First Savings Financial (FSFG) 10-Q 2021 Q3 Quarterly report

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 June 30, 2021

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 and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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 August 6, 2021 was 2,375,296.

FIRST SAVINGS FINANCIAL GROUP, INC.

INDEX

		Page
Part I	Financial Information
	Item 1. Financial Statements
	Consolidated Balance Sheets as of June 30, 2021 and September 30, 2020 (unaudited)	3
	Consolidated Statements of Income for the three and nine months ended June 30, 2021 and 2020 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2021 and 2020 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended June 30, 2021 and 2020 (unaudited)	6
	Consolidated Statements of Cash Flows for the nine months ended June 30, 2021 and 2020 (unaudited)	8
	Notes to Consolidated Financial Statements (unaudited)	9-51
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	52-63
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	64-65
	Item 4. Controls and Procedures	66
Part II	Other Information
	Item 1. Legal Proceedings	67
	Item 1A. Risk Factors	67
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	67
	Item 3. Defaults Upon Senior Securities	67
	Item 4. Mine Safety Disclosures	67
	Item 5. Other Information	68
	Item 6. Exhibits	68
Signatures		69

-2-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,		September 30,
(In thousands, except share and per share data)	2021		2020
ASSETS
Cash and due from banks	$	14,388	$	12,807
Interest-bearing deposits with banks		8,521		20,919
Total cash and cash equivalents		22,909		33,726
Interest-bearing time deposits		2,226		2,964
Securities available for sale, at fair value		207,628		201,965
Securities held to maturity		1,923		2,102
Loans held for sale, residential mortgage ($232,708 at fair value at June 30, 2021 and $208,493 at fair value at September 30, 2020)		242,357		263,406
Loans held for sale, single tenant net lease		17,506		—
Loans held for sale, Small Business Administration		17,511		22,119
Loans, net of allowance for loan losses of $14,642 at June 30, 2021 and $17,026 at September 30, 2020		1,065,852		1,090,063
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		19,258		17,293
Premises and equipment		27,146		24,412
Other real estate owned, held for sale		1,734		1,728
Accrued interest receivable:
Loans		4,682		4,585
Securities		2,329		1,877
Cash surrender value of life insurance		44,338		31,758
Goodwill		9,848		9,848
Core deposit intangibles		1,042		1,202
Residential mortgage loan servicing rights, at fair value		47,413		21,703
SBA loan servicing rights		4,365		3,748
Other assets		18,561		30,126
Total Assets	$	1,758,628	$	1,764,625
LIABILITIES
Deposits:
Noninterest-bearing	$	281,942	$	242,673
Interest-bearing		845,213		805,403
Total deposits		1,127,155		1,048,076
Federal Home Loan Bank borrowings		283,289		310,858
Federal Reserve PPPLF borrowings		107,829		174,834
Other borrowings		19,848		19,797
Accrued interest payable		684		683
Advance payments by borrowers for taxes and insurance		1,552		2,615
Accrued expenses and other liabilities		40,536		50,197
Total Liabilities		1,580,893		1,607,060
EQUITY
Preferred stock of $.01 par value per share; authorized 1,000,000 shares; NaN issued		—		—
Common stock of $.01 par value per share; authorized 20,000,000 shares; issued 2,569,122 shares (2,567,842 at September 30, 2020); outstanding 2,374,796 shares (2,375,324 shares at September 30, 2020)		26		26
Additional paid-in capital		25,715		27,480
Retained earnings - substantially restricted		146,191		123,158
Accumulated other comprehensive income		10,358		11,209
Unearned stock compensation		(184)		(348)
Less treasury stock, at cost - 194,326 shares (192,518 shares at September 30, 2020)		(4,371)		(4,253)
Total First Savings Financial Group, Inc. Stockholders’ Equity		177,735		157,272
Noncontrolling interests in subsidiary		—		293
Total Equity		177,735		157,565
Total Liabilities and Equity	$	1,758,628	$	1,764,625

See notes to consolidated financial statements.

