XNAS:FSFG First Savings Financial Group Inc Quarterly Report 10-Q Filing - 3/31/2012

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2012

 

OR

 

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

 

For the transition period from                      to                     

 

Commission File No. 1-34155

 

First Savings Financial Group, Inc.

(Exact name of registrant as specified in its charter)

 

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

 

501 East Lewis & Clark Parkway, Indiana 47129

(Address of principal executive offices) (Zip Code)

 

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

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

 

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

 

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

 

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

 

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

 

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

 

The number of shares outstanding of the registrant’s common stock as of April 30, 2012 was 2,364,107.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC.

 

INDEX

Part I	Financial Information		Page
	Item 1.  Financial Statements
	Consolidated Balance Sheets as of March 31, 2012 and September 30, 2011 (unaudited)		3
	Consolidated Statements of Income for the three months and six months ended March 31, 2012 and 2011 (unaudited)		4
	Consolidated Statements of Comprehensive Income for the three months and six months ended March 31, 2012 and 2011 (unaudited)		5
	Consolidated Statement of Changes in Stockholders’ Equity for the six months ended March 31, 2012 (unaudited)		6
	Consolidated Statements of Cash Flows for the six months ended March 31, 2012 and 2011 (unaudited)		7
	Notes to Consolidated Financial Statements (unaudited)		8-38
	Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations		39-50
	Item 3.  Quantitative and Qualitative Disclosures About Market Risk		51-52
	Item 4. Controls and Procedures		53
Part II	Other Information
	Item 1.  Legal Proceedings		54
	Item 1A.  Risk Factors		54
	Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds		55
	Item 3.  Defaults Upon Senior Securities		55
	Item 4.  Mine Safety Disclosures		55
	Item 5.  Other Information		55
	Item 6.  Exhibits		56
Signatures			57

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		March 31,				September 30,
(In thousands, except share and per share data)		2012				2011
ASSETS
Cash and due from banks		$	12,440			$	18,099
Interest-bearing deposits with banks			5,891				9,104
Total cash and cash equivalents			18,331				27,203
Securities available for sale, at fair value			125,189				108,577
Securities held to maturity			8,742				9,506
Loans held for sale			121				-
Loans, net			353,690				354,432
Federal Home Loan Bank stock, at cost			4,900				4,400
Real estate development and construction			3,251				-
Premises and equipment			10,342				10,444
Foreclosed real estate			1,024				1,028
Accrued interest receivable:
Loans			1,303				1,382
Securities			909				816
Cash surrender value of life insurance			8,697				8,548
Goodwill			5,940				5,940
Core deposit intangible			2,007				2,154
Other assets			1,803				2,656
Total Assets		$	546,249			$	537,086
LIABILITIES
Deposits:
Noninterest-bearing		$	38,794			$	33,426
Interest-bearing			370,912				354,200
Total deposits			409,706				387,626
Repurchase agreements			1,325				16,403
Borrowings from Federal Home Loan Bank			53,100				53,137
Accrued interest payable			276				399
Advance payments by borrowers for taxes and insurance			315				330
Accrued expenses and other liabilities			2,579				2,590
Total Liabilities			467,301				460,485
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 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			25				25
Additional paid-in capital			41,854				41,729
Retained earnings - substantially restricted			37,590				35,801
Accumulated other comprehensive income			3,677				3,354
Unearned ESOP shares			(1,271	)			(1,343	)
Unearned stock compensation			(812	)			(942	)
Less treasury stock, at cost - 177,935 shares (172,333 shares at September 30, 2011)			(2,115	)			(2,023	)
Total Stockholders' Equity			78,948				76,601
Total Liabilities and Stockholders' Equity		$	546,249			$	537,086

 

See notes to consolidated financial statements.

