also makes it more difficult to grow loans and deposits. At June 30, 2014, which is the most recent date for which
data is available from the Federal Deposit Insurance Corporation, we held approximately 12.41%, 3.01%, 33.99%,
80.83% and 10.25% of the FDIC-insured deposits in Clark, Floyd, Harrison, Crawford and Washington Counties,
Indiana, respectively. Some of the institutions with which we compete have substantially greater resources and
lending limits than we have and may offer services that we do not provide. We expect competition to increase in the
future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the
financial services industry. Our profitability depends upon our continued ability to compete successfully in our
primary market area. See “Item 1. Business — Market Area” and “Item 1. Business — Competition” for more
information about our primary market area and the competition we face.
Because the nature of the financial services business involves a high volume of transactions, we face
significant operational risks.
Operational risk is the risk of loss resulting from our operations, including, but not limited to, the risk of
fraud by employees or persons outside of the Company and Bank, the execution of unauthorized transactions by
employees, errors relating to transaction processing and technology, breaches of the internal control system and
compliance requirements and business continuation and disaster recovery. This risk of loss also includes the
potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with
applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to
potential negative publicity. In the event of a breakdown in the internal control system, improper operation of
systems or improper employee actions, we could suffer financial loss, face regulatory action and suffer damage to
our reputation.
Our business may be adversely affected by internet fraud.
We are inherently exposed to many types of operational risk, including those caused by the use of
computer, internet and telecommunications systems. These risks may manifest themselves in the form of fraud by
employees, by customers, other outside entities targeting us and/or our customers that use our internet banking,
electronic banking or some other form of our telecommunications systems. Given the growing level of use of
electronic, internet-based, and networked systems to conduct business directly or indirectly with our clients, certain
fraud losses may not be avoidable regardless of the preventative and detection systems in place.
We may experience interruptions or breaches in our information system security.
We rely heavily on communications and information systems to conduct our business. Any failure or
interruption of these systems could result in failures or disruptions in our customer relationship management,
general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit
the effect of the failure or interruption of these information systems, there can be no assurance that any such failures
or interruptions will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any
failures or interruptions of these information systems could damage our reputation, result in a loss of customer
business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability,
any of which could have a material adverse effect on our financial condition and results of operations.
23
A failure in or breach, including cyber attacks, of our operational or security systems, or those of our
third party vendors and other service providers, could disrupt our businesses, result in the disclosure or
misuse of confidential or proprietary information, damage our reputation, increase our costs and cause
losses.
As a financial institution, we are susceptible to fraudulent activity that may be committed against us or our
clients and that may result in financial losses to us or our clients, privacy breaches against our clients, or damage to
our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud,
phishing, and other dishonest acts. In recent periods, there has been a rise in electronic fraudulent activity within the
financial services industry, especially in the commercial banking sector, due to cyber criminals targeting commercial
bank accounts. Consistent with industry trends, we have also experienced an increase in attempted electronic
fraudulent activity in recent periods.
In addition, our operations rely on the secure processing, storage and transmission of confidential and other
information on our computer systems and networks. Although we take numerous protective measures to maintain
the confidentiality, integrity and availability of our and our clients’ information across all geographic and product
lines, and endeavor to modify these protective measures as circumstances warrant, the nature of the threats continues
to evolve. As a result, our computer systems, software and networks and those of our customers may be vulnerable
to unauthorized access, loss or destruction of data (including confidential client information), account takeovers,
unavailability of service, computer viruses or other malicious code, cyber attacks and other events that could have an
adverse security impact and result in significant losses by us and/or our customers. Despite the defensive measures
we take to manage our internal technological and operational infrastructure, these threats may originate externally
from third parties, such as foreign governments, organized crime and other hackers, and outsource or infrastructure-
support providers and application developers, or the threats may originate from within our organization. Given the
increasingly high volume of our transactions, certain errors may be repeated or compounded before they can be
discovered and rectified.
We also face the risk of operational disruption, failure, termination or capacity constraints of any of the
third parties that facilitate our business activities, including exchanges, clearing agents, clearing houses or other
financial intermediaries. Such parties could also be the source of an attack on, or breach of, our operational systems,
data or infrastructure. In addition, as interconnectivity with our clients grows, we increasingly face the risk of
operational failure with respect to our clients’ systems.
Although to date we have not experienced any material losses relating to cyber attacks or other information
security breaches, there can be no assurance that we will not suffer such losses in the future. Our risk and exposure
to these matters remains heightened because of, among other things, the evolving nature of these threats, the
outsourcing of some of our business operations, and the continued uncertain global economic environment. As
cyber threats continue to evolve, we may be required to expend significant additional resources to continue to
modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
We maintain an insurance policy which we believe provides sufficient coverage at a manageable expense
for an institution of our size and scope with similar technological systems. However, we cannot assure that this
policy will afford coverage for all possible losses or would be sufficient to cover all financial losses, damages,
penalties, including lost revenues, should we experience any one or more of our or a third party’s systems failing or
experiencing attack.
24
We operate in a highly regulated environment and we may be adversely affected by changes in laws
and regulations.
The Bank is subject to extensive regulation, supervision and examination by the Office of the Comptroller
of the Currency, its chartering authority, and by the Federal Deposit Insurance Corporation, as insurer of its deposits.
The Company is also subject to regulation and supervision by the Federal Reserve Bank of St. Louis. Such
regulation and supervision governs the activities in which an institution and its holding company may engage, and
are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather
than for holders of the Company’s common stock. Regulatory authorities have extensive discretion in their
supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification
of our assets and determination of the level of our allowance for loan losses. If our regulators require us to charge-
off loans or increase our allowance for loan losses, our earnings would suffer. Any change in such regulation and
oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a
material impact on our operations. For a further discussion, see “Item 1. Business – Regulation and Supervision.”
Our ability to pay dividends is subject to certain limitations and restrictions, and there is no
guarantee that we will be able to continue paying the same level of dividends in the future that we paid in
2014 or that we will be able to pay future dividends at all.
Our ability to pay dividends is limited by regulatory restrictions and the need to maintain sufficient
consolidated capital. The ability of the Bank to pay dividends to the Company is limited by its obligations to
maintain sufficient capital and liquidity, and by other regulatory restrictions. The Office of the Comptroller of the
Currency and other banking regulators have proposed guidelines seeking greater liquidity and have issued
regulations requiring greater capital requirements. If these regulatory requirements are not met, the Bank will not be
able to pay dividends to the Company, and consequently we may be unable to pay dividends on our common stock.
In addition, as a savings and loan holding company, our ability to declare and pay dividends is subject to the
guidelines of the Federal Reserve Bank of St. Louis regarding capital adequacy and dividends.
On August 11, 2011, we issued shares of Senior Non-Cumulative Perpetual Preferred Stock, Series A to the
United States Department of the Treasury as a result of participation in its Small Business Lending Fund program.
We are prohibited from continuing to pay dividends on our common stock unless we have fully paid all required
dividends on the senior preferred stock. Although we expect to be able to pay all required dividends on the senior
preferred stock, there is no guarantee that we will be able to do so.
If we are unable to redeem the Senior Non-cumulative Perpetual Preferred Stock, Series A after an
initial four-and-one-half year period, the cost of this capital will increase substantially.
If we are unable to redeem the Senior Non-cumulative Preferred Stock, Series A prior to February 11,
2016, the cost of this capital to us will increase from approximately $171,000 annually (based on the average
dividend rate for 2014, or 1.0% per annum of the Series A preferred stock liquidation value) to $1.5 million annually
(9.0% per annum of the Series A preferred stock liquidation value). This increase in the annual dividend rate on the
Senior Non-cumulative Preferred Stock, Series A would have a material negative effect on the earnings we can
retain for growth and to pay dividends on our common stock.
There is a limited trading market for our stock and you may not be able to resell your shares at or
above the price you paid for them.
The price of the common stock purchased may decrease significantly. Although our common stock is
quoted on the NASDAQ Capital Market under the symbol "FSFG", trading activity in the stock historically has been
sporadic. A public trading market having the desired characteristics of liquidity and order depends on the presence
in the market of willing buyers and sellers at any given time. The presence of willing buyers and sellers depends on
the individual decisions of investors and general economic conditions, all of which are beyond our control.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
25
Item 2. PROPERTIES
We conduct our business through our main office and branch offices. The following table sets forth certain
information relating to these facilities as of September 30, 2014.
Location
Main Office:
Clarksville Main Office
501 East Lewis & Clark Parkway
Clarksville, Indiana
Branch Offices:
Jeffersonville - Allison Lane Office
2213 Allison Lane
Jeffersonville, Indiana
Charlestown Office
1100 Market Street
Charlestown, Indiana
Floyd Knobs Office
3711 Paoli Pike
Floyd Knobs, Indiana
Georgetown Office
1000 Copperfield Drive
Georgetown, Indiana
Jeffersonville - Court Avenue Office
202 East Court Avenue
Jeffersonville, Indiana
Sellersburg Office
125 Hunter Station Way
Sellersburg, Indiana
Corydon Office
900 Hwy 62 NW
Corydon, Indiana
Salem Office
1336 S Jackson Street
Salem, Indiana
English Office
200 Indiana Avenue
English, Indiana
Marengo Office
125 W Old Short Street
Marengo, Indiana
Leavenworth Office
510 Hwy 62
Leavenworth, Indiana
Lanesville Office
7340 Main Street NE
Lanesville, Indiana
Elizabeth Office
8160 Beech Street SE
Elizabeth, Indiana
New Albany Office
2218 State Street
New Albany, Indiana
Year
Opened
Owned/
Leased
1968
Owned
1975
Owned
1993
Owned
1999
Owned
2003
Owned
1986
Owned
1995
Owned
1996
Owned
1995
Owned
1925
Owned
1984
Owned
1969
Owned
1948
Owned
1975
Owned
2013
Owned
26
The Bank owns one former branch office location that has been closed and the operations of which were
consolidated into existing branch office operations. This property, which is located in Milltown, Indiana, is valued
at $130,000 and was included in “other real estate owned, held for sale” at September 30, 2014 on the balance sheet
of the Consolidated Financial Statements beginning on page F-1 of this annual report.
The Company owns a 4.077 acre parcel of land in New Albany, Indiana, which it has developed for
retail purposes through a subsidiary of the Bank, FFCC, Inc. The retail development includes over 36,000
square feet of leasable class-A retail space and includes the Bank’s New Albany branch office location. See
Note 5 of the Notes to Consolidated Financial Statements beginning on page F-1 of this annual report for additional
information regarding the real estate development and construction.
The Company purchased an 8.097 acre parcel of land in Jeffersonville, Indiana, in July 2013 upon which it
may locate a new main office and also develop for retail purposes in future years. However, there were no formal
plans as of September 30, 2014 to proceed with a new main office location or development of the additional acreage.
This land, with a carrying value of approximately $1.73 million, was included in “premises and equipment” at
September 30, 2014 on the balance sheet of the Consolidated Financial Statements beginning on page F-1 of this
annual report.
Item 3. LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens,
condemnation proceedings on properties in which we hold security interests, claims involving the making and
servicing of real property loans and other issues incident to our business. We are not a party to any pending legal
proceedings that we believe would have a material adverse effect on our financial condition, results of operations or
cash flows.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
27
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Equity and Related Stockholder Matters
The Company’s common stock is listed on the NASDAQ Capital Market (“NASDAQ”) under the trading
symbol “FSFG.” As of December 13, 2014, the Company had approximately 268 holders of record and 2,175,993
shares of common stock outstanding. The figure of shareholders of record does not reflect the number of persons
whose shares are in nominee or “street” name accounts through brokers. See Item 1, “Business—Regulation and
Supervision—Limitation on Capital Distributions” and Note 25 of the Notes to Consolidated Financial Statements
beginning on page F-1 of this annual report for information regarding dividend restrictions applicable to the
Company.
The following table provides quarterly market price and dividend information per common share for the
fiscal years ended September 30, 2014 and 2013 as reported by NASDAQ.
2014:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2013:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Sale
Low
Sale
Market price
Dividends end of period
$ 25.10
24.58
24.00
23.84
$ 23.62
22.45
22.71
20.88
$ 28.20
23.67
24.25
20.00
$ 21.10
21.35
18.93
17.96
$ 0.11
0.11
0.11
0.10
$ 0.10
0.10
0.10
0.40
$ 24.96
24.18
23.48
22.85
$ 22.50
23.34
21.71
19.49
On November 20, 2014, the Company declared a quarterly cash dividend of $0.11 per share on its
outstanding common stock, payable on or about December 31, 2014 to stockholders of record as of the close of
business on December 5, 2014. The Company currently intends to maintain a policy of paying regular quarterly
cash dividends; however, the Company cannot guarantee that it will pay dividends or that if paid, it will not reduce
or eliminate dividends in the future.
28
Purchases of Equity Securities
The following table presents information regarding the Company’s stock repurchase activity during
the quarter ended September 30, 2014:
(a)
Total number
of shares
purchased
(b)
Average
price
paid per
share
(c)
Total number of
shares purchased
as part of publicly
announced plans or
programs (1)
(d)
Maximum number of
shares that may yet be
purchased under the
plans or programs
—
—
—
5,600
$24.75
5,600
11,000
$24.84
16,600
$24.81
11,000
16,600
104,464
98,864
87,864
87,864
Period
July 1, 2014 through
July 31, 2014
August 1, 2014 through
August 31, 2014
September 1, 2014 through
September 30, 2014
Total
(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, which has no expiration date, 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.
Equity Compensation Plan Information
The following table sets forth information as of September 30, 2014 about Company common stock that
may be issued under the Company’s equity compensation plans. All plans were approved by the Company’s
stockholders.
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
(c)
234,232
$13.25
–
N/A
234,232
N/A
$13.25
N/A
–
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
29
Item 6. SELECTED FINANCIAL DATA
The following tables contain certain information concerning our consolidated financial position and results
of operations, which is derived in part from our audited consolidated financial statements. The following is only a
summary and should be read in conjunction with the audited consolidated financial statements and notes thereto
beginning on page F-1 of this annual report.
2014
(In thousands)
Financial Condition Data:
Total assets .................................................... $ 713,129
20,330
Cash and cash equivalents .............................
Trading account securities .............................
5,319
184,697
Securities available-for-sale ...........................
Securities held-to-maturity.............................
5,419
433,876
Loans, net ......................................................
Deposits .........................................................
533,194
Borrowings from Federal Home Loan Bank ..
79,548
6,150
Other borrowings
Stockholders’ equity ......................................
87,080
At September 30,
2012
2013
2011
2010
$ 660,455
20,815
3,210
164,167
6,417
408,375
477,726
89,348
6,308
82,253
$ 638,913
38,791
3,562
152,543
7,848
389,067
494,234
53,062
3,461
82,926
$ 537,086
27,203
–
108,577
9,506
354,432
387,626
53,137
16,403
76,601
$ 508,442
11,278
–
109,976
3,929
343,615
366,161
67,159
16,821
55,151
2014
(In thousands)
Operating Data:
Interest income .............................................. $ 27,494
Interest expense .............................................
3,555
23,939
Net interest income ........................................
Provision for loan losses ................................
1,246
Net interest income after provision for loan
losses..............................................................
Noninterest income ........................................
Noninterest expense .......................................
Income (loss) before income taxes .................
Income tax expense (benefit) .........................
Net income .....................................................
Less: Preferred stock dividends declared .......
Net income available to common
shareholders ................................................... $ 5,219
22,693
5,046
20,272
7,467
2,077
5,390
171
Per Share Data:
Net income per common share, basic ............
Net income per common share, diluted ..........
Dividends per common share .........................
2014
$ 2.46
2.34
0.43
For the Year Ended September 30,
2012
2013
2011
2010
$ 27,175
3,936
23,239
1,858
$ 25,994
4,675
21,319
1,532
$ 25,983
5,385
20,598
1,605
$ 26,262
6,117
20,145
1,604
21,381
4,258
19,132
6,507
1,811
4,696
171
19,787
3,422
17,464
5,745
1,458
4,287
171
18,993
3,008
16,308
5,693
1,679
4,014
115
18,541
2,916
18,020
3,437
808
2,629
-
$ 4,525
$ 4,116
$ 3,899
$ 2,629
2010
$ 1.17
1.17
0.08
For the Year Ended September 30,
2012
2011
2013
$ 2.09
1.99
0.70
$ 1.90
1.85
0.00
$ 1.82
1.78
0.00
30
At or For the Year Ended September 30,
2012
2011
2013
2014
2010
Performance Ratios:
Return on average assets ...............................................
0.78%
0.72%
0.75%
0.78%
0.53%
Return on average equity ..............................................
6.38
Return on average common stockholders’ equity .........
Interest rate spread (1) ..................................................
Net interest margin (2) ..................................................
Other expenses to average assets ..................................
8.01
3.86
3.93
2.92
5.63
7.09
3.98
4.09
2.94
5.42
6.92
4.07
4.22
3.05
6.85
6.89
4.30
4.44
3.15
4.93
4.93
4.44
4.57
3.66
Efficiency ratio (3)........................................................
69.94
69.58
70.59
69.08
78.14
Average interest-earning assets to
average interest-bearing liabilities ............................. 114.66
115.27
116.16
111.98
109.89
Dividend payout ratio ...................................................
16.96
33.48
–
–
7.34
Average equity to average assets ..................................
12.17
12.81
13.81
11.33
10.85
Capital Ratios:
Tangible capital (4) .......................................................
9.14% 10.36% 10.12% 11.34%
7.84%
Core capital (4) .............................................................
9.14
10.36
10.12
11.34
7.84
Risk-based capital (4) ...................................................
14.87
17.04
17.07
17.52
12.77
Asset Quality Ratios:
Allowance for loan losses as a percent of
total loans ..................................................................
1.40%
1.32%
1.23%
1.29%
1.09%
Allowance for loan losses as a percent of
non-performing loans ................................................ 145.96
61.15
84.12
63.70
63.88
Net charge-offs to average outstanding
loans during the period ..............................................
Non-performing loans as a percent
of total loans ..............................................................
Non-performing assets as a percent
of total assets .............................................................
Other Data:
Number of offices .........................................................
Number of deposit accounts (5) ....................................
Number of loans (6) .....................................................
0.12
0.30
0.35
0.21
0.42
0.96
2.17
1.46
2.02
1.71
1.79
2.39
2.21
2.01
1.47
15
34,049
5,482
15
34,788
5,663
14
36,259
6,072
12
29,777
5,777
12
31,100
6,410
(1) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average
cost on average interest-bearing liabilities. Tax exempt income is reported on a tax equivalent basis using a federal marginal
tax rate of 34%.
(2) Represents net interest income as a percent of average interest-earning assets. Tax exempt income is reported on a tax
equivalent basis using a federal marginal tax rate of 34%.
(3) Represents other expenses divided by the sum of net interest income and other income.
(4) Represents the capital ratios of only the Bank.
(5) The significant increase from 2011 to 2012 is due primarily to 5,826 deposit accounts acquired in the acquisition of the First
Federal branches.
(6) The significant increase from 2011 to 2012 is due primarily to 768 loans acquired in the acquisition of the First Federal
branches.
31
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Overview
Income. Our primary source of pre-tax income is net interest income. Net interest income is the difference
between interest income, which is the income that we earn on our loans and investments, and interest expense,
which is the interest that we pay on our deposits and borrowings. Other significant sources of pre-tax income are
service charges (mostly from service charges on deposit accounts and loan servicing fees), increases in the cash
surrender value of life insurance, fees from sale of mortgage loans originated for sale in the secondary market,
commissions on sales of securities and insurance products, rents from real estate leasing, and net realized and
unrealized gains on trading account securities. We also recognize income from the sale of investment securities.
Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses
inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly
basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.
Expenses. The noninterest expenses we incur in operating our business consist of salaries and employee
benefits expenses, occupancy expenses, data processing expenses, professional service fees, federal deposit
insurance premiums, advertising, net losses on foreclosed real estate and other miscellaneous expenses. Our
noninterest expenses increased for the year ended September 30, 2014 when compared to 2013 primarily as a result
of increased compensation and benefits, occupancy and equipment costs, and professional fees. A portion of the
increased professional fees was related to a specific engagement during 2014 and therefore deemed to be
nonrecurring for future years.
Salaries and employee benefits consist primarily of: salaries and wages paid to our employees; payroll
taxes; and expenses for health insurance, retirement plans and other employee benefits. We also recognize annual
employee compensation expenses related to the equity incentive plan as the equity incentive awards vest. See Note
16 of the Notes to Consolidated Financial Statements beginning on page F-1 of this annual report for additional
information regarding the stock based compensation plans.
Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily
of depreciation charges, furniture and equipment expenses, maintenance, real estate taxes and costs of utilities.
Depreciation of premises and equipment is computed using the straight-line method based on the useful lives of the
related assets, which range from three to 50 years.
Data processing expenses are the fees we pay to third parties for processing customer information, deposits
and loans. Our data processing expenses increased in the year ended September 30, 2014 when compared to 2013
primarily as a result of increased fees to our core processor as well as additional services implemented in 2014.
Professional fees expense represents the fees we pay to third parties for legal, accounting, investment
advisory and other consulting services. Our professional fees increased in the year ended September 30, 2014 when
compared to 2013 primarily as a result of nonrecurring expenses in 2014 for consulting services related to a revenue
enhancement and operating expense efficiencies project.
Federal deposit insurance premiums are payments we make to the Federal Deposit Insurance Corporation
for insurance of our deposit accounts.
Other expenses include expenses for office supplies, postage, telephone, insurance, regulatory assessments
and other miscellaneous operating expenses.
32
Critical Accounting Policies
The accounting and reporting policies of the Company comply with accounting principles generally
accepted in the United States of America and conform to general practices within the banking industry. The
preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions. The financial position and results of operations can be affected by
these estimates and assumptions, which are integral to understanding reported results. Critical accounting policies
are those policies that require management to make assumptions about matters that are highly uncertain at the time
an accounting estimate is made; and different estimates that the Company reasonably could have used in the current
period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a
material impact on the Company’s financial condition, changes in financial condition or results of operations. Most
accounting policies are not considered by management to be critical accounting policies. Several factors are
considered in determining whether or not a policy is critical in the preparation of financial statements. These factors
include, among other things, whether the estimates are significant to the financial statements, the nature of the
estimates, the ability to readily validate the estimates with other information including third parties or available
prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting
methods may be utilized under generally accepted accounting principles. Significant accounting policies, including
the impact of recent accounting pronouncements, are discussed in Note 1 of the Notes to Consolidated Financial
Statements. The policies considered to be the critical accounting policies are described below.
Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as
necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established
through the provision for loan losses, which is charged to income. Determining the amount of the allowance for
loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the
allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; value of
collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these
estimates are susceptible to significant change. Management reviews the level of the allowance at least quarterly
and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current
economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we
use the best information available to establish the allowance for loan losses, future adjustments to the allowance may
be necessary if economic or other conditions differ substantially from the assumptions used in making the
evaluation. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process,
periodically reviews our allowance for loan losses and may require us to recognize adjustments to the allowance
based on its judgments about information available to it at the time of its examination. A large loss could deplete
the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.
Note 1 of the Notes to Consolidated Financial Statements beginning on page F-1 of this annual report describes the
methodology used to determine the allowance for loan losses. The Company has not made any substantive changes
to its methodology for determining the allowance for loan losses during the fiscal year ended September 30, 2014,
and there have been no material changes in the assumptions or estimation techniques compared to prior years.
Other-Than-Temporary Impairment of Securities. The Company reviews all investment securities with
significant declines in fair value for potential other-than-temporary impairment (“OTTI”) on a periodic basis. In
evaluating the investment portfolio for OTTI, management considers the issuer’s credit rating, credit outlook,
payment status and financial condition, the length of time the investment has been in a loss position, the size of the
loss position and other meaningful information. Generally changes in market interest rates that result in a decline in
value of an investment security are considered to be temporary, since the value of such investment can recover in the
foreseeable future as market interest rates return to their original levels. However, such declines in value that are due
to the underlying credit quality of the issuer or other adverse conditions that cannot be expected to improve in the
foreseeable future, may be considered to be other-than-temporary. The Company recognizes credit-related OTTI on
debt securities in earnings, while noncredit-related OTTI on debt securities not expected to be sold is recognized in
accumulated other comprehensive income. Management believes this is a critical accounting policy because this
evaluation of the underlying credit or analysis of other conditions contributing to the decline in value involves a high
degree of complexity and requires us to make subjective judgments that often require assumptions or estimates
about various matters. No other-than-temporary write-down charges to earnings were recognized during 2014 or
2013. See Note 3 of the Notes to Consolidated Financial Statements beginning on page F-1 of this annual report for
additional information regarding OTTI.
33
Valuation Methodologies. In the ordinary course of business, management applies various valuation
methodologies to assets and liabilities that often involve a significant degree of judgment, particularly when active
markets do not exist for the items being valued. Generally, in evaluating various assets for potential impairment,
management compares the fair value to the carrying value. Quoted market prices are referred to when estimating
fair values for certain assets, such as investment securities. However, for those items for which market-based prices
do not exist, management utilizes significant estimates and assumptions to value such items. Examples of these
items include goodwill and other intangible assets, foreclosed and other repossessed assets, estimated present value
of impaired loans, value ascribed to stock-based compensation and certain other financial investments. The use of
different assumptions could produce significantly different results, which could have material positive or negative
effects on the Company’s results of operations. See Notes 20 and 21 of the Notes to Consolidated Financial
Statements beginning on page F-1 of this annual report for additional information.
Operating Strategy
Our mission is to operate and grow a profitable community-oriented financial institution. We plan to
achieve this by executing our strategy of:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
continuing our historical focus on residential mortgage lending but de-emphasizing residential
mortgage lending secured by non-owner occupied properties;
pursuing opportunities to increase commercial real estate lending and commercial business
lending;
improving customer service and product offerings by leveraging the Bank’s investment in the core
operating system and in new technology;
providing exceptional customer service to attract and retain customers;
promoting our presence, brand image and product offerings in our primarily market area;
continuing to monitor asset quality and credit risk in the loan and investment portfolios;
recognizing improvements in noninterest income with respect to service charges on deposits as a
result of restructuring deposit account types and fees, interchange income as a result of promoting
increased debit card usage, commission income related to non-deposit investment products and
gains on sales of mortgage loans sold in the secondary market;
expanding our market share and market area by opening new branch offices and pursuing
opportunities to acquire other financial institutions or branches; and
increasing shareholder value through stock repurchase programs and dividends.
Continuing our historical focus on residential mortgage lending but de-emphasizing residential
mortgage lending secured by non-owner occupied properties.
Our predominant lending activity has been residential mortgage lending in our primary market area. A
significant portion of the residential mortgage loans that we had originated before 2005 are secured by non-owner
occupied properties. Loans secured by non-owner occupied properties generally carry a greater risk of loss than
loans secured by owner-occupied properties, and our non-performing loan balances have increased in recent periods
primarily because of delinquencies in our non-owner occupied residential loan portfolio. Since 2005, we have de-
emphasized non-owner occupied residential mortgage lending and have focused, and intend to continue to focus, our
residential mortgage lending primarily on originating residential mortgage loans secured by owner-occupied
properties. At September 30, 2014, 40.9% of our total loans were residential mortgage loans and 20.03% of our
residential mortgage loans were secured by non-owner occupied properties. We intend to continue our emphasis on
residential mortgage lending because this type of lending generally carries lower credit risk and has contributed to
our historically favorable asset quality.
34
Pursuing opportunities to increase commercial real estate lending and commercial business lending.
In recent periods, we have begun to focus on commercial real estate and commercial business lending and
intend to continue this focus. Commercial real estate loans and commercial business loans give us the opportunity
to earn more income because these loans have higher interest rates than residential mortgage loans in order to
compensate for the increased credit risk. At September 30, 2014, commercial real estate loans and commercial
business loans represented 34.48% and 6.37%, respectively, of our total loans. We intend to continue to pursue
these lending opportunities in our primary market area. In addition, the Company’s participation in the United
States Department of the Treasury’s Small Business Lending Fund program, as discussed further in Note 24 of the
Notes to Consolidated Financial Statements beginning on page F-1 of this annual report, also provides an incentive
and capital to increase commercial lending.
During 2013, we began a commercial real estate lending program 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 Company originated $24.3 million of these loans during 2014 and the portfolio balance was
$37.6 million at September 30, 2014.
Improving customer service and product offerings with new technology.
We continue to enhance our proficiencies and refine the processes for the core operating system, to which
the Bank successfully converted in August 2010, in order to enhance the customer experience. In addition, we
continue to improve product offerings and services to our customers with core-related and ancillary technologies,
including mobile banking, mobile check capture, and automated teller machines with check imaging for self-service
deposit transactions.
Providing exceptional customer service to attract and retain customers.
As a community-oriented financial institution, we emphasize providing exceptional customer service as a
means to attract and retain customers. We deliver personalized service and respond with flexibility to customer
needs. We believe that our community orientation is attractive to our customers and distinguishes us from the larger
banks that operate in our primary market area.
Continuing to monitor asset quality and credit risk.