-3-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(In thousands, except share and per share data)	2021		2020		2021		2020
INTEREST INCOME
Loans, including fees	$	14,347	$	12,816	$	43,632	$	36,242
Securities:
Taxable		447		502		1,350		1,591
Tax-exempt		1,181		1,196		3,548		3,233
Dividend income		161		168		436		473
Interest-bearing deposits with banks		14		37		50		395
Total interest income		16,150		14,719		49,016		41,934
INTEREST EXPENSE
Deposits		723		1,311		2,430		4,685
Federal funds purchased and repurchase agreements		—		2		—		3
Federal Home Loan Bank borrowings		780		846		2,474		2,492
Federal Reserve PPPLF borrowings		98		66		388		66
Other borrowings		320		318		976		955
Total interest expense		1,921		2,543		6,268		8,201
Net interest income		14,229		12,176		42,748		33,733
Provision (credit) for loan losses		(2,730)		2,980		(1,775)		5,190
Net interest income after provision (credit) for loan losses		16,959		9,196		44,523		28,543
NONINTEREST INCOME
Service charges on deposit accounts		343		269		1,067		1,219
ATM and interchange fees		650		491		1,795		1,518
Net gain on sales of available for sale securities and time deposits		—		—		—		7
Net unrealized gain (loss) on equity securities		(2)		9		36		(18)
Net gain on sales of loans, Small Business Administration		2,322		1,317		6,828		3,307
Mortgage banking income		14,351		43,857		91,503		68,307
Increase in cash surrender value of life insurance		179		191		539		547
Commission income		406		70		905		180
Real estate lease income		148		138		444		441
Net gain (loss) on premises and equipment		7		—		78		(9)
Other income		381		620		746		828
Total noninterest income		18,785		46,962		103,941		76,327
NONINTEREST EXPENSE
Compensation and benefits		21,330		26,896		84,673		59,623
Occupancy and equipment		2,586		2,212		7,685		6,123
Data processing		717		532		2,055		1,580
Advertising		1,349		1,861		5,712		5,104
Professional fees		1,491		924		4,360		2,073
FDIC insurance premiums		106		248		340		351
Net (gain) loss on other real estate owned		(48)		1		(44)		(1)
Other operating expenses		3,088		2,335		9,524		6,503
Total noninterest expense		30,619		35,009		114,305		81,356
Income before income taxes		5,125		21,149		34,159		23,514
Income tax expense		817		5,540		9,039		5,404
Net Income		4,308		15,609		25,120		18,110
Less: net income (loss) attributable to noncontrolling interests		—		204		402		(107)
Net Income Attributable to First Savings Financial Group, Inc.	$	4,308	$	15,405	$	24,718	$	18,217
Net income per share:
Basic	$	1.82	$	6.51	$	10.43	$	7.74
Diluted	$	1.80	$	6.51	$	10.35	$	7.66
Weighted average shares outstanding:
Basic		2,369,827		2,365,217		2,368,835		2,353,816
Diluted		2,392,981		2,366,787		2,388,745		2,377,399
Dividends per share	$	0.36	$	0.17	$	0.71	$	0.50

See notes to consolidated financial statements.

-4-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Net Income	$	4,308	$	15,609	$	25,120	$	18,110
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period		1,488		13,509		(1,077)		4,832
Income tax expense (benefit)		(312)		(2,879)		226		(1,021)
Net of tax amount		1,176		10,630		(851)		3,811
Less: reclassification adjustment for realized gains included in net income		0		0		0		(7)
Income tax expense		0		0		0		2
Net of tax amount		0		0		0		(5)
Other Comprehensive Income (Loss)		1,176		10,630		(851)		3,806
Comprehensive Income		5,484		26,239		24,269		21,916
Less: comprehensive income (loss) attributable to noncontrolling interests		0		204		402		(107)
Comprehensive Income Attributable to First Savings Financial Group, Inc.	$	5,484	$	26,035	$	23,867	$	22,023

See notes to consolidated financial statements.

