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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2023

OR

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

For the transition period from                                 to                             

Commission File No. 1-34155

First Savings Financial Group, Inc.

(Exact name of registrant as specified in its charter)

Indiana

   

37-1567871

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

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

(Address of principal executive offices) (Zip Code)

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

(Former name, former address and former fiscal year, if changed since last report)

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

Common stock, $0.01 par value per share

    

FSFG

    

The NASDAQ Stock Market, LLC

(Title of each class)

(Trading Symbol)

(Name of each exchange on which registered)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

Large Accelerated Filer

Accelerated Filer

 

 

 

 

Non-accelerated Filer

Smaller Reporting Company

 

 

 

 

Emerging Growth Company

 

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

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

The number of shares outstanding of the registrant’s common stock as of February 2, 2024 was 6,883,160.

FIRST SAVINGS FINANCIAL GROUP, INC.

INDEX

Page

Part I

Financial Information

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets as of December 31, 2023 (unaudited) and September 30, 2023

3

 

Condensed Consolidated Statements of Income for the three months ended December 31, 2023 and 2022 (unaudited)

4

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended December 31, 2023 and 2022 (unaudited)

5

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended December 31, 2023 and 2022 (unaudited)

6

 

Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2023 and 2022 (unaudited)

7

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8- 52

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

53-58

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

59-60

 

Item 4. Controls and Procedures

61

 

Part II

Other Information

 

Item 1. Legal Proceedings

63

 

Item 1A. Risk Factors

63

 

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, And Issuer Purchases of Equity Securities

64

 

Item 3. Defaults Upon Senior Securities

64

 

Item 4. Mine Safety Disclosures

64

 

Item 5. Other Information

64

 

Item 6. Exhibits

65

 

Signatures

66

-2-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

December 31,

September 30, 

(In thousands, except share and per share data)

    

2023

    

2023

ASSETS

 

  

 

  

Cash and due from banks

$

17,522

$

18,014

Interest-bearing deposits with banks

 

15,844

 

12,831

Total cash and cash equivalents

 

33,366

 

30,845

Interest-bearing time deposits

 

490

 

490

Debt securities available for sale, at fair value

 

245,538

 

227,739

Debt securities held to maturity

 

1,263

 

1,300

Loans held for sale, residential mortgage, at fair value

 

4,056

 

24,692

Loans held for sale, Small Business Administration

 

18,810

 

21,163

Loans, net of allowance for credit losses of $18,789 at December 31, 2023 and $16,900 at September 30, 2023 *

 

1,841,953

 

1,770,243

Federal Reserve Bank and Federal Home Loan Bank stock, at cost

 

24,987

 

24,939

Premises and equipment, net

 

27,712

 

27,861

Other real estate owned, held for sale

 

647

 

677

Accrued interest receivable:

 

 

Loans

 

8,676

 

7,809

Securities

 

2,665

 

2,352

Cash surrender value of life insurance

 

46,556

 

46,226

Goodwill

 

9,848

 

9,848

Core deposit intangibles

 

520

 

561

Residential mortgage loan servicing rights, at fair value

709

59,768

Nonresidential mortgage loan servicing rights

95

101

SBA loan servicing rights

2,907

2,950

Other assets

 

37,294

 

29,290

Total Assets

$

2,308,092

$

2,288,854

LIABILITIES

 

 

Deposits:

 

 

Noninterest-bearing

$

202,769

$

242,237

Interest-bearing

 

1,481,077

 

1,439,557

Total deposits

 

1,683,846

 

1,681,794

Federal Home Loan Bank borrowings

 

356,699

 

363,183

Other borrowings

 

48,484

 

48,444

Accrued interest payable

 

10,405

 

8,926

Advance payments by borrowers for taxes and insurance

 

512

 

1,027

Reserve for unfunded lending commitments

1,882

Accrued expenses and other liabilities

 

41,741

 

34,499

Total Liabilities

 

2,143,569

 

2,137,873

STOCKHOLDERS’ EQUITY

 

  

 

  

Preferred stock of $.01 par value per share; authorized 1,000,000 shares; none issued

 

 

Common stock of $.01 par value per share;authorized 20,000,000 shares; issued 7,797,146 shares at December 31, 2023 (7,778,471 at September 30, 2023); outstanding 6,883,160 shares at December 31, 2023 (6,867,121 shares at September 30, 2023)

 

78

 

78

Additional paid-in capital

 

27,319

 

26,986

Retained earnings - substantially restricted

 

163,753

 

166,306

Accumulated other comprehensive loss

 

(13,606)

 

(29,587)

Unearned stock compensation

 

(1,194)

 

(1,015)

Less treasury stock, at cost - 861,350 shares (786,640 shares at September 30, 2022)

 

(11,827)

 

(11,787)

Total Stockholders’ Equity

 

164,523

 

150,981

Total Liabilities and Stockholders’ Equity

$

2,308,092

$

2,288,854

* Effective October 1, 2023, ASU 2016-13 was adopted; therefore Current Expected Credit Loss (CECL) methodology was used at December 31, 2023. Previous incurred loss methodology was used at September 30, 2023.

See notes to condensed consolidated financial statements.

-3-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

    

Three Months Ended

December 31,

(In thousands, except share and per share data)

2023

    

2022

INTEREST INCOME

 

Loans, including fees

$

26,057

$

20,185

Securities:

Taxable

 

942

 

955

Tax-exempt

 

1,333

 

1,979

Dividend income

 

74

 

220

Interest-bearing deposits with banks

 

249

 

144

Total interest income

 

28,655

 

23,483

INTEREST EXPENSE

Deposits

 

9,989

 

4,158

Federal Home Loan Bank borrowings

3,769

1,919

Other borrowings

 

784

 

1,145

Total interest expense

 

14,542

 

7,222

Net interest income

 

14,113

 

16,261

Provision for credit losses

 

412

 

984

Net interest income after provision for credit losses

 

13,701

 

15,277

NONINTEREST INCOME

Service charges on deposit accounts

 

473

 

558

ATM and interchange fees

 

449

 

739

Net unrealized gain on equity securities

38

14

Other than temporary impairment loss on securities

(28)

Net gain on sales of loans, Small Business Administration

834

775

Mortgage banking income

 

89

 

2,496

Increase in cash surrender value of life insurance

 

329

 

225

Commission income

 

222

 

128

Real estate lease income

 

115

 

117

Other income

 

233

 

164

Total noninterest income

 

2,782

 

5,188

NONINTEREST EXPENSE

Compensation and benefits

 

9,663

 

10,685

Occupancy and equipment

 

2,041

 

1,860

Data processing

 

793

 

777

Advertising

 

318

 

418

Professional fees

 

1,079

 

793

FDIC insurance premiums

 

486

 

308

Net loss on other real estate owned

6

Other operating expenses

 

1,653

 

2,670

Total noninterest expense

 

16,039

 

17,511

Net income before income taxes

 

444

 

2,954

Income tax expense (benefit)

 

(476)

 

83

Net Income

$

920

$

2,871

Net income per share:

Basic

$

0.13

$

0.42

Diluted

$

0.13

$

0.41

Weighted average shares outstanding:

 

 

Basic

 

6,823,948

 

6,915,909

Diluted

 

6,839,704

 

6,972,055

Dividends per share

$

0.14

$

0.13

See notes to condensed consolidated financial statements.

-4-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

December 31,

(In thousands)

    

2023

    

2022

Net Income

$

920

$

2,871

OTHER COMPREHENSIVE INCOME, NET OF TAX

 

 

Unrealized gains on securities available for sale:

 

 

Unrealized holding gains arising during the period

 

20,231

 

10,199

Income tax expense

 

(4,250)

 

(2,142)

Net of tax amount

15,981

8,057

Less: reclassification adjustment for other-than-temporary impairment loss on securities included in net income

28

Income tax benefit

(6)

Net of tax amount

22

Other Comprehensive Income

 

15,981

 

8,079

Comprehensive Income

$

16,901

$

10,950

See notes to condensed consolidated financial statements.

-5-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

    

    

    

    

    

    

Accumulated

    

    

    

    

    

    

Other

Unearned

Common

Additional

Retained

Comprehensive

Stock

Treasury

(In thousands, except share and per share data)

    

Stock

    

Paid-in Capital

    

Earnings

    

Income (Loss)

    

Compensation

    

Stock

    

Total

Balances at October 1, 2022

$

78

$

26,770

$

161,927

$

(27,079)

$

(969)

$

(9,162)

$

151,565

Net income

2,871

2,871

Other comprehensive income

8,079

8,079

Common stock dividends - $0.13 per share

(908)

(908)

Restricted stock grants - 22,000 shares

495

(495)

Stock compensation expense

82

103

185

Purchase of 74,710 treasury shares

(1,648)

(1,648)

Balances at December 31, 2022

$

78

$

27,347

$

163,890

$

(19,000)

$

(1,361)

$

(10,810)

$

160,144

Balances at October 1, 2023

$

78

$

26,986

$

166,306

$

(29,587)

$

(1,015)

$

(11,787)

$

150,981

Cumulative effect adjustment for adoption of ASU 2016-13, net of tax

(2,510)

(2,510)

Balances at October 1, 2023, adjusted

78

26,986

163,796

(29,587)

(1,015)

(11,787)

148,471

Net income

920

920

Distribution to Q2 minority interest

(18)

(18)

Other comprehensive income

15,981

15,981

Common stock dividends - $0.14 per share

(963)

(963)

Restricted stock grants - 19,475 shares

294

(294)

Restricted stock forfeitures - 800 shares

(18)

18

Stock compensation expense

75

97

172

Purchase of 2,636 treasury shares

(40)

(40)

Balances at December 31, 2023

$

78

$

27,319

$

163,753

$

(13,606)

$

(1,194)

$

(11,827)

$

164,523

See notes to condensed consolidated financial statements.

-6-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended

December 31,

(In thousands)

    

2023

    

2022

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

920

$

2,871

Adjustments to reconcile net income to net cash provided by (used in )

operating activities:

Provision for loan losses

 

412

 

984

Depreciation and amortization

 

608

 

633

Amortization of premiums and accretion of discounts on securities, net

 

72

 

184

Amortization and accretion of fair value adjustments on loans, net

 

(379)

 

(374)

Loans originated for sale, residential mortgage

 

(61,769)

 

(77,605)

Loans originated for sale, Small Business Administration

 

(11,392)

 

(12,785)

Proceeds on sales of loans, residential mortgage

 

81,999

 

95,462

Proceeds on sales of loans, Small Business Administration

 

14,669

 

11,875

Net realized loss on sale of residential mortgage loans

1,675

158

Net realized gain on sale of SBA loans

(931)

(577)

Capitalization of loan servicing rights

(766)

(340)

Proceeds from sale of residential mortgage loan servicing rights

58,518

Loss on sale of residential mortgage loan servicing rights

247

Net change in value of residential loan servicing rights

 

803

 

1,240

Net change in value of SBA and nonresidential mortgage loan servicing rights

306

696

Net realized and unrealized gain on other real estate owned

 

(5)

 

Other than temporary impairment loss on securities

 

 

28

Increase in cash surrender value of life insurance

 

(330)

 

(225)

Net gain on equity securities

(38)

(14)

Deferred income taxes

 

(15,692)

 

(1,532)

Stock compensation expense

 

172

 

185

Increase in accrued interest receivable

 

(1,180)

 

(2,104)

Increase in accrued interest payable

 

1,479

 

682

Change in other assets

 

7,799

 

2,440

Change in other liabilities

5,741

(5,123)

Net Cash Provided by Operating Activities

 

82,938

 

16,759

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in interest-bearing time deposits

 

 

(490)

Proceeds from maturities of interest-bearing time deposits

 

 

245

Purchase of securities available for sale

 

 

(6,073)

Principal collected and proceeds from maturities of securities available for sale

 

2,360

 

3,448

Principal collected and proceeds from maturities of securities held to maturity

 

37

 

35

Net increase in loans

 

(73,583)

 

(109,441)

Proceeds from redemption of Federal Reserve Bank and Federal Home Loan Bank stock

15

Purchase of Federal Reserve Bank and Federal Home Loan Bank stock

 

(48)

 

(1,575)

Proceeds from sale of other real estate

35

Purchase of premises and equipment

(378)

(719)

Investment in partnership interests

(2,872)

(2,035)

Distributions to Q2 minority interests

(18)

Net Cash Used In Investing Activities

 

(74,467)

 

(116,590)

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase in deposits

 

2,052

 

22,007

Net increase (decrease) in Federal Home Loan Bank line of credit

 

(6,484)

 

5,340

Proceeds from Federal Home Loan Bank advances

 

950,000

 

1,570,000

Repayment of Federal Home Loan Bank advances

 

(950,000)

 

(1,505,000)

Net increase in other borrowings

7,195

Net decrease in advance payments by borrowers for taxes and insurance

 

(515)

 

(512)

Taxes paid on stock award shares for employees

(30)

Purchase of treasury shares

 

(40)

 

(1,648)

Dividends paid on common stock

 

(963)

 

(908)

Net Cash Provided By (Used In) Financing Activities

 

(5,950)

 

96,444

Net Increase (Decrease) in Cash and Cash Equivalents

 

2,521

 

(3,387)

Cash and cash equivalents at beginning of period

 

30,845

 

41,665

Cash and Cash Equivalents at End of Period

$

33,366

$

38,278

Supplemental Disclosures of Cash Flow Information:

Cash payments for:

Interest

13,064

6,540

Income taxes (net of refunds received)

(117)

See notes to condensed consolidated financial statements.

-7-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Presentation of Interim Information

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

The Bank, which is a wholly-owned Indiana-chartered commercial bank subsidiary of the Company, provides a variety of banking services to individuals and business customers through 16 locations in southern Indiana. The Bank attracts deposits primarily from the general public and uses those funds, along with other borrowings, primarily to originate commercial mortgage, residential mortgage, construction, commercial business and consumer loans, and to a lesser extent, to invest in mortgage-backed securities, municipal bonds and other investment securities. The Bank has three wholly-owned subsidiaries: Q2 Business Capital, LLC(“Q2”), an Indiana limited liability company that specializes in the origination and servicing of U.S. Small Business Administration (“SBA”) loans, First Savings Investments, Inc., a Nevada corporation that manages a securities portfolio, and Southern Indiana Financial Corporation, which is currently inactive.

First Savings Insurance Risk Management, Inc. (the “Captive”), which was a wholly-owned insurance subsidiary of the Company, was a Nevada corporation that provided property and casualty insurance to the Company, the Bank and the Bank’s active subsidiaries. In addition, the Captive provided reinsurance to 11 other third-party insurance captives for which insurance may not be currently available or economically feasible in the insurance marketplace.Effective September 30, 2023, the Captive was dissolved and is no longer in existence.