Our strategy for credit risk management focuses on having well-defined credit policies and uniform
underwriting criteria and providing prompt attention to potential problem loans. During the years 2012 through
2014, we placed special emphasis on the improvement of asset quality and reductions in the levels of classified and
criticized assets, which has resulted in significant improvements. We will continue to place emphasis on
maintaining a robust credit culture, improving asset quality, and reducing classified and criticized assets. For more
information about our monitoring of credit risk and improvement in levels of classified and criticized assets, see
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk
Management.”
Recognizing improvements in noninterest income.
The Company has recognized significant improvement in its levels of noninterest income for 2014 and
2013 as compared to prior fiscal years due primarily to real estate lease income, other income, net gains on trading
securities, net gain on sales of available for sale securities and increases in cash surrender value of life insurance.
However, the Company still underperforms compared to its peers, particularly with respect to service charges on
deposit fee income. Therefore, the Company undertook an initiative during 2014 that included the engagement of a
consulting firm for the purposes of enhancing noninterest income and reducing noninterest expense, the results from
which are expected to be fully realized during 2015.
35
Expanding our market share and market area.
The 2009 acquisition of Community First expanded our market area into Harrison, Crawford and
Washington Counties, Indiana, while the 2012 acquisition of the First Federal branches enhanced our presence in
Harrison and Floyd Counties, Indiana. We intend to continue to pursue opportunities to expand our market share
and market area by seeking to open additional branch offices and pursuing opportunities to acquire other financial
institutions or branches of other financial institutions in our primary market area and surrounding areas.
Increasing shareholder value through stock repurchase programs and dividends.
The Company has been active in the repurchase of its common shares and has purchased and committed a
net of 370,230 shares to treasury as of September 30, 2014, which represents 14.56% of the 2,542,042 common
shares issued in its public offering in October 2008. In addition, the Company has 87,864 common shares remaining
for repurchase under the stock repurchase program approved by its Board of Directors on November 16, 2012.
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. For more information about our
stock repurchases, see “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.”
The Company paid a cash dividend of $0.10 per common share during the quarter ended December 31,
2013 and increased the quarterly cash dividend plan to $0.11 per common share beginning with the quarter ended
March 31, 2014, under which it paid $0.11 per common share for the quarters ended March 31, June 30 and
September 30, 2014, for a total of $0.43 per common share paid during the fiscal year ended September 30, 2014.
The Company currently intends to maintain a policy of paying regular quarterly cash dividends; however, the
Company cannot guarantee that it will pay dividends or that if paid, it will not reduce or eliminate dividends in the
future. For more information about our dividends, see “Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.”
Issuance of Preferred Stock under the U.S. Department of the Treasury’s Small Business Lending Fund
On August 11, 2011, First Savings Financial Group entered into and consummated a Securities Purchase
Agreement (the “Purchase Agreement”) with the Secretary of the Treasury, pursuant to which First Savings
Financial Group issued 17,120 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A
Preferred Stock”), having a liquidation amount per share equal to $1,000, for a total purchase price of $17.1 million.
The Purchase Agreement was entered into, and the Series A Preferred Stock was issued, pursuant to the Small
Business Lending Fund program, a $30 billion fund established under the Small Business Jobs Act of 2010, that
encourages lending to small businesses by providing capital to qualified community banks with assets of less than
$10 billion. See Note 24 of the Notes to Consolidated Financial Statements beginning of page F-1 of this annual
report for additional information regarding the terms of the Series A Preferred Stock.
Balance Sheet Analysis
Cash and Cash Equivalents. At September 30, 2014 and 2013, cash and cash equivalents totaled
$20.3 million and $20.8 million, respectively. The Bank is required to maintain reserve balances on hand and
with the Federal Reserve Bank, which are unavailable for investment but interest-bearing. The average
amount of those reserve balances for the year ended September 30, 2014 was approximately $7.1 million.
Loans. Our primary lending activity is the origination of loans secured by real estate. We originate
one-to four-family mortgage loans, multifamily loans, commercial real estate loans, commercial business
loans and construction loans. To a lesser extent, we originate various consumer loans including home equity
lines of credit.
Residential mortgage loans comprise the largest segment of our loan portfolio. At September 30,
2014, these loans totaled $182.7 million, or 40.9% of total loans, compared to $184.4 million, or 44.1% of
total loans at September 30, 2013. Total residential mortgage loan balances decreased in 2014 primarily due
36
to repayments and refinancings that were sold in the secondary market. We generally originate loans for
investment purposes, although, depending on the interest rate environment, we typically sell 25-year and 30-year
fixed-rate residential mortgage loans that we originate into the secondary market in order to limit exposure to
interest rate risk and to earn noninterest income. Management intends to continue offering short-term
adjustable rate residential mortgage loans and sell long-term fixed rate mortgage loans in the secondary
market with servicing released.
Commercial real estate loans totaled $153.9 million, or 34.5% of total loans at September 30, 2014,
compared to $117.8 million, or 28.2% of total loans at September 30, 2013. The balance of commercial real
estate loans has increased primarily due to the previously discussed lending program that is focused on loans
secured by low loan-to-value, single-tenant commercial properties that are leased to investment grade national-brand
retailers. Management continues to focus on pursuing nonresidential loan opportunities in order to further
diversify the loan portfolio.
Multi-family real estate loans totaled $21.3 million, or 4.8% of total loans at September 30, 2014,
compared to $26.8 million, or 6.4% of total loans at September 30, 2013. The balance of multi-family real estate
loans decreased primarily due to repayments and increased competition in the marketplace.
Residential construction loans totaled $14.5 million, or 3.3% of total loans, at September 30, 2014 of which
$4.8 million were speculative construction loans. At September 30, 2013, residential construction loans totaled
$12.5 million, or 3.0% of total loans, of which $7.7 million were speculative loans. The general slowdown in the
housing market in our primary market area and, to a lesser extent, increased competition in the market for
these loans has somewhat decreased the opportunity to originate these loans and significantly grow this
segment of the portfolio. We intend to continue pursuing quality construction lending opportunities as the
housing market continues to recover.
Commercial construction loans totaled $8.4 million, or 1.9% of total loans, at September 30, 2014
compared to $6.7 million, or 1.6% of total loans at September 30, 2013. The general slowdown of commercial
construction in our primary market area and increased competition in the marketplace has decreased the
opportunity to originate these loans and significantly grow this segment of the portfolio.
Land and land development loans totaled $11.3 million, or 2.5% of total loans at September 30,
2014, compared to $11.4 million, or 2.7% of total loans at September 30, 2013. These loans are primarily
secured by vacant lots to be improved for residential and nonresidential development and farmland. The
general slowdown of residential and commercial construction in our primary market area and increased
competition in the marketplace has decreased the opportunity to originate these loans and grow this segment
of the portfolio.
Commercial business loans totaled $28.4 million, or 6.4% of total loans, at September 30, 2014 compared
to $31.6 million, or 7.6% of total loans, at September 30, 2013. The balance of commercial business loans has
decreased primarily due to repayments, payoffs, charge-offs and increased competition in the marketplace.
Management continues to focus on pursuing commercial business loan opportunities in order to further
diversify the loan portfolio.
Consumer loans totaled $25.8 million, or 5.8% of total loans, at September 30, 2014 compared to $26.9
million, or 6.4% of total loans, at September 30, 2013. In general, organic consumer loans including automobile
loans, home equity lines of credit, unsecured loans and loans secured by deposits, have declined due to pay-
downs, payoffs, charge-offs and management’s decision to focus on other lending opportunities with less
inherent credit risk. Home equity lines of credit increased $770,000, or 4.5%, while automobile loans
decreased $900,000, or 13.8%, and other consumer loans decreased $946,000, or 29.0%, from September 30,
2013 to September 30, 2014.
37
0
1
0
2
1
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
t
A
2
1
0
2
3
1
0
2
4
1
0
2
t
n
e
c
r
e
P
t
n
u
o
m
A
t
n
e
c
r
e
P
t
n
u
o
m
A
t
n
e
c
r
e
P
t
n
u
o
m
A
t
n
e
c
r
e
P
t
n
u
o
m
A
t
n
e
c
r
e
P
t
n
u
o
m
A
)
s
d
n
a
s
u
o
h
t
n
i
s
r
a
l
l
o
D
(
:
e
g
a
g
t
r
o
m
e
t
a
t
s
e
l
a
e
R
%
3
3
.
9
4
5
4
.
5
1
4
8
.
5
5
5
.
4
3
8
.
2
0
6
.
2
9
6
8
,
3
5
0
6
3
,
0
2
7
6
8
,
5
1
1
5
8
,
9
6
7
0
,
9
7
0
0
,
2
7
1
$
0
6
.
0
8
0
3
0
,
1
8
2
%
5
6
.
6
4
5
2
.
0
2
6
8
.
6
0
2
.
2
4
1
.
1
7
5
.
3
7
6
.
0
8
3
1
5
,
3
7
9
0
9
,
4
2
2
0
0
,
8
4
4
1
,
4
7
4
9
,
2
1
8
6
8
,
2
9
2
3
5
3
,
9
6
1
$
%
2
7
.
7
4
6
5
.
2
2
7
9
.
5
9
6
.
2
9
2
.
1
8
0
.
3
0
9
2
,
0
9
9
7
8
,
3
2
8
4
7
,
0
1
2
8
1
,
5
0
2
3
,
2
1
8
5
9
,
0
9
1
$
%
0
1
.
4
4
7
1
.
8
2
2
8
7
,
7
1
1
0
9
3
,
4
8
1
$
%
4
9
.
0
4
8
4
.
4
3
0
4
.
6
0
0
.
3
1
6
.
1
3
7
.
2
9
5
7
,
6
2
7
3
5
,
2
1
0
3
7
,
6
6
9
3
,
1
1
7
7
.
4
5
2
.
3
7
8
.
1
3
5
.
2
3
4
7
,
2
8
1
$
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
l
a
i
t
n
e
d
i
s
e
R
6
8
2
,
1
2
8
2
5
,
4
1
4
5
3
,
8
0
9
2
,
1
1
6
9
8
,
3
5
1
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
l
a
i
c
r
e
m
m
o
C
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
y
l
i
m
a
f
-
i
t
l
u
M
.
.
.
.
.
.
.
.
.
.
.
.
.
.
n
o
i
t
c
u
r
t
s
n
o
c
l
a
i
t
n
e
d
i
s
e
R
.
.
.
.
.
.
.
.
.
.
.
.
n
o
i
t
c
u
r
t
s
n
o
c
l
a
i
c
r
e
m
m
o
C
.
.
.
.
.
.
.
.
t
n
e
m
p
o
l
e
v
e
d
d
n
a
l
d
n
a
d
n
a
L
1
3
.
3
8
7
7
3
,
3
3
3
1
0
.
6
8
4
9
5
,
9
5
3
4
8
.
7
8
7
9
0
,
2
9
3
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
l
a
t
o
T
6
8
.
8
5
0
9
,
0
3
9
1
.
1
1
8
2
6
,
0
4
4
0
.
9
9
8
1
,
6
3
6
5
.
7
7
2
6
,
1
3
7
3
.
6
8
4
4
,
8
2
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
s
s
e
n
i
s
u
b
l
a
i
c
r
e
m
m
o
C
8
6
.
4
4
8
.
3
2
0
.
2
4
5
.
0
1
5
3
3
,
6
1
5
0
4
,
3
1
0
3
0
,
7
0
7
7
,
6
3
9
1
.
4
1
7
.
2
4
2
.
1
4
1
.
8
7
2
8
,
9
4
1
5
,
4
0
1
2
,
5
1
1
5
5
,
9
2
7
5
.
4
5
0
.
2
3
0
.
1
5
6
.
7
9
1
2
,
8
4
1
1
,
4
4
9
2
,
8
1
7
2
6
,
0
3
0
1
.
4
6
5
.
1
7
7
.
0
3
4
.
6
9
1
5
,
6
6
6
2
,
3
3
3
1
,
7
1
8
1
9
,
6
2
1
0
.
4
6
2
.
1
2
5
.
0
9
7
.
5
9
1
6
,
5
0
2
3
,
2
3
0
9
,
7
1
2
4
8
,
5
2
.
.
.
.
.
.
.
.
.
t
i
d
e
r
c
f
o
s
e
n
i
l
y
t
i
u
q
e
e
m
o
H
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
s
n
a
o
l
o
t
u
A
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
r
e
h
t
O
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
l
a
t
o
T
:
r
e
m
u
s
n
o
C
%
0
0
.
0
0
1
5
0
7
,
8
4
3
%
0
0
.
0
0
1
7
4
0
,
3
6
3
%
0
0
.
0
0
1
3
9
1
,
0
0
4
%
0
0
.
0
0
1
9
3
1
,
8
1
4
%
0
0
.
0
0
1
7
8
3
,
6
4
4
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
s
n
a
o
l
s
s
o
r
G
)
7
5
0
,
2
(
8
4
6
,
6
4
3
8
7
7
)
1
1
8
,
3
(
5
1
6
,
3
4
3
$
)
1
0
5
,
4
(
6
4
5
,
8
5
3
8
5
5
)
2
7
6
,
4
(
2
3
4
,
4
5
3
$
)
2
0
6
,
6
(
1
9
5
,
3
9
3
2
8
3
)
6
0
9
,
4
(
7
6
0
,
9
8
3
$
)
9
8
3
,
4
(
0
5
7
,
3
1
4
3
6
1
)
8
3
5
,
5
(
5
7
3
,
8
0
4
$
)
1
7
2
,
6
(
6
1
1
,
0
4
4
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
s
n
a
o
l
n
o
i
t
c
u
r
t
s
n
o
c
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
e
c
n
a
l
a
b
n
a
o
l
l
a
p
i
c
n
i
r
P
f
o
n
o
i
t
r
o
p
d
e
s
r
u
b
s
i
d
n
U
0
1
)
0
5
2
,
6
(
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
t
e
n
,
s
t
s
o
c
d
n
a
s
e
e
f
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
s
e
s
s
o
l
n
a
o
l
r
o
f
e
c
n
a
w
o
l
l
A
6
7
8
,
3
3
4
$
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
t
e
n
,
s
n
a
o
L
n
o
i
t
a
n
i
g
i
r
o
n
a
o
l
d
e
r
r
e
f
e
D
.
d
e
t
a
c
i
d
n
i
s
e
t
a
d
e
h
t
t
a
o
i
l
o
f
t
r
o
p
n
a
o
l
r
u
o
f
o
n
o
i
t
i
s
o
p
m
o
c
e
h
t
h
t
r
o
f
s
t
e
s
e
l
b
a
t
g
n
i
w
o
l
l
o
f
e
h
T
8
3
Loan Maturity
The following table sets forth certain information at September 30, 2014 regarding the dollar amount of
loan principal repayments becoming due during the period indicated. The table does not include any estimate of
prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience
to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are
reported as due in one year or less.
(Dollars in thousands)
Amounts due in:
One year or less ...................................
More than one year to two years ..........
More than two years to three years ......
More than three years to five years ......
More than five years to ten years .........
More than ten years to fifteen years .....
More than fifteen years ........................
Total .................................................
At September 30, 2014
Residential
Real Estate
(1)
Commercial
Real Estate
(2)
Construction
(3)
Commercial
Business
Consumer
Total
Loans
$ 21,438
14,164
12,731
20,899
42,391
32,961
59,445
$ 204,029
$ 36,561
24,288
17,608
24,270
45,499
11,221
5,739
$ 165,186
$ 22,882
-
-
-
-
-
-
$ 22,882
$ 15,640
4,058
2,146
2,121
2,441
1,458
584
$ 28,448
$ 6,439
4,344
3,279
4,247
5,442
2,091
-
$ 25,842
$ 102,960
46,854
35,764
51,537
95,773
47,731
65,768
$ 446,387
(1) Includes multi-family loans.
(2) Includes farmland and land and land development loans.
(3) Includes construction loans for which the Bank has committed to provide permanent financing.
Fixed vs. Adjustable Rate Loans
The following table sets forth the dollar amount of all loans at September 30, 2014 that are due after
September 30, 2015, and have either fixed interest rates or adjustable interest rates. The amounts shown below
exclude unearned loan origination fees.
(In thousands)
Residential real estate (1) ..................................................
Commercial real estate (2) .................................................
Construction ......................................................................
Commercial business .........................................................
Consumer ..........................................................................
Total ...............................................................................
Fixed Rates Adjustable Rates
$ 97,585
54,194
-
8,439
4,666
$ 164,884
$ 85,006
74,431
-
4,369
14,737
$ 178,543
Total
$ 182,591
128,625
-
12,808
19,403
$ 343,427
(1) Includes multi-family loans.
(2) Includes farmland and land and land development loans.
39
Loan Activity
The following table shows loans originated, purchased and sold during the periods indicated.
(In thousands)
Total loans at beginning of period ......................
Loans originated:
Residential real estate (1) ................................
Commercial real estate (2) ..............................
Construction ....................................................
Commercial business ......................................
Consumer ........................................................
Total loans originated ................................
Loans purchased.................................................
Increase due to acquisition of First Federal branches
Deduct:
Loan principal repayments ..............................
Loan sales .......................................................
Net loan activity .................................................
Total loans at end of period ................................
Year Ended September 30,
2013
$ 400,193
2012
$ 363,047
2014
$ 418,139
32,487
64,644
8,691
6,657
7,607
120,086
–
–
36,573
60,503
9,122
8,296
7,182
121,676
–
–
28,403
29,622
8,239
8,936
8,379
83,579
5,923
32,408
(87,327)
(4,511)
28,248
$ 446,387
(97,373)
(6,357)
17,946
$ 418,139
(82,020)
(2,744)
37,146
$ 400,193
(1) Includes multi-family loans.
(2) Includes farmland and land and land development loans.
Trading Account Securities. Our trading account securities represent an investment in a managed
brokerage account in May 2012 that invests in small and medium lot, investment grade municipal bonds. The
brokerage account is managed by an investment advisory firm registered with the U.S. Securities and
Exchange Commission. At September 30, 2014, trading account securities recorded at fair value totaled $5.3
million, comprised of investment grade municipal bonds. See Note 3 of the Notes to Consolidated Financial
Statements beginning on page F-1 of this annual report for additional information regarding trading account
securities.
Securities Available for Sale. Our available for sale securities portfolio consists primarily of U.S.
government agency and sponsored enterprises securities, mortgage backed securities and collateralized mortgage
obligations issued by U.S. government agencies and sponsored enterprises, municipal bonds, and privately-issued
collateralized mortgage obligations and asset-backed securities. Available for sale securities increased by $20.5
million from $164.2 million at September 30, 2013 to $184.7 million at September 30, 2014 primarily due to
purchases of $41.8 million and unrealized gains of $3.8 million, which more than offset maturities and calls of $9.7
million, sales of $808,000 and principal repayments of $13.9 million.
Securities Held to Maturity. Our held to maturity securities portfolio consists primarily of mortgage-
backed securities issued by government sponsored enterprises and municipal bonds. Held to maturity securities
decreased by $998,000 from September 30, 2013 to September 30, 2014, primarily due to maturities and principal
repayments of $963,000.
40
The following table sets forth the amortized costs and fair values of our investment securities at the dates
indicated.
2014
At September 30,
2013
2012
Amortized
Cost
(In thousands)
Securities available for sale:
Agency bonds and notes ................ $ 12,269
Agency mortgage-backed
51,845
securities ....................................
Agency CMO.................................
Privately-issued CMO...................
Privately-issued asset-backed ........
SBA certificates .............................
Municipal .......................................
Equity securities .............................
Total ........................................ $ 178,517
29,648
3,302
5,552
1,753
74,148
–
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$ 12,091
52,255
$ 15,877
41,720
$ 15,197
41,714
$ 15,940
42,255
$ 16,064
43,420
29,484
3,920
7,353
1,762
77,832
–
$ 184,697
24,200
3,881
5,829
2,081
68,072
–
$ 161,660
24,074
4,616
7,799
2,093
68,581
93
$ 164,167
17,186
4,283
5,797
–
58,135
–
$ 143,596
17,541
5,289
7,227
–
62,933
69
$ 152,543
Securities held to maturity:
Agency mortgage-backed
securities .................................... $ 455
Municipal .......................................
4,964
Total ........................................ $ 5,419
$ 492
5,357
$ 5,849
$ 721
5,696
$ 6,417
$ 773
5,741
$ 6,514
$ 1,342
6,506
$ 7,848
$ 1,460
6,854
$ 8,314
The following table sets forth the activity in our investment available for sale and held to maturity
securities portfolio during the periods indicated.
At or For the Year Ended
September 30,
2013
2012
2014
(In thousands)
Mortgage-backed securities:
Mortgage-backed securities, beginning of period (1) ..... $ 42,487
17,688
Purchases .......................................................................
–
Sales ...............................................................................
–
Maturities .......................................................................
Repayments and prepayments ........................................
(7,010)
Net amortization of premiums and accretion of
discounts on securities ................................................
Gains on sales ................................................................
Increase (decrease) in net unrealized gain ......................
Net increase (decrease) in mortgage-backed
securities .................................................................
10,260
Mortgage-backed securities, end of period (1) ............... $ 52,747
(820)
–
402
$ 44,880
11,361
–
–
(11,629)
$ 20,830
33,762
–
–
(9,596)
(887)
–
(1,238)
(625)
–
509
(2,393)
$ 42,487
24,050
$ 44,880
Investment securities:
Investment securities, beginning of period (1) ............... $ 128,194 $ 115,977
39,591
Purchases .......................................................................
(801)
Sales ...............................................................................
(12,990)
Maturities .......................................................................
Repayments and prepayments ........................................
(8,281)
Net accretion of premiums and discounts
273
on securities ................................................................
–
Other than temporary impairment loss ...........................
1
Gains on sales ................................................................
(5,576)
Increase (decrease) in net unrealized gain ......................
Net increase in investment securities ..........................
12,217
Investment securities, end of period (1) ......................... $ 137,799 $ 128,194
24,077
(808)
(10,358)
(7,209)
177
–
123
3,603
9,605
$ 97,437
43,014
(2,265)
(13,318)
(12,529)
242
–
30
3,366
18,540
$ 115,977
(1) At fair value.
41
The following table sets forth the stated maturities and weighted average yields of debt securities at
September 30, 2014. Weighted average yields on tax-exempt securities are presented on a tax equivalent basis using
a federal marginal tax rate of 34%. Certain mortgage-backed securities and collateralized mortgage obligations have
adjustable interest rates and will reprice annually within the various maturity ranges. These repricing schedules are
not reflected in the table below. Weighted average yield calculations on investments available for sale do not give
effect to changes in fair value that are reflected as a component of equity.
One Year
or Less
More than
One Year to
Five Years
More than
Five Years to
Ten Years
More than
Ten Years
Total
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
(Dollars in thousands)
Securities available for sale:
Agency bonds and notes ...................... $ –
Agency mortgage-backed securities .....
1
–
Agency CMO .......................................
Privately-issued CMO ..........................
–
–
Privately-issued ABS ...........................
SBA Certificates ..................................
–
833
Municipal .............................................
$ 834
Total ..............................................
5,609
2,579
– % $ –
2.72
–
–
–
–
–
–
–
2.66
5,824
2.66% $ 14,012
– % $ 7,582
5,775
2.03
535
1.72
–
–
–
–
–
–
2.85
15,456
2.31% $29,348
1.30% $ 4,509
40,870
1.97
26,370
1.96
3,920
–
7,353
–
1,762
–
4.39
55,719
3.07% $140,503
1.87% $ 12,091
52,255
2.23
29,484
1.67
3,920
9.85
7,353
20.31
1,762
1.24
5.09
77,832
4.39% $184,697
1.51%
2.18
1.68
9.85
20.31
1.24
4.76
4.02%
Securities held to maturity:
Agency mortgage-backed securities ..... $ –
Municipal .............................................
593
Total .............................................. $ 593
– % $ –
5.55
1,906
5.55% $ 1,906
– % $ –
6.51
1,496
6.51% $ 1,496
– % $ 455
6.94%
968
6.94% $ 1,423
3.93% $ 455
6.73
4,964
5.84% $ 5,419
3.93%
6.57
6.35%
As of September 30, 2014, we did not own any investment securities of a single issuer that had an
aggregate book value in excess of 10% of the Company’s stockholders’ equity at that date, other than securities and
obligations issued by U.S. government agencies and sponsored enterprises.
Deposits. Deposit accounts, generally obtained from individuals and businesses throughout our
primary market area, are our primary source of funds for lending and investments. Our deposit accounts are
comprised of noninterest-bearing accounts, interest-bearing savings, checking and money market accounts
and certificates of deposits. Deposits increased $55.5 million from $477.7 million at September 30, 2013 to
$533.2 million at September 30, 2014. The Bank recognized increases in money market deposit accounts of
$9.3 million, noninterest-bearing checking accounts of $6.0 million, interest-bearing savings accounts of $3.8
million, interest-bearing checking accounts of $3.5 million and certificates of deposit of $32.8 million when
comparing the two years. Brokered certificates of deposit totaled $57.8 million at September 30, 2014
compared to $3.0 million at September 30, 2013. We have continued to promote relationship-oriented
deposit accounts but at times utilize a certain level of brokered certificates of deposit as a lower-cost
alternative to retail certificates of deposit. In addition, we have continued to develop and promote cash
management services including sweep accounts and remote deposit capture in order to increase the level of
commercial deposit accounts. We believe that the development and promotion of these products has made us
more competitive in attracting commercial deposits during recent periods.
42
The following table sets forth the balances of our deposit accounts at the dates indicated.
(In thousands)
Non-interest-bearing demand deposits ............................................... $ 56,092 $ 50,093 $ 50,502
100,438
NOW accounts ................................................................................... 117,200
64,186
81,144
Money market accounts .....................................................................
62,610
Savings accounts ................................................................................
71,235
Certificates of deposit ........................................................................ 207,523
216,498
Total ............................................................................................. $ 533,194 $ 477,726 $ 494,234
113,670
71,794
67,463
174,706
2012
2014
At September 30,
2013
The following table indicates the amount of jumbo certificates of deposit by time remaining until maturity
as of September 30, 2014. Jumbo certificates of deposit require minimum deposits of $100,000.
(In thousands)
Three months or less ..........................................................................
Over three through six months ............................................................
Over six through twelve months .........................................................
Over twelve months ............................................................................
Total ...............................................................................................
Amount
$ 8,491
4,861
9,481
22,154
$ 44,987
The following table sets forth time deposits classified by rates at the dates indicated.
At September 30,
2013
2014
(In thousands)
0.00 - 1.00% ....................................................................................... $ 134,795 $ 84,442 $ 88,816
66,867
1.01 - 2.00% .......................................................................................
43,106
2.01 - 3.00% .......................................................................................
10,523
3.01 - 4.00% .......................................................................................
5,313
4.01 - 5.00% .......................................................................................
1,873
5.01 - 6.00% .......................................................................................
–
6.01 - 7.00% .......................................................................................
7.01 - 8.00% .......................................................................................
–
Total .............................................................................................. $ 207,523 $ 174,706 $ 216,498
46,692
30,382
8,113
3,177
1,900
–
–
38,502
25,203
5,156
1,935
1,932
–
–
2012
The following table sets forth the amount and maturities of time deposits at September 30, 2014.
Amount Due
Less Than
One Year
(Dollars in thousands)
0.00 - 1.00% ............................ $ 95,117
10,967
1.01 - 2.00% ............................
9,011
2.01 - 3.00% ............................
894
3.01 - 4.00% ............................
211
4.01 - 5.00% ............................
5.01 - 6.00% ............................
–
–
6.01 - 7.00% ............................
Total ................................... $ 116,200
More Than
One Year to
Two Years
$ 12,891
5,236
6,623
111
748
1,260
–
$ 26,869
More Than
Two Years to
Three Years
$ 12,928
17,527
11
17
467
659
–
$31,609
More Than
Three Years
$ 13,859
4,772
9,558
4,134
509
13
–
$ 32,845
Total
$ 134,795
38,502
25,203
5,156
1,935
1,932
–
$ 207,523
Percent of Total
Time Deposit
Accounts
64.95%
18.55
12.15
2.49
0.93
0.93
–
100.00%
The following table sets forth deposit activity for the periods indicated.
(In thousands)
Beginning balance .............................................................................. $ 477,726 $ 494,234 $ 387,626
116,541
Increase due to acquisition of First Federal branches.... .....................
(14,215)
Increase (decrease) before interest credited .......................................
4,282
Interest credited ..................................................................................
Net increase (decrease) in deposits ....................................................
106,608
Ending balance ................................................................................... $ 533,194 $ 477,726 $ 494,234
–
(19,527)
3,019
(16,508)
–
53,064
2,404
55,468
Year Ended September 30,
2012
2013
2014
43
Borrowings. We use borrowings from the Federal Home Loan Bank of Indianapolis (FHLBI) consisting of
advances and borrowings under a line of credit arrangement to supplement our supply of funds for loans and
investments. We also utilize retail and broker repurchase agreements as sources of borrowings.
The following table sets forth certain information regarding the Bank’s use of FHLBI borrowings.