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

		Three Months Ended								Six Months Ended
		March 31,								March 31,
(In thousands, except per share data)		2012				2011				2012				2011
INTEREST INCOME
Loans, including fees		$	4,961			$	5,079			$	10,134			$	10,333
Securities:
Taxable			921				1,107				1,802				2,153
Tax-exempt			273				185				545				354
Dividend income			42				30				72				58
Interest-bearing deposits with banks			2				4				6				7
Total interest income			6,199				6,405				12,559				12,905
INTEREST EXPENSE
Deposits			856				986				1,767				2,047
Repurchase agreements			2				77				62				157
Borrowings from Federal Home Loan Bank			265				273				536				555
Total interest expense			1,123				1,336				2,365				2,759
Net interest income			5,076				5,069				10,194				10,146
Provision for loan losses			270				287				589				639
Net interest income after provision for loan losses			4,806				4,782				9,605				9,507
NONINTEREST INCOME
Service charges on deposit accounts			274				313				575				674
Net gain on sales of securities available for sale			-				-				-				68
Unrealized gain (loss) on derivative contract			(12	)			(12	)			(20	)			33
Net gain on sales of loans			39				33				73				139
Increase in cash surrender value of life insurance			72				69				149				149
Commission income			76				53				135				86
Other income			205				174				414				335
Total noninterest income			654				630				1,326				1,484
NONINTEREST EXPENSE
Compensation and benefits			2,183				2,057				4,267				4,257
Occupancy and equipment			437				453				935				898
Data processing			321				270				622				555
Advertising			80				70				359				162
Professional fees			228				153				410				273
FDIC insurance premiums			98				149				183				283
Net loss on foreclosed real estate			83				190				110				232
Other operating expenses			702				691				1,481				1,411
Total noninterest expense			4,132				4,033				8,367				8,071
Income before income taxes			1,328				1,379				2,564				2,920
Income tax expense			364				409				690				866
Net Income		$	964			$	970			$	1,874			$	2,054
Preferred stock dividends declared			43				-				85				-
Net Income Available to Common Shareholders		$	921			$	970			$	1,789			$	2,054
Net income per common share:
Basic		$	0.43			$	0.46			$	0.83			$	0.96
Diluted		$	0.41			$	0.44			$	0.81			$	0.94
Weighted average common shares outstanding:
Basic			2,156,730				2,127,440				2,155,539				2,142,246
Diluted			2,222,586				2,185,246				2,217,077				2,183,921

 

See notes to consolidated financial statements.

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

		Three Months Ended								Six Months Ended
		March 31,								March 31,
(In thousands)		2012				2011				2012				2011
Net Income		$	964			$	970			$	1,874			$	2,054
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period			1,055				1,287			$	534			$	(1,225	)
Income tax (expense) benefit			(418	)			(510	)			(211	)			416
Net of tax amount			637				777				323				(809	)
Less: reclassification adjustment for realized gains included in net income			-				-				-				(68	)
Income tax expense			-				-				-				23
Net of tax amount			-				-				-				(45	)
Other Comprehensive Income (Loss)			637				777				323				(854	)
Comprehensive Income		$	1,601			$	1,747			$	2,197			$	1,200

 

See notes to consolidated financial statements.

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

 

																		Accumulated				Unearned
																		Other				Stock
		Preferred				Common				Additional				Retained				Comprehensive				Compensation				Treasury
(In thousands, except share and per share data)		Stock				Stock				Paid-in Capital				Earnings				Income				and ESOP				Stock				Total
Balances at September 30, 2011		$	-			$	25			$	41,729			$	35,801			$	3,354			$	(2,285	)		$	(2,023	)		$	76,601
Net income			-				-				-				1,874				-				-				-				1,874
Change in unrealized gain on securities available for sale, net of reclassification adjustments and tax effect			-				-				-				-				323				-				-				323
Preferred stock dividends declared			-				-				-				(85	)			-				-				-				(85	)
Stock compensation expense			-				-				76				-				-				130				-				206
Shares released by ESOP trust			-				-				49				-				-				72				-				121
Purchase of 5,602 treasury shares			-				-				-				-				-				-				(92	)			(92	)
Balances at March 31, 2012		$	-			$	25			$	41,854			$	37,590			$	3,677			$	(2,083	)		$	(2,115	)		$	78,948

 

See notes to consolidated financial statements.

 

 