During the three-month period ended December 31, 2023, the Bank ceased its national originate-to-sell mortgage banking operation. The Bank will continue to originate residential mortgage loans in its local southern Indiana markets and first-lien home equity lines of credit from its loan production office in Franklin, Tennessee.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of December 31, 2023, the results of operations for the three-month periods ended December 31, 2023 and 2022, and the cash flows for the three-month periods ended December 31, 2023 and 2022. All of these adjustments are of a normal, recurring nature. Such adjustments are the only adjustments included in the unaudited condensed consolidated financial statements. Interim results are not necessarily indicative of results for a full year.

The unaudited condensed 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, 2023 included in the Company’s Annual Report on Form 10-K.

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

Loans and Allowance for Credit Losses

Loans Held for Investment

Loans are stated at unpaid principal balances, less net deferred loan fees and the allowance for credit losses. 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.

-8-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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 and is well secured and in process of collection. Past due status is determined based on contractual terms. Generally, by applying the cash receipts method, interest income on nonaccrual loans 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. An ACL is recognized if necessary. Partial charge-offs of loans are included in the Company’s historical loss experience used to estimate the general component of the allowance for credit losses as discussed below.

Consumer loans not secured by real estate 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 estimated costs to sell.

Allowance for Credit Losses – Loans

As disclosed in Note 11, Recent Accounting Pronouncements, on October 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaced the previously required incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The allowance for credit losses (ACL) is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The ACL is increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged off. The Company’s policy is to charge off all or a portion of a loan when, in management’s opinion, it is unlikely to collect the principal amount owed in full either through payments from the borrower or a guarantor or from the liquidation of the collateral.

The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable.

Management considers forward-looking information in estimating expected credit losses. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long term average of historical factors using a straight-line approach. The Company uses a four-quarter forecast with immediate reversion to historical losses.

-9-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Management estimates the ACL balance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired with economic forecasts provides the basis for the quantitatively modeled estimated of expected credit losses. The Company adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. The adjustments are commonly known as the Qualitative Framework. The ACL model for each segment is adjusted for (1) changes in the Company’s lending policy, (2) changes in international, national, regional and local economic conditions, (3) changes in the nature and volume of the portfolio and terms of loans, (4) changes in the experience, depth and ability of lending management, (5) changes in the volume and severity of past due loans and other similar conditions, (6) changes in the quality of the Company’s loan review system, (7) changes in the value of underlying collateral, (8) the existence and effect of any concentrations of credit and changes in the levels of such concentrations and (9) the effect of other external factors such as competition, legal and regulatory requirements Changes in forecasted expectations for these variables could result in volatility in the Company’s ACL in future periods.

The ACL is measured on a collective (pool) basis when similar risk characteristics exist utilizing a weighted average remaining maturity loss methodology.The ACL utilizes historical charge off rates that were internally calculated as well as peer charge off data. In many cases, the peer data, which showed higher loss rates, was utilized due to representing a better approximation of management’s estimate of the expected losses on the loan segments.

For loans evaluated on a pool basis, the Company applies an average historical loss rate to the pool over its estimated remaining life assuming a constant attrition rate.

Loans that do not share risk characteristics are evaluated on an individual basis. The Company maintains a net book balance threshold of $500,000 for individually evaluated loans unless further analysis in the future suggests a change is needed to this threshold based on the credit environment at that time. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan.

Management measures expected credit losses over the contractual term of a loan. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals or modifications, unless the Company reasonably expects it will execute a loan modification with a borrower.  In the event of a reasonably expected loan modification, the Company factors the reasonably-expected loan modification into the current expected credit losses estimate.

The Company has identified the following portfolio segments and measures and adjusts the ACL using the following methods:

Residential real estate – Residential real estate loans represent loans to consumers for the financing of a residence. Our residential lending policies and procedures conform to the secondary market guidelines, utilizing underwriting processes that rely on empirical data to assess credit risk as well as analysis of the borrower’s ability to repay their obligations, credit history, the amount of any down payment and the market value or other characteristics of the property. We generally offer a mix of adjustable-rate mortgage loans and fixed-rate mortgage loans with terms of 10 to 30 years.  

-10-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The residential real estate ACL model is adjusted for forecasted changes in the housing price indices at both the national and local level, the Case-Schiller Home Price Index, the national unemployment rate, Consumer Price Index (“CPI”) and Real Gross Domestic Product (“Real GDP”).

Commercial real estate, single tenant net lease and multifamily – The Company offers 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.  

The Company offers 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.  

The Company offers single tenant net lease loans, which are derived from a commercial real estate lending program that is focused on loans to high net worth individuals and that are secured by low loan-to-value, single-tenant commercial properties that are generally leased to investment grade national-brand retailers, the borrowers and collateral properties for which are outside of our primary market area (“NNN Finance Program”). 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.  

The commercial real estate, single tenant net lease and multi-family ACL models are adjusted for changes in the Commercial Real Estate Price Index, which is a time series of commercial property values prepared by the Board of Governors of the Federal Reserve System, and the national unemployment rate, CPI and Real GDP.

SBA commercial real estate and SBA commercial business – The Company originates SBA commercial real estate loans and SBA commercial business loans under the SBA 7(a) program. Guaranteed portions are generally sold to the secondary market.  

The SBA commercial real estate ACL model is adjusted for the Commercial Real Estate Price Index. Both the SBA commercial real estate ACL model and the SBA commercial business model are adjusted for the national unemployment rate, CPI and Real GDP.

Residential and commercial construction – The Company originates construction loans for one to four family homes and commercial properties such as small industrial buildings, warehouses, retail shops and office units. Construction loans, including speculative construction loans to builders who have not identified a buyer or lessee for the completed property at the time of origination, are made to a limited group of well-established builders in our primary market area and we limit the number of projects with each builder. Construction loans are typically for a term of 12 months with monthly interest only payments and interest rates on these loans are generally tied to the prime lending rate.

The construction ACL model is adjusted for forecasted changes in the housing price indices, the Case-Schiller Home Price Index, the national unemployment rate, CPI and Real GDP.  

Land and land development – 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.  

-11-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The land and land development ACL model is adjusted for forecasted changes in the housing price indices, the Case-Schiller Home Price Index, the national unemployment rate, CPI and Real GDP.

Commercial business – The Company 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.

The commercial business ACL model is adjusted for changes in the national unemployment level, CPI and Real GDP.

Consumer – The Company offers a variety of consumer loans. The 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. We also offer auto and truck loans, personal loans and small boat loans. 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.  

The ACL model for consumer loans is adjusted for forecasted changes in the housing price indices, the Case-Schiller Home Price Index, the national unemployment rate, CPI and Real GDP.

Allowance for Unfunded Commitments

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives consistent with the Company’s ACL methodology for loans and leases.

The allowance for unfunded commitments was $1.9 million as of December 31, 2023. There was no ACL on unfunded commitments at September 30, 2023. Additionally, the Company recorded a credit for credit losses on unfunded commitments of $58,000 for the three months ended December 31, 2023. There was no provision for credit losses on unfunded commitments for the three months ended December 31, 2022.

Allowance for Credit Losses – Held to Maturity (HTM) Securities

The Company measures expected credit losses on HTM securities on a collective basis by major security type with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the condensed consolidated balance sheets. See Note 2 – Investment Securities, for additional information related the Company’s allowance for credit losses on HTM securities.

Allowance for Credit Losses – Available for Sale (AFS) Securities

For AFS securities in an unrealized loss position, the Company first evaluates whether it intends to sell, or whether it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the AFS security amortized cost basis is written down to fair value through income. If the criteria is not met, the Company is required to assess whether the decline in fair value has resulted from credit losses of noncredit-related factors. If the assessment indicates a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit loss is recorded through income as a component of provision for credit loss expense. If the assessment indicates that a credit loss does not exist,

-12-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

the Company records the decline in fair value through other comprehensive income, net of related income tax effects. The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the condensed consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. See Note 2 – Investment Securities, for additional information related to the Company’s allowance for credit losses on AFS securities.

Collateral Dependent Loans

A loan is considered collateral dependent 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 collateral dependency include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Individually evaluated loans are 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, estimated 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 collateral dependent. 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 a collateral dependent loan. In instances where it is not deemed necessary to obtain a new appraisal, management would base its allowance for credit loss on the original appraisal with adjustments for current conditions based on management’s assessment of market factors and management’s inspection of the property.

Financial Difficulty Modifications

Effective October 1, 2023, the Company prospectively adopted ASU 2022-02, which eliminated the accounting for troubled debt restructurings (“TDRs”) while establishing a new standard for the disclosure of modifications made to borrowers experiencing financial difficulties (Financial Difficulty Modifications, or “FDMs”). As such, effective with the adoption of the standard, the Company prospectively will not include performing FDMs in the calculation of nonperforming loans, nonperforming assets or classified assets. Prior period data, which included TDRs, has not been adjusted.

2.

Investment Securities

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

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

-13-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

At this time, the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell, debt securities temporarily impaired prior to maturity or recovery of the recorded value. The Company recorded no reserves on investment securities for the three months ended December 31, 2023 or 2022.

The Company’s held to maturity (“HTM”) debt securities consist of two agency mortgage-backed securities and two municipal bonds. The agency mortgage-backed securities carry an explicit and/or implicit guarantee of the U.S. government, are widely considered as “risk free” and have a long history of zero credit loss. The two HTM municipal bonds are unrated, but have performed as agreed and are not considered to be credit impaired. The carrying value of HTM debt securities totaled $1.3 million at December 31, 2023. There were no HTM securities on nonaccrual status or past due as of December 31, 2023 or September 30, 2023. Therefore, the Company did not record an allowance for credit losses for these securities as of December 31, 2023 or September 30, 2023.

Debt Securities Available for Sale and Held to Maturity

The following tables provide a summary of debt securities available for sale and held to maturity:

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

    

Cost

    

Gain

    

Losses

    

Value

(In thousands)

December 31, 2023:

Debt securities available for sale:

 

  

 

  

 

  

 

  

U.S. Treasury notes

$

30,632

$

$

3,193

$

27,439

Agency mortgage-backed

28,090

2

2,654

25,438

Agency CMO

 

13,877

 

 

999

 

12,878

Privately-issued CMO

 

412

 

2

 

26

 

388

Privately-issued ABS

 

388

 

14

 

1

 

401

SBA certificates

 

11,537

 

 

326

 

11,211

Municipal bonds

 

175,841

 

1,021

 

10,791

 

166,071

Other

2,000

288

1,712

Total debt securities available for sale

$

262,777

$

1,039

$

18,278

$

245,538

Debt securities held to maturity:

 

 

 

 

Agency mortgage-backed

$

34

$

$

$

34

Municipal bonds

 

1,229

 

23

 

 

1,252

Total debt securities held to maturity

$

1,263

$

23

$

$

1,286

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Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

    

Cost

    

Gain

    

Losses

    

Value

(In thousands)

September 30, 2023:

Debt securities available for sale:

U.S. Treasury notes

$

30,598

$

$

4,649

$

25,949

Agency mortgage-backed

28,542

4,274

24,268

Agency CMO

14,064

1,322

12,742

Privately-issued CMO

 

424

 

2

 

30

 

396

Privately-issued ABS

 

433

 

13

 

3

 

443

SBA certificates

 

11,587

 

 

842

 

10,745

Municipal bonds

 

177,561

 

19

 

26,096

 

151,484

Subordinated debt

2,000

288

1,712

Total debt securities available for sale

$

265,209

$

34

$

37,504

$

227,739

Debt securities held to maturity:

 

 

 

 

Agency mortgage-backed

$

36

$

$

1

$

35

Municipal bonds

 

1,264

 

4

 

 

1,268

Total debt securities held to maturity

$

1,300

$

4

$

1

$

1,303

The amortized cost and fair value of investment securities as of December 31, 2023 by contractual maturity are shown below. CMO, ABS, SBA certificates, and mortgage-backed securities which do not have a single maturity date are shown separately.

Available for Sale

Held to Maturity

Amortized

    

Fair

    

Amortized

    

Fair

    

Cost

    

Value

    

Cost

    

Value

(In thousands)

Due within one year

$

2,594

$

2,570

$

253

$

256

Due after one year through five years

 

8,663

 

8,649

 

632

 

644

Due after five years through ten years

 

45,354

 

41,504

 

344

 

352

Due after ten years

 

151,862

 

142,499

 

 

CMO

 

14,289

 

13,266

 

 

ABS

 

388

 

401

 

 

SBA certificates

 

11,537

 

11,211

 

 

Mortgage-backed securities

 

28,090

 

25,438

 

34

 

34

$

262,777

$

245,538

$

1,263

$

1,286

-15-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following tables provide the fair value and gross unrealized losses on investment securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and the length of time the individual securities have been in a continuous loss position:

Number of

    

    

Gross

Investment

Fair

Unrealized

    

Positions

    

Value

    

Losses

(Dollars in thousands)

December 31,2023:

 

Debt securities available for sale:

 

  

 

  

 

  

Continuous loss position less than twelve months:

 

U.S. Treasury notes

5

$

1,599

$

32

Municipal bonds

4

3,703

38

Other

 

1

1,712

288

Total less than twelve months

 

10

 

7,014

 

358

Continuous loss position more than twelve months:

 

  

 

  

 

  

U.S. Treasury notes

1

25,840

3,161

Agency mortgage-backed

14

25,000

2,654

Agency CMO

15

12,878

999

Privately-issued CMO

1

343

26

Privately-issued ABS

 

1

 

179

 

1

SBA certificates

 

3

 

11,211

 

326

Municipal bonds

 

115

 

108,017

 

10,753

Total more than twelve months

 

150

 

183,468

 

17,920

Total debt securities available for sale

 

160

$

190,482

$

18,278

September 30, 2023:

 

  

 

  

 

  

Debt securities available for sale:

 

  

 

  

 

  

Continuous loss position less than twelve months:

 

  

 

  

 

  

U.S. Treasury notes

5

$

1,576

$

49

Agency mortgage-backed

2

163

8

Agency CMO

1

4,249

462

SBA certificates

 

1

31

3

Municipal bonds

 

43

 

45,931

 

3,334

Other

1

1,712

288

Total less than twelve months

 

53

 

53,662

 

4,144

Continuous loss position more than twelve months:

 

  

 

  

 

  

U.S. Treasury notes

1

24,373

4,600

Agency mortgage-backed

15

23,859

4,266

Agency CMO

14

8,493

860

Privately-issued CMO

 

2

 

375

 

30

Privately-issued ABS

1

212

3

SBA certificates

 

2

 

10,714

 

839

Municipal bonds

115

95,185

22,762

Total more than twelve months

 

150

 

163,211

 

33,360

Total debt securities available for sale

 

203

$

216,873

$

37,504

Debt securities held to maturity:

Continuous loss position more than twelve months:

Agency mortgage-backed

1

$

19

$

1

Total more than twelve months

1

19

1

Total debt securities held to maturity

1

$

19

$

1

At December 31, 2023, the Company did not have any securities held to maturity with an unrealized loss.