(Dollars in thousands)
Maximum amount of FHLBI borrowings outstanding at any month-
end during period ............................................................................... $ 102,565
88,271
Average FHLBI borrowings outstanding during period .....................
Weighted average interest rate during period .....................................
Balance outstanding at end of period ................................................. $ 79,548
Weighted average interest rate at end of period .................................
1.27%
1.10%
$ 89,348
69,198
$ 98,381
67,346
1.53%
1.68%
$ 89,348
$ 53,062
1.15%
2.11%
Year Ended September 30,
2012
2013
2014
The outstanding balance of borrowings from the FHLBI decreased $9.8 million from $89.3 million at
September 30, 2013 to $79.5 million at September 30, 2014. FHLBI borrowings are primarily used to fund loan
demand and to purchase available for sale securities. See Note 12 of the Notes to Consolidated Financial
Statements beginning on page F-1 of this annual report for additional information regarding FHLBI borrowings.
The following table sets forth certain information regarding the Bank’s use of borrowings under retail
repurchase agreements.
(Dollars in thousands)
Maximum amount of retail repurchase agreements outstanding at
any month-end during period ............................................................. $ 1,338
Average retail repurchase agreements outstanding during period ......
1,336
Weighted average interest rate during period .....................................
Balance outstanding at end of period ................................................. $ 1,338
Weighted average interest rate at end of period .................................
0.25%
0.25%
$ 1,335
1,332
$ 1,329
1,324
0.45%
0.62%
$ 1,335
$ 1,329
0.25%
0.50%
Year Ended September 30,
2012
2013
2014
The following table sets forth certain information regarding the Bank’s use of borrowings under repurchase
agreements with broker-dealers.
(Dollars in thousands)
Maximum amount of broker repurchase agreements outstanding at
any month-end during period ............................................................. $ -
-
Average broker repurchase agreements outstanding during period ....
Weighted average interest rate during period .....................................
-
Balance outstanding at end of period ................................................. $ -
Weighted average interest rate at end of period .................................
-
$ -
-
-
$ -
-
$ 15,047
2,785
2.09%
$ -
-
Year Ended September 30,
2012
2013
2014
See Note 11 of the Notes to Consolidated Financial Statements beginning on page F-1 of this annual report
for additional information regarding repurchase agreements.
Other Long-Term Debt. On July 27, 2012, FFCC, Inc. entered into a loan agreement with another
financial institution to finance the retail development project discussed in Note 5 of the Notes to Consolidated
Financial Statements beginning on page F-1 of this annual report. The loan had a maximum commitment of $5.0
million and the outstanding balance of the loan was $4.8 million at September 30, 2014. See Note 13 of the
Notes to Consolidated Financial Statements beginning on page F-1 of this annual report for additional information
regarding other long-term debt.
44
Results of Operations for the Years Ended September 30, 2014 and 2013
Overview. The Company reported net income of $5.4 million and net income available to common
shareholders of $5.2 million ($2.34 per common share diluted; weighted average common shares outstanding
of 2,229,314, as adjusted) for the year ended September 30, 2014, compared to net income of $4.7 million
and net income available to common shareholders of $4.5 million ($1.99 per common share diluted; weighted
average common shares outstanding of 2,269,063, as adjusted) for the year ended September 30, 2013.
As discussed in “Noninterest Expense” below, the Company recognized nonrecurring pretax charges
totaling $317,000 during the year ended September 30, 2014 for consulting services and travel expenses related to a
revenue enhancement and operating expense efficiencies project undertaken by the Company in 2014, including
professional fees of $257,000 and other miscellaneous travel expenses of $60,000. The Company also
recognized nonrecurring pretax income totaling $277,000 during the year ended September 30, 2014 for a litigation
settlement received as a partial recovery of losses on commercial bond investments recognized by Community First
in 2008, as discussed in “Noninterest Income” below.
Net Interest Income. Net interest income increased $700,000, or 3.0%, from $23.2 million for the
year ended September 30, 2013 to $23.9 million for the year ended September 30, 2014 primarily as the result
of an increase in the average balance of interest earning assets from 2013 to 2014, which more than offset a
decrease in the interest rate spread from 2013 to 2014. The interest rate spread, the difference between the
average tax-equivalent yield on interest-earning assets and the average cost of interest-bearing liabilities,
decreased from 3.98% for 2013 to 3.86% for 2014 due primarily to a decrease in the average tax-equivalent
yield on interest-earning assets from 4.75% for 2013 to 4.50% for 2014, which more than offset a decrease in the
average cost of interest-bearing liabilities from 0.77% for 2013 to 0.64% for 2014.
Total interest income increased $319,000, or 1.2% from $27.2 million for the year ended September
30, 2013 to $27.5 million for the year ended September 30, 2014. The increase in total interest income is due
primarily to an increase in the average balance of interest earning assets of $42.2 million from $591.0 million for
2013 to $633.2 million for 2014, which more than offset the change in total interest income due to a decrease in the
average tax-equivalent yield on interest-earning assets from 4.75% for 2013 to 4.50% for 2014. The increase in
the average balance of interest-earning assets primarily relates to increases in the average balance of loans of $26.4
million, total investment securities of $14.3 million and interest-bearing deposits with banks of $1.1 million.
Interest income on loans decreased $165,000, or 0.8%, from $21.1 million for 2013 to $21.0 million
for 2014 due primarily to a decrease in the average tax-equivalent yield on loans from 5.27% for 2013 to
4.91% for 2014 and despite an increase in the average balance of loans outstanding of $26.4 million from
$402.4 million for 2013 to $428.8 million for 2014. The increase in the average balance of loans outstanding is
due primarily to an increase in commercial real estate mortgage loans, which is primarily due to the previously
discussed lending program that is focused on loans secured by low loan-to-value, single-tenant commercial
properties that are leased to investment grade national-brand retailers. In addition, and in an effort to increase the
size and diversity of the loan portfolio, the Bank offered competitive rates on short-term in-market
commercial real estate mortgage loans and was successful in originating these loans. This increase in
commercial real estate loans more than offset the decreases in the residential and multi-family real estate,
commercial business and consumer loan portfolios.
Interest income on investment securities increased $433,000, or 7.4%, from $5.8 million for 2013 to
$6.3 million for 2014. The increase in interest income on investment securities is due primarily to an
increase in the average balance of investment securities of $14.3 million, or 8.3%, from $171.9 million for
2013 to $186.2 million for 2014, which more than offset the change in interest income on investment
securities due to a decrease in the average tax-equivalent yield on investments securities from 3.86% for 2013
to 3.84% for 2014. During 2014, in an effort to maximize earnings and diversify the asset portfolio, the Bank
increased its investments in mortgage-backed securities and CMOs issued by U.S. government agencies and
sponsored enterprises, and municipal bonds.
45
Total interest expense decreased $381,000, or 9.8%, due primarily to a decrease in the average cost
of funds from 0.77% for 2013 to 0.64% for 2014, which more than offset the change in total interest expense
due to a $39.5 million increase in the average balance of interest-bearing liabilities from $512.7 million for
2013 to $552.2 million for 2014. The average balance of interest-bearing deposits increased $19.5 million, or
4.5%, from $438.2 million for 2013 to $457.7 million for 2014 and the average cost of funds for deposits was
0.64% for 2013 compared to 0.52% for 2014. The average balance of borrowings increased $20.0 million, or
27.0%, from $74.5 million for 2013 to $94.5 million for 2014 and the average cost of funds for borrowings
was 1.53% for 2013 compared to 1.24% for 2014. The average cost of interest-bearing liabilities decreased
for 2014 primarily as a result of a reduction in the rates offered on deposit accounts during 2014, the
repricing of time deposits at lower market rates during 2014, and the use of a certain level of lower-cost
borrowings.
46
Average Balances and Yields.
The following tables present information regarding average balances of assets and liabilities, the total dollar
amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest
expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and
costs for the periods indicated are derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented. Nonaccrual loans are included in average balances only. Loan
fees are included in interest income on loans and are not material. Tax exempt income on loans and investment
securities has been calculated on a tax equivalent basis using a federal marginal tax rate of 34%.
Yield/
Cost
0.12%
5.58
4.84
2.41
3.04
5.11
0.54
0.71
0.26
1.27
0.92
1.67
1.04
4.07%
4.22%
116.16%
2014
Interest
and
Dividends
Average
Balance
(Dollars in thousands)
Assets:
Interest-bearing deposits with banks .....$ 12,356 $ 35
21,047
Loans ..................................................... 428,844
Investment securities ............................. 136,806
6,118
1,026
49,384
Mortgage-backed securities...................
245
Federal Home Loan Bank stock ..........
5,802
28,471
Total interest-earning assets ............ 633,192
Year Ended September 30,
Yield/
Cost
Average
Balance
2013
Interest
and
Dividends
Yield/
Cost
Average
Balance
2012
Interest
and
Dividends
0.28% $ 11,295 $ 29
21,227
4.91
5,781
4.47
845
2.08
200
4.22
28,082
4.50
402,430
128,363
43,502
5,415
591,005
0.26% $ 9,346 $ 11
20,709
371,066
5.27
5,066
104,715
4.50
785
32,635
1.94
4,965
3.69
151
26,722
522,727
4.75
60,319
Non-interest-earning assets ......................
Total assets ......................................$693,511
59,944
$650,949
49,979
$572,706
Liabilities and equity:
NOW accounts ......................................$115,594 $ 241
Money market deposit accounts ............
74,397
244
45
Passbook accounts .................................
69,970
Certificates of deposit ........................... 197,756
1,851
2,381
Total interest-bearing deposits ........... 457,717
0.21 $ 108,668 $ 314
276
69,736
0.33
60
65,950
0.06
2,149
193,884
0.94
2,799
438,238
0.52
0.29 $ 78,530 $ 424
347
48,878
0.40
48,055
0.09
125
2,580
202,797
1.11
3,476
378,260
0.64
94,534
Borrowings (1) ......................................
Total interest-bearing liabilities .......... 552,251
1,174
3,555
1.24
0.64
51,811
Non-interest-bearing deposits ...............
Other non-interest-bearing liabilities .....
5,025
Total liabilities ................................ 609,087
Total equity ...........................................
84,424
Total liabilities and equity ..................$693,511
Net interest income ...............................
Interest rate spread ................................
Net interest margin ................................
Average interest-earning assets to
average interest-bearing liabilities ......
$ 24,916
3.86%
3.93%
114.66%
74,478
512,716
49,886
4,971
567,573
83,376
$650,949
1,137
3,936
1.53
0.77
71,743
450,003
1,199
4,675
40,304
3,325
493,632
79,074
$572,706
$ 24,146
$ 22,047
3.98%
4.09%
115.27%
(1)
Includes Federal Home Loan Bank borrowings, repurchase agreements and other long-term debt.
47
Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net
interest income. 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.
Year Ended September 30, 2014
Compared to
Year Ended September 30, 2013
Increase (Decrease)
Due to
Year Ended September 30, 2013
Compared to
Year Ended September 30, 2012
Increase (Decrease)
Due to
Volume
(In thousands)
Interest income:
Interest-bearing deposits with banks .................. $ 4
Loans .................................................................
4,396
376
Investment securities ..........................................
Mortgage-backed securities ................................
118
16
Other interest-earning assets ..............................
4,910
Total interest-earning assets .........................
Interest expense:
130
Deposits ..............................................................
Federal Home Loan Bank advances ...................
125
Total interest-bearing liabilities ....................
255
Net increase (decrease) in net interest income .... $ 4,655
Rate
Net
Volume
Rate
Net
$ 2
(4,576)
(39)
63
29
(4,521)
(548)
(88)
(636)
$ (3,885)
$ 6 $ 2
1,511
1,038
144
15
2,710
(180)
337
181
45
389
$ 16
(993)
(323)
(84)
34
(1,350)
$ 18
518
715
60
49
1,360
(418)
37
(381)
$ 770
737
53
790
$ 1,920
(1,414)
(115)
(1,529)
$ 179
(677)
(62)
(739)
$ 2,099
Provision for Loan Losses. The provision for loan losses decreased $612,000, or 32.9%, from $1.9
million for the year ended September 30, 2013 to $1.2 million for the year ended September 30, 2014. During
2014, the Bank had net charge-offs of $534,000 million compared to $1.2 million for 2013. The gross loan
portfolio increased $28.3 million from $418.1 million at September 30, 2013 to $446.4 million at September
30, 2014, primarily in the commercial real estate mortgage portfolio. Nonperforming loans decreased $4.8
million from $9.1 million at September 30, 2013 to $4.3 million at September 30, 2014, due primarily to a
single commercial real estate loan with an outstanding balance of $3.9 million that was reclassified from nonaccrual
to accruing status in the December 2013 quarter. 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
the growth in the commercial real estate mortgage loan portfolio. See “Analysis of Nonperforming and
Classified Assets” included herein. It is management’s assessment that the allowance for loan losses at
September 30, 2014 was adequate and appropriately reflected the inherent risk of loss in the Bank’s loan
portfolio at that date.
Noninterest Income. Noninterest income increased $788,000, or 18.5%, from $4.3 million for the year
ended September 30, 2013 to $5.0 million for the year ended September 30, 2014. The increase is due primarily to
increases in real estate lease income of $251,000, which relates to the real estate development discussed in Note 5 of
the Notes to Consolidated Financial Statements beginning on page F-1 of this annual report, an increase in other
income due to a litigation settlement of $277,000 for a partial recovery of losses on commercial bond investments
recognized by Community First in 2008, and an increase in net gain on trading securities of $240,000. These and
additional increases were partially offset by a decrease in net gain on sales of loans of $223,000 when comparing the
two years.
48
Noninterest Expense. Noninterest expenses increased $1.2 million, or 6.0%, from $19.1 million for the
year ended September 30, 2013 to $20.3 million for the year ended September 30, 2014. The increase was due
primarily to increases in compensation and benefits expense of $657,000, professional fees of $362,000, and
occupancy and equipment expense of $295,000, which more than offset decreases in other operating expenses of
$195,000. The increase in compensation and benefits expense is due primarily to normal salary, wages and benefits
increases. The increase in professional fees expense is due primarily to $257,000 for consulting services related to
the revenue enhancement and operating expense efficiencies project undertaken by the Company in 2014, and
increased investment management fees related to the trading account securities portfolio as a result of the higher
level of performance in the year ended September 30, 2014 as compared to the year ended September 30, 2013. The
increase in occupancy and equipment expense is due primarily to the operation of the Bank’s new branch location in
New Albany, Indiana, which opened in August 2013, and additional expenses related to the real estate development
discussed previously.
Income Tax Expense. The Company recognized income tax expense of $2.1 million for the year ended
September 30, 2014, for an effective tax rate of 27.8%, compared to income tax expense of $1.8 million, for an
effective tax rate of 27.8%, for the year ended September 30, 2013. See Note 17 of the Notes to Consolidated
Financial Statements beginning on page F-1 of this annual report for additional information regarding income taxes.
Risk Management
Overview. Managing risk is essential to successfully managing a financial institution. Our most prominent
risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest
and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of
interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may
result in changes in the values of financial instruments, such as available-for-sale securities that are accounted for on
a mark-to-market basis. Other risks that we face are operational risks, liquidity risks and reputation risk.
Operational risks include risks related to fraud, regulatory compliance, processing errors, technology and disaster
recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Reputation
risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or
revenue or in the value of our common stock once we become a public company. The Company has implemented
an enterprise risk management structure in order to better manage and mitigate these identified and perceived risks.
Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit
policies and uniform underwriting criteria and providing prompt attention to potential problem loans.
When a borrower fails to make a required loan payment, we take a number of steps to have the borrower
cure the delinquency and restore the loan to current status. When the loan becomes 15 days past due, a late notice is
sent to the borrower and a late fee is assessed. When the loan becomes 30 days past due, a more formal letter is
sent. Between 15 and 30 days past due, telephone calls are also made to the borrower. After 30 days, we regard the
borrower as in default. The borrower may be sent a letter from our attorney and we may commence collection
proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before
the foreclosure sale, the real property securing the loan generally is sold at foreclosure. Generally, when a consumer
loan becomes 60 days past due, we institute collection proceedings and attempt to repossess any personal property
that secures the loan. Generally, we institute foreclosure proceedings when a loan is 60 days past due. Management
obtains the approval of the Board of Directors to proceed with foreclosure of property. Management informs the
Board of Directors monthly of all loans in nonaccrual status, all loans in foreclosure and all repossessed property
and assets that we own.
49
Analysis of Nonperforming and Classified Assets. We consider non-accrual loans, troubled debt
restructurings, repossessed assets and loans that are 90 days or more past due to be nonperforming assets. Loans are
generally placed on non-accrual status when they become 90 days delinquent at which time the accrual of interest
ceases and the allowance for any uncollectible accrued interest is established and charged against operations.
Typically, payments received on a non-accrual loan are first applied to the outstanding principal balance.
Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other
real estate owned until it is sold. When property is acquired it is recorded at its fair market value less estimated
costs to sell at the date of foreclosure. Holding costs and declines in fair value after acquisition of the property
result in charges against income. See Note 7 of the Notes to Consolidated Financial Statements beginning on page
F-1 of this annual report for additional information regarding foreclosed real estate.
The following table provides information with respect to our nonperforming assets at the dates indicated.
Included in nonperforming loans are loans for which the Bank has modified the repayment terms, and therefore are
considered to be troubled debt restructurings. The Bank had twenty-nine troubled debt restructurings totaling $7.5
million, which were performing according to their terms and on accrual status, as of September 30, 2014. See Note
4 of the Notes to Consolidated Financial Statements beginning on page F-1 of this annual report for additional
information regarding trouble debt restructurings.
2014
(Dollars in thousands)
Non-accrual loans:
Residential real estate ................................. $ 2,431
1,034
Commercial real estate ...............................
–
Multi-family ...............................................
–
Construction ...............................................
–
Land and land development ........................
123
Commercial business ..................................
Consumer ....................................................
216
3,804
Total (1) ...................................................
At September 30,
2012
2013
2011
$ 3,519 $ 2,775 $ 3,758
1,133
–
174
340
2
215
5,622
4,817
–
29
–
218
310
8,893
899
–
174
–
66
175
4,089
Accruing loans past due 90 days or more:
Residential real estate .................................
Commercial real estate ...............................
Multi-family ...............................................
Construction ...............................................
Land and land development ........................
Commercial business ..................................
Consumer ....................................................
Total ........................................................
Total non-performing loans ..................
Trouble debt restructurings classified as
performing loans:
Residential real estate .................................
Commercial real estate ...............................
Multifamily.................................................
Commercial business..................................
Consumer....................................................
Total troubled debt restructurings
classified as performing loans ................
458
–
–
–
–
–
20
478
4,282
2,710
4,671
–
22
134
143
–
–
–
–
–
21
164
9,057
2,187
1,274
2,306
17
146
1,548
3
–
–
–
98
94
1,743
5,832
2,993
1,290
2,356
14
158
603
949
–
–
–
99
61
1,712
7,334
1,499
812
–
–
–
7,537
5,930
6,811
2,311
953
Real estate owned ..........................................
Other non-performing assets ..........................
12
Total non-performing assets ................. $ 12,784
799
2
1,028
126
$ 15,788 $ 14,124 $ 10,799
1,481
–
2010
$ 2,753
843
–
490
–
207
303
4,596
602
327
–
272
–
137
62
1,400
5,996
–
–
–
–
–
–
1,331
171
$ 7,498
Total non-performing loans to total loans ......
Total non-performing loans to total assets .....
Total non-performing assets to total assets ....
0.96%
0.60%
1.79%
2.17%
1.37%
2.39%
1.46%
0.91%
2.21%
2.02%
1.37%
2.01%
1.71%
1.17%
1.47%
(1) Total nonaccrual loans includes four, seven and four trouble debt restructurings that were on non-accrual
status at September 30, 2014, 2013 and 2010, respectively, totaling $910,000, $4.8 million and $592,000,
respectively.
50
Federal regulations require us to review and classify our assets on a regular basis. In addition, the Office of
the Comptroller of the Currency has the authority to identify problem assets and, if appropriate, require them to be
classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets”
must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some
loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing
facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is
considered uncollectible and of such little value that continuance as an asset of the institution, without establishment
of a specific allowance or charge-off, is not warranted. The regulations also provide for a “special mention”
category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset
as doubtful we may establish a specific allowance for loan losses. If we classify an asset as loss, we charge off an
amount equal to 100% of the portion of the asset classified loss.
The following table shows the aggregate amounts of investment in classified and criticized assets at the
dates indicated.
(In thousands)
2014
Special mention assets ................................... $ 14,832
At September 30,
2013
$ 7,256
2012
$ 10,595
Substandard assets (1) ...................................
Doubtful assets ...............................................
Loss assets ......................................................
Total classified assets ..................................
17,277
224
–
17,501
18,965
1,087
–
20,052
22,734
1,055
–
23,789
Total criticized assets ................................... $ 32,333
$ 27,308
$ 34,384
(1)
Includes substandard loans and investment securities, other real estate owned and repossessed assets.
Classified assets includes loans that are classified due to factors other than payment delinquencies, such as
lack of current financial statements and other required documentation, insufficient cash flows or other deficiencies,
and, therefore, are not included as non-performing assets. Other than as disclosed in the above tables, there are no
other loans where management has serious doubts about the ability of the borrowers to comply with the present loan
repayment terms. Classified assets also include investment securities that have experienced a downgrade of the
security’s credit quality rating by various rating agencies.
At September 30, 2014, the Company held twenty privately-issued CMO and ABS securities with an
aggregate carrying value of $2.9 million and fair value of $4.4 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. Based
on an independent third party analysis, the Bank expects to collect the contractual principal and interest cash flows
for these securities and, as a result, no other-than-temporary impairment has been recognized on the privately-issued
CMO or ABS portfolios. At September 30, 2013, the Company held twenty privately-issued CMO and ABS
securities with an aggregate carrying value of $2.9 million and fair value of $4.2 million that had been downgraded
to a substandard regulatory classification due to a downgrade of the security’s credit quality rating by various rating
agencies.
51
Delinquencies. The following table provides information about delinquencies in our loan portfolio at the
dates indicated.
At September 30,
2014
At September 30,
2013
30-89 Days
90 Days or More
30-89 Days
90 Days or More
Number
of
Loans
77
3
1
–
2
2
19
104
Principal
Balance
of Loans
$ 6,093
185
295
–
210
256
117
$ 7,156
Number
of
Loans
38
1
–
–
–
2
8
49
Principal
Balance
of Loans
$ 2,081
60
–
–
–
110
74
$ 2,325
Number
of
Loans
68
3
1
–
1
1
26
100
Principal
Balance
of Loans
$ 4,188
504
35
–
9
–
237
$ 4,973
Number
of
Loans
37
4
–
–
–
2
11
54
Principal
Balance
of Loans
$ 2,731
696
–
–
–
217
218
$ 3,862
(Dollars in thousands)
Residential real estate ..............
Commercial real estate ............
Multi-family ............................
Construction ............................
Land and land development. ....
Commercial business ...............
Consumer .................................
Total .....................................
At September 30,
2012
30-89 Days
90 Days or More
Number
of
Loans
88
4
–
–
2
5
39
138
Principal
Balance
of Loans
$ 6,400
120
–
–
50
107
380
$ 7,057
Number
of
Loans
42
4
–
–
–
3
11
60
Principal
Balance
of Loans
$ 4,055
842
–
–
–
163
176
$ 5,237
(Dollars in thousands)
Residential real estate ..............
Commercial real estate ............
Multi-family ............................
Construction ............................
Land and land development....
Commercial business ...............
Consumer .................................
Total .....................................
Analysis and Determination of the Allowance for Loan Losses.
The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio.
We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional
allowances are necessary, a provision for loan losses is charged to earnings.
Our methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a
specific allowance required for identified problem loans; (2) a general allowance on the remainder of the loan
portfolio; and (3) an unallocated allowance to cover uncertainties that could affect management’s estimate of
probable losses. Although we determine the amount of each element of the allowance separately, the entire
allowance for loan losses is available to absorb losses in the loan portfolio.
Specific Allowance Required for Identified Problem Loans. For substandard and doubtful loans that are
also classified as impaired we establish a specific allowance when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value of the loan.
General Allowance on the Remainder of the Loan Portfolio. We establish a general allowance for loans
that are not currently classified as impaired in order to recognize the inherent losses associated with lending
activities. The general allowance covers unimpaired loans and is based on historical loss experience adjusted for
qualitative factors such as changes in economic conditions, changes in the volume of past due and non-accrual loans
and classified assets, changes in the nature and volume of the portfolio, changes in the value of underlying collateral
for collateral dependent loans, concentrations of credit, and other factors.
52
Unallocated Allowance. We may establish an unallocated allowance to cover uncertainties that could
affect management’s estimate of probable losses. Any unallocated component of the allowance reflects the margin
of imprecision inherent in the underlying assumptions used in the methodologies for estimate specific and general
losses in the loan portfolio. There was no unallocated allowance for loan losses at September 30, 2014, 2013, 2012,
2011 and 2010.
The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates
indicated.
2014
% of
Allowance
to Total
Allowance
9.23%
60.93
2.34
7.09
4.83
12.72
2.86
100.00%
% of
Loans in
Category
to Total
Loans
40.94%
34.48
4.77
5.12
2.53
6.37
5.79
100.00%
At September 30,
2013
% of
Allowance
to Total
Allowance
14.08%
51.03
4.50
4.14
5.40
16.38
4.47
100.00%
% of
Loans in
Category
to Total
Loans
44.10%
28.17
6.40
4.61
2.73
7.56
6.43
100.00%
Amount
$ 908
2,204
389
52
2
1,084
267
$ 4,906
Amount
$ 780
2,826
249
229
299
907
248
$ 5,538
2012
% of
Allowance
to Total
Allowance
18.51%
44.92
7.93
1.06
0.04
22.10
5.44
100.00%
% of
Loans in
Category
to Total
Loans
47.72%
22.56
5.97
3.98
3.08
9.04
7.65
100.00%
(Dollars in thousands)
Amount
$ 577
Residential real estate ......................
3,808
Commercial real estate ....................
146
Multi-family ....................................
443
Construction ....................................
302
Land and land development.............
795
Commercial business ......................
Consumer ........................................
179
Total allowance for loan losses ... $ 6,250
At September 30,
2011
% of
Allowance
to Total
Allowance
17.83%
28.13
12.93
1.20
1.13
32.64
6.14
100.00%
% of
Loans in
Category
to Total
Loans
46.65%
20.25
6.86
3.34
3.57
11.19
8.14
100.00%
Amount
$ 1,242
600
369
218
62
891
429
$ 3,811
2010
% of
Allowance
to Total
Allowance
32.59%
15.74
9.68
5.72
1.63
23.38
11.26
100.00%
% of
Loans in
Category
to Total
Loans
49.33%
15.45
5.84
7.38
2.60
8.86
10.54
100.00%
(Dollars in thousands)
Amount
$ 833
Residential real estate ......................
1,314
Commercial real estate .....................
Multi-family .....................................
604
56
Construction .....................................
53
Land and land development.............
1,525
Commercial business .......................
Consumer .........................................
287
Total allowance for loan losses .. $ 4,672
Although we believe that we use the best information available to establish the allowance for loan losses,
future adjustments to the allowance for loan losses may be necessary and our results of operations could be
adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
Furthermore, while we believe we have established our allowance for loan losses in conformity with generally
accepted accounting principles, there can be no assurance that the Office of the Comptroller of the Currency, in
reviewing our loan portfolio, will not require us to increase our allowance for loan losses. The Office of the
Comptroller of the Currency may require us to increase our allowance for loan losses based on judgments different
from ours. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty,
there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be
necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material
increase in the allowance for loan losses may adversely affect our financial condition and results of operations.
53
Analysis of Loan Loss Experience.
The following table sets forth an analysis of the allowance for loan losses for the periods indicated.
(Dollars in thousands)
2014
Allowance for loan losses at beginning of period ... $ 5,538
Provision for loan losses .........................................
1,246
Charge offs:
Residential real estate ..........................................
Commercial real estate.........................................
Multi-family.........................................................
Construction.........................................................
Land and land development .................................
Commercial business ...........................................
Consumer .............................................................
Total charge-offs ............................................
278
224
–
–
–
234
136
872
Recoveries:
Residential real estate ..........................................
Commercial real estate.........................................
Multi-family.........................................................
Land and land development .................................
Construction.........................................................
Commercial business ...........................................
Consumer .............................................................
Total recoveries .............................................
Net charge-offs .......................................................
28
219
–
–
–
–
91
338
534
Year Ended September 30,
2011
2012
2013
$ 3,811
$ 4,672
$ 4,906
1,605
1,532
1,858
2010
$ 3,695
1,604
284
11
–
–
–
1,013
111
1,419
65
25
–
–
–
41
62
193
1,226
510
543
85
–
–
33
304
1,475
109
–
–
–
–
2
66
177
1,298
651
68
–
8
–
86
287
1,100
79
–
–
–
–
214
63
356
744
334
–
–
–
5
964
340
1,643
68
–
–
–
–
–
87
155
1,488
Allowance for loan losses at end of period ............. $ 6,250
$ 5,538
$ 4,906
$ 4,672
$ 3,811
Allowance for loan losses to non-performing
loans ..................................................................... 145.96% 61.15% 84.12% 63.70%
Allowance for loan losses to total loans
outstanding at the end of the period .....................