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Six Months Ended
		March 31,
(In thousands)		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	1,874			$	2,054
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			589				639
Depreciation and amortization			503				435
Amortization of premiums and accretion of discounts on securities, net			218				(83	)
Loans originated for sale			(3,455	)			(8,296	)
Proceeds on sales of loans			3,407				10,181
Gain on sales of  loans			(73	)			(139	)
Net realized and unrealized loss on foreclosed real estate			20				183
Net gain on sales of securities available for sale			-				(68	)
Unrealized (gain) loss on derivative contract			20				(33	)
Increase in cash surrender value of life insurance			(149	)			(149	)
Deferred income taxes			64				192
ESOP and stock compensation expense			327				357
(Increase) decrease in accrued interest receivable			(14	)			12
Decrease in accrued interest payable			(123	)			(8	)
Change in other assets and liabilities, net			642				(348	)
Net Cash Provided By Operating Activities			3,850				4,929
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale			(35,864	)			(26,377	)
Proceeds from sales of securities available for sale			-				3,914
Proceeds from maturities of securities available for sale			9,118				4,156
Proceeds from maturities of securities held to maturity			274				-
Principal collected on mortgage-backed securities			10,943				6,756
Net decrease in loans			8				1,257
Purchase of Federal Home Loan Bank stock			(500	)			-
Proceeds from redemption of Federal Home Loan Bank stock			-				121
Proceeds from sale of foreclosed real estate			104				464
Investments in real estate development and construction			(3,251	)			-
Purchase of premises and equipment			(254	)			(903	)
Net Cash Used In Investing Activities			(19,422	)			(10,612	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits			22,080				2,830
Net decrease in repurchase agreements			(15,078	)			(209	)
Decrease in Federal Home Loan Bank line of credit			(37	)			(1,633	)
Proceeds from Federal Home Loan Bank advances			35,000				55,000
Repayment of Federal Home Loan Bank advances			(35,000	)			(52,063	)
Net increase (decrease) in advance payments by borrowers for taxes and insurance			(15	)			19
Purchase of treasury stock			(92	)			(665	)
Dividends paid on preferred stock			(158	)			-
Net Cash Provided By Financing Activities			6,700				3,279
Net Decrease in Cash and Cash Equivalents			(8,872	)			(2,404	)
Cash and cash equivalents at beginning of period			27,203				11,278
Cash and Cash Equivalents at End of Period		$	18,331			$	8,874

 

See notes to consolidated financial statements.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

Presentation of Interim Information

 

First Savings Financial Group, Inc. (the “Company”) is the thrift holding company of First Savings Bank, F.S.B. (the “Bank”), a wholly-owned subsidiary. The Bank is a federally-chartered savings bank which provides a variety of banking services to individuals and business customers through twelve 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.

 

In the opinion of management, the unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of March 31, 2012, the results of operations for the three- and six-month periods ended March 31, 2012 and 2011, and the cash flows for the six-month periods ended March 31, 2012 and 2011. All of these adjustments are of a normal, recurring nature. Such adjustments are the only adjustments included in the unaudited consolidated financial statements. Interim results are not necessarily indicative of results for a full year.

 

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements, conform to general practices within the banking industry and are presented as permitted by the instructions to Form 10-Q. Accordingly, they do not contain certain information included in the Company’s audited consolidated financial statements and related notes for the year ended September 30, 2011 included in the Form 10-K.

 

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

2.

Investment Securities

 

Agency bonds and notes, agency mortgage-backed securities and agency collateralized mortgage obligations (“CMO”) include securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency, and the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal Home Loan Bank (“FHLB”), which are U.S. government-sponsored enterprises. Privately-issued CMO are complex securities issued by non-government special-purpose entities that are collateralized by residential mortgage loans and residential home equity loans.

 

Investment securities have been classified according to management’s intent. The amortized cost of securities and their fair values are as follows:

 

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
March 31, 2012:
Securities available for sale:
Agency bonds and notes		$	19,824			$	79			$	147			$	19,756
Agency mortgage-backed			21,724				551				7				22,268
Agency CMO			22,462				327				15				22,774
Privately-issued CMO			10,092				1,936				109				11,919
Municipal			45,197				3,331				130				48,398
Subtotal – debt securities			119,299				6,224				408				125,115
Equity securities			-				74				-				74
Total securities available for sale		$	119,299			$	6,298			$	408			$	125,189
Securities held to maturity:
Agency mortgage-backed		$	1,867			$	142			$	-			$	2,009
Municipal			6,875				371				-				7,246
Total securities held to maturity		$	8,742			$	513			$	-			$	9,255

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
September 30, 2011:
Securities available for sale:
Agency bonds and notes		$	12,762			$	104			$	-			$	12,866
Agency mortgage-backed			17,719				590				-				18,309
Agency CMO			25,368				330				7				25,691
Privately-issued CMO			10,037				1,535				176				11,396
Municipal			37,344				2,915				-				40,259
Subtotal – debt securities			103,230				5,474				183				108,521
Equity securities			-				56				-				56
Total securities available for sale		$	103,230			$	5,530			$	183			$	108,577
Securities held to maturity:
Agency mortgage-backed		$	2,337			$	184			$	-			$	2,521
Municipal			7,169				-				-				7,169
Total securities held to maturity		$	9,506			$	184			$	-			$	9,690

 

The amortized cost and fair value of investment securities as of March 31, 2012 by contractual maturity are shown below. Expected maturities of mortgage-backed securities and CMO may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.