-16-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

All debt securities available for sale with unrealized losses are reviewed quarterly. For debt securities available for sale in an unrealized loss position, the Company first assesses whether it intends to sell or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through the income statement For debt securities available for sale in an unrealized loss position that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis

The total debt securities available for sale in loss positions at December 31, 2023, which consisted of U.S. Treasury notes, agency mortgage-backed securities, agency CMOs, privately-issued CMOs, privately-issued ABS, municipal bonds, SBA certificates and other securities represented 78% of total debt securities available for sale at December 31, 2023. All of the municipal securities are issued by municipal governments and are generally secured by first mortgage loans and municipal project revenues.

The Company evaluates the existence of a potential credit loss component related to the decline in fair value of the privately issued CMO and ABS portfolios each quarter using an independent third party analysis. At December 31, 2023, the Company held five privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $623,000 and fair value of $602,000 that have been downgraded to a substandard regulatory classification due to the securities credit quality rating by various rating agencies.

At December 31, 2023, two privately-issued CMO securities and one privately-issued ABS were in a loss position, and had depreciated approximately 4.9% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $522,000 and a total unrealized loss of $27,000 at December 31, 2023. Based on the independent third party analysis of the expected cash flows, no credit loss was recognized during the three months ended December 31, 2023. An other-than temporary impairment charge of $28,000 was taken in the three months ended December 31, 2022, which was prior to the Company’s adoption of CECL. While the Company does not anticipate additional credit-related impairment losses at December 31, 2023, additional deterioration in market and economic conditions may have an adverse impact on the credit quality of the portfolio, and therefore, require a credit related impairment charge in the future.

The unrealized losses on U.S. Treasury bills and notes, agency mortgage-backed securities, agency CMOs, SBA certificates and municipal bonds relate principally to changes in 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 intent and ability to hold debt securities to maturity, or until recovery in value to the amortized cost basis if classified as available for sale, no declines in value are deemed to represent credit impairment. Additionally, based on the Company’s credit assessment of debt securities available for sale in an unrealized loss position, the Company recorded no reserves for the three-month period ended December 31, 2023. The Company recorded $28,000 of other-than-temporary impairment loss for the three-month period ended December 31, 2022.

During the three-month periods ended December 31, 2023 and 2022, there were no sales of debt securities available for sale.  

At December 31, 2023 and September 30, 2023, available for sale debt securities with a total fair value of $55.2 million and $52.9 million, respectively, were pledged to secure FHLB borrowings.

-17-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

3.

Loans and Allowance for Credit Losses

Loans at December 31, 2023 and September 30, 2023 consisted of the following:

    

December 31,

    

September 30, 

2023

2023

(In thousands)

Real estate mortgage:

 

  

 

  

Residential

$

568,180

$

528,410

Commercial

 

187,654

 

187,232

Single tenant net lease

766,351

757,388

SBA commercial (1)

48,106

47,078

Multifamily

 

39,273

 

34,892

Residential construction

 

32,979

 

24,924

Commercial construction

 

18,397

 

14,588

Land and land development

 

15,800

 

17,234

Commercial business

 

127,259

 

117,594

SBA commercial business (1)

16,852

16,939

Consumer

38,978

39,915

Total loans

 

1,859,829

 

1,786,194

Deferred loan origination fees and costs, net

 

913

 

949

Allowance for credit losses

 

(18,789)

 

(16,900)

Loans, net

$

1,841,953

$

1,770,243

(1)

Includes discounts on SBA loans of $3.3 million for December 31, 2023 and September 30, 2023.

During the three-month period ended December 31, 2023, there were no significant changes in the Company’s lending activities as disclosed in the Company’s Annual Report on Form 10-K, for the fiscal year ended September 30, 2023. As discussed in Note 11, on October 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaced the previously required incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology.

At December 31, 2023 and September 30, 2023, the Company owned $444,000 of residential real estate where physical possession has been obtained. At December 31, 2023 and September 30, 2023, the recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $539,000.

-18-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table provides the components of loans as of September 30, 2023, prior to the adoption of ASU 2016-13 (in thousands):

    

Individually

    

Collectively

    

Evaluated for

Evaluated for

Loans as Evaluated for Impairment:

Impairment

Impairment

Loans

Residential real estate

$

3,312

$

525,098

$

528,410

Commercial real estate

 

868

 

186,364

 

187,232

Single tenant net lease

 

 

757,388

 

757,388

SBA commercial real estate

 

7,415

 

39,663

 

47,078

Multifamily

 

318

 

34,574

 

34,892

Residential construction

 

 

24,924

 

24,924

Commercial construction

 

 

14,588

 

14,588

Land and land development

 

 

17,234

 

17,234

Commercial business

 

1,946

 

115,648

 

117,594

SBA commercial business

 

1,122

 

15,817

 

16,939

Consumer

 

233

 

39,682

 

39,915

$

15,214

$

1,770,980

$

1,786,194

The following table presents the balance in the allowance for credit losses by portfolio segment and based on impairment method as of September 30, 2023:

Individually

Collectively

    

Evaluated for

    

Evaluated for

    

Ending

Impairment

Impairment

Balance

(In thousands)

September 30, 2023:

 

  

 

  

 

  

Residential real estate

$

74

$

4,567

$

4,641

Commercial real estate

2

1,775

1,777

Single tenant net lease

 

 

3,810

 

3,810

SBA commercial real estate

1,922

1,922

Multifamily

268

268

Residential construction

434

434

Commercial construction

282

282

Land and land development

307

307

Commercial business

111

1,603

1,714

SBA commercial business

187

1,060

1,247

Consumer

189

309

498

$

563

$

16,337

$

16,900

-19-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended December 31, 2023 and 2022:

    

Beginning Balance

    

Adoption of ASC 326

    

Provisions (Credits)

    

Charge-Offs

    

Recoveries

    

Ending Balance

 

(In thousands)

December 31, 2023:

 

  

 

  

 

  

 

  

 

  

 

  

Residential real estate

$

4,641

$

1,037

$

9

$

$

1

$

5,688

Commercial real estate

 

1,777

 

255

 

(235)

 

 

 

1,797

Single tenant net lease

 

3,810

 

222

 

48

 

 

 

4,080

SBA commercial real estate

 

1,922

 

511

 

379

 

(2)

 

61

 

2,871

Multifamily

 

268

 

(21)

 

74

 

 

 

321

Residential construction

 

434

 

(226)

 

96

 

 

 

304

Commercial construction

 

282

 

43

 

59

 

 

 

384

Land and land development

 

307

 

(74)

 

(36)

 

 

 

197

Commercial business

 

1,714

 

(495)

 

3

 

 

 

1,222

SBA commercial business

 

1,247

 

160

 

72

 

(3)

 

23

 

1,499

Consumer

 

498

 

17

 

 

(108)

 

19

 

426

$

16,900

$

1,429

$

469

$

(113)

$

104

$

18,789

December 31, 2022:

 

  

 

  

 

  

 

  

 

  

 

  

Residential real estate

$

2,716

$

$

382

$

$

2

$

3,100

Commercial real estate

 

1,590

 

 

161

 

 

 

1,751

Single tenant net lease

 

3,838

 

 

(34)

 

 

 

3,804

SBA commercial real estate

 

2,578

 

 

(106)

 

(74)

 

 

2,398

Multifamily

 

251

 

 

1

 

 

 

252

Residential construction

 

305

 

 

62

 

 

 

367

Commercial construction

 

107

 

 

(24)

 

 

 

83

Land and land development

 

212

 

 

(12)

 

 

 

200

Commercial business

 

1,193

 

 

32

 

 

30

 

1,255

SBA commercial business

 

2,122

 

 

390

 

(190)

 

16

 

2,338

Consumer

 

448

 

 

132

 

(65)

 

17

 

532

$

15,360

$

$

984

$

(329)

$

65

$

16,080

-20-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the average balance of impaired loans individually evaluated for impairment as of December 31, 2022, prior to the Company’s adoption of ASU 2016-13 and interest income recognized on impaired loans for the three-month period ended December 31, 2022.  The Company did not recognize any interest income on impaired loans using the cash receipts method during the three-month period ended December 31, 2022.

    

Average

    

Interest

Recorded

Income

Balance

    

Recognized

(In thousands)

Loans with no related ACL recorded:

Residential real estate

$

2,891

$

15

Commercial real estate

 

971

 

7

Single tenant net lease

SBA commercial real estate

7,033

Multifamily

 

393

 

5

Residential construction

Commercial construction

Land and land development

 

 

Commercial business

 

1,068

 

12

SBA commercial business

 

757

 

Consumer

 

77

 

$

13,190

$

39

Loans with an ACL recorded:

 

  

 

  

Residential real estate

$

$

Commercial real estate

 

 

Single tenant net lease

SBA commercial real estate

1,665

Multifamily

 

 

Residential construction

Commercial construction

Land and land development

 

 

Commercial business

 

67

 

SBA commercial business

 

1,267

 

Consumer

 

184

 

$

3,183

$

Total:

 

 

Residential real estate

$

2,891

$

15

Commercial real estate

 

971

 

7

Single tenant net lease

SBA commercial real estate

8,698

Multifamily

 

393

 

5

Residential construction

Commercial construction

Land and land development

 

 

Commercial business

 

1,135

 

12

SBA commercial business

 

2,024

 

Consumer

 

261

 

$

16,373

$

39

-21-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents impaired loans individually evaluated for impairment as of September 30, 2023, prior to the adoption of ASU 2016-13.

    

    

Unpaid

    

Recorded

Principal

Related

Balance

Balance

Allowance

(In thousands)

Loans with no related allowance recorded:

Residential real estate

$

1,989

$

2,139

$

Commercial real estate

 

551

 

627

 

Single tenant net lease

 

 

 

SBA commercial real estate

 

7,415

 

9,397

 

Multifamily

 

318

 

362

 

Residential construction

 

 

 

Commercial construction

Land and land development

Commercial business

870

972

SBA commercial business

 

684

 

1,799

 

Consumer

44

58

$

11,871

$

15,354

$

Loans with an allowance recorded:

 

  

 

  

 

  

Residential real estate

$

1,323

$

1,328

$

74

Commercial real estate

 

317

 

317

 

2

Single tenant net lease

SBA commercial real estate

Multifamily

 

 

 

Residential construction

Commercial construction

 

 

 

Land and land development

 

 

 

Commercial business

 

1,076

 

1,165

 

111

SBA commercial business

438

637

187

Consumer

 

189

 

189

 

189

$

3,343

$

3,636

$

563

Total:

 

  

 

  

 

  

Residential real estate

$

3,312

$

3,467

$

74

Commercial real estate

 

868

 

945

 

2

Single tenant net lease

SBA commercial real estate

 

7,415

 

9,397

 

Multifamily

318

362

Residential construction

 

 

 

Commercial construction

 

 

 

Land and land development

 

 

 

Commercial business

1,946

2,137

111

SBA commercial business

 

1,122

 

2,436

 

187

Consumer

233

247

189

$

15,214

$

18,990

$

563

-22-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The table below presents the amortized cost basis of loans on nonaccrual and loans past due 90 or more days and still accruing interest. Also presented is the balance of loans on nonaccrual status at December 31, 2023 for which there was no related allowance for credit losses.

The Company recognized no interest income related to nonaccrual loans for the three-month period ended December 31, 2023.

    

At December 31, 2023

At September 30, 2023

Nonaccrual

Loans 90+

Loans 90+

Total

Loans with No

Days

Total

Days

Nonaccrual

Allowance for

Past Due

Nonaccrual

Past Due

Loans

    

Credit Loses

    

Still Accruing

    

Loans

    

Still Accruing

(In thousands)

Residential real estate

$

2,519

$

1,662

$

$

2,426

$

Commercial real estate

 

504

 

504

511

Single tenant net lease

SBA commercial real estate

 

8,248

 

6,929

7,415

Multifamily

304

304

318

Residential construction

 

 

Commercial construction

 

 

Land and land development

 

 

Commercial business

1,770

512

1,946

SBA commercial business

 

2,015

 

1,463

1,099

Consumer

148

12

233

Total

$

15,508

$

11,386

$

$

13,948

$

The following table presents the amortized cost basis of collateral dependent loans by collateral types, which are individually evaluated to determine expected credit losses:

December 31, 2023

Real Estate

Other

Total

Residential real estate

    

$

2,519

    

$

    

$

2,519

Commercial real estate

 

504

 

 

504

SBA commercial real estate

 

8,248

 

 

8,248

Multifamily

 

304

 

 

304

Commercial business

 

 

1,770

 

1,770

SBA commercial business

 

 

2,015

 

2,015

Consumer

 

 

148

 

148

$

11,575

$

3,933

$

15,508

-23-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the aging of past due loans at December 31, 2023:

30-59 Days

60-89 Days

90+ Days

Total

    

Total

    

Past Due

    

Past Due

    

Past Due

    

Past Due

    

Current

    

Loans

(In thousands)

Residential real estate

$

2,649

$

228

$

1,932

$

4,809

$

563,371

$

568,180

Commercial real estate

 

448

 

504

952

186,702

 

187,654

Single tenant net lease

766,351

766,351

SBA commercial real estate

 

470

 

328

3,908

4,706

43,400

 

48,106

Multifamily

 

 

39,273

 

39,273

Residential construction

32,979

32,979

Commercial construction

 

 

18,397

 

18,397

Land and land development

 

 

15,800

 

15,800

Commercial business

184

122

51

357

126,902

127,259

SBA commercial business

 

 

25

772

797

16,055

 

16,852

Consumer

292

7

299

38,679

38,978

Total

$

4,043

$

1,207

$

6,670

$

11,920

$

1,847,909

$

1,859,829

The following table presents the aging of past due loans at September 30, 2023:

30-59 Days

60-89 Days

90+ Days

Total

Total

    

Past Due

    

Past Due

    

Past Due

    

Past Due

    

Current

    

Loans

(In thousands)

Residential real estate

$

2,715

$

132

$

1,818

$

4,665

$

523,745

$

528,410

Commercial real estate

 

23

 

62

 

 

85

 

187,147

 

187,232

Single tenant net lease

 

 

 

 

 

757,388

 

757,388

SBA commercial real estate

764

3,877

4,641

42,437

47,078

Multifamily

34,892

34,892

Residential construction

24,924

24,924

Commercial construction

14,588

14,588

Land and land development

 

40

 

 

 

40

 

17,194

 

17,234

Commercial business

 

112

 

 

86

 

198

 

117,396

 

117,594

SBA commercial business

 

130

 

 

682

 

812

 

16,127

 

16,939

Consumer

 

137

 

5

 

36

 

178

 

39,737

 

39,915

Total

$

3,921

$

199

$

6,499

$

10,619

$

1,775,575

$

1,786,194

-24-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

Pass: Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations.  Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the debt if required, for any weakness that may exist.