Net charge-offs to average loans outstanding
during the period ..................................................
0.21%
1.29%
1.23%
0.35%
0.30%
1.32%
0.12%
1.40%
63.88%
1.09%
0.42%
Interest Rate Risk Management. We manage the interest rate sensitivity of our interest-bearing liabilities
and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment.
Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the
shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while
decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we
have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable
interest rate spread. Our strategy for managing interest rate risk emphasizes: adjusting the maturities of borrowings;
adjusting the investment portfolio mix and duration and generally selling in the secondary market substantially all
newly originated, fixed rate one-to four-family residential real estate loans. We currently do not participate in
hedging programs, interest rate swaps or other activities involving the use of derivative financial instruments other
than the ownership of an interest rate cap contract acquired in 2009. See Note 22 of the Notes to Consolidated
Financial Statements beginning on page F-1 of this annual report for additional information regarding the use of
derivative instruments.
54
We have an Asset/Liability Management Committee, which includes members of management approved by
the Board of Directors, to communicate, coordinate and control all aspects involving asset/liability management.
The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with
the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth,
risk limits and profitability goals.
Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net
interest income and net income.
Market Risk Analysis. 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.
Results of our simulation modeling, which assumes an immediate and sustained parallel shift in market
interest rates, project that the Company’s net interest income could change as follows over a one-year horizon,
relative to our base case scenario, based on September 30, 2014 and 2013 financial information.
Immediate Change
One Year Horizon
One Year Horizon
At September 30, 2014
At September 30, 2013
in the Level
of Interest Rates
300bp
200bp
100bp
Static
(100)bp
Dollar
Change
$ (1,754)
(1,132)
(552)
-
(239)
Percent
Dollar
Change
Change
(Dollars in thousands)
Percent
Change
(7.04)%
(4.54)
(2.22)
-
(0.96)
$ (99)
(111)
(69)
-
260
(0.45)%
(0.50)
(0.31)
-
1.17
At September 30, 2014, 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 $552,000 or 2.22% 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 4.54% and 7.04%, 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.
55
Results of our simulation modeling, which assumes an immediate and sustained parallel shift in market
interest rates, project that Company’s EVE could change as follows, relative to our base case scenario, based on
September 30, 2014 and 2013 financial information.
Immediate Change
in the Level
of Interest Rates
Economic Value of Equity
Economic Value of Equity as a
Dollar
Amount
Dollar
Change
Percent
Change
Percent of Present Value of Assets
EVE Ratio
Change
At September 30, 2014
300bp
200bp
100bp
Static
(100)bp
(Dollars in thousands)
$ 106,910
$ (14,317)
(11.81)%
114,585
122,696
121,227
111,206
(6,642)
1,469
-
(10,021)
(5.48)
1.21
-
(8.27)
16.91%
17.44
17.92
17.19
15.52
(28)bp
25 bp
73 bp
- bp
(167)bp
Immediate Change
in the Level
of Interest Rates
Economic Value of Equity
Economic Value of Equity as a
Dollar
Amount
Dollar
Change
Percent
Change
Percent of Present Value of Assets
EVE Ratio
Change
At September 30, 2013
300bp
200bp
100bp
Static
(100)bp
(Dollars in thousands)
$ 77,012
$ (25,354)
85,452
95,583
102,366
95,248
(16,914)
(6,783)
-
(7,118)
(24.77)%
(16.52)
(6.63)
-
(6.95)
13.07%
13.97
15.02
15.53
14.26
(246)bp
(156)bp
(51)bp
- bp
(127)bp
The previous table indicates that at September 30, 2014, the Company would expect a decrease in its EVE
in the event of a sudden and sustained 200 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, 2014
comprised approximately 48.5% of the loan portfolio.
The models are driven by expected behavior in various interest rate scenarios and many factors besides
market interest rates affect the Company’s net interest income and EVE. For this reason, we model many different
combinations of interest rates and balance sheet assumptions to understand its overall sensitivity to market interest
rate changes. Therefore, as with any method of measuring interest rate risk, certain shortcomings are inherent in the
method of analysis presented in the foregoing tables and it’s recognized that the model outputs are not guarantees of
actual results. For example, although certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on
other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage
loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further,
in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from
certificates of deposit could deviate significantly from those assumed in calculating the table.
56
Liquidity Management. Liquidity is the ability to meet current and future short-term financial obligations.
Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment
securities and borrowings from the FHLBI. While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
The Bank regularly adjusts its investments in liquid assets based upon our assessment of (1) expected loan
demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the
objectives of our asset/liability management policy.
The Bank’s most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of
these assets depend on our operating, financing, lending and investing activities during any given period. At
September 30, 2014, cash and cash equivalents totaled $20.3 million. Securities classified as trading and available-
for-sale, amounting to $5.3 million and $184.7 million, respectively, at September 30, 2014, provide additional
sources of liquidity. At September 30, 2014, we had the ability to borrow a total of approximately $130.3 million
from the FHLBI, of which $79.5 million was borrowed and outstanding. See Note 12 of the Notes to Consolidated
Financial Statements beginning on page F-1 of this annual report for additional information regarding FHLBI
borrowings. In addition, we had the ability to borrow the lesser of $10 million or 25% of the Bank’s equity capital,
excluding reserves, using a federal funds purchased line of credit facility with another financial institution at
September 30, 2014. The Bank had no outstanding federal funds purchased under the facility at September 30,
2014. See Note 10 of the Notes to Consolidated Financial Statements beginning on page F-1 of this annual report
for additional information regarding federal funds purchased borrowings.
At September 30, 2014, the Bank had $67.4 million in commitments to extend credit outstanding. See Note
18 of the Notes to Consolidated Financial Statements beginning on page F-1 of this annual report for additional
information regarding commitments to extend credit. Certificates of deposit due within one year of September 30,
2014 totaled $116.2 million, or 56.0% of certificates of deposit. We believe the large percentage of certificates of
deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods due to the
recent low interest rate environment and local competitive pressure. 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.
Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than
we currently pay on the certificates of deposit due on or before September 30, 2015. We believe, however, based on
past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to
attract and retain deposits by adjusting the interest rates offered.
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, without the receipt of prior
approval from the Office of the Comptroller of the Currency (“OCC”) but with prior notice to OCC, cannot exceed
net income for that year to date plus retained net income (as defined) for the preceding two calendar years. At
September 30, 2014, the Company had liquid assets of $7.4 million on a stand-alone, unconsolidated basis.
57
The following tables present certain of our contractual obligations as of September 30, 2014.
(In thousands)
Total
Deferred director fee agreements .......................... $ 903
72
Deferred compensation agreements ......................
–
Operating lease obligations ...................................
1,338
Repurchase agreements.........................................
FHLBI borrowings ...............................................
79,548
4,812
Other long-term debt (1) .......................................
Total ..................................................................... $ 86,673
Less than
One Year
$ 11
33
–
1,338
54,548
173
$ 56,103
Payments due by period
Three to
Five Years
$ 9
–
–
–
10,000
401
$ 10,410
One to
Three Years
$ 9
39
–
–
15,000
370
$ 15,418
More Than
Five Years
$ 874
–
–
–
–
3,868
$ 4,742
(1) Represents outstanding principal balance on a $4.8 million loan agreement with another financial institution to finance a
retail development project. The loan calls for 12 interest only monthly payments, followed by 107 monthly
payments sufficient to fully amortize the loan over a 20 year period and a balloon payment of all outstanding
principal and interest at maturity on July 27, 2022. Principal and interest payments commenced in August 2013.
Our primary investing activities are the origination of loans and the purchase of securities. Our primary
financing activities consist of activity in deposit accounts and FHLBI borrowings. Deposit flows are affected by the
overall level of interest rates, the interest rates and products offered by us and our local competitors and other
factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional
rates on certain deposit products to attract deposits.
Financing and Investing Activities
The following table presents our primary investing and financing activities during the periods indicated.
Year Ended September 30,
2013
2012
$ (38,331)
(93,666)
82,466
12,385
25,847
9,596
2,265
(43,014)
(33,763)
(9,933)
(15,074)
(75)
2,132
2014
(In thousands)
Investing activities:
Loan purchases ...................................................................$ – $ –
(138,111)
Loan originations ...............................................................
96,619
Loan principal repayments .................................................
Loan sales ..........................................................................
23,546
Proceeds from maturities and principal
repayments of investment securities .................................
Proceeds from maturities and principal
repayments of mortgage-backed securities ......................
Proceeds from sales of investment securities
available- for-sale .............................................................
Purchases of investment securities .....................................
Purchases of mortgage-backed securities ...........................
(128,544)
86,922
13,374
808
(24,077)
(17,688)
801
(39,591)
(11,361)
11,629
17,567
21,271
7,010
Financing activities:
Increase (decrease) in deposits ...........................................
Increase (decrease) in repurchase agreements ....................
Increase (decrease) in FHLBI borrowings .........................
Increase (decrease) in other long-term debt .......................
55,468
3
(9,800)
(161)_
(16,508)
6
36,286
2,841
58
Capital Management. The Bank is subject to various regulatory capital requirements administered by the
Office of the Comptroller of the Currency, including a risk-based capital measure. The risk-based capital guidelines
include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories. At September 30, 2014, the Bank exceeded all of its
regulatory capital requirements. The Bank is considered “well capitalized” under regulatory guidelines. See “Item
1. Business — Regulation and Supervision — Regulation of Federal Savings Associations — Capital Requirement,”
and Note 26 of the Notes to Consolidated Financial Statements beginning on page F-1 of this annual report.
On July 9, 2013, the federal bank regulatory agencies issued a final rule that will revise their risk-based
capital requirements and the method for calculating risk-weighted assets to make them consistent with Basel III and
certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding
companies with total consolidated assets of $500 million or more and top-tier savings and loan holding companies.
The rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets),
increases the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets)
and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status
and to certain commercial real estate facilities that finance the acquisition, development or construction of real
property. See “Item 1. Business- Regulation and Supervision -Basel III.”
Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial
transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial
statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such
transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments
and lines of credit. For information about our loan commitments and unused lines of credit, see Note 18 of the
Notes to Consolidated Financial Statements beginning on page F-1 of this annual report.
For the year ended September 30, 2014, we did not engage in any off-balance sheet transactions reasonably
likely to have a material effect on our financial condition, results of operations or cash flows.
Impact of Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 1 of the Notes to
Consolidated Financial Statements beginning on page F-1 of this annual report.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented in this annual report have been
prepared according to accounting principles generally accepted in the United States, which require the measurement
of financial position and operating results in terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The primary impact of inflation on our operations is
reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a
financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference to Part II, “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operation.”
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is included herein beginning on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
59
Item 9A. CONTROLS AND PROCEDURES
(a)
Disclosure Controls and Procedures
The Company’s management, including the Company’s principal executive officer and 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) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange
Act”). Based upon their evaluation, the principal executive officer and 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 the information required to be disclosed in the reports that the Company files or submits
under the Exchange Act with the Securities and Exchange Commission (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.
(b)
Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting. The internal control process has been designed under our supervision to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements
for external reporting purposes in accordance with accounting principles generally accepted in the United States of
America.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial
reporting as of September 30, 2014, utilizing the framework established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
assessment, management has determined that the Company’s internal control over financial reporting as of
September 30, 2014 is effective.
Our internal control over financial reporting includes policies and procedures that pertain to the
maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of assets;
and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the United States; (2) receipts and
expenditures are being made only in accordance with authorizations of management and the directors of the
Company; and (3) unauthorized acquisition, use, or disposition of the Company’s assets that could have a material
effect on the Company’s financial statements are prevented or timely detected.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
This annual report does not include an attestation report of the Company’s registered public accounting
firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual report.
(c)
Changes to Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the three months
ended September 30, 2014 that have materially affected, or are reasonable likely to materially affect, the Company’s
internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
60
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information relating to the directors and officers of the Company, information regarding compliance
with Section 16(a) of the Exchange Act and information regarding the audit committee and audit committee
financial expert is incorporated herein by reference to the sections captioned “Item 1 – Election of Directors,”
“Section 16(a) Beneficial Ownership Reporting Compliance,” and “Audit Committee” in the Company’s Proxy
Statement for the 2015 Annual Meeting of Stockholders (the “Proxy Statement”).
The Company has adopted a code of ethics and business conduct which applies to all of the Company’s and
the Bank’s directors, officers and employees. A copy of the code of ethics and business conduct is available to
stockholders on the Investor Relations portion of the Bank’s website at www.fsbbank.net.
Item 11. EXECUTIVE COMPENSATION
The information regarding executive compensation is incorporated herein by reference to the sections
captioned “Director Compensation” and “Executive Compensation” in the Proxy Statement.
61
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
(a)
Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference to the section captioned
“Stock Ownership” in the Proxy Statement.
(b)
Security Ownership of Management
Information required by this item is incorporated herein by reference to the section captioned
“Stock Ownership” in the Proxy Statement.
(c)
Changes in Control
Management of the Company knows of no arrangements, including any pledge by any person of
securities of the Company, the operation of which may at a subsequent date result in a change in
control of the registrant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information relating to certain relationships and related transactions and director independence is
incorporated herein by reference to the sections captioned “Transactions with Related Persons” and “Director
Independence” in the Proxy Statement.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information relating to the principal accountant fees and expenses is incorporated herein by
reference to the section captioned “Ratification of the Independent Registered Public Accounting Firm” in the Proxy
Statement.
62
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(1)
(2)
The financial statements required in response to this item are incorporated by reference from Item
8 of this Annual Report on Form 10-K.
All financial statement schedules are omitted because they are not required or applicable, or the
required information is shown in the consolidated financial statements or the notes thereto.
(3)
Exhibits
No.
Description
3.1
3.2
3.3
4.0
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
21.0
23.0
31.1
31.2
32.0
Articles of Incorporation of First Savings Financial Group, Inc. (1)
Articles of Amendment to the Articles of Incorporation for the Series A
Preferred Stock (2)
Bylaws of First Savings Financial Group, Inc. (1)
Specimen Stock Certificate of First Savings Financial Group, Inc. (1)
Amended and Restated Employment Agreement by and among First Savings
Financial Group, Inc., First Savings Bank, F.S.B. and Larry W. Myers,
dated October 7, 2009* (3)
Amended and Restated Employment Agreement by and among First Savings
Financial Group, Inc., First Savings Bank, F.S.B. and John P. Lawson, Jr.,
dated October 7, 2009* (3)
Amended and Restated Employment Agreement by and among First Savings
Financial Group, Inc., First Savings Bank, F.S.B. and Anthony A. Schoen,
dated October 7, 2009* (3)
Amended and Restated Employment Agreement by and among First Savings
Financial Group, Inc., First Savings Bank, F.S.B. and Samuel E. Eckart,
dated October 7, 2009* (3)
First Savings Bank, F.S.B. Employee Severance Compensation Plan* (4)
First Savings Bank, F.S.B. Supplemental Executive Retirement Plan* (4)
Securities Purchase Agreement, dated August 11, 2011, between the Company and the
Secretary of the Treasury with respect to the Series A Preferred Stock (2)
Amended and Restated Director Deferred Compensation Agreement* (1)
Subsidiaries of the Registrant
Consent of Monroe Shine & Co., Inc.
Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer
Section 1350 Certificate of Chief Executive Officer and Chief Financial Officer
_________________________________________________________________________
* Management contract or compensatory plan, contract or arrangement
(1) Incorporated herein by reference to the exhibits to the Company’s Registration Statement on
Form S-1 (File No. 333-151636), as amended, initially filed with the Securities and Exchange
Commission on June 13, 2008.
(2) Incorporated by reference to the exhibits to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 17, 2011.
(3) Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-
K filed with the Securities and Exchange Commission on October 8, 2009.
(4) Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-
K filed with the Securities and Exchange Commission on October 10, 2008.
63
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONTENTS
Report of Independent Registered Public Accounting Firm ............................................................
CONSOLIDATED BALANCE SHEETS .......................................................................................
CONSOLIDATED STATEMENTS OF INCOME ..........................................................................
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ..........................................
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ....................
CONSOLIDATED STATEMENTS OF CASH FLOWS ................................................................
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ......................................................
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
First Savings Financial Group, Inc.
Clarksville, Indiana
We have audited the accompanying consolidated balance sheets of First Savings Financial Group, Inc. and
Subsidiaries as of September 30, 2014 and 2013, and the related consolidated statements of income,
comprehensive income, changes in stockholders’ equity and cash flows for the years then ended. The
Company's management is responsible for these consolidated financial statements. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of First Savings Financial Group, Inc. and Subsidiaries as of September 30, 2014
and 2013, and the results of their operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
New Albany, Indiana
December 29, 2014
MONROE SHINE & CO., INC. (cid:3) CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS
F-2
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2014 AND 2013
(In thousands, except share and per share data)
2014
2013
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Total cash and cash equivalents
$
8,853
11,477
20,330
$
Interest-bearing time deposits
Trading account securities, at fair value
Securities available for sale, at fair value
Securities held to maturity (fair value of $5,849 in 2014 and $6,514 in 2013)
Loans held for sale
Loans, net of allowance for loan losses of $6,250 in 2014 and $5,538 in 2013
Federal Home Loan Bank stock, at cost
Real estate development and construction
Premises and equipment
Other real estate owned, held for sale
Accrued interest receivable:
Loans
Securities
Cash surrender value of life insurance
Goodwill
Core deposit intangibles
Other assets
Total Assets
LIABILITIES
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Repurchase agreements
Borrowings from Federal Home Loan Bank
Other long-term debt
Accrued interest payable
Advance payments by borrowers for taxes and insurance
Accrued expenses and other liabilities
Total Liabilities
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
2,171,812 shares (2,299,654 shares at September 30, 2013)
Additional paid-in capital - preferred
Additional paid-in capital - common
Retained earnings - substantially restricted
Accumulated other comprehensive income
Unearned ESOP shares
Unearned stock compensation
Less treasury stock, at cost - 370,230 shares
(242,388 shares at September 30, 2013)
Total Stockholders' Equity
1,500
5,319
184,697
5,419
281
433,876
6,517
7,202
14,275
953
1,276
1,235
18,021
7,936
1,725
2,567
$
713,129
$
56,092
477,102
533,194
$
$
1,338
79,548
4,812
175
748
6,234
626,049
-
-
25
17,120
26,079
47,175
3,853
(537)
(162)
(6,473)
87,080
9,607
11,208
20,815
1,500
3,210
164,167
6,417
399
408,375
5,500
7,178
14,842
799
1,208
1,183
12,933
7,936
2,069
1,924
660,455
50,093
427,633
477,726
1,335
89,348
4,973
184
707
3,929
578,202
-
-
25
17,120
25,464
42,870
1,468
(865)
(422)
(3,407)
82,253
Total Liabilities and Stockholders' Equity
$
713,129
$
660,455
See notes to consolidated financial statements.
F - 3
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 2014 AND 2013
(In thousands, except share and per share data)
2014
2013
INTEREST INCOME
Loans, including fees
Securities:
Taxable
Tax-exempt
Dividend income
Interest-bearing deposits with banks
Total interest income
INTEREST EXPENSE
Deposits
Repurchase agreements
Borrowings from Federal Home Loan Bank
Loans payable
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NONINTEREST INCOME
Service charges on deposit accounts
Net gain on sales of available for sale securities
Net gain on trading account securities
Unrealized loss on derivative contract
Net gain on sales of loans
Increase in cash surrender value of life insurance
Commission income
Real estate lease income
Other income
Total noninterest income
NONINTEREST EXPENSE
Compensation and benefits
Occupancy and equipment
Data processing
Advertising
Professional fees
FDIC insurance premiums
Net loss on other real estate owned
Other operating expenses
Total noninterest expense
Income before income taxes
Income tax expense
Net Income
$
20,961
$
21,126
4,523
1,730
245
35
27,494
2,381
3
968
203
3,555
23,939
1,246
22,693
1,263
123
704
(11)
287
496
331
568
1,285
5,046
4,255
1,565
200
29
27,175
2,799
6
1,059
72
3,936
23,239
1,858
21,381
1,251
1
464
-
510
387
293
317
1,035
4,258
11,167
2,555
1,237
400
1,276
443
230
2,964
20,272
7,467
2,077
5,390
$
10,510
2,260
1,186
449
914
473
181
3,159
19,132
6,507
1,811
4,696
$
Preferred stock dividends declared
Net Income Available to Common Shareholders
$
171
5,219
$
171
4,525
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
2.46
2.34
$
$
2.09
1.99
2,122,880
2,229,314
2,168,770
2,269,063
Dividends per common share
$
0.43
$
0.70
See notes to consolidated financial statements.
F - 4
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 2014 AND 2013
(In thousands)
Net Income
2014
2013
$
5,390
$
4,696
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period
Income tax (expense) benefit
Net of tax amount
Less: reclassification adjustment for realized
gains included in net income
Income tax expense
Net of tax amount
Other Comprehensive Income (Loss)
3,795
(1,335)
2,460
(123)
48
(75)
2,385
(6,443)
2,302
(4,141)
(1)
1
-
(4,141)
Comprehensive Income
$
7,775
$
555
See notes to consolidated financial statements.
F - 5
k
c
o
t
S
r
e
h
t
O
d
e
n
r
a
e
n
U
d
e
t
a
l
u
m
u
c
c
A
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
P
U
O
R
G
L
A
I
C
N
A
N
I
F
S
G
N
I
V
A
S
T
S
R
I
F
Y
T
I
U
Q
E
'
S
R
E
D
L
O
H
K
C
O
T
S
N
I
S
E
G
N
A
H
C
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
L
O
S
N
O
C
3
1
0
2
D
N
A
4
1
0
2
,
0
3
R
E
B
M
E
T
P
E
S
D
E
D
N
E
S
R
A
E
Y
6
2
9
,
2
8
$
)
6
6
7
,
2
(
$
)
0
8
8
,
1
(
$
9
0
6
,
5
$
7
1
9
,
9
3
$
1
2
0
,
2
4
$
5
2
$
0
9
3
,
5
5
8
3
,
2
)
1
7
1
(
)
4
1
9
(
5
9
4
2
5
7
6
4
1
)
6
5
2
,
3
(
-
-
-
-
-
-
0
9
1
)
6
5
2
,
3
(
-
-
-
-
0
6
2
8
2
3
-
-
-
5
8
3
,
2
-
-
-
-
-
-
)
1
7
1
(
)
4
1
9
(
-
0
9
3
,
5
-
-
-
-
-
-
-
-
5
3
2
4
2
4
)
4
4
(
-
6
9
6
,
4
)
1
4
1
,
4
(
)
1
7
1
(
)
2
7
5
,
1
(
3
8
4
3
7
6
)
1
4
6
(
-
-
-
-
-
-
)
1
4
6
(
-
-
-
-
1
6
2
2
3
3
-
-
)
1
4
1
,
4
(
-
-
-
-
-
6
9
6
,
4
-
)
1
7
1
(
)
2
7
5
,
1
(
-
-
-
-
-
-
-
2
2
2
1
4
3
-
3
5
2
,
2
8
$
)
7
0
4
,
3
(
$
)
7
8
2
,
1
(
$
8
6
4
,
1
$
0
7
8
,
2
4
$
4
8
5
,
2
4
$
5
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
0
8
0
,
7
8
$
)
3
7
4
,
6
(
$
)
9
9
6
(
$
3
5
8
,
3
$
5
7
1
,
7
4
$
9
9
1
,
3
4
$
5
2
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
)
e
r
a
h
s
r
e
p
0
7
.
0
$
(
s
d
n
e
d
i
v
i
d
k
c
o
t
s
n
o
m
m
o
C
t
s
u
r
t
P
O
S
E
y
b
d
e
s
a
e
l
e
r
s
e
r
a
h
S
e
s
n
e
p
x
e
n
o
i
t
a
s
n
e
p
m
o
c
k
c
o
t
S
s
e
r
a
h
s
y
r
u
s
a
e
r
t
7
2
0
,
0
3
f
o
e
s
a
h
c
r
u
P
3
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
t
a
s
e
c
n
a
l
a
B
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
s
d
n
e
d
i
v
i
d
k
c
o
t
s
d
e
r
r
e
f
e
r
P
e
m
o
c
n
i
t
e
N
)
e
r
a
h
s
r
e
p
3
4
.
0
$
(
s
d
n
e
d
i
v
i
d
k
c
o
t
s
n
o
m
m
o
C
s
e
r
a
h
s
0
0
0
,
1
1
-
e
s
i
c
r
e
x
e
s
n
o
i
t
p
o
k
c
o
t
S
s
e
r
a
h
s
y
r
u
s
a
e
r
t
2
4
8
,
8
3
1
f
o
e
s
a
h
c
r
u
P
4
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
t
a
s
e
c
n
a
l
a
B
t
s
u
r
t
P
O
S
E
y
b
d
e
s
a
e
l
e
r
s
e
r
a
h
S
e
s
n
e
p
x
e
n
o
i
t
a
s
n
e
p
m
o
c
k
c
o
t
S
2
1
0
2
,
1
r
e
b
o
t
c
O
t
a
s
e
c
n
a
l
a
B
s
s
o
l
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
s
d
n
e
d
i
v
i
d
k
c
o
t
s
d
e
r
r
e
f
e
r
P
e
m
o
c
n
i
t
e
N
l
a
t
o
T
k
c
o
t
S
P
O
S
E
d
n
a
e
m
o
c
n
I
y
r
u
s
a
e
r
T
n
o
i
t
a
s
n
e
p
m
o
C
e
v
i
s
n
e
h
e
r
p
m
o
C
d
e
n
i
a
t
e
R
s
g
n
i
n
r
a
E
l
a
t
i
p
a
C
n
i
-
d
i
a
P
k
c
o
t
S
k
c
o
t
S
l
a
n
o
i
t
i
d
d
A
n
o
m
m
o
C
d
e
r
r
e
f
e
r
P
)
a
t
a
d
e
r
a
h
s
r
e
p
d
n
a
e
r
a
h
s
t
p
e
c
x
e
,
s
d
n
a
s
u
o
h
t
n
I
(
6
-
F
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
e
e
S
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2014 AND 2013
(In thousands)
2014
2013
$
5,390
$
4,696
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses
Depreciation and amortization
Amortization of premiums and accretion of discounts on securities, net
(Increase) decrease in trading account securities
Loans originated for sale
Proceeds on sales of loans
Net gain on sales of loans
Net realized and unrealized (gain) loss on other real estate owned
Net gain on sales of available for sale securities
Unrealized loss on derivative contract
Increase in cash surrender value of life insurance
Deferred income taxes
ESOP and stock compensation expense
(Increase) decrease in accrued interest receivable
Decrease in accrued interest payable
Change in other assets and liabilities, net
Net Cash Provided By Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in interest-bearing time deposits
Purchase of securities available for sale
Proceeds from sales of securities available for sale
Proceeds from maturities of securities available for sale
Proceeds from maturities of securities held to maturity
Principal collected on securities
Net increase in loans
Purchase of Federal Home Loan Bank stock
Investment in cash surrender value of life insurance
Proceeds from life insurance
Proceeds from sale of foreclosed real estate
Investment in real estate development and construction
Purchase of premises and equipment
Net Cash Used In Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits
Net increase in repurchase agreements
Increase in Federal Home Loan Bank line of credit
Proceeds from Federal Home Loan Bank advances
Repayment of Federal Home Loan Bank advances
Proceeds from other long-term debt
Repayment of other long-term debt
Net increase in advance payments by
borrowers for taxes and insurance
Exercise of stock options
Purchase of treasury stock
Dividends paid on preferred stock
Dividends paid on common stock
Net Cash Provided By Financing Activities
Net Decrease in Cash and Cash Equivalents
Cash and cash equivalents at beginning of year
1,246
1,445
643
(2,109)
(8,458)
8,863
(287)
73
(123)
11
(496)
150
1,127
(120)
(9)
782
8,128
-
(41,765)
808
9,660
698
14,219
(27,775)
(1,017)
(5,000)
-
778
(216)
(342)
(49,952)
55,468
3
200
372,000
(382,000)
-
(161)
41
146
(3,273)
(171)
(914)
41,339
(485)
20,815
1,858
1,241
615
352
(16,435)
17,189
(510)
(42)
(1)
-
(387)
513
1,063
21
(52)
1,201
11,322
(1,500)
(50,951)
801
12,223
767
19,910
(21,070)
(100)
(4,000)
606
1,146
(2,727)
(4,745)
(49,640)
(16,508)
6
9,348
130,000
(103,062)
2,868
(27)
85
-
(625)
(171)
(1,572)
20,342
(17,976)
38,791
20,815
Cash and Cash Equivalents at End of Year
$
20,330
$
See notes to consolidated financial statements.
F - 7
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013
(1)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
First Savings Financial Group, Inc. (the “Company”) is a financial holding company and the parent
of First Savings Bank, F.S.B. (the “Bank”) and First Savings Insurance Risk Management, Inc. (the
“Captive”).