 

		Available for Sale								Held to Maturity
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
		(In thousands)
Due within one year		$	250			$	253			$	581			$	599
Due after one year through five years			3,099				3,170				2,528				2,633
Due after five years through ten years			6,372				6,787				2,180				2,334
Due after ten years			55,300				57,944				1,586				1,680
			65,021				68,154				6,875				7,246
Equity securities			-				74				-				-
CMO			32,554				34,693				-				-
Mortgage-backed securities			21,724				22,268				1,867				2,009
		$	119,299			$	125,189			$	8,742			$	9,255

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Information pertaining to available for sale securities with gross unrealized losses at March 31, 2012, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

 

		Number				Gross
		of Investment				Fair				Unrealized
		Positions				Value				Losses
		(Dollars in thousands)
Securities available for sale:
Continuous loss position less than twelve months:
Agency bonds and notes			6			$	11,926			$	147
Agency mortgage-backed			1				1,240				7
Agency CMO			4				2,299				15
Privately-issued CMO			2				158				1
Municipal bonds			5				3,597				130
Total less than twelve months			18				19,220				300
Continuous loss position more than twelve months:
Privately-issued CMO			5				863				108
Total more than twelve months			5				863				108
Total securities available for sale			23			$	20,083			$	408

 

At March 31, 2012, 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 March 31, 2012 have depreciated approximately 1.99% from the Company’s amortized cost basis and are fixed and variable rate securities with a weighted-average yield of 2.31% and a weighted-average coupon rate of 2.42% at March 31, 2012.

 

U.S. government agency debt securities, including mortgage-backed securities and collateralized mortgage obligation securities, and municipal bonds in loss positions at March 31, 2012 had depreciated approximately 1.55% from the Company’s amortized cost basis as of March 31, 2012. All of the agency and municipal securities are issued by U.S. government agencies, U.S. government-sponsored enterprises and municipal governments, and are generally secured by first mortgage loans and municipal project revenues.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The unrealized losses on agency and municipal securities 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.

 

At March 31, 2012, the five privately-issued CMO securities in loss positions more than 12 months had depreciated approximately 11.12% from the Company’s carrying value and include securities collateralized by residential mortgage loans and residential home equity loans. Five of these securities with fair values totaling $917,000 and unrealized losses of $83,000 at March 31, 2012 were rated below investment grade by a nationally recognized statistical rating organization.

 

The Company evaluates the existence of a potential credit loss component related to the decline in fair value of the privately-issued CMO portfolio each quarter using an independent third party analysis. At March 31, 2012, the Company held twenty privately-issued CMO securities acquired in a 2009 bank acquisition with an aggregate carrying value of $6.1 million and fair value of $7.3 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 the independent third party analysis of the expected cash flows, management has determined that the declines in value for these securities are temporary and, as a result, no other-than-temporary impairment has been recognized on the privately-issued CMO portfolio. While the Company did not recognize a credit-related impairment loss at March 31, 2012, 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 Company realized gross gains on sales of available for sale municipal securities of $68,000 for the six months ended March 31, 2011.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3.

Loans and Allowance for Loan Losses

 

Loans at March 31, 2012 and September 30, 2011 consisted of the following:

 

		March 31,				September 30,
		2012				2011
		(In thousands)
Real estate mortgage:
1-4 family residential		$	167,150			$	169,353
Multi-family residential			24,426				24,909
Commercial			80,500				73,513
Residential construction			9,052				8,002
Commercial construction			4,147				4,144
Land and land development			12,820				12,947
Commercial business loans			37,007				40,628
Consumer:
Home equity loans			14,287				15,210
Auto loans			8,577				9,827
Other consumer loans			3,747				4,514
Gross loans			361,713				363,047
Deferred loan origination fees and costs, net			481				558
Undisbursed portion of loans in process			(3,581	)			(4,501	)
Allowance for loan losses			(4,923	)			(4,672	)
Loans, net		$	353,690			$	354,432

 

During the six-month period ended March 31, 2012, there was no significant change in the Company’s lending activities or methodology used to estimate the allowance for loan losses as disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2011.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table provides the components of the recorded investment in loans for each portfolio class as of March 31, 2012:

 