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

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

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

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

The following tables outline, as of December 31, 2023, the amount of each loan and lease classification and the amount categorized into each risk rating based on fiscal year of origination as well as current period gross charge-offs:

-25-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Loans Amortized Cost Basis by Origination Fiscal Year End September 30

Revolving

Loans

Revolving

Converted

(In thousands)

    

2024

    

2023

    

2022

    

2021

    

2020

    

Prior

    

Loans

    

To Term

    

Total

Residential real estate

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

$

11,015

$

36,173

$

68,655

$

31,544

$

15,826

$

60,977

$

341,898

$

$

566,088

Special mention

 

 

 

 

 

 

 

 

 

Substandard

 

 

116

 

717

 

441

 

 

491

 

306

 

 

2,071

Doubtful

 

 

 

 

 

 

21

 

 

 

21

Loss

 

 

 

 

 

 

 

 

 

Total residential real estate

 

11,015

 

36,289

 

69,372

 

31,985

 

15,826

 

61,489

 

342,204

 

 

568,180

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

Commercial real estate

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

5,431

 

26,730

 

65,560

 

23,718

 

9,398

 

56,114

 

 

$

186,951

Special mention

 

 

 

 

 

 

 

 

 

Substandard

 

 

504

 

 

 

23

 

176

 

 

 

703

Doubtful

 

 

 

 

 

 

 

 

 

21

Loss

 

 

 

 

 

 

 

 

 

Total commercial real estate

 

5,431

 

27,234

 

65,560

 

23,718

 

9,421

 

56,290

 

 

 

187,654

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

Single tenant net lease commercial real estate

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

17,388

 

154,911

 

285,497

 

72,562

 

102,620

 

133,373

 

 

 

766,351

Special mention

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

Total single tenant net lease

 

17,388

 

154,911

 

285,497

 

72,562

 

102,620

 

133,373

 

 

 

766,351

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

SBA commercial real estate

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

1,434

 

8,733

 

5,780

 

6,779

 

8,883

 

7,926

 

46

 

 

39,581

Special mention

 

 

 

277

 

 

 

 

 

 

277

Substandard

 

 

 

115

 

94

 

397

 

5,957

 

 

 

6,563

Doubtful

 

 

 

 

 

 

1,624

 

 

 

1,624

Loss

 

 

 

 

 

 

61

 

 

 

61

Total SBA commercial real estate

 

1,434

 

8,733

 

6,172

 

6,873

 

9,280

 

15,568

 

46

 

 

48,106

YTD gross charge-offs

 

 

 

 

 

 

2

 

 

 

2

-26-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Loans Amortized Cost Basis by Origination Fiscal Year End September 30

Revolving

Loans

Revolving

Converted

(In thousands)

    

2024

    

2023

    

2022

    

2021

    

2020

    

Prior

    

Loans

    

To Term

    

Total

Multifamily real estate

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

5,000

 

2,577

 

7,345

 

5,584

 

11,302

 

7,161

 

 

 

38,969

Special mention

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

304

 

 

304

Doubtful

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

Total multifamily real estate

 

5,000

 

2,577

 

7,345

 

5,584

 

11,302

 

7,465

 

 

 

39,273

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

Residential construction

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

1,107

 

14,361

 

17,511

 

 

 

 

 

 

32,979

Special mention

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

Total residential construction

 

1,107

 

14,361

 

17,511

 

 

 

 

 

 

32,979

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

Commercial construction

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

 

14,187

 

4,210

 

 

 

 

 

 

18,397

Special mention

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

Total commercial construction

 

 

14,187

 

4,210

 

 

 

 

 

 

18,397

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

Land and land development

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

347

 

7,255

 

5,439

 

1,121

 

411

 

1,227

 

 

 

15,800

Special mention

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

Total land and land development

 

347

 

7,255

 

5,439

 

1,121

 

411

 

1,227

 

 

 

15,800

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

-27-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Loans Amortized Cost Basis by Origination Fiscal Year End September 30

Revolving

Loans

Revolving

Converted

(In thousands)

    

2024

    

2023

    

2022

    

2021

    

2020

    

Prior

    

Loans

    

To Term

    

Total

Commercial business

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

11,109

 

59,498

 

30,835

 

13,255

 

4,140

 

6,652

 

 

 

125,489

Special mention

 

 

 

 

 

 

 

 

 

Substandard

 

 

1,017

 

195

 

46

 

4

 

508

 

 

 

1,770

Doubtful

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

Total commercial business

 

11,109

 

60,515

 

31,030

 

13,301

 

4,144

 

7,160

 

 

 

127,259

YTD gross charge-offs

 

 

 

 

 

 

 

 

 

SBA commercial business

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

1,289

 

2,327

 

765

 

1,258

 

4,796

 

3,808

 

375

 

 

14,618

Special mention

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

60

 

54

 

2,109

 

 

 

2,223

Doubtful

 

 

 

 

 

 

9

 

 

 

9

Loss

 

 

 

 

 

 

2

 

 

 

2

Total SBA commercial business

 

1,289

 

2,327

 

765

 

1,318

 

4,850

 

5,928

 

375

 

 

16,852

YTD gross charge-offs

 

 

 

 

 

 

3

 

 

 

3

Consumer

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

1,374

 

5,400

 

4,352

 

673

 

396

 

273

 

26,498

 

 

38,966

Special mention

 

 

 

 

 

 

 

 

 

Substandard

 

 

2

 

2

 

 

 

 

8

 

 

12

Doubtful

 

 

 

 

 

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

Total consumer

 

1,374

 

5,402

 

4,354

 

673

 

396

 

273

 

26,506

 

 

38,978

YTD gross charge-offs

 

 

 

 

1

 

 

107

 

 

 

108

Total loans

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Pass

 

55,494

 

332,152

 

495,949

 

156,494

 

157,772

 

277,511

 

368,817

 

 

1,844,189

Special mention

 

 

 

277

 

 

 

 

 

 

277

Substandard

 

 

1,693

 

1,029

 

641

 

478

 

9,545

 

314

 

 

13,646

Doubtful

 

 

 

 

 

 

1,654

 

 

 

1,654

Loss

 

 

 

 

 

 

63

 

 

 

63

Total loans

 

55,494

 

333,791

 

497,255

 

157,135

 

158,250

 

288,773

 

369,131

 

 

1,859,829

YTD gross charge-offs

 

 

 

 

1

 

 

112

 

 

 

113

-28-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents loans by risk category as of September 30, 2023:

    

    

Special

    

    

    

    

September 30, 2023:

Pass

Mention

Substandard

Doubtful

Loss

Total

(In thousands)

Residential real estate

$

525,735

$

$

2,653

$

22

$

$

528,410

Commercial real estate

 

186,520

 

 

712

 

 

 

187,232

Single tenant net lease

757,388

757,388

SBA commercial real estate

39,092

278

6,083

1,625

47,078

Multifamily

34,574

318

34,892

Residential construction

24,924

24,924

Commercial construction

14,588

14,588

Land and land development

17,234

17,234

Commercial business

 

115,647

 

40

 

1,907

 

 

 

117,594

SBA commercial business

 

14,572

 

 

2,327

 

40

 

 

16,939

Consumer

 

39,871

 

 

44

 

 

 

39,915

Total

$

1,770,145

$

318

$

14,044

$

1,687

$

$

1,786,194

Financial Difficulty Modifications

Effective October 1, 2023, the Company prospectively adopted ASU 2022-02, which eliminated the accounting for TDRs while establishing a new standard for the treatment of modifications made to borrowers experiencing financial difficulties (Financial Difficulty Modifications, or “FDMs”). As such, effective with the adoption of the standard, the Company prospectively will not include FDMs in the calculation of nonperforming loans, nonperforming assets or classified assets. Prior period data, which included TDRs, has not been adjusted.

An FDM may result when a borrower is in financial distress and may be in the form of principal forgiveness, an interest rate reduction, a term extension or a significant payment delay. In some cases, the Company may provide multiple types of modifications for a single loan. One type of modification, such as payment delay, may be granted initially. However, if the borrower continues to experience financial difficulty, another modification, such as term extension and/or interest rate reduction may be granted. Additionally, modifications with a term extension or interest rate reduction are intended to reduce the borrower’s monthly payment, while modifications with a payment delay, which typically allow borrowers to make monthly payments or interest only payments for a period of time, are structured to cure the payment defaults by making delinquent payments due at maturity. Payment deferrals up to six months have minimal financial impact since the deferred payments are paid at maturity.

There were no new FDMs made or modifications of existing FDMs during the three months ended December 31, 2023.

-29-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table summarizes the Company’s recorded investment in TDRs at December 31, 2022, prior to adoption of ASU 2022-02. There was $125,000 of specific reserve included in the allowance for loan losses related to TDRs at December 31, 2022.

Accruing

Nonaccrual

Total

(In thousands)

December 31, 2022:

    

  

    

  

    

  

Residential real estate

$

1,021

$

$

1,021

Commercial real estate

 

383

 

420

 

803

SBA commercial real estate

 

 

1,604

 

1,604

Multifamily

 

346

 

 

346

Commercial business

 

830

 

 

830

SBA commercial business

 

 

262

 

262

Total

$

2,580

$

2,286

$

4,866

There were no TDRs that were restructured during the three-months ended December 31, 2022.

At December 31, 2022, the Company had committed to lend $1,000 to customers with outstanding loans classified as TDRs.

There were principal charge-offs totaling $3,000 as a result of loans previously designated as TDRs during the three-month period ended December 31, 2022. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment.  As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan.

During the three-month periods ended December 31, 2022 and 2021, the Company did not have any TDRs that were modified within the previous twelve months and for which there was a payment default.

SBA Loan Servicing Rights

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

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

-30-

Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The unpaid principal balance of SBA loans serviced for others was $211.3 million, $209.6 million and $237.9 million at December 31, 2023, September 30, 2023 and December 31, 2022, respectively. Contractually specified late fees and ancillary fees expensed on SBA loans were a credit of $9,000 for the three-month period ended December 31, 2023 compared to a debit of $21,000 for the three-month period ended December 31, 2022. Net servicing income (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans was $464,000 and $553,000 for the three-month periods ended December 31, 2023 and 2022, respectively. Net servicing income and costs related to SBA loans are included in other noninterest income in the consolidated statements of income.

An analysis of SBA loan servicing rights for the three-month periods ended December 31, 2023 and 2022 is as follows:

    

2023

    

2022

(In thousands)

Balance, beginning of period

$

2,950

$

3,790

Servicing rights capitalized

 

257

 

198

Amortization

 

(143)

 

(195)

Direct write-offs

(217)

(141)

Change in valuation allowance

 

60

 

(351)

Balance, end of period

$

2,907

$

3,301

There was no valuation allowance related to SBA loan servicing rights at December 31, 2023. There was a valuation allowance of $60,000 related to SBA loan servicing rights at September 30, 2023.

Mortgage Servicing Rights (“MSRs”)

The Company originates residential mortgage loans for sale in the secondary market and retains servicing for certain of these loans when they are sold. MSRs retained for originated loans that have been sold are accounted for at fair value. The fair value of MSRs are determined using the present value of estimated expected net servicing income using assumptions about expected mortgage loan prepayment rates, discount rate, servicing costs, and other economic factors, which are determined based on current market conditions. Changes in these underlying assumptions could cause the fair value of MSRs to change significantly in the future. Changes in fair value of MSRs are recorded in mortgage banking income in the accompanying consolidated statements of income. MSRs are subject to changes in value from, among other things, changes in interest rates, prepayments of the underlying loans and changes in the credit quality of the underlying loans.

At September 30, 2023, the Company had entered into a letter of intent to sell substantially all of the Company’s residential MSRs, which closed on November 30, 2023. Additionally, the Company entered into a letter of intent to sell the remaining residential MSRs at December 31, 2023 in the quarter ending March 31, 2024. Due to the pending residential MSR sales, a valuation model was not used to calculate the fair value of residential MSRs September 30, 2023 and December 31, 2023. The fair value was estimated using known information, including the anticipated sale prices, estimated expenses, and contingencies related to the pending residential MSR sales, which represent Level 3 fair value inputs. Prior to September 30, 2023, a valuation model employed by an independent third party calculated the present value of future cash flows and was used to value the MSRs on a monthly basis.  Management periodically compared the valuation model inputs and results to published industry data in order to validate the model results and assumptions.

    

Range of Assumption

 (Weighted Average)

Assumption

    

September 30, 2023

Discount rate

 

9.44% to 14.50% (9.51%)

Prepayment rate

 

5.00% to 85.82% (6.82%)

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The unpaid principal balance of residential mortgage loans serviced for others was $83.1 million and $4.77 billion at December 31, 2023 and September 30, 2023, respectively. The reason for the significant decline was the sale of substantially all of the Company’s residential MSRs during the three-month period ended December 31, 2023, which also resulted in a significant reduction in custodial escrow balances. Custodial escrow balances maintained in connection with the foregoing loan servicing and other liabilities were $608,000 and $47.9 million at December 31, 2023 and September 30, 2023, respectively. Contractually specified servicing fees (net of direct servicing expenses), late fees and other ancillary fees related to residential mortgage loans serviced for others were $1,000 and $2.4 million for the three-month periods ended December 31, 2023 and 2022, respectively. Contractually specified servicing fees are included in mortgage banking income in the consolidated statements of income.

Changes in the carrying value of MSRs accounted for at fair value for the three-month periods ended December 31, 2023 and 2022 were as follows:

    

2023

    

2022

(In thousands)

Fair value, beginning of period

$

59,768

$

63,263

Servicing rights capitalized

509

142

Changes in fair value related to:

Loan repayments

(666)

(1,023)

Sales

(58,765)

Change in valuation model inputs or assumptions

(137)

(217)

Balance, end of period

$

709

$

62,165

Nonresidential MSRs

The Company also periodically sells single tenant net lease loans with servicing rights retained. Loan servicing rights on these nonresidential mortgage loans are initially recorded at fair value and are then amortized in proportion to and over the period of estimated net servicing income. Impairment of nonresidential MSRs is assessed using the present value of estimated future cash flows. The aggregate fair value of nonresidential MSRs approximates its carrying value. A valuation model employed by management calculates the present value of future cash flows and is used to estimate fair value at the date of sale and on a quarterly basis for impairment analysis purposes. Management periodically compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Key assumptions used to estimate the fair value of the nonresidential MSRs include the discount rate and prepayment speed assumptions. Impairment is recognized through a valuation allowance to the extent that fair value is less than the carrying amount. Changes in the valuation allowance are reported in other noninterest income in the consolidated statements of income.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The unpaid principal balance of nonresidential mortgage loans serviced for others was $40.3 million and $40.4 million at December 31, 2023 and September 30, 2023, respectively. Contractually specified servicing fees, late fees and other ancillary fees related to nonresidential mortgage loans serviced for others were $4,000 and $9,000 for the three-month periods ended December 31, 2023 and 2022, respectively. Contractually specified servicing fees on nonresidential mortgage loans serviced for others are included in other noninterest income in the consolidated statements of income.