The Bank, which is a wholly-owned federally-chartered savings bank subsidiary of the Company,
provides a variety of banking services to individuals and business customers through fourteen
locations in southern Indiana. The Bank attracts deposits primarily from the general public and uses
those funds, along with other borrowings, primarily to originate residential mortgage, commercial
mortgage, construction, commercial business and consumer loans, and to a lesser extent, to invest in
mortgage-backed securities and other securities. The Bank has three-wholly owned subsidiaries: First
Savings Investments, Inc., a Nevada corporation that manages a securities portfolio, FFCC, Inc.,
which is an Indiana corporation that participates in commercial real estate development and leasing,
and Southern Indiana Financial Corporation, which is currently inactive.
The Captive, which is a wholly-owned insurance subsidiary of the Company formed during the
fourth fiscal quarter of 2014, is a Nevada corporation that provides property and casualty insurance
to the Company, the Bank and the Bank’s active subsidiaries. In addition, the Captive provides
reinsurance to seven other third-party insurance captives for which insurance may not be currently
available or economically feasible in the insurance marketplace.
Basis of Consolidation and Reclassifications
The consolidated financial statements include the accounts of the Company and its subsidiaries and
have been prepared in accordance with accounting principles generally accepted in the United States
of America and conform to general practices within the banking industry. Intercompany balances
and transactions have been eliminated. Certain prior year amounts have been reclassified to conform
with current year presentation.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company has defined cash and cash equivalents as
cash on hand, amounts due from banks (including cash items in process of clearing), interest-bearing
deposits with other banks having an original maturity of 90 days or less and money market funds.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of
the allowance for loan losses and the valuation of real estate and other assets acquired in connection
with foreclosures or in satisfaction of loans. In connection with the determination of the allowances
for loan losses and other real estate owned, management obtains independent appraisals for
significant properties.
A majority of the Bank’s loan portfolio consists of single-family residential and commercial real
estate loans in the southern Indiana area. Accordingly, the ultimate collectability of a substantial
portion of the Bank’s loan portfolio and the recovery of the carrying amount of other real estate
owned are susceptible to changes in local market conditions.
F-8
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(1 - continued)
Use of Estimates - continued
While management uses available information to recognize losses on loans and other real estate
owned, further reductions in the carrying amounts of loans and other real estate owned may be
necessary based on changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated losses on loans and other
real estate owned. Such agencies may require the Bank to recognize additional losses based on their
judgments about information available to them at the time of their examination. Because of these
factors, it is reasonably possible the estimated losses on loans and other real estate owned may
change materially in the near term. However, the amount of the change that is reasonably possible
cannot be estimated.
Investment Securities
Trading Account Securities:
Securities purchased with the intention of recognizing short-term
profits or which are actively bought and sold are classified as trading account securities and reported
at fair value. The net realized and unrealized gains and losses on trading account securities are
reported in other noninterest income. Realized gains and losses on trading account securities are
determined using the specific identification method.
Securities Available for Sale: Securities available for sale consist primarily of mortgage-backed and
other debt securities and are stated at fair value. The Company holds mortgage-backed securities
issued by the Government National Mortgage Association (GNMA), a U.S. government agency, and
the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage
Corporation (FHLMC), government-sponsored enterprises, as well as privately-issued collateralized
mortgage obligations (“CMOs”), privately-issued asset-backed securities (“ABSs”) and other
mortgage-backed securities. 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.
Mortgage-backed securities represent participating interests in pools of long-term first mortgage
loans originated and serviced by issuers of the securities. CMOs and ABSs are complex mortgage-
backed securities that restructure the cash flows and risks of the underlying mortgage collateral. The
Company also holds debt securities issued by government-sponsored enterprises and municipal
bonds.
Amortization of premiums and accretion of discounts are recognized in interest income using
methods approximating the interest method over the period to maturity, adjusted for anticipated
prepayments. Unrealized gains and losses, net of tax, on securities available for sale are included in
other comprehensive income and the accumulated unrealized holding gains and losses are reported as
a separate component of equity until realized. Realized gains and losses on the sale of securities
available for sale are determined using the specific identification method and are included in other
noninterest income and, when applicable, are reported as a reclassification adjustment, net of tax, in
other comprehensive income.
Securities Held to Maturity: Debt securities for which the Company has the positive intent and
ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion
of discounts that are recognized in interest income using methods approximating the interest method
over the period to maturity, adjusted for anticipated prepayments. The Company classifies certain
mortgage-backed securities and municipal obligations as held to maturity.
F-9
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(1 - continued)
Declines in the fair value of individual available for sale and held to maturity securities below their
amortized cost that are other than temporary result in write-downs of the individual securities to their
fair value. The related write-downs are included in earnings as realized losses. In estimating other-
than-temporary impairment losses, management considers (1) the length of time and the extent to
which the fair value has been less than amortized 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 for a
period of time sufficient to allow for any anticipated recovery in fair value.
Investments in non-marketable equity securities such as Federal Home Loan Bank (“FHLB”) stock
are carried at cost. Impairment testing on these investments is based on applicable accounting
guidance and the cost basis is reduced when impairment is deemed to be other-than-temporary.
Derivative Financial Instruments
The Company applies Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 815, Derivatives and Hedging, in accounting for derivative financial
instruments, including certain derivative instruments embedded in other contracts and for hedging
activities. Derivative financial instruments are recognized in the consolidated balance sheet at fair
value.
Mortgage Banking Activities
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of
aggregate cost or market value. Aggregate market value is determined based on the quoted prices
under a “best efforts” sales agreement with a third party. Net unrealized losses are recognized
through a valuation allowance by charges to income. Realized gains on sales of mortgage loans are
included in noninterest income. Mortgage loans are sold with servicing released.
Commitments to originate mortgage loans held for sale are considered derivative financial
instruments to be accounted for at fair value. The Bank’s mortgage loan commitments subject to
derivative accounting are fixed rate mortgage loan commitments at market rates when initiated. At
September 30, 2014, the Bank did not have any commitments to originate fixed-rate mortgage loans
intended for sale in the secondary market after the loans are closed. Fair value is estimated based on
fees that would be charged on commitments with similar terms.
Loans and Allowance for Loan Losses
Loans Held for Investment
Loans are stated at unpaid principal balances, less net deferred loan fees and the allowance for loan
losses. The Company grants real estate mortgage, commercial business and consumer loans. A
substantial portion of the loan portfolio is represented by residential and commercial mortgage loans
to customers in southern Indiana. The ability of the Company customers to honor their contracts is
dependent upon the real estate and general economic conditions in this area.
Loan origination and commitment fees, as well as certain direct costs of underwriting and closing
loans, are deferred and amortized as a yield adjustment to interest income over the lives of the related
loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is
placed on nonaccrual status.
F-10
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(1 - continued)
Loans and Allowance for Loan Losses - continued
Nonaccrual Loans
The recognition of income on a loan is discontinued and previously accrued interest is reversed when
interest or principal payments become 90 days past due unless, in the opinion of management, the
outstanding interest remains collectible. Past due status is determined based on contractual terms.
Generally, by applying the cash receipts method, interest income is subsequently recognized only as
received until the loan is returned to accrual status. The cash receipts method is used when the
likelihood of further loss on the loan is remote. Otherwise, the Company applies the cost recovery
method and applies all payments as a reduction of the unpaid principal balance until the loan
qualifies for return to accrual status. Interest income on impaired loans is recognized using the cost
recovery method, unless the likelihood of further loss is considered remote.
A loan is restored to accrual status when all principal and interest payments are brought current and
the borrower has demonstrated the ability to make future payments of principal and interest as
scheduled, which generally requires that the borrower demonstrate a period of performance of at
least six consecutive months.
Loan Charge-Offs
For portfolio segments other than consumer loans, the Company’s practice is to charge-off any loan
or portion of a loan when the loan is determined by management to be uncollectible due to the
borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial
condition, depreciation of the underlying collateral, the loan’s classification as a loss by regulatory
examiners, or for other reasons. A partial charge-off is recorded on a loan when the uncollectibility
of a portion of the loan has been confirmed, such as when a loan is discharged in bankruptcy, the
collateral is liquidated, a loan is restructured at a reduced principal balance, or other identifiable
events that lead management to determine the full principal balance of the loan will not be repaid. A
specific reserve is recognized as a component of the allowance for estimated losses on loans
individually evaluated for impairment. Partial charge-offs on nonperforming and impaired loans are
included in the Company’s historical loss experience used to estimate the general component of the
allowance for loan losses as discussed below. Specific reserves are not considered charge-offs in
management’s analysis of the allowance for loan losses because they are estimates and the outcome
of the loan relationship is undetermined.
During the year ended September 30, 2014, the Company did not recognize any partial charge-offs.
At September 30, 2014, the Company had one outstanding loan with a recorded investment of
$229,000 on which partial charge-offs had been recorded. During the year ended September 30,
2013, the Company recognized partial charge-offs on loans totaling $306,000. At September 30,
2013, the Company had three outstanding loans with an aggregate recorded investment of $920,000
on which partial charge-offs totaling $525,000 had been recorded.
Consumer loans are typically charged off at 90 days past due, or earlier if deemed uncollectible,
unless the loans are in the process of collection. Overdrafts are charged off after 45 days past due.
Charge-offs are typically recorded on loans secured by real estate when the property is foreclosed
upon when the carrying value of the loan exceeds the property’s fair value less the estimated costs to
sell.
F-11
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(1 - continued)
Loans and Allowance for Loan Losses - continued
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.
The Company uses a disciplined process and methodology to evaluate the allowance for loan losses
on at least a quarterly basis that is based upon management’s periodic review of the collectability of
the loans in light of historical experience, the nature and volume of the loan portfolio, adverse
situations that may affect the borrower’s ability to repay, estimated value of any underlying
collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans
that are individually evaluated for impairment or loans otherwise classified as doubtful, substandard,
or special mention. For such loans that are classified as impaired, an allowance is established when
the discounted cash flows (or collateral value or observable market price) of the impaired loan is
lower than the carrying value of that loan.
The general component covers non-classified loans and classified loans that are found, upon
individual evaluation, to not be impaired. Such loans are pooled by segment and losses are modeled
using annualized historical loss experience adjusted for qualitative factors. The historical loss
experience is determined by portfolio segment and is based on the actual loss history experienced by
the Company over the most recent 36-month period. This actual loss experience is then adjusted for
qualitative factors that are reviewed on a quarterly basis based on the risks present for each portfolio
segment. Management considers changes and trends in the following qualitative loss factors: levels
of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries;
trends in the volume and term of new loan originations; national and local economic trends and
conditions; changes in lending policies, procedures and practices; changes in the experience and
ability of lending management and other staff; changes in the quality and depth of the internal loan
review process; trends in collateral valuation in the Company’s lending area; and other factors as
determined by management. Each qualitative factor is evaluated and a qualitative factor adjustment
is applied to the actual historical loss factors in determining the adjusted loss factors used in
management’s allowance for loan losses adequacy calculation.
Management exercises significant judgment in evaluating the relevant historical loss experience and
the qualitative factors. Management also monitors the differences between estimated and actual
incurred loan losses for loans considered impaired in order to evaluate the effectiveness of the
estimation process and make any changes in the methodology as necessary.
The following portfolio segments are considered in the allowance for loan loss analysis: residential
real estate, commercial real estate, multi-family residential real estate, construction, land and land
development, commercial business and consumer.
Residential real estate loans primarily consist of loans to individuals for the purchase or refinance of
their primary residence, with a smaller portion of the segment secured by non-owner-occupied
residential investment properties. The risks associated with residential real estate loans are closely
correlated to the local housing market and general economic conditions, as repayment of the loans is
primarily dependent on the borrower’s or tenant’s personal cash flow and employment status.
F-12
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(1 - continued)
Loans and Allowance for Loan Losses - continued
Commercial real estate loans are comprised of loans secured by various types of collateral including
office buildings, warehouses, retail space and mixed use buildings located in the Company’s primary
lending area. Risks related to commercial real estate lending are related to the market value of the
property taken as collateral, the underlying cash flows and general economic condition of the local
real estate market. Repayment of these loans is generally dependent on the ability of the borrower to
attract tenants at lease rates that provide for adequate debt service and can be impacted by local
economic conditions which impact vacancy rates. The Company generally obtains loan guarantees
from financially capable parties for commercial real estate loans.
Multi-family residential real estate loans primarily consist of loans secured by apartment buildings
and other multi-tenant developments. Repayment of these loans is primarily dependent on the
borrower’s ability to attract tenants and collect rents that provide for adequate debt service. The
risks associated with these loans are closely correlated to the local housing market and general
economic conditions.
The Company’s construction loan portfolio consists of single-family residential properties, multi-
family properties and commercial projects, and includes both owner-occupied and speculative
investment properties. Risks inherent in construction lending are related to the market value of the
property held as collateral, the cost and timing of constructing or improving a property, the
borrower’s ability to use funds generated by a project to service a loan until a project is completed,
movements in interest rates and the real estate market during the construction phase, and the ability
of the borrower to obtain permanent financing.
Land and land development loans primarily consist of loans secured by farmland and vacant land
held for long-term investment or development. The risks associated with land and land development
loans are related to the market value of the property taken as collateral and the underlying cash flows
for loans secured by farmland, and general economic conditions.
Commercial business loans includes lines of credit to businesses, term loans and letters of credit
secured by business assets such as equipment, accounts receivable, inventory, or other assets
excluding real estate and are generally made to finance capital expenditures or fund operations.
Commercial loans contain risks related to the value of the collateral securing the loan and the
repayment is primarily dependent upon the financial success and viability of the borrower. As with
commercial real estate loans, the Company generally obtains loan guarantees from financially
capable parties for commercial business loans.
Consumer loans consist primarily of home equity lines of credit and other loans secured by junior
liens on the borrower’s personal residence, home improvement loans, automobile and truck loans,
boat loans, mobile home loans, loans secured by savings deposits and other personal loans. The risks
associated with these loans are related to the local housing market and local economic conditions
including the unemployment level.
There were no significant changes to the Company’s accounting policies or methodology used to
estimate the allowance for loan losses during the years ended September 30, 2014 and 2013.
F-13
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(1 - continued)
Loans and Allowance for Loan Losses – continued
Impaired Loans
A loan is considered impaired when, based on current information and events, it is probable that the
Company will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length of
the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan
basis by either the present value of expected future cash flows discounted at the loan’s effective
interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is
collateral dependent.
Values for collateral dependent loans are generally based on appraisals obtained from independent
licensed real estate appraisers, with adjustments applied for estimated costs to sell the property, costs
to complete unfinished or repair damaged property and other known defects. New appraisals are
generally obtained for all significant properties when a loan is identified as impaired. Generally, a
property is considered significant if the value of the property is estimated to exceed $250,000.
Subsequent appraisals are obtained as needed or if management believes there has been a significant
change in the market value of a collateral property securing an impaired loan. In instances where it
is not deemed necessary to obtain a new appraisal, management would base its impairment and
allowance for loan loss analysis on the original appraisal with adjustments for current conditions
based on management’s assessment of market factors and management’s inspection of the property.
Troubled Debt Restructurings
The 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 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.
A TDR can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual
status, depending on the individual facts and circumstances of the borrower. Generally, a nonaccrual
loan that is restructured in a TDR remains on nonaccrual status for a period of at least six months
following the restructuring to ensure that the borrower performs in accordance with the restructured
terms including consistent and timely payments of at least six consecutive months according to the
restructured terms.
F-14
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(1 - continued)
Real Estate Development and Construction
Real estate that is developed and on which buildings are constructed for the purpose of leasing or
sale to third parties by the Company is stated at cost, including interest capitalized during the
construction period, less accumulated depreciation. The Company uses the straight line method of
computing depreciation at rates adequate to amortize the cost of the applicable assets over their
estimated useful lives. Maintenance and repairs are expensed as incurred. The cost and related
accumulated depreciation of assets sold, or otherwise disposed of, are removed from the related
accounts and any gain or loss is included in earnings.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. The Company uses the
straight line method of computing depreciation at rates adequate to amortize the cost of the
applicable assets over their estimated useful lives. Maintenance and repairs are expensed as
incurred. The cost and related accumulated depreciation of assets sold, or otherwise disposed of, are
removed from the related accounts and any gain or loss is included in earnings.
Other Real Estate Owned
Other real estate owned includes formally foreclosed property and former banking facilities held for
sale. At the time of foreclosure, foreclosed real estate is recorded at its fair value less estimated
costs to sell, which becomes the property’s new basis. Any write-downs based on the property’s fair
value at date of acquisition are charged to the allowance for loan losses. After foreclosure or the
decision to classify property as held for sale, valuations are periodically performed by management
and property held for sale is carried at the lower of the new cost basis or fair value less cost to sell.
Costs incurred in maintaining other real estate owned and subsequent impairment adjustments to the
carrying amount of a property, if any, are included in noninterest expense.
Cash Surrender Value of Life Insurance
The Bank has purchased life insurance policies on certain directors, officers and key employees to
help offset costs associated with the Bank’s compensation and benefit programs. Bank-owned life
insurance is recorded at the amount that can be realized under the insurance contract at the balance
sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are
probable at settlement.
Goodwill and Other Intangibles
Goodwill recognized in a business combination represents the excess of the cost of the acquired
entity over the net of the amounts assigned to assets acquired and liabilities assumed. Goodwill is
carried at its implied fair value and is evaluated for possible impairment at least annually or more
frequently upon the occurrence of an event or change in circumstances that would more likely than
not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could
include, but are not limited to: (1) a significant adverse change in legal factors or in business climate,
(2) unanticipated competition, or (3) an adverse action or assessment by a regulator. If the carrying
amount of the goodwill exceeds its implied fair value, an impairment loss is recognized in earnings
equal to that excess amount. The loss recognized cannot exceed the carrying amount of goodwill.
After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill is its new
accounting basis.
F-15
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(1 - continued)
Goodwill and Other Intangibles – continued
Other intangible assets consist of acquired core deposit intangibles. Core deposit intangibles are
amortized over the estimated economic lives of the acquired core deposits. The carrying amount of
core deposit intangibles and the remaining estimated economic life are evaluated annually or
whenever events or circumstances indicate the carrying amount may not be recoverable or the
remaining period of amortization requires revision. After an impairment loss is recognized, the
adjusted carrying amount of the intangible asset is its new accounting basis.
Securities Lending and Financing Arrangements
Securities purchased under agreements to resell (reverse repurchase agreements) and securities sold
under agreements to repurchase (repurchase agreements) are treated as collateralized lending and
borrowing transactions, respectively, and are carried at the amounts at which the securities were
initially acquired or sold.
Benefit Plans
The Bank provides a contributory defined contribution plan available to all eligible employees. The
Company also established a leveraged employee stock ownership plan (“ESOP”) on October 6, 2008
that includes substantially all employees. The Company accounts for the employee stock ownership
plan in accordance with ASC Topic 718-40, Employee Stock Ownership Plans. Dividends declared
on allocated shares are recorded as a reduction of retained earnings and paid to the participants’
accounts or used for additional debt service on the ESOP loan. Dividends declared on unallocated
shares are not considered dividends for financial reporting purposes and are used for additional debt
service on the ESOP loan. As shares are committed to be released for allocation to participants’
accounts, compensation expense is recognized based on the average fair value of the shares and the
shares become available for earnings per share calculations.
Stock Based Compensation
The Company has adopted the fair value based method of accounting for stock-based compensation
prescribed in ASC Topic 718 for its stock plan.
Income Taxes
When income tax returns are filed, it is highly certain that some positions taken would be sustained
upon examination by the taxing authorities, while other positions are subject to some degree of
uncertainty regarding the merits of the position taken or the amount of the position that would be
sustained. The Company recognizes the benefits of a tax position in the consolidated financial
statements of the period during which, based on all available evidence, management believes it is
more-likely-than-not (more than 50 percent probable) that the tax position would be sustained upon
examination. Income tax positions that meet the more-likely-than-not threshold are measured as the
largest amount of income tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefits associated with the
income tax positions claimed on income tax returns that exceeds the amount measured as described
above is reflected as a liability for unrecognized income tax benefits in the consolidated balance
sheets, along with any associated interest and penalties that would be payable to the taxing
authorities, if there were an examination. Interest and penalties associated with unrecognized income
tax benefits are classified as additional income taxes in the consolidated statements of income.
F-16
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(1 - continued)
Income Taxes – continued
Income taxes are provided for the tax effects of the transactions reported in the financial statements
and consist of taxes currently due plus deferred income taxes. Income tax reporting and financial
statement reporting rules differ in many respects. As a result, there will often be a difference
between the carrying amount of an asset or liability as presented in the accompanying consolidated
balance sheets and the amount that would be recognized as the tax basis of the same asset or liability
computed based on the effects of tax positions recognized, as described in the preceding paragraph.
These differences are referred to as temporary differences because they are expected to reverse in
future years. Deferred income tax assets are recognized for temporary differences where their future
reversal will result in future tax benefits. Deferred income tax assets are also recognized for the
future tax benefits expected to be realized from net operating loss or tax credit carryforwards.
Deferred income tax liabilities are recognized for temporary differences where their future reversal
will result in the payment of future income taxes. Deferred income tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred income tax assets will not be realized. Deferred tax assets and liabilities are
reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income taxes.
Advertising Costs
Advertising costs are charged to operations when incurred.
Comprehensive Income
Comprehensive income consists of reported net income and other comprehensive income. Other
comprehensive income refers to revenue, expenses, gains and losses that are recorded as an element
of equity but are excluded from reported net income. Other comprehensive income includes changes
in the unrealized gains and losses on securities available for sale.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are
recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated.
F-17
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(1 - continued)
Recent Accounting Pronouncements
The following are summaries of recently issued accounting pronouncements that impact the
accounting and reporting practices of the Company:
In January 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-04, Receivables –
Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate
Collateralized Consumer Mortgage Loans upon Foreclosure. The objective of the amendments in this
update is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is,
when a creditor should be considered to have received physical possession of residential real estate
property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized
and the real estate property recognized. The amendments in the update clarify that an in substance
repossession or foreclosure occurs, and a creditor is considered to have received physical possession of
residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor
obtaining legal title to the residential real estate property upon completion of a foreclosure, or (2) the
borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan
through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the
amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real
estate property held by the creditor, and (2) the recorded investment in consumer mortgage loans
collateralized by residential real estate property that are in the process of foreclosure according to local
requirements of the applicable jurisdiction. The amendments in the update are effective for public business
entities for annual periods, and interim periods within those annual periods, beginning after December 15,
2014. The adoption of this update is not expected to have a material impact on the Company’s
consolidated financial position or results of operations.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic
606). The update provides a five-step revenue recognition model for all revenue arising from
contracts with customer and affects all entities that enter into contracts to provide goods or services
to their customers (unless the contracts are included in the scope of other standards). The guidance
requires an entity to recognize the revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods and services. For public entities, the guidance is effective for annual
reporting periods beginning after December 15, 2016, including interim periods within that reporting
period, and must be applied either retrospectively or using the modified retrospective approach.
Early adoption is not permitted. Management is evaluating the new guidance, but does not expect the
adoption of this guidance to have a material impact on the Company’s consolidated financial position
or results of operations.
In August 2014, the FASB issued ASU No. 2014-14, Trouble Debt Restructurings by Creditors
(Subtopic 310-40). The update addresses the classification of certain foreclosed mortgage loans held
by creditors that are either fully or partially guaranteed under government programs (e.g. FHA, VA,
HUD). For public entities, the guidance is effective for annual reporting 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.
F-18
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(2)
RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve balances on hand and with the Federal Reserve Bank which
are unavailable for investment but are interest-bearing. The average amount of those reserve
balances was approximately $7.1 million and $6.3 million for the years ended September 30, 2014
and 2013, respectively.
(3)
INVESTMENT SECURITIES
Investment securities have been classified according to management’s intent.
Trading Account Securities
The Company invests in small and medium lot, investment grade municipal bonds through a
managed brokerage account. The brokerage account is managed by an investment advisory firm
registered with the U.S. Securities and Exchange Commission. Trading account securities recorded
at fair value totaled $5.3 million and $3.2 million as of September 30, 2014 and 2013, respectively,
comprised of investment grade municipal bonds. During the year ended September 30, 2014, the
Company reported net gains on trading account securities of $704,000, including net realized gains
on the sale of securities of $713,000, partially offset by net unrealized losses on securities still held
as of the balance sheet date of $9,000. During the year ended September 30, 2013, the Company
reported net gains on trading account securities of $464,000, including net realized gains on the sale
of securities of $472,000 partially offset by net unrealized losses on securities still held as of the
balance sheet date of $8,000.
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:
(In thousands)
September 30, 2014:
Securities available for sale:
Agency bonds and notes
Agency mortgage-backed
Agency CMO
Privately-issued CMO
Privately-issued ABS
SBA certificates
Municipal obligations
Total securities available
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$ 12,269
51,845
29,648
3,302
5,552
1,753
74,148
$ 12
518
95
618
1,801
9
3,818
$ 190
108
259
-
-
-
134
$ 12,091
52,255
29,484
3,920
7,353
1,762
77,832
for sale
$ 178,517
$ 6,871
$ 691
$ 184,697
Securities held to maturity:
Agency mortgage-backed
Municipal
Total securities held to
$ 455
4,964
$ 37
393
$ -
-
$ 492
5,357
maturity
$ 5,419
$ 430
$ -
$ 5,849
F-19
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(3 – continued)
(In thousands)
September 30, 2013:
Securities available for sale:
Agency bonds and notes
Agency mortgage-backed
Agency CMO
Privately-issued CMO
Privately-issued ABS
SBA certificates
Municipal obligations
Subtotal – debt securities
Equity securities
Total securities available
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$ 15,877
41,720
24,200
3,881
5,829
2,081
68,072
161,660
-
$ 10
285
199
735
1,972
12
2,057
5,270
93
$ 690
291
325
-
2
-
1,548
2,856
$ 15,197
41,714
24,074
4,616
7,799
2,093
68,581
164,074
-
93
for sale
$ 161,660
$ 5,363
$ 2,856
$ 164,167
Securities held to maturity:
Agency mortgage-backed
Municipal obligations
Total securities held to
$ 721
5,696
$ 52
45
$ -
-
$ 773
5,741
maturity
$ 6,417
$ 97
$ -
$ 6,514
The amortized cost and fair value of available for sale and held to maturity debt securities as of
September 30, 2014 by contractual maturity are shown below. Expected maturities of mortgage and
other asset-backed securities may differ from contractual maturities because the mortgages and other
assets underlying the obligations may be prepaid without penalty.
(In thousands)
Due within one year
Due after one year through
five years
Due after five years through
ten years
Due after ten years
CMO
ABS
SBA certificates
Mortgage-backed securities
Available for Sale
Held to Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$ 830
$ 833
$ 593
$ 621
5,565
5,824
22,311
57,711
86,417
32,950
5,552
1,753
51,845
23,038
60,228
89,923
33,404
7,353
1,762
52,255
1,906
1,496
969
4,964
-
-
-
455
2,076
1,621
1,039
5,357
-
-
-
492
$ 178,517
$ 184,697
$ 5,419
$ 5,849
F-20
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(3 – continued)
Information pertaining to securities with gross unrealized losses at September 30, 2014, aggregated
by investment category and the length of time that individual securities have been in a continuous
loss position, follows:
(Dollars in thousands)
Securities available for sale:
Continuous loss position less than twelve months:
Agency mortgage-backed
Agency CMO
Municipal
Total less than twelve months
Continuous loss position more than twelve months:
Agency bonds and notes
Agency mortgage-backed
Agency CMO
Municipal obligations
Total more than twelve months
Total securities available for sale
Number
of Investment
Positions
Fair
Value
Gross
Unrealized
Losses
7
8
2
17
5
4
3
15
27
44
$ 12,207
12,373
1,093
25,673
$ 10,477
3,653
9,171
7,860
31,161
$ 28
56
2
86
$ 190
80
203
132
605
$ 56,834
$ 691
At September 30, 2014, the Company did not have any securities held to maturity with an unrealized
loss.
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis,
and more frequently when economic or market 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 available for sale debt securities in loss positions at September 30, 2014, which consisted
of U.S. government agency notes, mortgage-backed securities and CMOs, and municipal bonds, had
depreciated approximately 1.20% from the Company’s amortized cost basis and are fixed and
variable rate securities with a weighted-average yield of 1.92% and a weighted-average coupon rate
of 2.80% at September 30, 2014. All of the agency and municipal securities are issued by U.S.
government-sponsored enterprises and municipal governments, and are generally secured by first
mortgage loans and municipal project revenues.
The Company evaluates the existence of a potential credit loss component related to the decline in
fair value of the privately-issued CMO and ABS portfolios each quarter using an independent third
party analysis. At September 30, 2014, the Company held twenty privately-issued CMO and ABS
securities acquired in a 2009 bank acquisition with an aggregate carrying value of $2.9 million and
fair value of $4.4 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.