-5-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

							Accumulated
							Other		Unearned				Noncontrolling
	Common		Additional		Retained		Comprehensive		Stock		Treasury		Interests in
(In thousands, except share and per share data)	Stock		Paid-in Capital		Earnings		Income		Compensation		Stock		Subsidiary		Total
Three Months Ended June 30, 2020:
Balances at April 1, 2020	$	26	$	27,436	$	93,425	$	472	$	(446)	$	(4,254)	$	(414)	$	116,245
Net income		—		—		15,405		—		—		—		204		15,609
Other comprehensive income		—		—		—		10,630		—		—		—		10,630
Common stock dividends - $0.17 per share		—		—		(404)		—		—		—		—		(404)
Distributions to noncontrolling interests		—		—		—		—		—		—		(4)		(4)
Stock compensation expense		—		22		—		—		49		—		—		71
Stock option exercises		—		—		—		—		—		1		—		1
Balances at June 30, 2020	$	26	$	27,458	$	108,426	$	11,102	$	(397)	$	(4,253)	$	(214)	$	142,148
Three Months Ended June 30, 2021:
Balances at April 1, 2021	$	26	$	25,682	$	142,738	$	9,182	$	(245)	$	(4,343)	$	—	$	173,040
Net income		—		—		4,308		—		—		—		—		4,308
Other comprehensive income		—		—		—		1,176		—		—		—		1,176
Common stock dividends - $0.36 per share		—		—		(855)		—		—		—		—		(855)
Restricted stock forfeitures - 300 shares		—		(17)		—		—		17		—		—		—
Stock compensation expense		—		22		—		—		44		—		—		66
Stock option exercises - 480 shares		—		28		—		—		—		—		—		28
Purchase of 411 treasury shares		—		—		—		—		—		(28)		—		(28)
Balances at June 30, 2021	$	26	$	25,715	$	146,191	$	10,358	$	(184)	$	(4,371)	$	—	$	177,735

See notes to consolidated financial statements.

-6-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

							Accumulated
							Other		Unearned				Noncontrolling
	Common		Additional		Retained		Comprehensive		Stock		Treasury		Interests in
(In thousands, except share and per share data)	Stock		Paid-in Capital		Earnings		Income		Compensation		Stock		Subsidiary		Total
Nine Months Ended June 30, 2020:
Balances at October 1, 2019	$	26	$	27,494	$	91,228	$	7,296	$	(446)	$	(4,545)	$	204	$	121,257
Cumulative effect adjustment, adoption of ASU 2016-02		—		—		166	���	—		—		—		—		166
Net income (loss)		—		—		18,217		—		—		—		(107)		18,110
Other comprehensive income		—		—		—		3,806		—		—		—		3,806
Common stock dividends - $0.50 per share		—		—		(1,185)		—		—		—		—		(1,185)
Distributions to noncontrolling interests		—		—		—		—		—		—		(311)		(311)
Restricted stock grants - 1,436 shares		—		95		—		—		(95)		—		—		—
Stock compensation expense		—		64		—		—		144		—		—		208
Stock option exercises - 28,361 shares		—		(195)		—		—		—		594		—		399
Purchase of 4,702 treasury shares		—		—		—		—		—		(302)		—		(302)
Balances at June 30, 2020	$	26	$	27,458	$	108,426	$	11,102	$	(397)	$	(4,253)	$	(214)	$	142,148

Nine Months Ended June 30, 2021:
Balances at October 1, 2020	$	26	$	27,480	$	123,158	$	11,209	$	(348)	$	(4,253)	$	293	$	157,565
Net income		—		—		24,718		—		—		—		402		25,120
Acquisition of minority interests in Q2		—		(1,888)		—		—		—		—		(695)		(2,583)
Other comprehensive loss		—		—		—		(851)		—		—		—		(851)
Common stock dividends - $0.71 per share		—		—		(1,685)		—		—		—		—		(1,685)
Restricted stock forfeitures - 500 shares		—		(25)		—		—		25		—		—		—
Stock compensation expense		—		68		—		—		139		—		—		207
Stock option exercises - 1,780 shares		—		80		—		—		—		—		—		80
Purchase of 1,808 treasury shares		—		—		—		—		—		(118)		—		(118)
Balances at June 30, 2021	$	26	$	25,715	$	146,191	$	10,358	$	(184)	$	(4,371)	$	—	$	177,735