		Residential Real Estate				Commercial Real Estate				Multifamily				Construction				Land & Land Development				Commercial Business				Consumer				Total
		(In thousands)
Recorded Investment in Loans:
Principal loan balance		$	167,150			$	80,500			$	24,426			$	9,618			$	12,820			$	37,007			$	26,611			$	358,132
Accrued interest receivable			630				276				77				24				41				159				96				1,303
Net deferred loan origination fees and costs			560				(64	)			(3	)			(6	)			(7	)			(24	)			25				481
Recorded investment in loans		$	168,340			$	80,712			$	24,500			$	9,636			$	12,854			$	37,142			$	26,732			$	359,916
Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment		$	2,043			$	1,682			$	-			$	174			$	340			$	98			$	215			$	4,552
Collectively evaluated for impairment			165,561				78,834				24,500				9,462				12,514				37,044				26,478				354,393
Acquired with deteriorated credit quality			736				196				-				-				-				-				39				971
Ending balance		$	168,340			$	80,712			$	24,500			$	9,636			$	12,854			$	37,142			$	26,732			$	359,916

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The following table provides the components of the recorded investment in loans for each portfolio class as of September 30, 2011:

 

		Residential Real Estate				Commercial Real Estate				Multifamily				Construction				Land & Land Development				Commercial Business				Consumer				Total
		(In thousands)
Recorded Investment in Loans:
Principal loan balance		$	169,353			$	73,513			$	24,909			$	7,645			$	12,947			$	40,628			$	29,551			$	358,546
Accrued interest receivable			622				335				84				18				59				148				116				1,382
Net deferred loan origination fees and costs			619				(34	)			(3	)			(6	)			(6	)			(44	)			32				558
Recorded investment in loans		$	170,594			$	73,814			$	24,990			$	7,657			$	13,000			$	40,732			$	29,699			$	360,486
Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment		$	3,758			$	1,133			$	-			$	174			$	340			$	2			$	215			$	5,622
Collectively evaluated for impairment			166,427				72,100				24,990				7,483				12,660				40,730				29,444				353,834
Acquired with deteriorated credit quality			769				581				-				-				-				-				40				1,390
Ending balance		$	170,954			$	73,814			$	24,990			$	7,657			$	13,000			$	40,732			$	29,699			$	360,846

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

An analysis of the allowance for loan losses as of March 31, 2012 is as follows:

 

		Residential Real Estate				Commercial Real Estate				Multifamily				Construction				Land & Land Development				Commercial Business				Consumer				Total
		(In thousands)
Ending Allowance Balance Attributable to Loans:
Individually evaluated for impairment		$	60			$	70			$	-			$	-			$	-			$	-			$	11			$	141
Collectively evaluated for impairment			919				1,542				647				64				33				1,379				198				4,782
Acquired with deteriorated credit quality			-				-				-				-				-				-				-				-
Ending balance		$	979			$	1,612			$	647			$	64			$	33			$	1,379			$	209			$	4,923

 

An analysis of the allowance for loan losses as of September 30, 2011 is as follows:

 

		Residential Real Estate				Commercial Real Estate				Multifamily				Construction				Land & Land Development				Commercial Business				Consumer				Total
		(In thousands)
Ending Allowance Balance Attributable to Loans:
Individually evaluated for impairment		$	84			$	70			$	-			$	-			$	-			$	-			$	31			$	185
Collectively evaluated for impairment			749				1,244				604				56				53				1,525				256				4,487
Acquired with deteriorated credit quality			-				-				-				-				-				-				-				-
Ending balance		$	833			$	1,314			$	604			$	56			$	53			$	1,525			$	287			$	4,672

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

An analysis of the changes in the allowance for loan losses for the three months ended March 31, 2012 is as follows:

 

		Residential Real Estate				Commercial Real Estate				Multifamily				Construction				Land & Land Development				Commercial Business				Consumer				Total
		(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance		$	932			$	1,418			$	593			$	56			$	30			$	1,427			$	247			$	4,703
Provisions			56				208				54				8				3				(48	)			(11	)			270
Charge-offs			(104	)			(14	)			-				-				-				-				(40	)			(158	)
Recoveries			95				-				-				-				-				-				13				108
Ending balance		$	979			$	1,612			$	647			$	64			$	33			$	1,379			$	209			$	4,923

 

An analysis of the changes in the allowance for loan losses for the six months ended March 31, 2012 is as follows:

 

		Residential Real Estate				Commercial Real Estate				Multifamily				Construction				Land & Land Development				Commercial Business				Consumer				Total
		(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance		$	833			$	1,314			$	604			$	56			$	53			$	1,525			$	287			$	4,672
Provisions			330				312				43				8				(20	)			(147	)			63				589
Charge-offs			(290	)			(14	)			-				-				-				-				(167	)			(471	)
Recoveries			106				-				-				-				-				1				26				133
Ending balance		$	979			$	1,612			$	647			$	64			$	33			$	1,379			$	209			$	4,923