An analysis of nonresidential MSRs for the three-month periods ended December 31, 2023 and 2022 is as follows:

    

2023

    

2022

(In thousands)

Balance, beginning of period

$

101

$

141

Servicing rights capitalized

 

 

Amortization

 

(6)

 

(9)

Direct write-offs

 

 

Change in valuation allowance

 

Balance, end of period

$

95

$

132

There was no valuation allowance related to nonresidential MSRs at December 31, 2023 and September 30, 2023.

4.

Deposits

Deposits at December 31, 2023 and September 30, 2023 consisted of the following:

    

December 31,

    

September 30, 

2023

2023

(In thousands)

Noninterest-bearing demand deposits

$

202,769

$

242,237

NOW accounts

 

329,610

 

336,446

Money market accounts

 

312,521

 

323,739

Savings accounts

 

163,006

 

170,073

Retail time deposits

 

173,045

 

170,980

Brokered & reciprocal time deposits

 

502,895

 

438,319

Total

$

1,683,846

$

1,681,794

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

5.

Supplemental Disclosure for Net Income Per Share

Net income per share information is presented below for the three-month periods ended December 31, 2023 and 2022.

    

Three Months Ended

December 31,

(In thousands, except share and per share data)

    

2023

    

2022

Basic:

    

Earnings:

Net income attributable to First Savings Financial Group, Inc. available to common shareholders

$

920

$

2,871

Shares:

Weighted average common shares outstanding, basic

 

6,823,948

 

6,915,909

Net income per common share, basic

$

0.13

$

0.42

Diluted:

 

  

 

  

Earnings:

 

  

 

  

Net income attributable to First Savings Financial Group, Inc. available to common shareholders

$

920

$

2,871

Shares:

 

  

 

  

Weighted average common shares outstanding, basic

 

6,823,948

 

6,915,909

Add: Dilutive effect of outstanding options

 

15,756

 

53,229

Add: Dilutive effect of restricted stock

 

 

2,917

Weighted average common shares outstanding, as adjusted

 

6,839,704

 

6,972,055

Net income per common share, diluted

$

0.13

$

0.41

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

Stock options for 341,572 and 275,889 shares of common stock were excluded from the calculation of diluted net income per common share for the three-month periods ended December 31, 2023 and 2022, respectively, because their effect was antidilutive. There were no antidilutive restricted stock awards excluded from the calculation of diluted net income per share for the three-month periods ended December 31, 2023 and 2022.

6.

Fair Value Measurements and Disclosures about Fair Value of Financial Instruments

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.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Level 2:

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

Level 3:

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

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. The tables below present the balances of financial assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2023 and September 30, 2023.

    

Carrying Value

    

Level 1

    

Level 2

    

Level 3

    

Total

(In thousands)

December 31, 2023:

 

  

 

  

 

  

 

  

Assets Measured – Recurring Basis:

 

  

 

  

 

  

 

  

Securities available for sale:

 

  

 

  

 

  

 

  

U.S. Treasury bills and notes

$

27,439

$

$

$

27,439

Agency mortgage-backed

25,438

25,438

Agency CMO

 

 

12,878

 

 

12,878

Privately-issued CMO

 

 

45

 

343

 

388

Privately-issued ABS

 

 

322

 

79

 

401

SBA certificates

 

 

11,181

 

30

 

11,211

Municipal bonds

 

 

166,071

 

 

166,071

Other

1,712

1,712

Total securities available for sale

$

27,439

$

217,647

$

452

$

245,538

Residential mortgage loans held for sale

$

$

4,056

$

$

4,056

Equity securities (included in other assets)

$

198

$

$

$

198

Residential mortgage servicing rights

$

$

$

709

$

709

Liabilities Measured – Recurring Basis:

Assets Measured – Nonrecurring Basis:

 

  

 

  

 

  

 

  

Collateral dependent loans:

 

  

 

  

 

  

 

  

Residential real estate

$

$

$

523

$

523

SBA commercial real estate

881

881

Commercial business

 

 

 

1,164

 

1,164

SBA commercial business

235

235

Total collateral dependent loans

$

$

$

2,803

$

2,803

SBA loan servicing rights

$

$

$

2,907

$

2,907

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

    

Carrying Value

    

Level 1

    

Level 2

    

Level 3

    

Total

(In thousands)

September 30, 2023:

  

  

  

  

Assets Measured – Recurring Basis

 

  

 

  

 

  

 

  

Securities available for sale:

 

  

 

  

 

  

 

  

U.S. Treasury notes

$

25,949

$

$

$

25,949

Agency mortgage-backed

24,268

24,268

Agency CMO

 

 

12,742

 

 

12,742

Privately-issued CMO

 

 

46

 

350

 

396

Privately-issued ABS

 

 

364

 

79

 

443

SBA certificates

 

 

10,714

 

31

 

10,745

Municipal bonds

 

 

151,484

 

 

151,484

Subordinated debt

1,712

1,712

Total securities available for sale

$

25,949

$

201,330

$

460

$

227,739

Residential mortgage loans held for sale

$

$

24,692

$

$

24,692

Derivative assets (included in other assets)

$

$

471

$

452

$

923

Equity securities (included in other assets)

$

160

$

$

$

160

Residential mortgage servicing rights

$

$

$

59,768

$

59,768

Liabilities Measured – Recurring Basis

 

  

 

  

 

  

 

  

Derivative liabilities (included in other liabilities)

$

$

12

$

184

$

196

Assets Measured – Nonrecurring Basis

 

  

 

  

 

  

 

  

Collateral dependent loans:

 

  

 

  

 

  

 

  

Residential real estate

$

$

$

306

$

306

Commercial business

 

 

 

965

 

965

SBA commercial business

237

237

Total collateral dependent loans

$

$

$

1,508

$

1,508

SBA loan servicing rights

$

$

$

2,950

$

2,950

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 at 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. 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 three-month period ended December 31, 2023.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Debt Securities Available for Sale and Equity Securities. Debt securities classified as available for sale and equity securities 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 equity 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.

Residential Mortgage Loans Held for Sale. The Company has elected to record its residential mortgage loans held for sale at fair value in accordance with FASB ASC 825-10. The fair value of residential mortgage loans held for sale is based on specific prices of the underlying contracts for sale to investors or current secondary market prices for loans with similar characteristics, and is classified as Level 2 in the fair value hierarchy.

Derivative Financial Instruments. Derivative financial instruments consist of mortgage banking interest rate lock commitments and forward mortgage loan sale commitments. The fair value of forward mortgage loan sale commitments is obtained from an independent third party and is based on the gain or loss that would occur if the Company were to pair-off the sales transaction with the investor. The fair value of forward mortgage loan sale commitments is classified as Level 2 in the fair value hierarchy.

The fair value of interest rate lock commitments is also obtained from an independent third party and is based on investor prices for the underlying loans or current secondary market prices for loans with similar characteristics, less estimated costs to originate the loans and adjusted for the anticipated funding probability (pull-through rate). The fair value of interest rate lock commitments is classified as Level 3 in the fair value hierarchy.

Due to the Company’s decision to wind down the national Mortgage Banking operation, and the resulting low level of mortgage loan originations and sales, there were no interest rate lock commitments or forward mortgage loan sale commitments as of December 31, 2023.

The table below presents a reconciliation of derivative assets and liabilities (interest rate lock commitments) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month periods ended December 31, 2023 and 2022:

Three Months Ended

December 31,

(In thousands)

2023

    

2022

Beginning balance

$

268

$

(238)

Unrealized gains (losses) recognized in earnings, net of settlements

 

(268)

 

600

    

Ending balance

$

$

362

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The realized and unrealized gains recognized in earnings in the table above are included in mortgage banking income on the accompanying consolidated statements of income. There were no unrealized gains recognized in earnings for the three-month period ended December 31, 2023 attributable to Level 3 derivative assets and liabilities held at the balance sheet date.Unrealized gains recognized in earnings for the three-month period ended December 31, 2022 attributable to Level 3 derivative assets and liabilities held at the balance sheet date were $362,000.

There were no interest rate lock commitments as of December 31, 2023. The table below presents information about significant unobservable inputs (Level 3) used in the valuation of derivative financial instruments measured at fair value on a recurring basis as of September 30,2023.

Range of Inputs

Significant

(Weighted Average)

    

Unobservable

    

September 30,

Financial Instrument

Inputs

2023

Interest rate lock commitments

 

Pull-through rate

  

54% - 95% (81%)

Direct costs to close

  

0.00% - 5.00% (0.62%)

Residential Mortgage Servicing Rights. As disclosed in Note 3, At September 30, 2023, the Company had entered into a letter of intent to sell substantially all of the Company’s residential MSRs, which closed on November 30, 2023. Additionally, the Company entered into a letter of intent to sell the remaining residential MSRs at December 31, 2023 in the quarter ending March 31, 2024. Due to the pending residential MSR sales, a valuation model was not used to calculate the fair value of residential MSRs at September 30 and December 31, 2023. The fair value was estimated using known information, including the anticipated sale prices ($754,000), estimated expenses ($25,000), and contingencies related to the pending residential MSR sales ($20,000). Prior to September 30, 2023, a valuation model employed by an independent third party calculated the present value of future cash flows and was used to value the MSRs on a monthly basis. Management periodically compared the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Due to the nature of the valuation inputs, residential MSRs are classified within Level 3 of the valuation hierarchy. A reconciliation of residential MSRs measured at fair value on a recurring basis using significant unobservable inputs (Level 3) and a summary of the significant unobservable inputs used in the residential MSR valuations is presented in Note 3.  Changes in the fair value of residential MSRs are included in mortgage banking income in the accompanying consolidated statements of income.

Collateral Dependent Loans. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. In accordance with accounting standards, only collateral dependent loans for which an allowance for credit loss has been established or a partial charge-off recorded require classification in the fair value hierarchy. The fair value of collateral dependent loans is classified as Level 3 in the fair value hierarchy.

Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable, and its fair value is generally determined based on real estate appraisals or other independent evaluations by qualified professionals. The appraisals are then discounted to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral. At December 31, 2023 and September 30, 2023, the significant unobservable inputs used in the fair value measurement of collateral dependent loans were as follows:

    

    

Range of Inputs

    

Significant

(Weighted Average)

Range of Inputs (Weighted

Unobservable

December 31,

Average) September 30,

Financial Instrument

Inputs

2023

2023

Collateral dependent loans

 

Discount from appraised value

 

0.0% - 50.0% (13.80%)

 

10.0% - 50.0% (14.22%)

 

Estimated costs to sell

 

0.0% - 6.0% (5.99%)

 

6.0% - 6.0% (6.00%)

During the three-month periods ended December 31, 2023 and 2022, the Company recognized provisions for credit losses on impaired loans of $691,000 and $200,000, respectively.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

SBA and Nonresidential Loan Servicing Rights. SBA loan servicing rights represent the value associated with servicing SBA loans that have been sold. The fair value of SBA loan servicing rights is determined on a quarterly basis by an independent third party valuation model using market-based discount rate and prepayment assumptions, and is classified as Level 3 in the fair value hierarchy. At December 31, 2023, there were no SBA loan servicing rights measured at fair value. At September 30, 2023, the significant unobservable inputs used in the fair value measurement of SBA loan servicing rights measured at fair value were as follows:

    

Significant

    

Range of Inputs (Weighted

Unobservable

Average) September 30,

Financial Instrument

Inputs

 

2023

SBA loan servicing rights

 

Discount rate

 

10.25% - 25.00% (13.79%)

 

Prepayment speed

 

8.60% - 32.85% (16.91%)

Impairment of the SBA loan servicing rights is recognized on a quarterly basis through a valuation allowance to the extent that fair value is less than the carrying amount. The Company reversed impairment charges of $60,000 on SBA loan servicing rights for the three-month period ended December 31, 2023. The Company recorded impairment charges of $351,000 on SBA loan servicing rights for the three-month period ended December 31, 2022.

Nonresidential mortgage loan servicing rights represent the value associated with servicing single tenant net lease loans that have been sold. The fair value of nonresidential mortgage loan servicing rights is determined by management on a quarterly basis using a discounted cash flow model, and is classified as Level 3 in the fair value hierarchy. At December 31, 2023 and September 30, 2023, the Company did not have any nonresidential mortgage loan servicing rights measured at fair value on a nonrecurring basis. The Company did not recognize any impairment charges on nonresidential mortgage loan servicing rights for the three -month periods ended December 31, 2023 and 2022.

There were no transfers into or out of the Company’s Level 3 financial assets of the fair value hierarchy for the three-month period ended December 31, 2023.

Financial Instruments Recorded Using Fair Value Option. Under FASB ASC 825-10, the Company may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis, with changes in fair value reported in income. The election is made at the acquisition date of an eligible financial asset or financial liability, and may not be revoked once made.

The Company has elected the fair value option for substantially all of its residential mortgage loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with the Company’s policy on loans held for investment. None of these loans were 90 days or more past due, nor were any on nonaccrual status, as of December 31, 2023 and September 30, 2023.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The table below presents the difference between the aggregate fair value and the aggregate remaining principal balance for residential mortgage loans held for sale for which the fair value option had been elected as of December 31, 2023 and September 30, 2023.

Aggregate

Aggregate

    

Principal

Fair Value

Balance

December 31,

December 31,

(In thousands)

    

2023

2023

    

Difference

Residential mortgage loans held for sale

$

4,056

$

4,988

$

(932)

Aggregate

Aggregate

Principal

Fair Value

Balance

September 30,

September 30,

(In thousands)

    

2023

    

2023

    

Difference

Residential mortgage loans held for sale

$

24,692

$

24,382

$

309

The table below presents gains and losses and interest included in earnings related to financial assets measured at fair value under the fair value option for the three-month periods ended December 31, 2023 and 2022:

Three Months Ended

December 31,

(In thousands)

2023

    

2022

Gains (losses) – included in mortgage banking income

$

(1,029)

$

668

Interest income

 

293

 

428

    

$

(736)

$

1,096

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

GAAP requires disclosure of fair value information about financial instruments for interim reporting periods, whether or not recognized in the consolidated balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The carrying amounts and estimated fair values of the Company’s financial instruments are as follows.