-7-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	June 30,
(In thousands)	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	25,120	$	18,110
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision (credit) for loan losses		(1,775)		5,190
Depreciation and amortization		1,700		1,281
Amortization of premiums and accretion of discounts on securities, net		576		425
Amortization and accretion of fair value adjustments on loans, net		(1,122)		(665)
Loans originated for sale		(3,570,792)		(2,125,722)
Proceeds on sales of loans		3,672,227		2,060,021
Net realized and unrealized gain on loans held for sale		(50,401)		(57,441)
Capitalization of loan servicing rights		(34,255)		(12,177)
Net change in value of loan servicing rights		7,928		2,578
Net realized and unrealized gain on other real estate owned		(54)		(16)
Net gain on sales of available for sale securities and time deposits		—		(7)
Increase in cash surrender value of life insurance		(539)		(547)
Net (gain) loss on equity securities		(36)		18
Net (gain) loss on sale of premises and equipment		(78)		9
Deferred income taxes		6,702		1,739
Stock compensation expense		207		208
Increase in accrued interest receivable		(549)		(1,596)
Increase (decrease) in accrued interest payable		1		(433)
Change in other assets and liabilities, net		(3,550)		13,595
Net Cash Provided By (Used In) Operating Activities		51,310		(95,430)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in interest-bearing time deposits		(252)		(693)
Proceeds from sales and maturities of interest-bearing time deposits		980		445
Purchase of securities available for sale		(22,273)		(35,053)
Proceeds from sales of securities available for sale		—		3,180
Proceeds from maturities of securities available for sale		11,686		5,130
Proceeds from maturities of securities held to maturity		165		169
Principal collected on securities		3,295		4,656
Net increase in loans		(16,542)		(275,984)
Proceeds from redemption of Federal Reserve Bank stock		53		—
Purchase of Federal Home Loan Bank stock		(2,018)		(4,253)
Investment in cash surrender value of life insurance		(12,042)		(4,481)
Proceeds from sale of other real estate owned		424		182
Purchase of premises and equipment		(4,589)		(6,451)
Proceeds from sales of premises and equipment		438		118
Acquisition of minority interests in Q2		(3,172)		—
Net Cash Used In Investing Activities		(43,847)		(313,035)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		79,079		148,486
Net decrease in federal funds purchased		0		(4,000)
Decrease in Federal Home Loan Bank line of credit		(17,569)		(3,922)
Proceeds from Federal Home Loan Bank advances		435,000		325,000
Repayment of Federal Home Loan Bank advances		(445,000)		(245,000)
Net increase (decrease) in Federal Reserve PPPLF borrowings		(67,005)		174,835
Net increase (decrease) in advance payments by borrowers for taxes and insurance		(1,063)		579
Proceeds from exercise of stock options		4		148
Taxes paid on stock award shares for employees		(41)		(53)
Dividends paid on common stock		(1,685)		(1,185)
Distributions to noncontrolling interests		—		(311)
Net Cash Provided By (Used In) Financing Activities		(18,280)		394,577
Net Decrease in Cash and Cash Equivalents		(10,817)		(13,888)
Cash and cash equivalents at beginning of period		33,726		41,432
Cash and Cash Equivalents at End of Period	$	22,909	$	27,544

See notes to consolidated financial statements.

-8-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Presentation of Interim Information

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

The Bank, which is a wholly-owned Indiana-chartered commercial bank subsidiary of the Company, provides a variety of banking services to individuals and business customers through 16 locations in southern Indiana. The Bank attracts deposits primarily from the general public and uses those funds, along with other borrowings, primarily to originate commercial mortgage, residential mortgage, construction, commercial business and consumer loans, and to a lesser extent, to invest in mortgage-backed securities, municipal bonds and other investment securities. The Bank has two wholly-owned subsidiaries: First Savings Investments, Inc., a Nevada corporation that manages a securities portfolio, and Southern Indiana Financial Corporation, which is currently inactive.

The Captive, which is a wholly-owned insurance subsidiary of the Company, is a Nevada corporation that provides property and casualty insurance to the Company, the Bank and the Bank’s active subsidiaries. In addition, the Captive provides reinsurance to 11 other third-party insurance captives for which insurance may not be currently available or economically feasible in the insurance marketplace.

On April 25, 2017, the Bank formed Q2 Business Capital, LLC (“Q2”), which is an Indiana limited liability company that specializes in the origination and servicing of U.S. Small Business Administration (“SBA”) loans. The Bank originally owned 51% of Q2’s membership interests.  On December 31, 2020, the Bank completed the acquisition of the minority interests in Q2, and Q2 became a wholly-owned subsidiary of the Bank.  As part of the acquisition of the minority interests, the Bank paid total consideration of $3.1 million. The acquisition was accounted for as an equity transaction, and resulted in the reclassification of the noncontrolling interests of $695,000, the recognition of net deferred tax assets of $590,000 and a reduction of additional paid-in capital of $1.9 million.  