F-21
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(3 – continued)
At September 30, 2014, there were no privately-issued CMOs or ABS in loss positions. Based on the
independent third party analysis of the expected cash flows, management has determined that no
other-than-temporary impairment is required to be recognized on the privately-issued CMO and ABS
portfolios. While the Company did not recognize a credit-related impairment loss at September 30,
2014, additional deterioration in market and economic conditions may have an adverse impact on the
credit quality in the future and therefore, require a credit-related impairment charge.
The unrealized losses on U.S. government agency notes, mortgage-backed securities and CMOs, and
municipal bonds relate principally to current interest rates for similar types of securities. In analyzing an
issuer’s financial condition, management considers whether the securities are issued by the federal
government, its agencies, or other governments, whether downgrades by bond rating agencies have
occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to
hold debt securities to maturity, or for the foreseeable future if classified as available for sale, no declines
are deemed to be other-than-temporary.
During the year ended September 30, 2014, the Company realized gross gains on sales of available
for sale U.S. government agency notes, equity securities and municipal bonds of $1,000, $111,000
and $11,000, respectively. The Company realized gross gains on sales of available for sale U.S.
government agency notes of $1,000 for the year ended September 30, 2013.
Certain available for sale debt securities were pledged under repurchase agreements and to secure
FHLB borrowings during the years ended September 30, 2014 and 2013, and may be pledged to
secure federal funds borrowings (see Notes 10, 11 and 12).
F-22
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(4)
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at September 30, 2014 and 2013 consisted of the following:
(In thousands)
2014
2013
Real estate mortgage:
1-4 family residential
Commercial
Multifamily residential
Residential construction
Commercial construction
Land and land development
Commercial business
Consumer:
Home equity
Auto
Other consumer
Gross loans
Undisbursed portion of construction loans
Principal loan balance
Deferred loan origination fees and costs, net
Allowance for loan losses
$ 182,743
153,896
21,286
14,528
8,354
11,290
28,448
17,903
5,619
2,320
446,387
(6,271)
440,116
10
(6,250)
$ 184,390
117,782
26,759
12,537
6,730
11,396
31,627
17,133
6,519
3,266
418,139
(4,389)
413,750
163
(5,538)
Loans, net
$ 433,876
$ 408,375
Mortgage loans serviced for the benefit of others amounted to $91,000 and $138,000 at September
30, 2014 and 2013, respectively. No mortgage servicing rights have been capitalized since the year
ended September 30, 1999.
At September 30, 2014, the recorded investment in residential mortgage loans secured by one-to-four
family residential properties with loan-to-value ratios exceeding 90% amounted to $12.8 million, of
which some do not have private mortgage insurance or government guaranty.
The Bank has entered into loan transactions with certain directors, officers and their affiliates
(related parties). In the opinion of management, such indebtedness was incurred in the ordinary
course of business on substantially the same terms as those prevailing at the time for comparable
transactions with other persons and does not involve more than normal risk of collectability or
present other unfavorable features.
The following is a summary of activity for related party loans for the years ended September 30,
2014 and 2013:
(In thousands)
Beginning balance
New loans and advances
Repayments
Reclassifications
Ending balance
2014
2013
$ 5,946
1,897
(1,431)
(106)
$ 7,182
1,363
(1,665)
(934)
$ 6,306
$ 5,946
F-23
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
P
U
O
R
G
L
A
I
C
N
A
N
I
F
S
G
N
I
V
A
S
T
S
R
I
F
D
E
U
N
I
T
N
O
C
-
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
3
1
0
2
D
N
A
4
1
0
2
,
0
3
R
E
B
M
E
T
P
E
S
)
s
d
n
a
s
u
o
h
t
n
I
(
l
a
t
o
T
r
e
m
u
s
n
o
C
s
s
e
n
i
s
u
B
l
a
i
c
r
e
m
m
o
C
d
n
a
L
&
d
n
a
L
t
n
e
m
p
o
l
e
v
e
D
n
o
i
t
c
u
r
t
s
n
o
C
y
l
i
m
a
f
i
t
l
u
M
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
E
l
a
e
R
l
a
i
t
n
e
d
i
s
e
R
e
t
a
t
s
E
l
a
e
R
6
1
1
,
0
4
4
$
2
4
8
,
5
2
$
8
4
4
,
8
2
$
0
9
2
,
1
1
$
1
1
6
,
6
1
$
6
8
2
,
1
2
$
6
9
8
,
3
5
1
$
3
4
7
,
2
8
1
$
e
c
n
a
l
a
b
n
a
o
l
l
a
p
i
c
n
i
r
P
:
s
n
a
o
L
n
i
t
n
e
m
t
s
e
v
n
I
d
e
d
r
o
c
e
R
0
1
6
7
2
,
1
3
6
2
1
1
1
1
)
9
(
1
3
4
4
4
)
4
5
(
3
5
4
8
3
)
8
2
(
)
2
5
2
(
0
9
5
7
3
3
2
0
4
,
1
4
4
$
7
1
9
,
5
2
$
0
5
5
,
8
2
$
5
2
3
,
1
1
$
1
0
6
,
6
1
$
1
1
3
,
1
2
$
8
2
0
,
4
5
1
$
0
7
6
,
3
8
1
$
s
t
s
o
c
d
n
a
s
e
e
f
n
o
i
t
a
n
i
g
i
r
o
n
a
o
l
d
e
r
r
e
f
e
d
t
e
N
n
i
t
n
e
m
t
s
e
v
n
i
d
e
d
r
o
c
e
R
s
n
a
o
l
t
s
e
r
e
t
n
i
d
e
u
r
c
c
A
e
l
b
a
v
i
e
c
e
r
:
4
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
f
o
s
a
s
n
a
o
l
n
i
t
n
e
m
t
s
e
v
n
i
d
e
d
r
o
c
e
r
e
h
t
f
o
s
t
n
e
n
o
p
m
o
c
e
h
t
s
e
d
i
v
o
r
p
e
l
b
a
t
g
n
i
w
o
l
l
o
f
e
h
T
)
d
e
u
n
i
t
n
o
c
–
4
(
6
6
0
,
1
1
$
0
5
3
$
5
4
1
$
-
$
-
$
-
$
5
0
7
,
5
$
6
6
8
,
4
$
8
9
7
,
9
2
4
5
3
5
,
5
2
5
0
4
,
8
2
5
2
3
,
1
1
1
0
6
,
6
1
1
1
3
,
1
2
3
2
3
,
8
4
1
8
9
2
,
8
7
1
r
o
f
d
e
t
a
u
l
a
v
e
y
l
l
a
u
d
i
v
i
d
n
I
t
n
e
m
r
i
a
p
m
i
r
o
f
d
e
t
a
u
l
a
v
e
y
l
e
v
i
t
c
e
l
l
o
C
t
n
e
m
r
i
a
p
m
i
h
t
i
w
d
e
r
i
u
q
c
A
8
3
5
2
3
-
-
-
-
-
6
0
5
y
t
i
l
a
u
q
t
i
d
e
r
c
d
e
t
a
r
o
i
r
e
t
e
d
2
0
4
,
1
4
4
$
7
1
9
,
5
2
$
0
5
5
,
8
2
$
5
2
3
,
1
1
$
1
0
6
,
6
1
$
1
1
3
,
1
2
$
8
2
0
,
4
5
1
$
0
7
6
,
3
8
1
$
n
i
t
n
e
m
t
s
e
v
n
i
d
e
d
r
o
c
e
R
s
n
a
o
l
:
t
n
e
m
r
i
a
p
m
I
r
o
f
d
e
t
a
u
l
a
v
E
s
a
s
n
a
o
L
n
i
t
n
e
m
t
s
e
v
n
I
d
e
d
r
o
c
e
R
4
2
-
F
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
P
U
O
R
G
L
A
I
C
N
A
N
I
F
S
G
N
I
V
A
S
T
S
R
I
F
D
E
U
N
I
T
N
O
C
-
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
3
1
0
2
D
N
A
4
1
0
2
,
0
3
R
E
B
M
E
T
P
E
S
)
s
d
n
a
s
u
o
h
t
n
I
(
l
a
t
o
T
r
e
m
u
s
n
o
C
s
s
e
n
i
s
u
B
l
a
i
c
r
e
m
m
o
C
d
n
a
L
&
d
n
a
L
t
n
e
m
p
o
l
e
v
e
D
n
o
i
t
c
u
r
t
s
n
o
C
y
l
i
m
a
f
i
t
l
u
M
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
E
l
a
e
R
l
a
i
t
n
e
d
i
s
e
R
e
t
a
t
s
E
l
a
e
R
0
5
7
,
3
1
4
$
8
1
9
,
6
2
$
7
2
6
,
1
3
$
6
9
3
,
1
1
$
8
7
8
,
4
1
$
9
5
7
,
6
2
$
2
8
7
,
7
1
1
$
0
9
3
,
4
8
1
$
e
c
n
a
l
a
b
n
a
o
l
l
a
p
i
c
n
i
r
P
:
s
n
a
o
L
n
i
t
n
e
m
t
s
e
v
n
I
d
e
d
r
o
c
e
R
8
0
2
,
1
3
6
1
8
7
3
1
6
8
)
5
(
0
4
)
7
(
1
3
)
6
4
(
7
5
6
1
3
)
8
3
(
)
9
6
1
(
0
0
6
5
1
4
1
2
1
,
5
1
4
$
9
0
0
,
7
2
$
8
0
7
,
1
3
$
9
2
4
,
1
1
$
3
6
8
,
4
1
$
8
7
7
,
6
2
$
9
2
9
,
7
1
1
$
5
0
4
,
5
8
1
$
s
t
s
o
c
d
n
a
s
e
e
f
n
o
i
t
a
n
i
g
i
r
o
n
a
o
l
d
e
r
r
e
f
e
d
t
e
N
n
i
t
n
e
m
t
s
e
v
n
i
d
e
d
r
o
c
e
R
s
n
a
o
l
t
s
e
r
e
t
n
i
d
e
u
r
c
c
A
e
l
b
a
v
i
e
c
e
r
:
3
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
f
o
s
a
s
n
a
o
l
n
i
t
n
e
m
t
s
e
v
n
i
d
e
d
r
o
c
e
r
e
h
t
f
o
s
t
n
e
n
o
p
m
o
c
e
h
t
s
e
d
i
v
o
r
p
e
l
b
a
t
g
n
i
w
o
l
l
o
f
e
h
T
)
d
e
u
n
i
t
n
o
c
–
4
(
6
4
5
,
4
1
$
6
5
4
$
5
3
2
$
-
$
9
2
$
6
0
3
,
2
$
1
9
0
,
6
$
9
2
4
,
5
$
7
3
9
,
9
9
3
9
1
5
,
6
2
3
7
4
,
1
3
9
2
4
,
1
1
4
3
8
,
4
1
2
7
4
,
4
2
8
3
8
,
1
1
1
2
7
3
,
9
7
1
r
o
f
d
e
t
a
u
l
a
v
e
y
l
l
a
u
d
i
v
i
d
n
I
t
n
e
m
r
i
a
p
m
i
r
o
f
d
e
t
a
u
l
a
v
e
y
l
e
v
i
t
c
e
l
l
o
C
t
n
e
m
r
i
a
p
m
i
h
t
i
w
d
e
r
i
u
q
c
A
8
3
6
4
3
-
-
-
-
-
4
0
6
y
t
i
l
a
u
q
t
i
d
e
r
c
d
e
t
a
r
o
i
r
e
t
e
d
1
2
1
,
5
1
4
$
9
0
0
,
7
2
$
8
0
7
,
1
3
$
9
2
4
,
1
1
$
3
6
8
,
4
1
$
8
7
7
,
6
2
$
9
2
9
,
7
1
1
$
5
0
4
,
5
8
1
$
n
i
t
n
e
m
t
s
e
v
n
i
d
e
d
r
o
c
e
R
s
n
a
o
l
:
t
n
e
m
r
i
a
p
m
I
r
o
f
d
e
t
a
u
l
a
v
E
s
a
s
n
a
o
L
n
i
t
n
e
m
t
s
e
v
n
I
d
e
d
r
o
c
e
R
5
2
-
F
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
P
U
O
R
G
L
A
I
C
N
A
N
I
F
S
G
N
I
V
A
S
T
S
R
I
F
D
E
U
N
I
T
N
O
C
-
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
3
1
0
2
D
N
A
4
1
0
2
,
0
3
R
E
B
M
E
T
P
E
S
)
s
d
n
a
s
u
o
h
t
n
I
(
l
a
t
o
T
r
e
m
u
s
n
o
C
s
s
e
n
i
s
u
B
l
a
i
c
r
e
m
m
o
C
d
n
a
L
&
d
n
a
L
t
n
e
m
p
o
l
e
v
e
D
n
o
i
t
c
u
r
t
s
n
o
C
y
l
i
m
a
f
i
t
l
u
M
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
E
l
a
e
R
l
a
i
t
n
e
d
i
s
e
R
e
t
a
t
s
E
l
a
e
R
)
2
7
8
(
6
4
2
,
1
8
3
3
8
3
5
,
5
$
)
4
2
(
)
6
3
1
(
8
4
2
$
1
9
7
0
9
2
2
1
$
)
4
3
2
(
-
3
9
9
2
$
-
-
9
2
2
4
1
2
$
-
-
)
3
0
1
(
9
4
2
$
-
-
7
8
9
)
4
2
2
(
9
1
2
6
2
8
,
2
$
0
5
2
,
6
$
9
7
1
$
5
9
7
$
2
0
3
$
3
4
4
$
6
4
1
$
8
0
8
,
3
$
7
4
)
8
7
2
(
0
8
7
$
8
2
7
7
5
$
e
c
n
a
l
a
b
g
n
i
n
n
i
g
e
B
s
f
f
o
-
e
g
r
a
h
C
s
e
i
r
e
v
o
c
e
R
s
n
o
i
s
i
v
o
r
P
e
c
n
a
l
a
b
g
n
i
d
n
E
:
s
e
s
s
o
L
n
a
o
L
r
o
f
e
c
n
a
w
o
l
l
A
n
i
s
e
g
n
a
h
C
:
s
w
o
l
l
o
f
s
a
s
i
4
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
d
e
d
n
e
r
a
e
y
e
h
t
r
o
f
d
n
a
f
o
s
a
s
e
s
s
o
l
n
a
o
l
r
o
f
e
c
n
a
w
o
l
l
a
e
h
t
f
o
s
i
s
y
l
a
n
a
n
A
)
d
e
u
n
i
t
n
o
c
–
4
(
1
2
$
8
$
-
$
-
$
-
$
-
$
-
$
3
1
$
9
2
2
,
6
1
7
1
5
9
7
-
-
-
2
0
3
-
3
4
4
-
6
4
1
8
0
8
,
3
4
6
5
-
-
-
d
e
t
a
u
l
a
v
e
y
l
l
a
u
d
i
v
i
d
n
I
t
n
e
m
r
i
a
p
m
i
r
o
f
d
e
t
a
u
l
a
v
e
y
l
e
v
i
t
c
e
l
l
o
C
t
n
e
m
r
i
a
p
m
i
r
o
f
d
e
t
a
r
o
i
r
e
t
e
d
h
t
i
w
d
e
r
i
u
q
c
A
y
t
i
l
a
u
q
t
i
d
e
r
c
:
s
n
a
o
L
o
t
e
l
b
a
t
u
b
i
r
t
t
A
e
c
n
a
l
a
B
e
c
n
a
w
o
l
l
A
g
n
i
d
n
E
0
5
2
,
6
$
9
7
1
$
5
9
7
$
2
0
3
$
3
4
4
$
6
4
1
$
8
0
8
,
3
$
7
7
5
$
e
c
n
a
l
a
b
g
n
i
d
n
E
6
2
-
F
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
P
U
O
R
G
L
A
I
C
N
A
N
I
F
S
G
N
I
V
A
S
T
S
R
I
F
D
E
U
N
I
T
N
O
C
-
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
3
1
0
2
D
N
A
4
1
0
2
,
0
3
R
E
B
M
E
T
P
E
S
)
s
d
n
a
s
u
o
h
t
n
I
(
l
a
t
o
T
r
e
m
u
s
n
o
C
s
s
e
n
i
s
u
B
l
a
i
c
r
e
m
m
o
C
d
n
a
L
&
d
n
a
L
t
n
e
m
p
o
l
e
v
e
D
n
o
i
t
c
u
r
t
s
n
o
C
y
l
i
m
a
f
i
t
l
u
M
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
E
l
a
e
R
l
a
i
t
n
e
d
i
s
e
R
e
t
a
t
s
E
l
a
e
R
3
9
1
8
5
8
,
1
)
9
1
4
,
1
(
6
0
9
,
4
$
0
3
)
1
1
1
(
7
6
2
$
2
6
1
4
5
9
7
)
3
1
0
,
1
(
4
8
0
,
1
$
2
7
9
2
$
-
-
2
5
7
7
1
$
-
-
)
0
4
1
(
9
8
3
$
-
-
8
0
6
)
1
1
(
5
2
4
0
2
,
2
$
8
3
5
,
5
$
8
4
2
$
7
0
9
$
9
9
2
$
9
2
2
$
9
4
2
$
6
2
8
,
2
$
1
9
)
4
8
2
(
8
0
9
$
5
6
0
8
7
$
e
c
n
a
l
a
b
g
n
i
n
n
i
g
e
B
s
f
f
o
-
e
g
r
a
h
C
s
e
i
r
e
v
o
c
e
R
s
n
o
i
s
i
v
o
r
P
e
c
n
a
l
a
b
g
n
i
d
n
E
:
s
e
s
s
o
L
n
a
o
L
r
o
f
e
c
n
a
w
o
l
l
A
n
i
s
e
g
n
a
h
C
:
s
w
o
l
l
o
f
s
a
s
i
3
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
d
e
d
n
e
r
a
e
y
e
h
t
r
o
f
d
n
a
f
o
s
a
s
e
s
s
o
l
n
a
o
l
r
o
f
e
c
n
a
w
o
l
l
a
e
h
t
f
o
s
i
s
y
l
a
n
a
n
A
)
d
e
u
n
i
t
n
o
c
–
4
(
6
3
$
6
$
-
$
-
$
-
$
-
$
-
$
0
3
$
2
0
5
,
5
2
4
2
7
0
9
-
-
-
9
9
2
-
9
2
2
-
9
4
2
6
2
8
,
2
0
5
7
-
-
-
d
e
t
a
u
l
a
v
e
y
l
l
a
u
d
i
v
i
d
n
I
t
n
e
m
r
i
a
p
m
i
r
o
f
d
e
t
a
u
l
a
v
e
y
l
e
v
i
t
c
e
l
l
o
C
t
n
e
m
r
i
a
p
m
i
r
o
f
d
e
t
a
r
o
i
r
e
t
e
d
h
t
i
w
d
e
r
i
u
q
c
A
y
t
i
l
a
u
q
t
i
d
e
r
c
:
s
n
a
o
L
o
t
e
l
b
a
t
u
b
i
r
t
t
A
e
c
n
a
l
a
B
e
c
n
a
w
o
l
l
A
g
n
i
d
n
E
8
3
5
,
5
$
8
4
2
$
7
0
9
$
9
9
2
$
9
2
2
$
9
4
2
$
6
2
8
,
2
$
0
8
7
$
e
c
n
a
l
a
b
g
n
i
d
n
E
7
2
-
F
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(4 – continued)
The following table presents impaired loans individually evaluated for impairment as of and for the
year ended September 30, 2014. The Company recognized $52,000 of interest income on impaired
commercial real estate loans using the cash receipts method of accounting for the year ended
September 30, 2014.
Recorded
Investment
Unpaid
Principal
Balance
Average
Recorded
Investment
Related
Allowance
(In thousands)
Interest
Income
Recognized
Loans with no related allowance recorded:
Residential real estate
Commercial real estate
Multifamily
Construction
Land and land development
Commercial business
Consumer
$ 4,974
5,705
-
-
-
145
255
$ 5,426
5,739
-
-
-
133
258
$ -
-
-
-
-
-
-
$ 5,878
5,864
1,883
-
-
287
285
$ 131
189
94
-
-
1
6
$ 11,079
$ 11,556
$ -
$ 14,197
$ 421
Loans with an allowance recorded:
Residential real estate
Commercial real estate
Multifamily
Construction
Land and land development
Commercial business
Consumer
$ 167
-
-
-
-
-
95
$ 166
-
-
-
-
-
95
$ 13
-
-
-
-
-
8
$ 64
-
-
-
-
-
97
$ -
-
-
-
-
-
-
$ 262
$ 261
$ 21
$ 161
$ -
Total:
Residential real estate
Commercial real estate
Multifamily
Construction
Land and land development
Commercial business
Consumer
$ 5,141
5,705
-
-
-
145
350
$ 5,592
5,739
-
-
-
133
353
$ 13
-
-
-
-
-
8
$ 5,942
5,864
1,883
-
-
287
382
$ 131
189
94
-
-
1
6
$ 11,341
$ 11,817
$ 21
$ 14,358
$ 421
F-28
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(4 – continued)
The following table presents impaired loans individually evaluated for impairment as of and for the
year ended September 30, 2013. The Company did not recognize any interest income on impaired
loans using the cash receipts method of accounting for the year ended September 30, 2013.
Recorded
Investment
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
Related
Allowance
(In thousands)
Loans with no related allowance recorded:
Residential real estate
Commercial real estate
Multifamily
Construction
Land and land development
Commercial business
Consumer
$ 5,647
6,091
2,306
29
-
235
361
$ 5,975
6,099
2,246
13
-
235
357
$ -
-
-
-
-
-
-
$ 6,561
2,368
2,265
147
-
443
336
$ 119
77
113
-
-
1
7
$ 14,669
$ 14,925
$ -
$ 12,120
$ 317
Loans with an allowance recorded:
Residential real estate
Commercial real estate
Multifamily
Construction
Land and land development
Commercial business
Consumer
$ 59
-
-
-
-
-
95
$ 55
-
-
-
-
-
95
$ 30
-
-
-
-
-
6
$ 157
106
-
-
-
165
78
$ -
-
-
-
-
-
-
Total:
Residential real estate
Commercial real estate
Multifamily
Construction
Land and land development
Commercial business
Consumer
$ 154
$ 150
$ 36
$ 506
$ -
$ 5,706
6,091
2,306
29
-
235
456
$ 6,030
6,099
2,246
13
-
235
452
$ 30
-
-
-
-
-
6
$ 6,718
2,474
2,265
147
-
608
414
$ 119
77
113
-
-
1
7
$ 14,823
$ 15,075
$ 36
$ 12,626
$ 317
F-29
d
e
d
r
o
c
e
r
e
h
t
s
t
n
e
s
e
r
p
e
l
b
a
t
g
n
i
w
o
l
l
o
f
e
h
T
.
t
s
e
r
e
t
n
i
g
n
i
u
r
c
c
a
l
l
i
t
s
d
n
a
e
u
d
t
s
a
p
s
y
a
d
0
9
r
e
v
o
s
n
a
o
l
d
n
a
s
n
a
o
l
l
a
u
r
c
c
a
n
o
n
f
o
s
t
s
i
s
n
o
c
s
n
a
o
l
g
n
i
m
r
o
f
r
e
p
n
o
N
:
3
1
0
2
d
n
a
4
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
t
a
s
n
a
o
l
g
n
i
m
r
o
f
r
e
p
n
o
n
n
i
t
n
e
m
t
s
e
v
n
i
)
d
e
u
n
i
t
n
o
c
–
4
(
l
a
t
o
T
g
n
i
m
r
o
f
r
e
p
n
o
N
+
0
9
s
n
a
o
L
s
y
a
D
e
u
D
t
s
a
P
s
n
a
o
L
g
n
i
u
r
c
c
A
l
l
i
t
S
l
a
u
r
c
c
a
n
o
N
s
n
a
o
L
l
a
t
o
T
i
g
n
m
r
o
f
r
e
p
n
o
N
+
0
9
s
n
a
o
L
s
y
a
D
e
u
D
t
s
a
P
s
n
a
o
L
g
n
i
u
r
c
c
A
l
l
i
t
S
3
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
t
A
4
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
t
A
l
a
u
r
c
c
a
n
o
N
s
n
a
o
L
9
2
-
-
8
1
2
1
3
3
7
1
8
,
4
2
6
6
,
3
$
7
5
0
,
9
$
3
4
1
$
-
-
-
-
-
1
2
4
6
1
$
9
2
-
8
1
2
0
1
3
-
7
1
8
,
4
9
1
5
,
3
$
)
s
d
n
a
s
u
o
h
t
n
I
(
3
2
1
6
3
2
-
-
-
4
3
0
,
1
9
8
8
,
2
$
3
9
8
,
8
$
2
8
2
,
4
$
8
5
4
$
-
-
-
-
-
0
2
8
7
4
$
-
-
-
3
2
1
6
1
2
4
3
0
,
1
1
3
4
,
2
$
4
0
8
,
3
$
t
n
e
m
p
o
l
e
v
e
d
d
n
a
l
d
n
a
d
n
a
L
s
s
e
n
i
s
u
b
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
e
l
a
e
r
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
e
l
a
e
r
l
a
i
t
n
e
d
i
s
e
R
y
l
i
m
a
f
i
t
l
u
M
n
o
i
t
c
u
r
t
s
n
o
C
r
e
m
u
s
n
o
C
l
a
t
o
T
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
P
U
O
R
G
L
A
I
C
N
A
N
I
F
S
G
N
I
V
A
S
T
S
R
I
F
D
E
U
N
I
T
N
O
C
-
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
3
1
0
2
D
N
A
4
1
0
2
,
0
3
R
E
B
M
E
T
P
E
S
0
3
-
F
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
P
U
O
R
G
L
A
I
C
N
A
N
I
F
S
G
N
I
V
A
S
T
S
R
I
F
D
E
U
N
I
T
N
O
C
-
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
3
1
0
2
D
N
A
4
1
0
2
,
0
3
R
E
B
M
E
T
P
E
S
)
s
d
n
a
s
u
o
h
t
n
I
(
l
a
t
o
T
s
n
a
o
L
t
n
e
r
r
u
C
l
a
t
o
T
e
u
D
t
s
a
P
s
y
a
D
+
0
9
e
u
D
t
s
a
P
s
y
a
D
9
8
-
0
6
s
y
a
D
9
5
-
0
3
e
u
D
t
s
a
P
e
u
D
t
s
a
P
1
1
3
,
1
2
1
0
6
,
6
1
5
2
3
,
1
1
0
5
5
,
8
2
7
1
9
,
5
2
4
1
0
,
1
2
1
0
6
,
6
1
4
1
1
,
1
1
8
6
1
,
8
2
7
2
7
,
5
2
8
2
0
,
4
5
1
0
7
6
,
3
8
1
$
0
0
8
,
3
5
1
5
1
7
,
5
7
1
$
8
2
2
7
9
2
1
1
2
2
8
3
0
9
1
-
5
5
9
,
7
$
-
-
-
2
7
3
2
1
9
5
3
2
8
,
1
$
4
5
-
-
9
7
-
5
0
2
5
1
1
7
9
2
6
9
3
9
5
2
-
9
3
6
,
1
$
3
9
4
,
4
$
2
0
4
,
1
4
4
$
9
3
1
,
2
3
4
$
3
6
2
,
9
$
7
7
0
,
2
$
7
7
9
,
1
$
9
0
2
,
5
$
t
n
e
m
p
o
l
e
v
e
d
d
n
a
l
d
n
a
d
n
a
L
s
s
e
n
i
s
u
b
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
e
l
a
e
r
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
e
l
a
e
r
l
a
i
t
n
e
d
i
s
e
R
y
l
i
m
a
f
i
t
l
u
M
n
o
i
t
c
u
r
t
s
n
o
C
r
e
m
u
s
n
o
C
l
a
t
o
T
:
3
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
t
a
s
n
a
o
l
e
u
d
t
s
a
p
n
i
t
n
e
m
t
s
e
v
n
i
d
e
d
r
o
c
e
r
e
h
t
f
o
g
n
i
g
a
e
h
t
s
t
n
e
s
e
r
p
e
l
b
a
t
g
n
i
w
o
l
l
o
f
e
h
T
)
s
d
n
a
s
u
o
h
t
n
I
(
l
a
t
o
T
s
n
a
o
L
t
n
e
r
r
u
C
l
a
t
o
T
e
u
D
t
s
a
P
s
y
a
D
+
0
9
e
u
D
t
s
a
P
s
y
a
D
9
8
-
0
6
s
y
a
D
9
5
-
0
3
e
u
D
t
s
a
P
e
u
D
t
s
a
P
8
7
7
,
6
2
3
6
8
,
4
1
9
2
4
,
1
1
8
0
7
,
1
3
9
0
0
,
7
2
3
4
7
,
6
2
3
6
8
,
4
1
0
2
4
,
1
1
0
6
4
,
1
3
7
4
5
,
6
2
5
3
-
9
8
4
2
2
6
4
-
-
-
4
3
2
3
2
2
-
-
-
4
1
3
5
9
2
9
,
7
1
1
5
0
4
,
5
8
1
$
6
5
7
,
6
1
1
5
2
6
,
8
7
1
$
3
7
1
,
1
0
8
7
,
6
$
7
6
6
6
6
4
,
2
$
1
1
2
3
3
3
,
1
$
5
3
5
9
2
9
-
-
6
8
1
1
8
9
,
2
$
1
2
1
,
5
1
4
$
4
1
4
,
6
0
4
$
7
0
7
,
8
$
0
9
5
,
3
$
1
1
6
,
1
$
6
0
5
,
3
$
t
n
e
m
p
o
l
e
v
e
d
d
n
a
l
d
n
a
d
n
a
L
s
s
e
n
i
s
u
b
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
e
l
a
e
r
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
e
l
a
e
r
l
a
i
t
n
e
d
i
s
e
R
y
l
i
m
a
f
i
t
l
u
M
n
o
i
t
c
u
r
t
s
n
o
C
r
e
m
u
s
n
o
C
l
a
t
o
T
:
4
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
t
a
s
n
a
o
l
e
u
d
t
s
a
p
n
i
t
n
e
m
t
s
e
v
n
i
d
e
d
r
o
c
e
r
e
h
t
f
o
g
n
i
g
a
e
h
t
s
t
n
e
s
e
r
p
e
l
b
a
t
g
n
i
w
o
l
l
o
f
e
h
T
)
d
e
u
n
i
t
n
o
c
–
4
(
1
3
-
F
l
a
i
c
n
a
n
i
f
t
n
e
r
r
u
c
:
s
a
h
c
u
s
t
b
e
d
r
i
e
h
t
e
c
i
v
r
e
s
o
t
s
r
e
w
o
r
r
o
b
f
o
y
t
i
l
i
b
a
e
h
t
t
u
o
b
a
n
o
i
t
a
m
r
o
f
n
i
t
n
a
v
e
l
e
r
n
o
d
e
s
a
b
s
e
i
r
o
g
e
t
a
c
k
s
i
r
o
t
n
i
s
n
a
o
l
s
e
z
i
r
o
g
e
t
a
c
y
n
a
p
m
o
C
e
h
T
y
n
a
p
m
o
C
e
h
T
.