Carrying

Fair Value Measurements Using:

    

Amount

    

Level 1

    

Level 2

    

Level 3

(In thousands)

December 31, 2023:

 

  

 

  

 

  

 

  

Financial assets:

 

  

 

  

 

  

 

  

Cash and due from banks

$

17,522

$

17,522

$

$

Interest-bearing deposits with banks

 

15,844

 

15,844

 

 

Interest-bearing time deposits

 

490

 

 

490

 

Securities available for sale

 

245,538

 

27,439

 

217,647

 

452

Securities held to maturity

 

1,263

 

 

34

 

1,252

Residential mortgage loans held for sale

 

4,056

4,056

 

SBA loans held for sale

18,810

20,593

Loans, net

 

1,841,953

 

 

 

1,738,857

FRB and FHLB stock

 

24,987

 

N/A

 

N/A

 

N/A

Accrued interest receivable

 

11,341

 

 

11,341

 

Residential mortgage loan servicing rights

709

709

Nonresidential mortgage loan servicing rights

95

95

SBA loan servicing rights

 

2,907

 

 

 

2,907

Equity securities (included in other assets)

198

198

Financial liabilities:

 

 

  

 

  

 

  

Noninterest-bearing deposits

 

202,769

 

202,769

 

 

Interest-bearing deposits

1,481,077

1,477,923

Borrowings from FHLB

 

356,699

 

 

352,575

 

Subordinated notes

 

48,484

 

 

47,704

 

Accrued interest payable

 

10,405

 

 

10,405

 

Advance payments by borrowers for taxes and insurance

512

512

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Carrying

Fair Value Measurements Using:

    

Amount

    

Level 1

    

Level 2

    

Level 3

(In thousands)

September 30, 2023:

  

  

  

  

Financial assets:

 

  

 

  

 

  

 

  

Cash and due from banks

$

18,014

$

18,014

$

$

Interest-bearing deposits with banks

 

12,831

 

12,831

 

 

Interest-bearing time deposits

 

490

 

 

490

 

Securities available for sale

 

227,739

 

25,949

 

201,330

 

460

Securities held to maturity

 

1,300

 

 

38

 

1,265

Residential mortgage loans held for sale

 

24,692

 

 

24,692

 

SBA loans held for sale

 

21,163

 

 

22,591

 

Loans, net

 

1,770,243

 

 

 

1,651,115

FRB and FHLB stock

 

24,939

 

N/A

 

N/A

 

N/A

Accrued interest receivable

 

10,161

 

 

10,161

 

SBA loan servicing rights

2,950

2,950

Residential mortgage loan servicing rights

59,768

59,768

Nonresidential mortgage loan servicing rights

101

101

Derivative assets (included in other assets)

923

471

452

Equity securities (included in other assets)

160

160

Financial liabilities:

 

 

  

 

 

  

Noninterest-bearing deposits

 

242,237

 

242,237

 

 

Interest-bearing deposits

1,439,557

1,435,083

Borrowings from FHLB

 

363,183

 

 

356,257

 

Subordinated note

 

48,444

 

 

46,940

 

Accrued interest payable

 

8,926

 

 

8,926

 

Advance payments by borrowers for taxes and insurance

 

1,027

 

 

1,027

 

Derivative liabilities (included in other liabilities)

 

196

 

 

12

 

184

7.

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 ESOP loan was repaid in full during the quarter ended December 31, 2015 and all shares have been allocated to participants in the plan; therefore, no compensation expense was recognized for the three- month periods ended December 31, 2023 and 2022. The ESOP trust held 293,695 shares of Company common stock at December 31, 2023 and September 30, 2023.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

8.

Stock Based Compensation Plans

The Company maintains three equity incentive plans under which stock options and restricted stock have been or may be granted, the 2010 Equity Incentive Plan (“2010 Plan”), approved by the Company’s shareholders in February 2010, the 2016 Equity Incentive Plan (“2016 Plan”), approved by the Company’s shareholders in February 2016, and the 2021 Equity Incentive Plan (“2021 Plan”) approved by the Company’s shareholders in February 2021. At December 31, 2023, there were no remaining shares of the Company’s common stock available for issuance under the 2010 Plan. The aggregate number of shares of the Company’s common stock available for issuance under the 2016 Plan may not exceed 264,000 shares, consisting of 198,000 stock options and 66,000 shares of restricted stock. The aggregate number of shares of the Company’s common stock available for issuance under the 2021 Plan may not exceed 356,058 shares, consisting of 267,043 stock options and 89,015 shares of restricted stock. At December 31, 2023, 4,560 shares of the Company’s common stock were available for issuance under the 2016 Plan, of which 1,500 shares were available for restricted stock and 3,060 shares were available for stock options. At December 31, 2023, 10,600 shares of the Company’s common stock were available for issuance under the 2021 Plan, of which 4,590 shares were available for restricted stock and 6,010 shares were available for stock options. In November 2023, the Company granted 62,983 stock options and 19,475 restricted shares to directors, officers and key employees which will vest over a one-year or five-year period. The Company generally issues new shares under the 2016 and 2021 Plans from its authorized but unissued shares. The Company accounts for any forfeitures as they occur, and any previously recognized compensation cost for an award is reversed in the period the award is forfeited.

Stock Options

Under the plans, the Company may grant both non-statutory and incentive stock options that may not have a term exceeding ten years. In the case of incentive stock options, the aggregate fair value (determined at the time the incentive stock options are granted) which are first exercisable during any calendar year shall not exceed $100,000. Exercise prices may not be less than the fair market value of the underlying stock at the date of the grant. The terms of the plans also include provisions whereby all unearned options and restricted shares become immediately exercisable and fully vested upon a change in control.

Stock options granted generally 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 is estimated at the date of grant using a binomial option pricing model. Expected volatilities are based on historical volatility of the Company’s stock. 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 during the three-month periods ended December 31, 2023 were determined using the following assumptions:

Expected dividend yield

    

3.74

%

Risk-free interest rate

 

4.44

%

Expected volatility

 

28.36

%

Expected life of options

 

6.9 years

Weighted average fair value at grant date

$

3.55

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

A summary of stock option activity as of December 31, 2023, and changes during the three-month period then ended is presented below.

    

    

    

Weighted

    

Average

Remaining

Weighted

Contractual

Aggregate

Number of 

Average

Term

Intrinsic

Shares

Exercise Price

(Years)

Value

(Dollars in thousands, except per share data)

Outstanding at beginning of period

 

408,669

$

20.79

Granted

 

62,983

15.10

 

 

Exercised

 

 

 

 

Forfeited or expired

 

(5,100)

 

17.66

 

 

Outstanding at end of period

 

466,552

$

20.05

 

5.2

$

430

Vested and expected to vest

 

466,552

$

20.05

 

5.2

$

430

Exercisable at end of period

 

276,039

$

19.38

 

5.1

$

430

There were no stock options exercised during the three-month periods ended December 31, 2023 and 2022. The Company recognized compensation expense related to stock options of $75,000 and $82,000 for the three-month periods ended December 31, 2023 and 2022, respectively. At December 31, 2023, there was $1.1 million of unrecognized compensation expense related to nonvested stock options. The compensation expense is expected to be recognized over a weighted average period of 3.73 years. There was no cash received or tax benefit from the exercise of stock options during the three-month periods ended December 31, 2023 and 2022.

Restricted Stock

The vesting period of restricted stock granted under the plans is generally 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 vesting period. Compensation expense related to restricted stock recognized for the three- month periods ended December 31, 2023 and 2022 was $97,000 and $103,000, respectively.

A summary of the Company’s nonvested restricted shares activity as of December 31, 2023 and changes during the three-month period then ended is presented below.

    

    

Weighted

Number

Average

of

Grant Date

Shares

Fair Value

Nonvested at October 1, 2023

 

54,916

$

24.73

Granted

 

19,475

$

15.10

Vested

 

(16,158)

$

24.23

Forfeited

 

(800)

$

22.49

Nonvested at December 31, 2023

 

57,433

$

21.64

There were 16,158 restricted shares vested during the three-month period ended December 31, 2023 with a total fair value of $244,000. There were 16,408 restricted shares that vested during the three-month period ended December 31, 2022 with a total fair value of $369,000. At December 31, 2023, there was $1.2 million of unrecognized compensation expense related to nonvested restricted shares. The compensation expense is expected to be recognized over a weighted average period of 3.60 years.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

9.

Derivative Financial Instruments

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (i.e., rate lock commitment). The Company also enters into forward mortgage loan commitments to sell loans to various investors to protect itself against exposure to various factors and to reduce sensitivity to interest rate movements. Both the interest rate lock commitments and the related forward mortgage loan sales contracts are considered derivatives and are recorded on the accompanying consolidated balance sheets at fair value in accordance with FASB ASC 815, Derivatives and Hedging, with changes in fair value recorded in mortgage banking income in the accompanying consolidated statements of income. All such derivatives are considered stand-alone derivatives and have not been formally designated as hedges by management.

Certain financial instruments, including derivatives, may be eligible for offset in the balance sheet when the “right of setoff” exists or when the instruments are subject to an enforceable master netting agreement, which includes the right of the non-defaulting party or non-affected party to offset recognized amounts, including collateral posted with the counterparty, to determine a net receivable or net payable upon early termination of the agreement. Certain of the Company’s derivative instruments are subject to master netting agreements. However, the Company has not elected to offset such financial instruments in the consolidated balance sheets. The Company may be required to post margin collateral to derivative counterparties based on agreements with the dealers. At December 31, 2023 , the Company had no cash collateral posted with derivative counterparties against its derivative obligations. At September 30, 2023, the Company had cash collateral posted with certain derivative counterparties of $1.5 million, against its derivative obligations. Cash collateral related to derivative contracts is recorded in interest-bearing deposits with banks or other assets in the consolidated balance sheets.

As of December 31, 2023, the Company had no derivative financial instruments due to the wind down of the national mortgage banking operation. The tables below provide information on the Company’s derivative financial instruments as of September 30, 2023.

    

Notional

    

Asset

    

Liability

Amount

Derivatives

Derivatives

September 30, 

September 30, 

September 30, 

(In thousands)

2023

2023

2023

Interest rate lock commitments

$

67,040

$

452

$

184

Forward mortgage loan sale contracts

 

66,000

 

471

 

12

$

133,040

$

923

$

196

Income (loss) related to derivative financial instruments included in mortgage banking income in the accompanying consolidated statements of income for the three-month periods ended December 31, 2023 and 2022 is as follows:

Three Months Ended

December 31,

(In thousands)

    

2023

    

2022

Interest rate lock commitments

$

(268)

$

599

Forward mortgage loan sale contracts

 

354

 

(545)

    

$

86

$

54

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

10.

Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. 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 Company’s consolidated 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, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”) became effective for the Bank on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule through 2019. Under the Basel III rules, the Bank must hold a conservation buffer above the adequately capitalized risk-based capital ratios disclosed in the table below. The capital conservation buffer was 2.50% for 2023 and 2022. The Bank met all capital adequacy requirements to which it was subject as of December 31, 2023 and September 30, 2023.

As of December 31, 2023, the most recent notification from the Federal Reserve Bank 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 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The Company’s and Bank’s actual capital amounts and ratios are also presented in the table. The Company is not subject to the Federal Reserve Bank’s consolidated capital requirements because it has less than $3 billion in total consolidated assets. However, management has elected to disclose the Company’s capital amounts and ratios in addition to the Bank’s required disclosures in the table below. No amount was deducted from capital for interest-rate risk at either date.

Minimum To Be Well

 

Minimum

Capitalized Under

 

For Capital

Prompt Corrective

 

Actual

Adequacy Purposes:

Action Provisions:

 

    

Amount

    

Ratio

  

Amount

    

Ratio

  

Amount

    

Ratio

  

(Dollars in thousands)

As of December 31, 2023:

 

  

 

  

 

  

 

  

 

  

 

  

Total capital (to risk-weighted assets):

 

  

 

  

 

  

 

  

 

  

 

  

Consolidated

$

231,709

 

12.12

%  

$

153,002

 

8.00

%  

N/A

 

N/A

Bank

 

228,941

 

11.97

 

152,983

 

8.00

$

191,229

 

10.00

%

Tier 1 capital (to risk-weighted assets):

 

 

 

 

 

 

Consolidated

$

169,080

 

8.84

%  

$

114,752

 

6.00

%  

 

N/A

 

N/A

Bank

 

210,796

 

11.02

 

114,737

 

6.00

$

152,983

 

8.00

%

Common equity tier 1 capital (to risk-weighted assets):

 

 

 

 

 

 

Consolidated

$

169,080

 

8.84

%  

$

86,064

 

4.50

%  

 

N/A

 

N/A

Bank

 

210,796

 

11.02

 

86,053

 

4.50

$

124,299

 

6.50

%

Tier 1 capital (to average adjusted total assets):

 

 

 

 

 

 

Consolidated

$

169,080

 

7.25

%  

$

93,254

 

4.00

%  

 

N/A

 

N/A

Bank

 

210,796

 

9.05

 

93,219

 

4.00

$

116,523

 

5.00

%

As of September 30, 2023:

 

 

 

 

 

 

Total capital (to risk-weighted assets):

 

 

 

 

 

 

Consolidated

$

230,735

 

11.47

%  

$

160,965

 

8.00

%  

N/A

 

N/A

Bank

 

226,461

 

11.27

 

160,822

 

8.00

$

201,027

 

10.00

%

Tier 1 capital (to risk-weighted assets):

 

 

 

 

 

 

Consolidated

$

165,391

 

8.22

%  

$

120,724

 

6.00

%  

 

N/A

 

N/A

Bank

 

209,561

 

10.42

 

120,616

 

6.00

$

160,822

 

8.00

%

Common equity tier 1 capital (to risk-weighted assets):

 

 

 

 

 

 

Consolidated

$

165,391

 

8.22

%  

$

90,543

 

4.50

%  

 

N/A

 

N/A

Bank

 

209,561

 

10.42

 

90,462

 

4.50

$

130,668

 

6.50

%

Tier 1 capital (to average adjusted total assets):

 

 

 

 

 

 

Consolidated

$

165,391

 

7.24

%  

$

91,375

 

4.00

%  

 

N/A

 

N/A

Bank

 

209,561

 

9.17

 

91,406

 

4.00

$

114,259

 

5.00

%

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

11.

Recent Accounting Pronouncements

The following are summaries of recently issued or adopted accounting pronouncements that impact the accounting and reporting practices of the Company:

On October 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaced the previously required incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans and held to maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities that management does not intend to sell or believes that it is more likely than not they will be required to sell. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after October 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net of tax decrease to retained earnings of $2.5 million as of October 1, 2023 for the cumulative effect of adopting ASC 326. As detailed in the following table, the transition adjustment included a $1.4 million increase to the allowance for credit losses (ACL), a $1.9 million increase in the ACL for unfunded commitments and a $859,000 increase in deferred tax assets.