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of June 30, 2021, the results of operations for the three- and nine-month periods ended June 30, 2021 and 2020, and the cash flows for the nine-month periods ended June 30, 2021 and 2020.  All of these adjustments are of a normal, recurring nature.  Such adjustments are the only adjustments included in the unaudited consolidated financial statements.  Interim results are not necessarily indicative of results for a full year.

The unaudited consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements, conform to general practices within the banking industry and are presented as permitted by the instructions to Form 10-Q. Accordingly, they do not contain certain information included in the Company’s audited consolidated financial statements and related notes for the year ended September 30, 2020 included in the Company’s Annual Report on Form 10-K.

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the current period presentation. The reclassifications had no effect on net income or stockholders’ equity.

-9-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

2. Investment Securities

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

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

Securities Available for Sale and Held to Maturity

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

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Losses		Value
	(In thousands)
June 30, 2021:
Securities available for sale:
U.S. agency bonds and notes	$	250	$	—	$	—	$	250
Agency mortgage-backed		8,733		323		57		8,999
Agency CMO		9,011		264		10		9,265
Privately-issued CMO		754		84		7		831
Privately-issued ABS		748		58		1		805
SBA certificates		2,292		2		21		2,273
Municipal bonds		172,730		12,641		166		185,205
Total securities available for sale	$	194,518	$	13,372	$	262	$	207,628
Securities held to maturity:
Agency mortgage-backed	$	69	$	5	$	—	$	74
Municipal bonds		1,854		240		—		2,094
Total securities held to maturity	$	1,923	$	245	$	—	$	2,168

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Losses		Value
	(In thousands)
September 30, 2020:
Securities available for sale:
Agency mortgage-backed	$	7,499	$	453	$	0	$	7,952
Agency CMO		9,398		407		0		9,805
Privately-issued CMO		886		80		8		958
Privately-issued ABS		884		81		5		960
SBA certificates		639		58		3		694
Municipal bonds		168,472		13,180		56		181,596
Total securities available for sale	$	187,778	$	14,259	$	72	$	201,965
Securities held to maturity:
Agency mortgage-backed	$	82	$	7	$	0	$	89
Municipal bonds		2,020		276		0		2,296
Total securities held to maturity	$	2,102	$	283	$	0	$	2,385

The amortized cost and fair value of investment securities as of June 30, 2021 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	$	8,950	$	9,058	$	253	$	279
Due after one year through five years		25,763		26,890		941		1,053
Due after five years through ten years		32,428		34,610		660		762
Due after ten years		105,839		114,897		—		—
CMO		9,765		10,096		—		—
ABS		748		805		—		—
SBA certificates		2,292		2,273		—		—
Mortgage-backed securities		8,733		8,999		69		74
	$	194,518	$	207,628	$	1,923	$	2,168

-11-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Information pertaining to investment securities with gross unrealized losses at June 30, 2021 and September 30, 2020, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

	Number of			Gross
	Investment	Fair		Unrealized
	Positions	Value		Losses
	(Dollars in thousands)
June 30, 2021:
Securities available for sale:
Continuous loss position less than twelve months:
Agency mortgage-backed	1	$	3,100	$	57
Agency CMO	2		1,480		10
SBA certificates	1		2,131		20
Municipal bonds	5		5,683		73
Total less than twelve months	9		12,394		160
Continuous loss position more than twelve months:
Privately-issued CMO	1		23		7
Privately-issued ABS	1		373		1
SBA certificates	1		105		1
Municipal bonds	1		1,906		93
Total more than twelve months	4		2,407		102
Total securities available for sale	13	$	14,801	$	262
September 30, 2020:
Securities available for sale:
Continuous loss position less than twelve months:
Privately-issued ABS	1	$	446	$	5
Municipal bonds	2		2,444		56
Total less than twelve months	3		2,890		61
Continuous loss position more than twelve months:
Privately-issued CMO	1		26		8
SBA certificates	1		188		3
Total more than twelve months	2		214		11
Total securities available for sale	5	$	3,104	$	72

At June 30, 2021 and September 30, 2020, the Company did not have any securities held to maturity with an unrealized loss.