s
r
o
t
c
a
f
r
e
h
t
o
g
n
o
m
a
,
s
d
n
e
r
t
c
i
m
o
n
o
c
e
t
n
e
r
r
u
c
d
n
a
,
n
o
i
t
a
t
n
e
m
u
c
o
d
t
i
d
e
r
c
,
e
c
n
e
i
r
e
p
x
e
t
n
e
m
y
a
p
l
a
c
i
r
o
t
s
i
h
,
n
o
i
t
a
m
r
o
f
n
i
c
i
l
b
u
p
,
n
o
i
t
a
m
r
o
f
n
i
:
s
g
n
i
t
a
r
k
s
i
r
r
o
f
s
n
o
i
t
i
n
i
f
e
d
y
r
o
t
a
l
u
g
e
r
g
n
i
w
o
l
l
o
f
e
h
t
s
e
s
u
y
n
a
p
m
o
C
e
h
T
.
y
l
r
e
t
r
a
u
q
t
s
a
e
l
t
a
k
s
i
r
t
i
d
e
r
c
n
o
d
e
s
a
b
s
n
a
o
l
s
e
i
f
i
s
s
a
l
c
l
a
i
t
n
e
t
o
p
e
s
e
h
t
,
d
e
t
c
e
r
r
o
c
n
u
t
f
e
l
f
I
.
n
o
i
t
n
e
t
t
a
e
s
o
l
c
s
’
t
n
e
m
e
g
a
n
a
m
s
e
v
r
e
s
e
d
t
a
h
t
s
s
e
n
k
a
e
w
l
a
i
t
n
e
t
o
p
a
e
v
a
h
n
o
i
t
n
e
m
l
a
i
c
e
p
s
s
a
d
e
i
f
i
s
s
a
l
c
s
n
a
o
L
:
n
o
i
t
n
e
M
l
a
i
c
e
p
S
.
e
t
a
d
e
r
u
t
u
f
e
m
o
s
t
a
n
o
i
t
i
s
o
p
t
i
d
e
r
c
s
’
n
o
i
t
u
t
i
t
s
n
i
e
h
t
f
o
r
o
n
a
o
l
e
h
t
r
o
f
s
t
c
e
p
s
o
r
p
t
n
e
m
y
a
p
e
r
e
h
t
f
o
n
o
i
t
a
r
o
i
r
e
t
e
d
n
i
t
l
u
s
e
r
y
a
m
s
e
s
s
e
n
k
a
e
w
,
d
e
g
d
e
l
p
l
a
r
e
t
a
l
l
o
c
e
h
t
f
o
r
o
r
o
g
i
l
b
o
e
h
t
f
o
y
t
i
c
a
p
a
c
g
n
i
y
a
p
d
n
a
h
t
r
o
w
t
e
n
t
n
e
r
r
u
c
e
h
t
y
b
d
e
t
c
e
t
o
r
p
y
l
e
t
a
u
q
e
d
a
n
i
e
r
a
d
r
a
d
n
a
t
s
b
u
s
s
a
d
e
i
f
i
s
s
a
l
c
s
n
a
o
L
:
d
r
a
d
n
a
t
s
b
u
S
t
c
n
i
t
s
i
d
e
h
t
y
b
d
e
z
i
r
e
t
c
a
r
a
h
c
e
r
a
y
e
h
T
.
t
b
e
d
e
h
t
f
o
n
o
i
t
a
d
i
u
q
i
l
e
h
t
e
z
i
d
r
a
p
o
e
j
t
a
h
t
s
e
s
s
e
n
k
a
e
w
r
o
s
s
e
n
k
a
e
w
d
e
n
i
f
e
d
-
l
l
e
w
a
e
v
a
h
d
e
i
f
i
s
s
a
l
c
o
s
s
n
a
o
L
.
y
n
a
f
i
.
d
e
t
c
e
r
r
o
c
t
o
n
e
r
a
s
e
i
c
n
e
i
c
i
f
e
d
e
h
t
f
i
s
s
o
l
e
m
o
s
n
i
a
t
s
u
s
l
l
i
w
n
o
i
t
u
t
i
t
s
n
i
e
h
t
t
a
h
t
y
t
i
l
i
b
i
s
s
o
p
s
e
s
s
e
n
k
a
e
w
e
h
t
t
a
h
t
c
i
t
s
i
r
e
t
c
a
r
a
h
c
d
e
d
d
a
e
h
t
h
t
i
w
,
d
r
a
d
n
a
t
s
b
u
s
s
a
d
e
i
f
i
s
s
a
l
c
e
s
o
h
t
n
i
t
n
e
r
e
h
n
i
s
e
s
s
e
n
k
a
e
w
e
h
t
l
l
a
e
v
a
h
l
u
f
t
b
u
o
d
s
a
d
e
i
f
i
s
s
a
l
c
s
n
a
o
L
:
l
u
f
t
b
u
o
D
.
e
l
b
a
b
o
r
p
m
i
d
n
a
e
l
b
a
n
o
i
t
s
e
u
q
y
l
h
g
i
h
,
s
e
u
l
a
v
d
n
a
,
s
n
o
i
t
i
d
n
o
c
,
s
t
c
a
f
g
n
i
t
s
i
x
e
y
l
t
n
e
r
r
u
c
f
o
s
i
s
a
b
e
h
t
n
o
,
l
l
u
f
n
i
n
o
i
t
a
d
i
u
q
i
l
r
o
n
o
i
t
c
e
l
l
o
c
e
k
a
m
t
u
o
h
t
i
w
,
t
e
s
s
a
n
a
s
a
s
k
o
o
b
s
’
y
n
a
p
m
o
C
e
h
t
n
o
e
c
n
a
u
n
i
t
n
o
c
r
i
e
h
t
t
a
h
t
e
u
l
a
v
e
l
t
t
i
l
h
c
u
s
f
o
d
n
a
e
l
b
i
t
c
e
l
l
o
c
n
u
d
e
r
e
d
i
s
n
o
c
e
r
a
s
s
o
l
s
a
d
e
i
f
i
s
s
a
l
c
s
n
a
o
L
:
s
s
o
L
.
d
e
t
n
a
r
r
a
w
t
o
n
s
i
,
f
f
o
-
e
g
r
a
h
c
r
o
e
c
n
a
w
o
l
l
a
n
o
i
t
a
u
l
a
v
c
i
f
i
c
e
p
s
a
f
o
t
n
e
m
h
s
i
l
b
a
t
s
e
g
n
i
w
o
l
l
o
f
e
h
T
.
s
n
a
o
l
d
e
t
a
r
s
s
a
p
e
b
o
t
d
e
r
e
d
i
s
n
o
c
e
r
a
s
s
e
c
o
r
p
d
e
b
i
r
c
s
e
d
e
v
o
b
a
e
h
t
f
o
t
r
a
p
s
a
y
l
l
a
u
d
i
v
i
d
n
i
d
e
z
y
l
a
n
a
e
r
a
t
a
h
t
e
v
o
b
a
a
i
r
e
t
i
r
c
e
h
t
g
n
i
t
e
e
m
t
o
n
s
n
a
o
L
:
d
e
t
a
c
i
d
n
i
e
t
a
d
e
h
t
f
o
s
a
y
r
o
g
e
t
a
c
k
s
i
r
y
b
s
n
a
o
l
n
i
t
n
e
m
t
s
e
v
n
i
d
e
d
r
o
c
e
r
e
h
t
s
t
n
e
s
e
r
p
e
l
b
a
t
)
d
e
u
n
i
t
n
o
c
–
4
(
)
s
d
n
a
s
u
o
h
t
n
I
(
l
a
i
c
r
e
m
m
o
C
d
n
a
L
d
n
a
d
n
a
L
l
a
t
o
T
r
e
m
u
s
n
o
C
s
s
e
n
i
s
u
B
t
n
e
m
p
o
l
e
v
e
D
n
o
i
t
c
u
r
t
s
n
o
C
y
l
i
m
a
f
i
t
l
u
M
l
a
i
c
r
e
m
m
o
C
e
t
a
t
s
E
l
a
e
R
l
a
i
t
n
e
d
i
s
e
R
e
t
a
t
s
E
l
a
e
R
4
2
2
-
2
3
8
,
4
1
4
5
9
,
1
1
7
9
8
0
5
3
-
8
7
2
5
4
1
-
-
6
3
1
1
-
-
-
-
-
-
-
-
-
-
-
-
8
4
9
,
4
6
2
2
,
0
1
7
1
2
3
3
2
,
4
8
9
3
,
6
-
2
9
3
,
4
1
4
$
1
7
4
,
5
2
$
7
2
1
,
8
2
$
6
0
2
,
1
1
$
1
0
6
,
6
1
$
1
1
3
,
1
2
$
4
5
8
,
8
3
1
$
2
2
8
,
2
7
1
$
2
0
4
,
1
4
4
$
7
1
9
,
5
2
$
0
5
5
,
8
2
$
5
2
3
,
1
1
$
1
0
6
,
6
1
$
1
1
3
,
1
2
$
8
2
0
,
4
5
1
$
0
7
6
,
3
8
1
$
6
5
2
,
7
7
8
0
,
1
1
0
0
,
4
1
-
4
1
1
8
6
5
5
5
-
3
7
3
0
1
2
5
0
2
-
7
7
7
,
2
9
3
$
2
7
2
,
6
2
$
0
2
9
,
0
3
$
-
-
-
6
4
1
3
8
2
,
1
1
$
-
-
-
-
-
-
-
-
1
8
4
4
0
1
,
2
3
3
0
,
6
-
6
4
3
9
1
5
,
4
0
9
1
,
7
-
3
6
8
,
4
1
$
8
7
7
,
6
2
$
1
1
3
,
9
0
1
$
0
5
3
,
3
7
1
$
1
2
1
,
5
1
4
$
9
0
0
,
7
2
$
8
0
7
,
1
3
$
9
2
4
,
1
1
$
3
6
8
,
4
1
$
8
7
7
,
6
2
$
9
2
9
,
7
1
1
$
5
0
4
,
5
8
1
$
:
4
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
n
o
i
t
n
e
M
l
a
i
c
e
p
S
d
r
a
d
n
a
t
s
b
u
S
l
u
f
t
b
u
o
D
s
s
a
P
s
s
o
L
l
a
t
o
T
:
3
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
n
o
i
t
n
e
M
l
a
i
c
e
p
S
d
r
a
d
n
a
t
s
b
u
S
l
u
f
t
b
u
o
D
s
s
a
P
s
s
o
L
l
a
t
o
T
2
3
-
F
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
P
U
O
R
G
L
A
I
C
N
A
N
I
F
S
G
N
I
V
A
S
T
S
R
I
F
D
E
U
N
I
T
N
O
C
-
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
D
E
T
A
D
I
L
O
S
N
O
C
O
T
S
E
T
O
N
3
1
0
2
D
N
A
4
1
0
2
,
0
3
R
E
B
M
E
T
P
E
S
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(4 – continued)
Troubled Debt Restructurings
The following table summarizes the Company’s TDRs by accrual status at September 30, 2014 and
2013. There was no specific reserve included in the allowance for loan losses related to TDRs at
September 30, 2014 and 2013.
September 30, 2014:
Residential real estate
Commercial real estate
Commercial business
Consumer
Accruing
Nonaccrual
(In thousands)
Total
$ 2,710
4,671
22
134
$ 214
696
-
-
$ 2,924
5,367
22
134
Total
$ 7,537
$ 910
$ 8,447
September 30, 2013:
Residential real estate
Commercial real estate
Multifamily
Commercial business
Consumer
$ 2,187
1,274
2,306
17
146
$ 777
4,029
-
13
-
$ 2,964
5,303
2,306
30
146
Total
$ 5,930
$ 4,819
$ 10,749
The following table summarizes information in regard to TDRs that were restructured during the
years ended September 30, 2014 and 2013.
Number of
Loans
Pre-
Modification
Principal
Balance
Post-
Modification
Principal
Balance
(Dollars in thousands)
6
1
7
2
1
1
1
5
$ 326
716
$ 397
724
$ 1,042
$ 1,121
$ 143
4,061
18
5
$ 143
4,066
20
5
$ 4,227
$ 4,234
September 30, 2014:
Residential real estate
Commercial real estate
Total
September 30, 2013:
Residential real estate
Commercial real estate
Commercial business
Consumer
Total
F-33
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(4 – continued)
The Company has not committed to lend any additional amounts as of September 30, 2014 and 2013
to customers with outstanding loans that are classified as TDRs.
For the TDRs listed above, the terms of modification included temporary interest-only payment
periods, reduction of the stated interest rate, reduction of principal balance, extension of the maturity
date, and the renewal of matured loans where the debtor was unable to access funds elsewhere at a
market interest rate for debt with similar risk characteristics.
There were no principal charge-offs recorded as a result of TDRs during the years ended September
30, 2014 and 2013. There was no specific allowance for loan losses related to TDRs modified during
the years ended September 30, 2014 and 2013. In the event that a TDR subsequently defaults, the
Company evaluates the restructuring for possible impairment. As a result, the related allowance for
loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan.
During the year ended September 30, 2014, the Company had two TDRs totaling $476,000 that were
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). The total consisted of two residential real
estate loans with a balance of $476,000 at the date of default. As of September 30, 2014, one of the
defaulted TDRs totaling $200,000 was accruing and performing in agreement with the modified
terms after curing the default. The other defaulted TDR resulted in foreclosure of the property and
its transfer to other real estate owned during the year ended September 30, 2014. The Company did
not recognize a net charge-off to allowance for loan losses as a result of this foreclosure.
During the year ended September 30, 2013, the Company had four TDRs totaling $220,000 that were
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). The total consisted of two residential real
estate loans with a balance of $204,000, one commercial business loan with a balance of $14,000 and
one consumer loan with a balance of $2,000 at the date of default. As of September 30, 2013, two of
the defaulted TDRs totaling $143,000 were on nonaccrual status and one defaulted TDR with a
balance of $75,000 was accruing and performing in agreement with the modified terms after curing
the default. The Company recognized a net charge-off of $2,000 on the remaining defaulted TDR
during the year ended September 30, 2013.
F-34
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(5)
REAL ESTATE DEVELOPMENT AND CONSTRUCTION
The Company is developing a parcel of land in New Albany, Indiana for retail purposes through the
Bank’s subsidiary, FFCC. The total cost of the development is expected to be approximately $7.7
million, including the $7.5 million paid as of September 30, 2014. The development costs were
partially funded by a loan from another financial institution (see Note 13). The development is
substantially completed, with only certain tenant improvements in a multi-tenant retail building to be
completed for future lessees, and nine tenants have commenced occupancy as of September 30, 2014.
The development plans provide for up to thirteen tenants when fully occupied.
Development and construction period interest of $79,000 was capitalized as part of the real estate
carrying value during the year ended September 30, 2013. There was no development and
construction period interest capitalized as part of the real estate carrying value during the year ended
September 30, 2014.
Real estate development and construction consisted of the following at September 30, 2014 and
2013:
(In thousands)
Land and land improvements
Office buildings
Furniture, fixtures and equipment
Less accumulated depreciation
Totals
2014
$ 4,159
3,248
74
7,481
279
$ 7,202
2013
$ 4,159
3,032
74
7,265
87
$ 7,178
Depreciation expense of $192,000 and $87,000 was recognized for real estate development and
construction for the years ended September 30, 2014 and 2013, respectively.
The Bank and FFCC lease commercial retail space to tenants under noncancelable operating leases
with terms of five to twenty years. The following is a schedule by years of future minimum lease
payments under the leases as of September 30, 2014:
Years ending September 30:
(In thousands)
2015
2016
2017
2018
2019
2020 and thereafter
Total
$ 632
632
632
644
628
3,632
$ 6,800
F-35
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(6)
PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
(In thousands)
Land and land improvements
Office buildings
Furniture, fixtures and equipment
Less accumulated depreciation
Totals
2014
2013
$ 5,218
10,376
4,467
20,061
$ 5,242
10,400
4,264
19,906
5,786
5,064
$ 14,275
$ 14,842
Depreciation expense of $909,000 and $810,000 was recognized for premises and equipment for the
years ended September 30, 2014 and 2013, respectively.
(7)
OTHER REAL ESTATE OWNED
At September 30, 2014 and 2013, the Bank had other real estate owned held for sale of $953,000 and
$799,000, respectively, including $130,000 and $250,000 in former banking facilities held for sale,
respectively. During the years ended September 30, 2014 and 2013, foreclosure losses in the amount
of $321,000 and $191,000, respectively, were charged-off to the allowance for loan losses. The
losses on subsequent write downs of other real estate owned amounted to $210,000 and $165,000 for
the years ended September 30, 2014 and 2013, respectively, and were aggregated with realized gains
and losses from the sale of other real estate owned, and real estate taxes and other expenses of
holding other real estate owned. Net realized gains from the sale of other real estate owned
amounted to $115,000 and $125,000 for the years ended September 30, 2014 and 2013, respectively.
Real estate taxes, other expenses of holding other real estate owned and net of income received from
the operation of other real estate owned held for sale amounted to $135,000 and $140,000 for the
years ended September 30, 2014 and 2013, respectively. The net loss is reported in noninterest
expense. Realized gains from the sale of other real estate owned totaling $82,000 and $93,000 for
the years ended September 30, 2014 and 2013, respectively, were deferred because the sales were
financed by the Bank and did not qualify for recognition under generally accepted accounting
principles. At September 30, 2014 and 2013, aggregate deferred gains on the sale of other real estate
owned financed by the Bank amounted to $237,000 and $214,000, respectively.
(8)
GOODWILL AND OTHER INTANGIBLES
Goodwill and the core deposit intangibles acquired in the acquisitions of Community First Bank
(“Community First”) on September 30, 2009 and the First Federal Savings Bank of Elizabethtown,
Inc. (“First Federal”) branches on July 6, 2012 are evaluated for impairment at least annually or more
frequently upon the occurrence of an event or when circumstances indicate that the carrying amount
is greater than its fair value. No impairment of goodwill or the core deposit intangibles was
recognized during 2014 or 2013.
The changes in the carrying amount of goodwill for the years ended September 30, 2014 and 2013
are summarized as follows:
(In thousands)
Beginning balance
Changes in goodwill
Ending balance
2014
$ 7,936
-
$ 7,936
2013
$ 7,936
-
$ 7,936
F-36
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(8 – continued)
The following is a summary of other intangible assets subject to amortization:
(In thousands)
2014
Core deposit intangible acquired in Community First acquisition
Core deposit intangible acquired in First Federal branch acquisition
Less accumulated amortization
$ 2,741
566
(1,582)
2013
$ 2,741
566
(1,238)
Ending balance
$ 1,725
$ 2,069
Amortization expense of intangibles amounted to $344,000 and $344,000 for the years ended
September 30, 2014 and 2013, respectively. Estimated amortization expense for the core deposit
intangibles for each of the ensuing five years and in the aggregate is as follows:
Years ending September 30:
(In thousands)
2015
2016
2017
2018
2019
2020 and thereafter
Total
(9)
DEPOSITS
$ 344
344
344
344
148
201
$ 1,725
The aggregate amount of time deposit accounts (certificates of deposit) with balances of $100,000 or
more was $45.0 million and $52.9 million at September 30, 2014 and 2013, respectively.
At September 30, 2014, scheduled maturities of certificates of deposit were as follows:
Years ending September 30:
(In thousands)
2015
2016
2017
2018
2019 and thereafter
Total
$ 116,192
26,869
31,609
7,313
25,532
$ 207,515
The Bank held deposits for related parties of $4.8 million and $5.3 million at September 30, 2014
and 2013, respectively.
(10)
FEDERAL FUNDS PURCHASED
The Bank has entered into a federal funds purchased line of credit facility with another financial
institution that established a line of credit not to exceed the lesser of $10 million or 25% of the
Bank’s equity capital excluding reserves. Availability under the line of credit is subject to continued
borrower eligibility and expires on June 30, 2015 unless it is extended. The line of credit is intended
to support short-term liquidity needs, and the agreement states that the Bank may borrow under the
facility for up to seven consecutive days without pledging collateral to secure the borrowing. At
September 30, 2014 and 2013, the Bank had no outstanding federal funds purchased under the
facility.
F-37
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(11)
REPURCHASE AGREEMENTS
Repurchase agreements include retail repurchase agreements representing overnight borrowings from
deposit customers.
Repurchase agreements at September 30, 2014 and 2013 are summarized as follows:
(Dollars in thousands)
2014
2013
Weighted
Average
Rate
Weighted
Average
Rate
Amount
Amount
Retail repurchase agreements
0.25%
$ 1,338
0.25%
$ 1,335
The debt securities underlying the retail repurchase agreements were under the control of the Bank at
September 30, 2014 and 2013.
Information concerning borrowings under retail repurchase agreements as of and for the years ended
September 30, 2014 and 2013 is summarized as follows:
(Dollars in thousands)
Weighted average interest rate during the year
Average balance during the year
Maximum month-end balance during the year
Available for sale debt securities underlying the
agreements at September 30:
Amortized cost
Fair value
2014
0.25%
$ 1,336
1,338
2013
0.45%
$ 1,332
1,335
$ 1,719
1,758
$ 1,889
1,913
F-38
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(12)
BORROWINGS FROM FEDERAL HOME LOAN BANK
At September 30, 2014 and 2013 borrowings from the FHLB were as follows:
(Dollars in thousands)
Advances maturing in:
2014
2015
2017
2018
Total advances
2014
2013
Weighted
Average
Rate
Weighted
Average
Rate
Amount
- %
1.38%
1.10%
1.04%
$ -
45,000
15,000
10,000
70,000
0.34%
2.66%
1.10%
1.04%
Amount
$ 35,000
20,000
15,000
10,000
80,000
Line of credit balance
0.43%
9,548
0.45%
9,348
Total borrowings from
Federal Home Loan Bank
$ 79,548
$ 89,348
The Bank entered into an Advances, Pledge and Security Agreement with the Federal Home Loan
Bank of Indianapolis (“FHLBI”), allowing the Bank to initiate advances from the FHLBI. The
advances are secured under a blanket collateral agreement. At September 30, 2014, the eligible
blanket collateral included residential mortgage loans with a carrying value of $181.4 million.
On August 12, 2014, the Bank entered into an Overdraft Line of Credit Agreement with the FHLBI
which established a line of credit not to exceed $25.0 million secured under the blanket collateral
agreement. This agreement expires on August 12, 2015. At September 30, 2014, $9.5 million was
outstanding under this agreement.
On June 19, 2014, the Bank entered into a Letter of Credit Agreement with the FHLBI which
established a letter of credit not to exceed $3.3 million secured under the blanket collateral
agreement. This agreement expires on July 1, 2015. At September 30, 2014, there was no
outstanding balance under this agreement.
(13)
OTHER LONG-TERM DEBT
On July 27, 2012, FFCC entered into a loan agreement with another financial institution to finance
the retail development and construction project discussed in Note 5. The loan had a maximum
commitment of $5.0 million and is for a ten-year term with a fixed interest rate of 4.0% for the first
six years of the loan term, then adjusting annually thereafter to the one-year LIBOR rate plus 250
basis points. The loan provided for 12 interest only monthly payments through July 27, 2013,
followed by 107 monthly payments sufficient to fully amortize the loan over a 20 year period and a
balloon payment of all outstanding principal and interest at maturity on July 27, 2022. The loan is
secured by a mortgage and assignment of leases and rents on the retail development property, which
had a carrying amount of $7.2 million at September 30, 2014. The outstanding principal balance of
the loan was $4.8 million and $5.0 million at September 30, 2014 and 2013, respectively.
Interest expense of $203,000 and $72,000 was recognized on other long-term debt for the years
ending September 30, 2014 and 2013, respectively.
F-39
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(13 – continued)
Future maturities of other long-term debt, based on the amount outstanding under the loan agreement
at September 30, 2014, are as follows for the years ending September 30, 2015, 2016, 2017, 2018,
2019 and later years: $173,000, $181,000, $189,000, $196,000, $204,000 and $3.9 million,
respectively.
(14)
DEFERRED COMPENSATION PLANS
The Bank has deferred compensation agreements with former officers who are receiving benefits
under these agreements. The agreements provide for the payment of specific benefits following
retirement. Deferred compensation expense was $16,000 and $18,000 for the years ended September
30, 2014 and 2013, respectively.
The Company has a directors’ deferred compensation plan whereby a director, at his or her election
on an annual basis, may defer all or a portion of the director fees into an account with the Company.
The Company accrues interest on the deferred obligation at an annual rate equal to the prime rate for
the immediately preceding calendar quarter plus 2%, but in no event at a rate in excess of 8%. The
deferral period extends until separation from service by the director. The benefits under the plan are
payable in a lump sum or in monthly installments over a period of up to ten years following the
separation from service; however, the agreements provide for payment of benefits in the event of
disability, early retirement, termination of service or death. Deferred compensation expense for this
plan was $178,000 and $161,000 for the years ended September 30, 2014 and 2013, respectively.
(15)
BENEFIT PLANS
Defined Contribution Plan:
The Bank has a qualified contributory defined contribution plan available to all eligible employees.
The plan allows participating employees to make tax-deferred contributions under Internal Revenue
Code Section 401(k). Company contributions to the plan amounted to $368,000 and $336,000 for the
years ended September 30, 2014 and 2013, respectively.
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 years ended September 30, 2014 and
2013 amounted to $715,000 and $652,000, respectively. Company common stock held by the ESOP
trust at September 30, 2014 and 2013 was as follows:
F-40
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(15 – continued)
Allocated shares
Unearned shares
Total ESOP shares
2014
132,339
53,706
186,045
2013
103,116
86,495
189,611
Fair value of unearned shares
$ 1,341,000
$ 1,946,000
(16)
STOCK BASED COMPENSATION PLANS
In December 2009, the Company adopted the 2010 Equity Incentive Plan (“Plan”), which the
Company’s shareholders approved in February 2010. The Plan 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.
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 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 vesting period of the restricted stock is five years beginning one year after the date of grant of
the awards. 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 both years ended
September 30, 2014 and 2013 amounted to $260,000. A summary of the Company’s nonvested
restricted shares for the year ended September 30, 2014 is as follows:
Nonvested at beginning of year
Granted
Vested
Forfeited
Nonvested at end of year
Number
of
Shares
39,230
-
(19,620)
-
19,610
Weighted
Average
Grant-Date
Fair Value
$ 13.25
-
13.25
-
$ 13.25
There were no restricted shares granted during the years ended September 30, 2014 and 2013. The
total fair value of restricted shares that vested during the years ended September 30, 2014 and 2013
was $479,000 and $441,000, respectively. At September 30, 2014, there was $162,000 of total
unrecognized compensation expense related to nonvested restricted shares. The compensation
expense is expected to be recognized over the remaining vesting period of 0.63 years.
F-41
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(16 - continued)
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 fair market
value of stock options granted was estimated at the date of grant using the Binomial option pricing
model. Expected volatilities are based on historical volatility of the Company’s stock and that of peer
institutions located in its geographic market area. The expected term of options granted represents
the period of time that options are expected to be outstanding. The risk free rate for the expected life
of the options is based on the U.S. Treasury yield curve in effect at the grant date.