The impact of adopting ASC 326 was as follows:

    

As Reported under

    

    

Impact of

ASC 326

Pre-ASC 326

ASC 326 Adoption

Assets

Allowance for credit losses (“ACL”) on loans

Residential real estate

 

5,678

 

4,641

 

1,037

Commercial real estate

 

2,032

 

1,777

 

255

Single tenant net lease

 

4,032

 

3,810

 

222

SBA commercial real estate

 

2,433

 

1,922

 

511

Multifamily

 

247

 

268

 

(21)

Residential construction

 

208

 

434

 

(226)

Commercial construction

 

325

 

282

 

43

Land and land development

 

233

 

307

 

(74)

Commercial business

 

1,219

 

1,714

 

(495)

SBA commercial business

 

1,407

 

1,247

 

160

Consumer

 

515

 

498

 

17

Allowance for credit losses on loans

 

18,329

 

16,900

 

1,429

Net deferred tax assets

 

19,817

 

18,859

 

859

Liabilities

Allowance for credit losses on off balance sheet credit exposures

 

1,940

 

 

1,940

In March 2022, the FASB issued ASU 2022-02 – Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This standard eliminates the accounting guidance on TDRs for creditors in ASC 310-40 and amends the guidance on “vintage disclosures” to require disclosure of current period gross charge-offs by year or origination. The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for any entities that have adopted ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard was adopted by the Company effective October 1, 2023. The adoption of this standard resulted in amended disclosures in the Company’s Condensed Consolidated Financial Statements, but did not materially impact the Company’s financial condition or results of operations.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. Public entities are required to disclose significant expense categories and amounts for each reportable segment. Significant expense categories are derived from expenses that are regularly reported to an entity’s chief operating decision-maker (“CODM”), and included in a segment’s reported measures of profit or loss. Public entities are also required to disclose the title and position of the CODM and explain how the CODM uses the reported measures of profit or loss to assess segment performance. The ASU requires interim disclosures of certain segment-related disclosures that previously were only required annually. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the ASU should be applied prospectively. The adoption of the ASU is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

The Company has determined that all other recently issued accounting pronouncements will not have a material impact on the Company’s consolidated financial statements or do not apply to its operations.

12.

Segment Reporting

The Company’s operations include three primary segments: core banking, SBA lending, and mortgage banking. The core banking segment originates residential, commercial and consumer loans and attracts deposits from its customer base. Net interest income from loans and investments that are funded by deposits and borrowings is the primary revenue for the core banking segment. The SBA lending segment originates loans guaranteed by the SBA, subsequently selling the guaranteed portion to outside investors. Net gains on sales of loans, net servicing income and net interest income are the primary sources of revenue for the SBA lending segment. The mortgage banking segment originates residential mortgage loans and sells them in the secondary market. The Bank will continue to originate mortgage loans in its local markets that will either be sold in the secondary market or retained as portfolio loans, however the national mortgage banking division has been wound down as of December 31, 2023. Net gains on the sales of loans, net servicing income, income from derivative financial instruments and net interest income are the primary sources of revenue for the mortgage banking segment.

The core banking segment is comprised primarily by the Bank and First Savings Investments, Inc., while the SBA lending segment’s revenues are comprised primarily of net interest income and gains on the sales of SBA loans generated by Q2. The mortgage banking segment operates as a separate division of the Bank.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following segment financial information has been derived from the internal financial statements of the Company which are used by management to monitor and manage financial performance. The accounting policies of the three segments are the same as those of the Company.

    

Core

    

SBA

    

Mortgage

    

Consolidated

Banking

Lending

Banking

Totals

Three Months Ended December 31, 2023:

Net interest income (loss)

$

13,113

$

1,003

$

(3)

$

14,113

Provision (credit) for credit losses

(49)

461

412

Net interest income after provision

13,162

542

(3)

13,701

Net gains on sales of loans, SBA

 

 

834

 

 

834

Mortgage banking income

 

11

 

 

78

 

89

Noninterest income

 

1,679

 

1,003

 

100

 

2,782

Noninterest expense

 

10,252

 

2,146

 

3,641

 

16,039

Income (loss) before taxes

 

4,589

 

(601)

 

(3,544)

 

444

Income tax expense (benefit)

 

541

 

(131)

 

(886)

 

(476)

Segment profit (loss)

 

4,048

 

(470)

 

(2,658)

 

920

Non-cash items:

Depreciation and amortization

593

2

13

608

Segment assets at December 31, 2023

 

2,214,573

 

87,429

 

6,090

 

2,308,092

Core

    

SBA

    

Mortgage

    

Consolidated

Banking

Lending

Banking

Totals

Three Months Ended December 31, 2022:

Net interest income

$

15,008

$

995

$

258

$

16,261

Provision for credit losses

 

701

 

283

 

 

984

Net interest income after provision

 

14,307

 

712

 

258

 

15,277

Net gains on sales of loans, SBA

 

 

775

 

 

775

Mortgage banking income (loss)

 

(10)

 

 

2,506

 

2,496

Noninterest income

 

1,928

 

754

 

2,506

 

5,188

Noninterest expense

 

9,797

 

1,924

 

5,790

 

17,511

Income (loss) before taxes

 

6,438

 

(458)

 

(3,026)

 

2,954

Income tax expense (benefit)

946

(107)

(756)

83

Segment profit (loss)

5,492

(351)

(2,270)

2,871

Non-cash items:

Depreciation and amortization

601

5

27

633

Segment assets at December 31, 2022

 

2,005,780

 

100,304

 

90,835

 

2,196,919

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

13.

Revenue from Contracts with Customers

Substantially all of the Company’s revenue from contracts with customers within the scope of FASB ASC 606 is included in the core banking segment and is recognized within noninterest income. The following table presents the Company’s sources of noninterest income for the three-month periods ended December 31, 2023 and 2022:

Three Months Ended

December 31,

    

2023

    

2022

(In thousands)

In Scope for ASC 606

Service charges on deposit accounts

$

473

$

558

ATM and interchange fees

 

449

 

739

Commission income

222

128

Other

 

25

 

25

Revenue from contracts with customers

 

1,169

 

1,450

Out of Scope for ASC 606

Gain on sale of SBA loans

 

834

 

775

Mortgage banking income

 

89

 

2,496

Increase in cash value of life insurance

 

329

 

225

Real estate lease income

 

115

 

117

Loan servicing and other income

246

125

Other noninterest income

 

1,613

 

3,738

Total noninterest income

$

2,782

$

5,188

A description of the Company’s revenue streams accounted for under ASC 606 follows:

Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as wire fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized when the overdraft occurs.

ATM and Interchange Fees: The Company earns ATM usage fees and interchange fees from debit cardholder transactions conducted through a payment network. ATM fees are recognized when the transaction occurs. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The costs of related loyalty rewards programs are netted against interchange income as a direct cost of the revenue generating activity.

Commission Income: The Company earns trust, insurance commissions, brokerage commissions and annuities income from its contracts with customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Company provides the contracted services and are generally assessed based on the market value of assets under management. Fees that are transaction based, including trade execution services, are recognized when the transaction is executed. Other related fees, which are based on a fixed fee schedule, are recognized when the services are rendered.

Other Income: Other income from contracts with customers primarily includes check cashing and cashier’s check fees, safe deposit box fees and cash advance fees. This revenue is recognized at the time the transaction is executed or over the period the Company satisfies the performance obligation.

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Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

14.Mortgage Banking Income

The components of mortgage banking income for the three-month periods ended December 31, 2023 and 2022 were as follows:

    

Three Months Ended

December 31,

(In Thousands)

    

2023

    

2022

Origination and sale of mortgage loans (1)

$

(211)

$

732

Mortgage brokerage income

 

30

 

43

Net change in fair value of loans held for sale and interest rate lock commitments

 

(1,297)

 

1,267

Realized and unrealized gains (losses) from Forward sales commitments

 

354

 

(545)

Capitalized residential mortgage loan servicing rights

 

509

 

142

Net change in fair value of residential mortgage loan servicing rights

 

(803)

 

(1,240)

Provisions for loan repurchases and indemnifications

 

1,451

(328)

Net loan servicing income

 

56

2,425

Total mortgage banking income

$

89

$

2,496

(1)

Includes origination fees and realized gains and losses on the sale of mortgage loans in the secondary market.

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Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Safe Harbor Statement for Forward-Looking Statements

This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; rather they are statements based on the Company’s current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company’s actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, our service providers, and on the economy and financial markets, general economic conditions, including the effects of inflation, changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed herein and in our Annual Report on Form 10-K, for the year ended September 30, 2023 under “Part II, Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies; Critical Accounting Estimates

Other than the adoption of ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and ASU 2022-02 – Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, as described in Note 11, during the three-month period ended December 31, 2023, there was no significant change in the Company’s critical accounting policies or the application of critical accounting policies as disclosed in the Company’s Annual Report on Form 10-K, for the year ended September 30, 2023.

Comparison of Financial Condition at December 31, 2023 and September 30, 2023

Cash and Cash Equivalents. Cash and cash equivalents increased $2.5 million from $30.8 million at September 30, 2023 to $33.4 million at December 31, 2023.

Loans. Net loans receivable increased $71.7 million, from $1.77 billion at September 30, 2023 to $1.84 billion at December 31, 2023, primarily due to growth in residential mortgage loans, commercial business loans and single tenant net lease commercial real estate loans, which increased by $39.8 million, $9.7 million and $9.0 million, respectively.

Loans Held for Sale. Loans held for sale decreased $23.0 million, from $45.9 million at September 30, 2023 to $22.9 million at December 31, 2023, due to a decrease in residential mortgage loans held for sale of $20.6 million and a decrease in SBA loans held for sale of $2.4 million. The decrease in residential mortgage loans held for sale was due to the wind down of the national mortgage banking operation. The decrease in SBA loans held for sale is due to loan sales outpacing originations during the period.

Securities Available for Sale. Securities available for sale increased $17.8 million, from $227.7 million at September 30, 2023 to $245.5 million at December 31, 2023, due to net increases in fair value of $20.2 million, partially offset by calls and maturities of $1.6 million and principal repayments of $765,000. The increases in fair value were primarily due to decreasing long term market interest rates during the quarter ended December 31, 2023, which resulted in an increase in the fair value of debt securities available for sale

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Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Securities Held to Maturity. Investment securities held to maturity decreased $37,000 and totaled $1.3 million at both December 31, 2023 and September 30, 2023, due primarily to calls and maturities during the period.  

Mortgage Servicing Rights. Residential mortgage loan servicing rights decreased $59.1 million, from $59.8 million at September 30, 2023 to $709,000 at December 31, 2023, primarily due to the sale of substantially all of the residential servicing assets during the quarter ended December 31, 2023. Remaining residential servicing rights are expected to be sold during the quarter ending March 31, 2024.

Deposits. Total deposits increased $2.1 million and totaled $1.68 billion at both December 31, 2023 and September 30, 2023, due to a $41.5 million increase in interest-bearing deposits, partially offset by a $39.5 million decrease in non-interest bearing deposits. The increase in interest-bearing deposits was primarily due to a $64.6 million increase in brokered deposits. The decrease in noninterest-bearing deposits was primarily due to outflow of escrow deposits in connection with the sale of residential servicing rights during the quarter ended December 31, 2023.

FHLB Borrowings. Borrowings from the FHLB decreased $6.5 million, from $363.2 million at September 30, 2023 to $356.7 million at December 31, 2023. The decrease in borrowings was primarily due to the increased use of brokered certificates to fund loan growth due to more favorable rates in the brokered certificates market.

Stockholders’ Equity. Stockholders’ equity increased $13.5 million from $151.0 million at September 30, 2023 to $164.5 million at December 31, 2023, due primarily to a $16.0 million decrease in accumulated other comprehensive loss, partially offset by a decrease in retained net income of $2.6 million. The decrease in retained net income was primarily due to the Company’s adoption of ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (commonly referred to as “CECL”) effective October 1, 2023 in the amount of $2.5 million net of tax. At December 31, 2023 and September 30, 2023, the Bank was considered “well-capitalized” under applicable regulatory capital guidelines.

Results of Operations for the Three Months Ended December 31, 2023 and 2022

Overview. The Company reported net income of $920,000, or $0.13 per diluted share, for the three-month period ended December 31, 2023 compared to net income of $2.9 million, or $0.41 per diluted share, for the three-month period ended December 31, 2022.

Net Interest Income. Net interest income decreased $2.1 million, or 13.2%, for the three-month period ended December 31, 2023 as compared to the same period in 2022. Average interest-earning assets increased $190.5 million and average interest-bearing liabilities increased $265.8 million when comparing the two periods. The tax-equivalent net interest margin was 2.69% for 2023 compared to 3.41% for 2022.

Total interest income increased $5.2 million when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $190.5 million, from $1.98 billion for 2022 to $2.17 billion for 2023, and an increase in the average tax equivalent yield on interest-earning assets from 4.87% for 2022 to 5.37% for 2023. The increase in the average balance of interest-earning assets was due to a $274.5 million increase in the average balance of total loans, partially offset by a decrease in the average balance of investment securities of $89.8 million.

Total interest expense increased $7.3 million due to an increase in the average balance of interest-bearing liabilities of $265.8 million, from $1.61 billion for 2022 to $1.88 billion for 2023, and an increase in the average cost of interest-bearing liabilities from 1.79% for 2022 to 3.10% for 2023. The increase in the average cost of interest-bearing liabilities for 2023 was due primarily to higher rates for FHLB borrowings, brokered deposits, and money market deposit accounts as a result of increased market interest rates due to competition and higher U.S. Treasury rates.

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Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Average Balance Sheets. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs for the three-month periods ended December 31, 2023 and 2022. 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. Average balances presented are daily averages. 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 have been adjusted to a tax equivalent basis using a federal marginal tax rate of 21%.