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

An analysis of the changes in the allowance for loan losses for the three months ended March 31, 2011 is as follows:

 

		Residential Real Estate				Commercial Real Estate				Multifamily				Construction				Land & Land Development				Commercial Business				Consumer				Total
		(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance		$	1,203			$	896			$	550			$	133			$	29			$	787			$	361			$	3,959
Provisions			44				(16	)			4				12				8				223				12				287
Charge-offs			(24	)			-				-				-				-				(53	)			(42	)			(119	)
Recoveries			13				-				-				-				-				4				13				30
Ending balance		$	1,236			$	880			$	554			$	145			$	37			$	961			$	344			$	4,157

 

An analysis of the changes in the allowance for loan losses for the six months ended March 31, 2011 is as follows:

 

		Residential Real Estate				Commercial Real Estate				Multifamily				Construction				Land & Land Development				Commercial Business				Consumer				Total
		(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance		$	1,242			$	600			$	369			$	218			$	62			$	891			$	429			$	3,811
Provisions			218				285				185				(65	)			(25	)			62				(21	)			639
Charge-offs			(237	)			(5	)			-				(8	)			-				(53	)			(94	)			(397	)
Recoveries			13				-				-				-				-				61				30				104
Ending balance		$	1,236			$	880			$	554			$	145			$	37			$	961			$	344			$	4,157

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of March 31, 2012 and for the three and six months ended March 31, 2012 and 2011. The Company did not recognize any interest income on impaired loans for the three and six months ended March 31, 2012 and 2011.

 

		At March 31, 2012												Three Months Ended March 31,								Six Months Ended March 31,
		Recorded Investment				Unpaid Principal Balance				Related Allowance				2012 Average Recorded Investment				2011 Average Recorded Investment				2012 Average Recorded Investment				2011 Average Recorded Investment
		(In thousands)
Loans with no related allowance recorded:
Residential real estate		$	1,893			$	2,254			$	-			$	2,706			$	2,533			$	2,999			$	2,475
Commercial real estate			1,444				1,461				-				1,121				1,196				1,047				1,187
Multifamily			-				-				-				-				16				-				11
Construction			174				174				-				174				548				174				572
Land and land development			340				346				-				340				397				340				265
Commercial business			98				98				-				49				154				33				217
Consumer			116				118				-				87				235				102				247
		$	4,065			$	4,451			$	-			$	4,477			$	5,079			$	4,695			$	4,974
Loans with an allowance recorded:
Residential real estate		$	150			$	151			$	60			$	149			$	345			$	158			$	552
Commercial real estate			238				235				70				238				486				237				324
Multifamily			-				-				-				-				-				-				-
Construction			-				-				-				-				140				-				140
Land and land development			-				-				-				-				-				-				-
Commercial business			-				-				-				-				-				-				-
Consumer			99				99				11				90				98				87				97
		$	487			$	485			$	141			$	477			$	1,069			$	482			$	1,113
Total:
Residential real estate		$	2,043			$	2,405			$	60			$	2,855			$	2,878			$	3,157			$	3,027
Commercial real estate			1,682				1,696				70				1,359				1,682				1,284				1,511
Multifamily			-				-				-				-				16				-				11
Construction			174				174				-				174				688				174				712
Land and land development			340				346				-				340				397				340				265
Commercial business			98				98				-				49				154				33				217
Consumer			215				217				11				177				333				189				344
		$	4,552			$	4,936			$	141			$	4,954			$	6,148			$	5,177			$	6,087

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents impaired loans individually evaluated for impairment as of September 30, 2011.

 

		Recorded Investment				Unpaid Principal Balance				Related Allowance
		(In thousands)
Loans with no related allowance recorded:
Residential real estate		$	3,584			$	3,953			$	-
Commercial real estate			898				899				-
Multifamily			-				-				-
Construction			174				174				-
Land and land development			340				346				-
Commercial business			2				2				-
Consumer			134				136				-
		$	5,132			$	5,510			$	-
Loans with an allowance recorded:
Residential real estate		$	174			$	175			$	84
Commercial real estate			235				235				70
Multifamily			-				-				-
Construction			-				-				-
Land and land development			-				-				-
Commercial business			-				-				-
Consumer			81				81				31
		$	490			$	491			$	185
Total:
Residential real estate		$	3,758			$	4,128			$	84
Commercial real estate			1,133				1,134				70
Multifamily			-				-				-
Construction			174				174				-
Land and land development			340				346				-
Commercial business			2				2				-
Consumer			215				217				31
		$	5,622			$	6,001			$	185