The fair value of options granted was determined using the following assumptions:
Expected dividend yield
Risk-free interest rate
Expected volatility
Expected life of options
Weighted average fair value at grant date
4.53%
2.82%
30.00%
7.0 years
$ 3.09
A summary of stock option activity under the plan as of September 30, 2014, and changes during
the year then ended is presented below.
Weighted
Average
Weighted
Average
Exercise Contractual
Remaining Aggregate
Intrinsic
Value
Term
6.6
$ 2,268,000
$ 127,000
Number
of
Shares
245,232
-
(11,000)
-
Price
$ 13.25
-
$ 13.25
-
234,232
$ 13.25
185,185
$ 13.25
5.6
5.6
$ 2,743,000
$ 2,169,000
Outstanding at beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end of year
Exercisable at end of year
There were no stock options granted during the years ended September 30, 2014 and 2013. The
Company recognized compensation expense related to stock options of $152,000 for both years
ended September 30, 2014 and 2013. At September 30, 2014, there was $95,000 of unrecognized
compensation expense related to nonvested stock options, which will be recognized over the
remaining vesting period of 0.63 years.
F-42
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(17)
INCOME TAXES
The Company and its subsidiaries file consolidated income tax returns. The components of
consolidated income tax expense were as follows for the years ended September 30, 2014 and 2013:
(In thousands)
Current
Tax benefit allocated to additional paid-in
capital related to equity incentive plan
Deferred
Income tax expense
2014
2013
$ 1,843
$ 1,228
84
150
70
513
$ 2,077
$ 1,811
The reconciliation of income tax expense with the amount which would have been provided at the
federal statutory rate of 34 percent follows for the years ended September 30, 2014 and 2013:
(In thousands)
Provision at federal statutory rate
State income tax-net of federal tax benefit
Tax-exempt interest income
Increase in cash value of life insurance
Other
2014
2013
$ 2,539
161
(653)
(169)
199
$ 2,212
159
(608)
(130)
178
Income tax expense
$ 2,077
$ 1,811
Significant components of the Company’s deferred tax assets and liabilities as of September 30, 2014
and 2013 are as follows:
(In thousands)
Deferred tax assets:
Allowance for loan losses
Acquisition purchase accounting adjustments
Deferred compensation plans
Equity incentive plans
Other-than-temporary impairment loss on
available for sale securities
Valuation allowance on other real estate owned
and repossessed assets
Deferred interest income on nonaccrual loans
Other
Deferred tax assets
Deferred tax liabilities:
Unrealized gain on securities available for sale
Accumulated depreciation
Acquisition purchase accounting adjustments
Deferred loan fees and costs, net
FHLB stock dividends
Section 481 adjustment for bad debt recapture
Unrealized gain on trading account securities
Other
Deferred tax liabilities
2014
$ 2,475
-
374
108
17
74
68
-
3,116
(2,169)
(1,417)
(219)
(4)
(133)
-
(14)
(144)
(4,100)
2013
$ 2,212
9
315
92
16
48
78
239
3,009
(882)
(1,399)
-
(63)
(133)
(62)
(17)
-
(2,556)
Net deferred tax asset (liability)
$ (984)
$ 453
F-43
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(17 - continued)
At September 30, 2014 and 2013, the Company had no liability for unrecognized income tax benefits
and does not anticipate any increase in the liability for unrecognized tax benefits during the next
twelve months. The Company believes that its income tax positions would be sustained upon
examination and does not anticipate any adjustments that would result in a material change to its
financial position or results of operations. The Company files U.S. federal and Indiana state income
tax returns. Returns filed in these jurisdictions for tax years ended on or after September 30, 2011
are subject to examination by the relevant taxing authorities.
Prior to October 1, 1996, the Bank was permitted by the Internal Revenue Code to deduct from
taxable income an annual addition to a statutory bad debt reserve subject to certain limitations.
Retained earnings at September 30, 2014 and 2015 include $4.6 million of cumulative deductions for
which no deferred federal income tax liability has been recorded. Reduction of these reserves for
purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses
would create income for tax purposes subject to the then current corporate income tax rate. The
unrecorded deferred liability on these amounts was $1.5 million at September 30, 2014 and 2013.
Federal legislation enacted in 1996 repealed the use of the qualified thrift reserve method of
accounting for bad debts for tax years beginning after December 31, 1995. As a result, the Bank
discontinued the calculation of the annual addition to the statutory bad debt reserve using the
percentage-of-taxable-income method and adopted the experience reserve method for banks for tax
years through September 30, 2010. Under this method, the Bank computed its federal tax bad debt
deduction based on actual loss experience over a period of years. Beginning with its tax year ended
September 30, 2011, the Bank is required to use the specific charge-off method to compute its federal
tax bad debt deduction. The 1996 legislation also provided that the Bank will not be required to
recapture its pre-1988 statutory bad debt reserves if it ceases to meet the qualifying thrift definitional
tests and if the Bank continues to qualify as a “bank” under existing provisions of the Internal
Revenue Code.
(18)
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding various commitments and contingent
liabilities, such as commitments to extend credit and legal claims, which are not reflected in the
accompanying consolidated financial statements.
Commitments under outstanding standby letters of credit totaled $4.4 million at September 30, 2014.
The following is a summary of the commitments to extend credit at September 30, 2014 and 2013:
(In thousands)
Loan commitments:
Fixed rate
Adjustable rate
Guarantees of third-party revolving credit
Undisbursed portion of home equity lines of credit
Undisbursed portion of commercial
and personal lines of credit
Undisbursed portion of construction loans in process
2014
2013
$ 11,640
5,146
89
20,072
24,149
6,271
$ 13,353
3,978
-
19,043
23,722
4,388
Total commitments to extend credit
$ 67,367
$ 64,484
F-44
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(19)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance
sheet.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial
instruments for commitments to extend credit and standby letters of credit is represented by the
contractual notional amount of those instruments (see Note 18). The Bank uses the same credit
policies in making commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-
by-case basis. The amount and type of collateral obtained, if deemed necessary by the Bank upon
extension of credit, varies and is based on management’s credit evaluation of the counterparty.
Standby letters of credit are conditional lending commitments issued by the Bank to guarantee the
performance of a customer to a third party. Standby letters of credit generally have fixed expiration
dates or other termination clauses and may require payment of a fee. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending loan facilities to
customers. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially
the same as that involved in making commitments to extend credit.
The Bank has not been obligated to perform on any financial guarantees and has incurred no losses
on its commitments in 2014 or 2013.
F-45
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(20) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes the carrying value and estimated fair value of financial instruments
and the level within the fair value hierarchy in which the fair value measurements fall at September
30, 2014 and 2013.
Carrying
Amount
Fair Value Measurements Using:
Level 3
Level 2
Level 1
(In thousands)
September 30, 2014:
Financial assets:
Cash and due from banks
Interest-bearing deposits with banks
Interest-bearing time deposits
Trading account securities
Securities available for sale
Securities held to maturity
Loans, net
$ 8,853
11,477
1,500
5,319
184,697
5,419
433,876
Loans held for sale
FHLB stock
Accrued interest receivable
Interest rate cap (included in other assets)
281
6,517
2,511
1
Financial liabilities:
Deposits
Short-term repurchase agreements
Borrowings from FHLB
Other long-term debt
Accrued interest payable
Advance payments by borrowers
for taxes and insurance
September 30, 2013:
Financial assets:
Cash and due from banks
Interest-bearing deposits with banks
Interest-bearing time deposits
Trading account securities
Securities available for sale
Securities held to maturity
Loans, net
533,194
1,338
79,548
4,812
175
748
$ 9,607
11,208
1,500
3,210
164,167
6,417
408,375
Loans held for sale
FHLB stock
Accrued interest receivable
Interest rate cap (included in other assets)
399
5,500
2,391
11
Financial liabilities:
Deposits
Short-term repurchase agreements
Borrowings from FHLB
Other long-term debt
Accrued interest payable
Advance payments by borrowers
for taxes and insurance
477,726
1,335
89,348
4,973
184
707
F-46
$ 8,853
11,477
-
-
-
-
$ -
-
1,496
5,319
184,697
5,849
$ -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
434,023
281
6,517
2,511
1
-
1,338
79,455
4,812
175
-
-
-
-
535,364
-
-
-
-
748
-
$ 9,607
11,208
-
-
93
-
$ -
-
1,475
3,210
164,074
6,514
$ -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
413,629
399
5,500
2,391
11
-
1,335
87,932
4,973
184
-
-
-
-
477,094
-
-
-
-
707
-
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(20 - continued)
The carrying amounts in the preceding table are included in the consolidated balances sheets under
the applicable captions. The contract or notional amounts of the Bank’s financial instruments with
off-balance-sheet risk are disclosed in Note 18, and the fair value of these instruments is considered
immaterial.
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate:
Cash and Cash Equivalents and Interest-Bearing Time Deposits
For cash and short-term instruments, including cash and due from banks, interest-bearing deposits
with banks, money market funds, and interest-bearing time deposits with other financial institutions,
the carrying amount is a reasonable estimate of fair value.
Debt and Equity Securities
For marketable equity securities, the fair values are based on quoted market prices. For debt
securities, 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. 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.
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.
F-47
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(21)
FAIR VALUE MEASUREMENTS
FASB ASC Topic 820, Fair Value Measurements, provides the framework for measuring fair value.
That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under
FASB ASC Topic 820 are described as follows:
Level 1:
Level 2:
Level 3:
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.
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.
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.
F-48
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(21 – continued)
The table below presents the balances of financial assets measured at fair value on a recurring and
nonrecurring basis as of September 30, 2014. The Company had no liabilities measured at fair value
as of September 30, 2014.
Carrying Value
Level 1
Level 2
Level 3
Total
(In thousands)
September 30, 2014:
Assets Measured – Recurring Basis
Trading account securities
$ -
$ 5,319
$ -
$ 5,319
Securities available for sale:
Agency bonds and notes
Agency mortgage-backed
Agency CMO
Privately-issued CMO
Privately-issued ABS
SBA certificates
Municipal obligations
Total securities available for sale
$ -
-
-
-
-
-
-
$ -
$ 12,091
52,255
29,484
3,920
7,353
1,762
77,832
$ 184,697
$ -
-
-
-
-
-
-
$ -
$ 12,091
52,255
29,484
3,920
7,353
1,762
77,832
$ 184,697
Interest rate cap
$ -
$ 1
$ -
$ 1
Assets Measured – Nonrecurring Basis
Impaired loans:
Residential real estate
Commercial real estate
Multifamily
Construction
Commercial business
Consumer
Total impaired loans
$ -
-
-
-
-
-
$ -
$ -
-
-
-
-
-
$ -
$ 5,128
5,705
-
-
145
342
$ 11,320
$ 5,128
5,705
-
-
145
342
$ 11,320
Loans held for sale
$ -
$ 281
$ -
$ 281
Other real estate owned, held for sale:
Residential real estate
Commercial real estate
Land and land development
Total other real estate owned
$ -
-
-
$ -
$ -
-
-
$ -
$ 518
377
58
$ 953
$ 518
377
58
$ 953
F-49
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(21 – continued)
The table below presents the balances of financial assets measured at fair value on a recurring and
nonrecurring basis as of September 30, 2013. The Company had no liabilities measured at fair value
as of September 30, 2013.
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
Agency mortgage-backed
Agency CMO
Privately-issued CMO
Privately-issued ABS
SBA certificates
Municipal obligations
Equity securities
Total securities available for sale
$ -
-
-
-
-
-
-
93
$ 93
$ 15,197 $ -
-
41,714
-
24,074
-
4,616
-
7,799
-
2,093
-
68,581
-
-
$ 164,074 $ -
$ 15,197
41,714
24,074
4,616
7,799
2,093
68,581
93
$ 164,167
Interest rate cap
$ - $ 11
$ - $ 11
Assets Measured – Nonrecurring Basis
Impaired loans:
Residential real estate
Commercial real estate
Multifamily
Construction
Commercial business
Consumer
Total impaired loans
$ -
-
-
-
-
-
$ -
$ -
-
-
-
-
-
$ -
$ 5,676
6,091
2,306
29
235
450
$ 14,787
$ 5,676
6,091
2,306
29
235
450
$ 14,787
Loans held for sale
$ -
$ 399
$ -
$ 399
Other real estate owned, held for sale:
Residential real estate
Commercial real estate
Land and land development
Total other real estate owned
$ -
-
-
$ -
$ -
-
-
$ -
$ 397
375
27
$ 799
$ 397
375
27
$ 799
F-50
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(21 - continued)
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. 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.
Trading Account Securities and Securities Available for Sale. Securities classified as trading and
available for sale are reported at fair value on a recurring basis. These securities are classified as
Level 1 of the valuation hierarchy where quoted market prices from reputable third-party brokers are
available in an active market. If quoted market prices are not available, the Company obtains fair
value measurements from an independent pricing service. These securities are reported using Level
2 inputs and the fair value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade
execution data, market consensus prepayment speeds, credit information, and the security’s terms
and conditions, among other factors. For securities where quoted market prices, market prices of
similar securities or prices from an independent third party pricing service are not available, fair
values are calculated using discounted cash flows or other market indicators and are classified within
Level 3 of the fair value hierarchy. Changes in fair value of trading account securities are reported in
noninterest income. Changes in fair value of securities available for sale are recorded in other
comprehensive income, net of income tax effect.
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 September 30, 2014 and 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 years ended September 30, 2014 and 2013, the Company recognized provisions for loan
losses of $2,000 and $416,000, respectively, 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.
F-51
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(21 - continued)
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 September 30, 2014, the significant unobservable inputs used in the
fair value measurement of other real estate owned included a discount from appraised value ranging
from 13.3% to 50.0% with a weighted average of 18.7%. At September 30, 2013, the significant
unobservable inputs used in the fair value measurement of other real estate owned included a
discount from appraised value ranging from 15.0% to 65.1% with a weighted average of 25.4%. The
Company recognized charges of $210,000 and $165,000 to write down other real estate owned to fair
value for the years ended September 30, 2014 and 2013, respectively.
Transfers Between Categories. There have been no changes in the valuation techniques and related
inputs used for assets measured at fair value on a recurring and nonrecurring basis during the years
ended September 30, 2014 and 2013. There were no transfers into or out of Level 3 financial assets
or liabilities for the years ended September 30, 2014 or 2013. In addition, there were no transfers
into or out of Levels 1 and 2 of the fair value hierarchy during the years ended September 30, 2014
or 2013.
F-52
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(22)
DERIVATIVE INSTRUMENTS
The Company has an interest rate cap contract that is not designated as a hedge. Realized and
unrealized gains and losses on derivatives not designated for hedge accounting are recognized in
noninterest income. The following is a summary of the terms of the interest rate cap contract
reported in the consolidated balance sheet in other assets at September 30, 2014:
Strike
Rate
Remaining
Term
Notional
Amount
(Dollars in thousands)
Purchase
Premium
Unrealized
Loss
Fair
Value
7.50%
2.84 years
$10,000
$150
$149
$1
The notional amounts of derivatives do not represent amounts exchanged by the parties, but provide
the basis for calculating payments. For interest rate caps, the notional amounts are not a measure of
exposure to credit or market risk. Counterparties to financial instruments expose the Company to
credit-related losses in the event of nonperformance, but the Company does not expect any
counterparties to fail to meet their obligations. The Company deals only with highly rated
counterparties. The current credit exposure of derivatives is represented by the fair value of
contracts at the reporting date. (Also see Notes 20 and 21)
(23)
STOCKHOLDERS’ EQUITY
Liquidation Account
Upon completion of its conversion from mutual to stock form on October 6, 2008, the Bank
established a liquidation account in an amount equal to its retained earnings at March 31, 2008,
totaling $29.3 million. The liquidation account is maintained for the benefit of depositors as of the
March 31, 2007 eligibility record date (or the June 30, 2008 supplemental eligibility record date)
who maintain their deposits in the Bank after conversion.
In the event of complete liquidation, and only in such an event, each eligible depositor is entitled to
receive a liquidation distribution from the liquidation account in the proportionate amount of the then
current adjusted balance for deposits held, before any liquidation distribution may be made with
respect to the stockholders. Except for the repurchase of stock and payment of dividends by the
Bank, the existence of the liquidation account does not restrict the use or application of retained
earnings of the Bank.
F-53
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(24)
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 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 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 thirteenth dividend period ended September 30, 2014 was 1.0% and the weighted average
dividend rate for the years ended September 30, 2014 and 2013 was 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.
F-54
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(25)
DIVIDEND RESTRICTION
As an Indiana corporation, the Company is subject to Indiana law with respect to the payment of
dividends. Under Indiana law, the Company may pay dividends so long as it is able to pay its debts as
they become due in the usual course of business and its assets exceed the sum of its total liabilities, plus
the amount that would be needed, if the Company were to be dissolved at the time of the dividend, to
satisfy any rights that are preferential to the rights of the persons receiving the dividend. The ability of
the Company to pay dividends depends primarily on the ability of the Bank to pay dividends to the
Company.
The payment of dividends by the Bank is subject to regulation by the OCC. The Bank must also file prior
notice with the Federal Reserve Board before the Bank may declare and pay dividends to the Company. 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 may not declare or pay a cash dividend or repurchase any of its capital stock if the effect
thereof would cause the regulatory capital of the Bank to be reduced below regulatory capital
requirements imposed by the OCC or below the amount of the liquidation account established upon
completion of the conversion.
(26)
REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by its primary federal
regulator, the OCC. Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct material
effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain
minimum amounts and ratios (set forth in the table below) of total risk-based capital and Tier I capital to
risk-weighted assets (as defined in the regulations), Tier I capital to adjusted total assets (as defined) and
tangible capital to adjusted total assets (as defined). Management believes, as of September 30, 2014,
that the Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 2014, the most recent notification from the OCC categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table below. There are no conditions or events since that notification that
management believes have changed the institution’s category.
F-55
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(26 - continued)
The Bank’s actual capital amounts and ratios are also presented in the table. No amount was deducted
from capital for interest-rate risk in either year.
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Adequacy Purposes: Action Provisions:
Minimum
For Capital
Actual
(Dollars in thousands)
Amount
Ratio
Amount Ratio
Amount Ratio
As of September 30, 2014:
Total capital (to risk
weighted assets)
Tier I capital (to risk
weighted assets)
Tier I capital (to adjusted
total assets)
Tangible capital (to
adjusted total assets)
As of September 30, 2013:
Total capital (to risk
weighted assets)
Tier I capital (to risk
weighted assets)
Tier I capital (to adjusted
total assets)
Tangible capital (to
adjusted total assets)
$ 68,963
14.87%
$ 37,101
8.00%
$ 46,376
10.00%
$ 63,160
13.62%
N/A
$ 27,826
6.00%
$ 63,160
9.14%
$ 27,653
4.00%
$ 34,566
5.00%
$ 63,160
9.14%
$ 10,370
1.50%
N/A
$ 71,828
17.04%
$ 33,713
8.00%
$ 42,141
10.00%
$ 66,515
15.78%
N/A
$ 25,285
6.00%
$ 66,515
10.36%
$ 25,682
4.00%
$ 32,103
5.00%
$ 66,515
10.36%
$ 9,631
1.50%
N/A
In accordance with the Plan of Charter Conversion adopted by the Bank’s board of directors on May 21,
2014, the Bank will operate as an Indiana-charted commercial bank and become a member the Federal
Reserve System following its conversion from a federally-chartered savings bank effective December
19, 2014. As a result of the Bank’s charter conversion, the Bank will be subject to supervision and
regulation by the Indiana Department of Financial Institutions and the Federal Reserve Bank of St.
Louis. Also as a result of the Bank’s charter conversion, the Company will convert to a bank holding
company and simultaneously elect financial holding company status effective December 19, 2014. The
Company will continue to be supervised and regulated by the Federal Reserve Bank of St. Louis.
F-56
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(27)
SUPPLEMENTAL DISCLOSURE FOR EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available to common shareholders
by the weighted average number of shares of common stock outstanding during the periods presented.
Diluted earnings per common share include the dilutive effect of additional potential common shares
issuable under stock options, restricted stock and other potentially dilutive securities outstanding.
Earnings and dividends per share are restated for stock splits and dividends through the date of issuance
of the financial statements. Earnings per share information is presented below for the years ended
September 30, 2014 and 2013.
(In thousands, except share and per share data)
Basic:
Earnings:
Net income
Less: Preferred stock dividends declared
Years Ended September 30,
2014
2013
$ 5,390
(171)
$ 4,696
(171)
Net income available to common shareholders
$ 5,219
$ 4,525
Shares:
Weighted average common shares outstanding
2,122,880
2,168,770
Net income per common share, basic
$ 2.46
$ 2.09
Diluted:
Earnings:
Net income
Less: Preferred stock dividends declared
$ 5,390
(171)
$ 4,696
(171)
Net income available to common shareholders
$ 5,219
$ 4,525
Shares:
Weighted average common shares outstanding
Add: Dilutive effect of outstanding options
Add: Dilutive effect of restricted stock
2,122,880
94,656
11,778
2,168,770
84,565
15,728
Weighted average common shares outstanding, as adjusted
2,229,314
2,269,063
Net income per common share, diluted
$ 2.34
$ 1.99
Unearned ESOP and nonvested restricted stock shares are not considered as outstanding for purposes of
computing weighted average common shares outstanding.
F-57
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(28)
PARENT COMPANY CONDENSED FINANCIAL INFORMATION
Condensed financial information for First Savings Financial Group, Inc. (parent company only)
follows:
Assets:
Cash and interest bearing deposits
Other assets
Investment in subsidiaries
Liabilities and Equity:
Accrued expenses
Stockholders' equity
Balance Sheets
(In thousands)
Statements of Income
(In thousands)
Dividend income from subsidiary
Other operating expenses
Income before income taxes and equity in
undistributed net income of subsidiaries
Income tax benefit
Income before equity in undistributed net
income of subsidiaries
As of September 30,
2013
2014
$ 7,419
904
79,233
$ 87,556
$ 476
87,080
$ 87,556
$ 1,691
745
80,057
$ 82,493
$ 240
82,253
$ 82,493
Years Ended September 30,
2014
2013
$ 10,000
(1,551)
$ 2,000
(1,351)
8,449
649
400
355
8,849
1,004
Equity in undistributed net income of subsidiaries
(3,459)
3,692
Net income
$ 5,390
$ 4,696
F-58
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(28 - continued)
Statements of Cash Flows
(In thousands)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of subsidiaries
ESOP and stock compensation expense
Net change in other assets and liabilities
Net cash provided by operating activities
Investing Activities:
Investment in Captive
Net cash used in investing activities
Financing Activities:
Exercise of stock options
Purchase of treasury stock
Dividends paid
Net cash used in financing activities
Years Ended September 30,
2014
2013
$ 5,390
$ 4,696
3,459
1,127
214
10,190
(250)
(250)
146
(3,273)
(1,085)
(4,212)
(3,692)
1,063
97
2,164
-
-
-
(625)
(1,743)
(2,368)
(204)
Net increase (decrease) in cash and interest bearing deposits
5,728
Cash and interest bearing deposits at beginning of year
1,691
1,895
Cash and interest bearing deposits at end of year
$ 7,419
$ 1,691
(29)
CONCENTRATION OF CREDIT RISK
At September 30, 2014 and 2013, the Bank had a concentration of credit risk with correspondent
banks in excess of the federal deposit insurance limit of $5.8 million and $5.4 million, respectively.
(30)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(In thousands)
Cash payments for:
Interest
Taxes
Non-cash investing activities:
2014
2013
$ 3,794
1,593
$ 4,496
1,354
Transfers from loans to other real estate owned
Proceeds from sales of other real estate owned
financed through loans
1,571
536
1,212
1,093
F-59
FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2014 AND 2013
(31)
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In thousands, except per share data)
First
Quarter
Third
Second
Quarter Quarter
Fourth
Quarter
September 30, 2014:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after
provision for loan losses
Noninterest income
Noninterest expenses
Income before income taxes
Income tax expense
$ 6,734
922
5,812
301
$ 6,990
888
6,102
303
$ 6,922
873
6,049
300
$ 6,848
872
5,976
342
5,511
1,104
5,164
1,451
423
5,799
1,382
5,021
2,160
624
5,749
1,291
5,050
1,990
534
5,634
1,269
5,037
1,866
496
Net income
1,028
1,536
1,456
1,370
Less: Preferred stock dividends declared
43
43
43
42
Net income available to common shareholders $ 985
$ 1,493
$ 1,413
$ 1,328
Net income per common share, basic
$ 0.46
$ 0.70
$ 0.68
$ 0.63
Net income per common share, diluted
$ 0.44
$ 0.66
$ 0.64
$ 0.60
September 30, 2013:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after
provision for loan losses
Noninterest income
Noninterest expenses
Income before income taxes
Income tax expense
$ 6,760
1,095
5,665
452
$ 7,001
1,010
5,991
550
$ 6,689
909
5,780
560
$ 6,725
922
5,803
296
5,213
1,000
4,819
1,394
378
5,441
925
4,777
1,589
419
5,220
1,035
4,673
1,582
441
5,507
1,298
4,863
1,942
573
Net income
1,016
1,170
1,141
1,369
Less: Preferred stock dividends declared
43
43
43
42
Net income available to common shareholders $ 973
$ 1,127
$ 1,098
$ 1,327
Net income per common share, basic
$ 0.45
$ 0.52
$ 0.51
$ 0.61
Net income per common share, diluted
$ 0.43
$ 0.50
$ 0.48
$ 0.58
F-60
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: December 29, 2014
FIRST SAVINGS FINANCIAL GROUP, INC.
By:
/s/ Larry W. Myers
Larry W. Myers
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Larry W. Myers
Larry W. Myers
President, Chief Executive Officer
and Director
(principal executive officer)
December 29, 2014
/s/ Anthony A. Schoen
Anthony A. Schoen
Chief Financial Officer
(principal accounting and financial officer)
December 29, 2014
/s/ John P. Lawson, Jr.
John P. Lawson, Jr.
/s/ Samuel E. Eckart
Samuel E. Eckart
/s/ Cecile A. Blau
Cecile A. Blau
/s/ Gerald Wayne Clapp, Jr.
Gerald Wayne Clapp, Jr.
/s/ Michael F. Ludden
Michael F. Ludden
/s/ Douglas A. York
Douglas A. York
/s/ Vaughn K. Timberlake
Vaughn K. Timberlake
Chief Operating Officer and Director
December 29, 2014
Executive Vice President and Director
December 29, 2014
Director
Director
Director
Director
Director
December 29, 2014
December 29, 2014
December 29, 2014
December 29, 2014
December 29, 2014
/s/ Frank N. Czeschin
Frank N. Czeschin
/s/ John E. Colin
John E. Colin
/s/ Pamela Bennett-Martin
Pamela Bennett-Martin
Director
Director
Director
December 29, 2014
December 29, 2014
December 29, 2014
SUBSIDIARIES
EXHIBIT 21.0
Registrant
Percentage
Ownership
Jurisdiction or
State of Incorporation
First Savings Financial Group, Inc.
Indiana
Subsidiaries
First Savings Bank, F.S.B. (1)
100%
United States
First Savings Insurance Risk Management, Inc. (1) 100%
Southern Indiana Financial Corporation (2)
FFCC, Inc. (2)
100%
100%
First Savings Investments, Inc. (2)
_________________
(1) Wholly owned subsidiary of First Savings Financial Group, Inc..
(2) Wholly owned subsidiary of First Savings Bank, F.S.B.
100%
Nevada
Indiana
Indiana
Nevada
EXHIBIT 31.1
I, Larry W. Myers, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of First Savings Financial Group, Inc.:
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this annual
report;
Based on my knowledge, the financial statements, and other financial information included in this
annual report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this annual report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this annual report our conclusions about the effectiveness of the disclosure controls and
procedures, as the end of the period covered by this annual report based on such evaluation;
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: December 29, 2014
/s/ Larry W. Myers
Larry W. Myers
President and Chief Executive Officer
(principal executive officer)
EXHIBIT 31.2
I, Anthony A. Schoen, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of First Savings Financial Group, Inc.:
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this annual
report;
Based on my knowledge, the financial statements, and other financial information included in this
annual report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this annual report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this annual report our conclusions about the effectiveness of the disclosure controls and
procedures, as the end of the period covered by this annual report based on such evaluation;
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: December 29, 2014
/s/ Anthony A. Schoen
Anthony A. Schoen
Chief Financial Officer
(principal financial and accounting officer)
EXHIBIT 32.0
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADDED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of First Savings Financial Group, Inc. (the “Company”) on Form 10-
K for the year ended September 30, 2014 as filed with the Securities and Exchange Commission (the “Report”), the
undersigned hereby certify, pursuant to 18 U.S.C. §1350, as added by § 906 of the Sarbanes-Oxley Act of 2002,
that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company as of and for the period covered by the Report.
/s/ Larry W. Myers
President and Chief Executive Officer
(principal executive officer)
/s/ Anthony A. Schoen
Anthony A. Schoen
Chief Financial Officer
(principal financial and accounting officer)
December 29, 2014
FINANCIAL GR OUP INC.
501 East Lewis & Clark Parkway
Clarksville , IN 47129