Three Months Ended December 31,

 

2023

2022

 

Interest

Interest

 

Average

and

Yield/

Average

and

Yield/

Balance

    

Dividends

    

Cost

    

Balance

    

Dividends

    

Cost

(Dollars in thousands)

Assets:

Interest-bearing deposits with banks

$

20,350

    

$

249

    

4.89

%  

$

19,379

    

$

144

    

2.97

%

Loans

 

1,857,654

 

26,155

 

5.63

 

1,583,182

 

20,222

 

5.11

Investment securities - taxable

 

103,728

 

942

 

3.63

 

111,936

 

955

 

3.41

Investment securities - nontaxable

 

159,907

 

1,687

 

4.22

 

241,504

 

2,505

 

4.15

FRB and FHLB stock

 

24,968

 

74

 

1.19

 

20,063

 

220

 

4.39

Total interest-earning assets

 

2,166,607

 

29,107

 

5.37

 

1,976,064

 

24,046

 

4.87

 

 

 

 

 

 

Noninterest-earning assets

 

137,807

 

 

 

144,887

 

 

Total assets

$

2,304,414

 

 

$

2,120,951

 

 

 

 

 

 

 

 

Liabilities and equity:

 

 

 

 

 

 

NOW accounts

$

336,339

$

715

 

0.85

%  

$

349,363

$

423

 

0.48

%

Money market deposit accounts

 

294,173

 

2,568

 

3.49

 

235,188

 

795

 

1.35

Savings accounts

 

166,221

 

58

 

0.14

 

171,583

 

27

 

0.06

Time deposits

 

592,651

 

6,648

 

4.49

 

457,285

 

2,913

 

2.55

Total interest-bearing deposits

 

1,389,384

 

9,989

 

2.88

 

1,213,419

 

4,158

 

1.37

 

 

 

 

  

 

  

 

FHLB borrowings

 

440,786

 

3,769

 

3.42

 

311,146

 

1,919

 

2.47

Subordinated debt and other borrowings

48,458

784

6.47

88,304

1,145

5.19

Total interest-bearing liabilities

 

1,878,628

 

14,542

 

3.10

 

1,612,869

 

7,222

 

1.79

Noninterest-bearing deposits

 

228,100

 

  

 

  

 

328,208

 

  

 

  

Other noninterest-bearing liabilities

 

45,681

 

  

 

  

 

26,844

 

  

 

  

Total liabilities

 

2,152,409

 

  

 

  

 

1,967,921

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Total stockholders’ equity

 

152,005

 

  

 

  

 

153,030

 

  

 

  

 

 

  

 

  

 

 

  

 

  

Total liabilities and equity

$

2,304,414

 

  

 

  

$

2,120,951

 

  

 

  

Net interest income (taxable equivalent basis)

 

14,565

 

  

 

16,824

 

  

Less: taxable equivalent adjustment

 

  

 

(452)

 

  

 

  

 

(563)

 

  

Net interest income

 

  

$

14,113

 

  

 

  

$

16,261

 

  

Interest rate spread (taxable equivalent basis)

 

  

 

2.27

%

 

  

 

3.08

%

Net interest margin (taxable equivalent basis)

 

  

 

  

 

2.69

%  

 

  

 

  

 

3.41

%

Average interest-earning assets to average interest-bearing liabilities

115.33

%

122.52

%

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Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income on a tax equivalent basis for the three-month periods ended December 31, 2023 and 2022. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each.

Three Months Ended December 31, 2023

Compared to

Three Months Ended December 31, 2022

Increase (Decrease)

Due to

Rate

Volume

Net

    

(In thousands)

    

Interest income:

 

Interest-bearing deposits with banks

 

$

95

$

10

$

105

Loans

 

2,248

 

3,685

 

5,933

Investment securities - taxable

 

 

59

 

(72)

 

(13)

Investment securities - nontaxable

 

 

36

 

(854)

 

(818)

FRB and FHLB stock

 

 

(180)

 

34

 

(146)

Total interest-earning assets

 

 

2,258

 

2,803

 

5,061

 

Interest expense:

 

  

 

  

 

  

Deposits

 

 

4,896

 

935

 

5,831

Borrowings from FHLB

 

896

 

954

 

1,850

Subordinated debt

 

220

 

(581)

 

(361)

Total interest-bearing liabilities

 

6,012

 

1,308

 

7,320

Net increase (decrease) in net interest income (taxable equivalent basis)

$

(3,754)

$

1,495

$

(2,259)

Provision for Credit Losses. The Company recognized a provision for credit losses of $412,000 for the three-month period ended December 31, 2023, primarily due to loan portfolio growth, compared to $984,000 for the same period in 2022. The $412,000 provision expense for the three-month period ended December 31, 2023 was comprised of a $470,000 provision expense for loan losses and a $58,000 credit for unfunded commitments.

The Company recognized net charge-offs of $9,000 for the three-month period ended December 31, 2023 compared to net charge-offs of $264,000 for the same period in 2022.

Noninterest Income. Noninterest income decreased $2.4 million for the three-month period ended December 31, 2023 as compared to the same period in 2022. The decrease was due primarily to a $2.4 million decrease in mortgage banking income in 2023 compared to the same period in 2022. The decrease in mortgage banking income was primarily due to the wind down of the national mortgage banking operation. The Company continues to originate mortgage loans in its local markets.

Noninterest Expense. Noninterest expense decreased $1.5 million for the three-month period ended December 31, 2023 as compared to the same period in 2022. The decrease was due primarily to decreases in compensation and benefits expense of $1.0 million and other operating expense of $1.0 million. The decrease in compensation and benefits expense was due primarily to the reduction in staffing due to the wind down of the national mortgage banking operation. The decrease in other operating expense was primarily due to litigation accruals and adjustments of $460,000 and a loss on captive insurance of $385,000 in 2022 with no corresponding amounts in 2023, and the reversal of a litigation accrual of $275,000 made in 2023 with no corresponding amount in 2022.

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Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Income Tax Expense. The Company recognized income tax benefit of $476,000 for the three-month period ended December 31, 2023 as compared to income tax expense of $83,000 for the same period in 2022. The decrease in income tax expense was primarily due to lower pre-tax income and utilization of investment tax credits related to solar projects in the 2023 period.

Liquidity and Capital Resources

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Bank’s primary sources of funds are customer deposits, proceeds from loan repayments, maturing securities and FHLB borrowings. While loan repayments and maturities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, general economic conditions and competition. At December 31, 2023, the Bank had cash and cash equivalents of $33.4 million and securities available-for-sale with a fair value of $245.5 million, including $190.3 million that are unpledged. If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB, borrowing capacity on federal funds purchased lines of credit facilities with other financial institutions and additional collateral eligible for repurchase agreements. At December 31, 2023, the Bank had the ability to borrow a total of $598.2 million from the FHLB, of which $356.7 million was borrowed and outstanding. In addition, the Bank had the ability to borrow the lesser of $20 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 December 31, 2023. The Bank also had three other federal funds line of credit facilities with other financial institutions from which we had the ability to borrow the lesser of $5.0 million or 50% of the Bank’s equity capital,  $22 million and $15 million, respectively. The Bank did not have any outstanding federal funds purchased at December 31, 2023.

The Bank’s primary investing activity is the origination of commercial real estate and one-to-four family mortgage loans and, to a lesser extent, consumer, multi-family, commercial business and residential and commercial real estate construction loans. The Bank also invests in U.S. government agency and sponsored enterprises securities, mortgage-backed securities and collateralized mortgage obligations issued by U.S. government agencies and sponsored enterprises, and municipal bonds.

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. If these maturing deposits do not remain with the Bank, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. As of December 31, 2023, deposits exceeding the FDIC insurance limit of $250,000 per insured account were estimated to be $448.7 million, or 26.6% of total deposits. When excluding Indiana public funds accounts, the total uninsured amount was estimated to be $196.2 million, or 11.7% of total deposits, as of December 31, 2023.

The Company is a separate legal entity from the Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations, to pay any dividends and to repurchase any of its outstanding common stock. The Company’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company in any calendar year cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years. At December 31, 2023, the Company (unconsolidated basis) had liquid assets of $5.9 million.

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Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Capital Management. The Bank is required to maintain specific amounts of capital pursuant to regulatory requirements. As of December 31, 2023, the Bank was in compliance with all regulatory capital requirements that were effective as of such date, with Tier 1 capital (to average total assets), common equity Tier 1 capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets) and total capital (to risk-weighted assets) ratios of 9.05%, 11.02%, 11.02% and 11.97%, respectively. The regulatory requirements at that date were 5.0%, 6.5%, 8.0% and 10.0%, respectively, in order to be categorized as “well capitalized” under prompt corrective action provisions. At December 31, 2023, the Bank was considered “well-capitalized” under applicable regulatory guidelines.

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with GAAP, are not recorded on the Company’s financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are primarily used to manage customers’ requests for funding and take the form of loan commitments and letters of credit. A further presentation of the Company’s off-balance sheet arrangements is presented in the Company’s Annual Report on Form 10-K, for the year ended September 30, 2023.

For the three-month period ended December 31, 2023, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Company’s consolidated financial condition, results of operations or cash flows.

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Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I – ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Qualitative Aspects of Market Risk. Market risk is the risk that the estimated fair value of our assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that our net income will be significantly reduced by interest rate changes.  

The Company’s principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates by operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates. In order to reduce the exposure to interest rate fluctuations, the Company has developed strategies to manage its liquidity, shorten its effective maturities of certain interest-earning assets and decrease the interest rate sensitivity of its asset base. Management has sought to decrease the average maturity of its assets by emphasizing the origination of short-term residential mortgage, commercial mortgage and commercial business loans, which are retained by the Company for its portfolio, and by generally selling all fixed rate residential mortgage loans in the secondary market. The Company relies on retail deposits as its primary source of funds. Management believes the primary use of retail deposits, complimented with a modest allocation of brokered and reciprocal certificates of deposit and FHLB borrowings, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds.

Quantitative Aspects of Market Risk. Potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits and extending loans. Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Our earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve Board. Furthermore, the Company does not engage in hedging activities (other than the use of forward mortgage loan sale contracts in connection with our mortgage banking activities) or purchase high-risk derivative instruments, and also is not subject to foreign currency exchange rate risk or commodity price risk.

An element in our ongoing process is to measure and monitor interest rate risk using a Net Interest Income at Risk simulation to model the interest rate sensitivity of the balance sheet and to quantify the impact of changing interest rates on the Company. The model quantifies the effects of various possible interest rate scenarios on projected net interest income over a one-year horizon. The model assumes a semi-static balance sheet and measures the impact on net interest income relative to a base case scenario of hypothetical changes in interest rates over twelve months and provides no effect given to any steps that management might take to counter the effect of the interest rate movements. The scenarios include prepayment assumptions, changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates in order to capture the impact from re-pricing, yield curve, option, and basis risks.

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Table of Contents

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

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.

At December 31, 2023

At September 30, 2023

Immediate Change

 

One Year Horizon

One Year Horizon

 

in the Level

 

Dollar

Percent

Dollar

 

Percent

 

of Interest Rates

    

Change

    

Change

Change

    

Change

    

 

(Dollars in thousands)

300bp

$

(6,034)

 

(10.20)

%  

$

(6,660)

 

(11.71)

%  

200bp

 

(3,948)

 

(6.68)

 

(4,349)

 

(7.65)

100bp

 

(2,062)

 

(3.49)

 

(2,223)

 

(3.91)

(100)bp

1,886

3.19

2,214

3.89

(200)bp

 

3,778

 

6.39

 

4,451

 

7.83

At December 31, 2023, our simulated exposure to an increase in interest rates shows that an immediate and sustained increase in rates of 1.00% would decrease our net interest income by $2.1 million, or 3.49%, 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 6.68% and 10.20%, respectively. An immediate and sustained decrease in rates of 1.00% would increase our net interest income by $1.9 million, or 3.19%, over a one year horizon compared to a flat interest rate scenario while a rate decrease of 2.00% would cause our net interest income to increase by 6.39%.

-60-

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 4

CONTROLS AND PROCEDURES

Controls and Procedures

Evaluation of 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 have concluded that, due to the identification of material weaknesses in internal control over financial reporting, as further described below, the Company’s disclosure controls and procedures were not 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.

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

The system of internal control over financial reporting as it relates to the consolidated financial statements is evaluated for effectiveness by management. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.

Due to the material weaknesses in internal control over financial reporting identified and described below, management has evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 and has concluded that the Company’s internal control over financial reporting was not effective as of that date because of the material weaknesses.

During management’s assessment, management identified material weaknesses in internal control over financial reporting related to the following:

The Company did not maintain effective controls over the review of the allowance for credit losses calculation, including appropriate precision of management review of qualitative factors.
The Company did not maintain effective controls over the design and operation of the monthly and quarterly closing routines. Specifically, inappropriate assignment of administrator access for multiple significant information technology applications, lack of requirements for review of manual journal entries, timing and frequency of certain general ledger account reconciliations, precision and accuracy of management period end financial statement review process, and inappropriate documentation to support performance of closing routines including completion of a disclosure checklist.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 4

CONTROLS AND PROCEDURES

During the quarter ended December 31, 2023, management took steps to begin to remediate the material weakness related to controls over the review of the allowance for credit losses by enhancing the Company’s internal control documentation and improving the precision of review of qualitative factors by management.  

During the quarter ended December 31, 2023, management additionally took steps to begin to improve the design and operation of the monthly and quarterly closing routines. The timing and frequency of general ledger account reconciliations and review of the reconciliations has been modified with a greater emphasis on quarter end dates, certain members of financial management have developed and completed quarterly checklists and a disclosure checklist is now being completed on a quarterly basis.

Changes in Internal Controls. Other than changes described above, there have been no changes in our internal controls over financial reporting that occurred during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

As of December 31, 2023, the Company is not a party to any legal proceedings that require disclosure or the recording of an accrual. Periodically, there have been various claims and lawsuits involving the Bank, mainly as a plaintiff, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank’s business.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K, for the year ended September 30, 2023 which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors described in our Annual Report on Form 10-K. However, these are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

The following table presents information regarding the Company’s stock repurchase activity during the quarter ended December 31, 2023:

(c)

(d)

Total number of shares

Maximum number (or

(a)

(b)

(or units) purchased as

appropriate dollar value) of

Total number of

Average price

part of publicly

shares (or units) that may yet

shares (or units)

paid per share

announced plans or

be purchased under the plans

Period

    

 purchased

    

(or unit)

    

programs (1)

    

or programs

October 1, 2023 through October 31, 2023

$

27,548

November 1, 2023 through November 30, 2023

2,636

$

15.10

2,636

24,912

December 1, 2023 through December 31, 2023

$

24,912

Total

2,636

$

15.10

2,636

24,912

(1)

On August 16, 2021, the Company announced that its Board of Directors authorized a stock repurchase program to acquire up to 356,220 shares, or 5.0% of the Company’s outstanding common stock. This replaces the previously existing stock repurchase program announced by the Company on November 16, 2012, which had 346,776 shares (split-adjusted) remaining for repurchase.

Item 3.

Defaults upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

During the three months ended December 31, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement “ (as such term is defined in Item 408 of SEC Regulation S-K).

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

Item 6.

Exhibits

31.1

    

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 

 

32.1

Section 1350 Certification of Chief Executive Officer

 

 

32.2

Section 1350 Certification of Chief Financial Officer

 

 

101

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2023, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) related notes

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    

FIRST SAVINGS FINANCIAL GROUP, INC.

 

(Registrant)

 

 

Dated

February 9, 2024

BY:

/s/ Larry W. Myers

 

 

Larry W. Myers

 

 

President and Chief Executive Officer

 

 

Dated

February 9, 2024

BY:

/s/ Anthony A. Schoen

 

Anthony A. Schoen

 

 

Chief Financial Officer

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