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Nonperforming loans consists of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans by class of loans at March 31, 2012:

 

		Nonaccrual Loans				Loans 90+ Days Past Due Still Accruing				Total Nonperforming Loans
		(In thousands)
Residential real estate		$	2,043			$	270			$	2,313
Commercial real estate			1,682				-				1,682
Multifamily			-				-				-
Construction			174				-				174
Land and land development			340				-				340
Commercial business			98				397				495
Consumer			215				5				220
Total		$	4,552			$	672			$	5,224

 

The following table presents the recorded investment in nonperforming loans by class of loans at September 30, 2011:

 

		Nonaccrual Loans				Loans 90+ Days Past Due Still Accruing				Total Nonperforming Loans
		(In thousands)
Residential real estate		$	3,758			$	603			$	4,361
Commercial real estate			1,133				949				2,082
Multifamily			-				-				-
Construction			174				-				174
Land and land development			340				-				340
Commercial business			2				99				101
Consumer			215				61				276
Total		$	5,622			$	1,712			$	7,334

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the aging of the recorded investment in past due loans at March 31, 2012 by class of loans:

 

		30-59 Days Past Due				60-89 Days Past Due				90 + Days Past Due				Total Past Due				Current				Total Loans
		(In thousands)
Residential real estate		$	3,140			$	1,909			$	1,848			$	6,897			$	161,443			$	168,340
Commercial real estate			547				6				1,609				2,162				78,550				80,712
Multifamily			45				-				-				45				24,455				24,500
Construction			-				-				174				174				9,462				9,636
Land and land development			60				-				340				400				12,454				12,854
Commercial business			135				27				495				657				36,485				37,142
Consumer			442				54				122				618				26,114				26,732
Total		$	4,369			$	1,996			$	4,588			$	10,953			$	348,963			$	359,916

 

The following table presents the aging of the recorded investment in past due loans at September 30, 2011 by class of loans:

 

		30-59 Days Past Due				60-89 Days Past Due				90 + Days Past Due				Total Past Due				Current				Total Loans
		(In thousands)
Residential real estate		$	4,145			$	842			$	2,213			$	7,200			$	163,754			$	170,954
Commercial real estate			216				400				2,003				2,619				71,195				73,814
Multifamily			-				-				-				-				24,990				24,990
Construction			-				-				174				174				7,483				7,657
Land and land development			47				-				341				388				12,612				13,000
Commercial business			122				932				101				1,155				39,577				40,732
Consumer			246				274				147				667				29,032				29,699
Total		$	4,776			$	2,448			$	4,979			$	12,203			$	348,643			$	360,846

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

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

 

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

 

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

 

Loss: Loans classified as loss are considered uncollectible and of such little value that their continuance on the Company’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted.

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of March 31, 2012, and based on the most recent analysis performed, the recorded investment in loans by risk category was as follows:

 

 

		Residential Real Estate				Commercial Real Estate				Multifamily				Construction				Land and Land Development				Commercial Business				Consumer				Total
		(In thousands)
Pass		$	153,894			$	74,728			$	21,362			$	9,462			$	12,102			$	34,674			$	25,964			$	332,186
Special Mention			2,815				2,293				322				-				377				1,508				93				7,408
Substandard			10,990				3,453				2,816				174				375				960				625				19,393
Doubtful			641				238				-				-				-				-				50				929
Loss			-				-				-				-				-				-				-				-
Total		$	168,340			$	80,712			$	24,500			$	9,636			$	12,854			$	37,142			$	26,732			$	359,916

 

As of September 30, 2011, and based on the most recent analysis performed, the recorded investment in loans by risk category was as follows:

 

		Residential Real Estate				Commercial Real Estate				Multifamily				Construction				Land and Land Development				Commercial Business				Consumer				Total
		(In thousands)
Pass		$	157,240			$	67,572			$	22,699			$	7,483			$	12,223			$	37,639			$	28,869			$	333,725
Special Mention			2,044				2,296				327				-				402				1,819				74				6,962
Substandard			10,696				3,711				1,964				174				375				1,272				650				18,842
Doubtful			974				235				-				-				-				2				106				1,317
Loss			-				-				-				-				-				-				-				-
Total		$	170,954			$	73,814			$	24,990			$	7,657			$	13,000			$	40,732			$	29,699			$	360,846

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

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

 

The following table summarizes the Company’s recorded investment in TDRs by class of loan and accrual status at March 31, 2012 and September 30, 2011. There was no specific reserve included in the allowance for loan losses related to TDRs at March 31, 2012 or September 30 2011.

 

		Accruing				Nonaccrual				Total
		(In thousands)
March 31, 2012:
Residential real estate		$	1,914			$	-			$	1,914
Commercial real estate			1,310				-				1,310
Multifamily			2,379				-				2,379
Total		$	5,603			$	-			$	5,603
September 30, 2011:
Residential real estate		$	1,499			$	-			$	1,499
Commercial real estate			812				-				812
Total		$	2,311			$	-			$	2,311

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The following table summarizes information in regard to TDRs that were restructured during the three- and six-month periods ended March 31, 2012:

 

		Number of Loans				Pre- Modification Principal Balance				Post- Modification Principal Balance
		(In thousands)
Three Months Ended March 31, 2012:
Residential real estate			5			$	593			$	603
Commercial real estate			1				772				506
Multifamily			1				1,797				2,313
Total			7			$	3,162			$	3,422
Six Months Ended March 31, 2012:
Residential real estate			7			$	790			$	789
Commercial real estate			1				772				506
Multifamily			1				1,797				2,313
Total			9			$	3,359			$	3,608

 

For the TDRs listed above, the terms of modification included temporary interest-only payment periods, reduction of the state interest rate, 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.

 

The Company has not committed to lend any additional amounts as of March 31, 2012 and September 30, 2011 to customers with outstanding loans that are classified as TDRs.

 

During the six-month period ended March 31, 2012, the Company had one TDR with a balance of $262,000 that was modified within the previous twelve months for which there was a payment default (defined as more than 90 days past due). The Company recognized a net charge-off of $42,000 for this TDR during the three-month period ended March 31, 2012.

 

 

4.

Real Estate Development and Construction

 

On March 22, 2011 the Company acquired a 4.077 acre parcel of land in New Albany, Indiana for $2.97 million. On April 5, 2012, the Bank received approval from the Office of the Comptroller of the Currency (“OCC”) to develop the land for retail purposes through its subsidiary, FFCC. The retail development may include a future branch location, but the Bank has not yet filed an application with the OCC seeking approval to locate a branch on the site. The total cost of the development is expected to be approximately $6.9 million, including the $3.3 million paid as of March 31, 2012. The development costs will be partially funded by a $5 million loan commitment from another financial institution. The loan commitment is for a 10 year term loan with a fixed interest rate of 4% for the first six years of the loan term, then adjusting annually thereafter to the one-year LIBOR rate plus 250 basis points. The development is expected to be completed by December 31, 2013.

 

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

5.

Supplemental Disclosure for Earnings Per Share

 

When presented, basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Earnings per share information is presented below for the three-month and six-month periods ended March 31, 2012 and 2011.

 

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2012				2011				2012				2011
		(Dollars in thousands, except per share data)
Basic:
Earnings:
Net income		$	964			$	970			$	1,874			$	2,054
Less: Preferred stock dividends declared			(43	)			-				(85	)			-
Net income available to common shareholders		$	921			$	970			$	1,789			$	2,054
Shares:
Weighted average common shares outstanding			2,156,730				2,127,440				2,155,539				2,142,246
Net income per common share, basic		$	0.43			$	0.46			$	0.83			$	0.96
Diluted:
Earnings:
Net income		$	964			$	970			$	1,874			$	2,054
Less: Preferred stock dividends declared			(43	)			-				(85	)			-
Net income available to common shareholders		$	921			$	970			$	1,789			$	2,054
Shares:
Weighted average common shares outstanding			2,156,730				2,127,440				2,155,539				2,142,246
Add: Dilutive effect of outstanding options			48,435				39,937				45,759				27,827
Add: Dilutive effect of restricted stock			17,422				17,869				15,779				13,848
Weighted average common shares outstanding as adjusted			2,222,586				2,185,246				2,217,077				2,183,921
Net income per common share, diluted		$	0.41			$	0.44			$	0.81			$	0.94

 

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

 

 

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

6.

Supplemental Disclosures of Cash Flow Information

 

		Six Months Ended
		March 31,
		2012				2011
		(In thousands)
Cash payments for:
Interest		$	2,764			$	3,326
Taxes			199				490
Transfers from loans to foreclosed real estate			787				882
Proceeds from sales of foreclosed real estate financed through loans			647				221

 

7.

Fair Value Measurements and Disclosures about Fair Value of Financial Instruments

 

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

 

Level 1:

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

 

Level 2:

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

 

Level 3:

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