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

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The total available for sale debt securities in loss positions at June 30, 2021, which consisted of agency mortgage-backed securities, agency CMOs, privately-issued CMOs, privately-issued ABS, municipal bonds and SBA certificates, had a fair value as a percentage of amortized cost of 98.26%. The municipal securities are issued by municipal governments, and are generally secured by municipal project revenues or general obligations of the municipality.

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 June 30, 2021, the Company held eleven privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $530,000 and fair value of $544,000 that have been downgraded to a substandard regulatory classification due to the security’s credit quality rating by various rating agencies.

At June 30, 2021, 1 privately-issued CMO security and 1 privately-issued ABS were in a loss position, and had depreciated approximately 1.98% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $396,000 and a total unrealized loss of $8,000 at June 30, 2021. Based on the independent third party analysis of the expected cash flows, management determined that no other-than-temporary impairment was required to be recognized on the privately issued CMO and ABS portfolios at June 30, 2021. While the Company did not have any additional credit-related impairment losses at June 30, 2021, 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 agency mortgage-backed securities, agency CMOs, SBA certificates and municipal bonds relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities to maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

During the three and nine-month periods ended June 30, 2021, the Company did not realize any gross gains or losses on sales of available for sale securities. During the nine-month period ended June 30, 2020, the Company realized gross gains on sales of available for sale securities of $15,000, and gross losses of $8,000. The Company did not realize any gross gains or losses on sales of available for sale securities during the three-month period ended June 30, 2020.

Certain available for sale debt securities were pledged to secure FHLB borrowings at June 30, 2021 and September 30, 2020, and may be pledged to secure federal funds borrowings.

-13-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

3. Loans and Allowance for Loan Losses

Loans at June 30, 2021 and September 30, 2020 consisted of the following:

	June 30,		September 30,
	2021		2020
		(In thousands)
Real estate mortgage:
1-4 family residential	$	214,238	$	191,781
Commercial		139,340		141,522
Single tenant net lease		383,931		334,636
SBA		57,970		55,508
Multifamily residential		40,785		42,368
Residential construction		8,338		9,361
Commercial construction		2,879		6,941
Land and land development		10,924		9,403
Commercial business		61,150		60,513
SBA commercial business (1)		124,567		206,807
Consumer		37,138		50,576
Total loans		1,081,260		1,109,416
Deferred loan origination fees and costs, net (2)		(766)		(2,327)
Allowance for loan losses		(14,642)		(17,026)
Loans, net	$	1,065,852	$	1,090,063

(1) Includes $100.6 million and $180.6 million of loans originated under the SBA’s Paycheck Protection Program (“PPP”) at June 30, 2021 and September 30, 2020, respectively.

(2) Includes $1.4 million and $3.2 million of net deferred loan fees related to PPP loans as of June 30, 2021 and September 30, 2020, respectively.

During the nine-month period ended June 30, 2021, there were no significant changes in the Company’s lending activities or the methodology used to estimate the allowance for loan losses as disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020.

At June 30, 2021 and September 30, 2020, the Bank did not own any residential real estate properties where physical possession has been obtained. At June 30, 2021 and September 30, 2020, the recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $434,000 and $1.3 million, respectively.

-14-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table provides the components of the recorded investment in loans as of June 30, 2021:

	Principal		Accrued		Net Deferred		Recorded
	Loan		Interest		Loan Origination		Investment
Recorded Investment in Loans:	Balance		Receivable		Fees and Costs		in Loans
	(In thousands)
Residential real estate	$	214,238	$	739	$	(360)	$	214,617
Commercial real estate		139,340		628		(189)		139,779
Single tenant net lease		383,931		1,302		(140)		385,093
SBA commercial real estate		57,970		449		1,018		59,437
Multifamily		40,785		87		(49)		40,823
Residential construction		8,338		16		(38)		8,316
Commercial construction		2,879		12		(12)		2,879
Land and land development		10,924		30		(7)		10,947
Commercial business		61,150		157		54		61,361
SBA commercial business		124,567		1,085		(1,022)		124,630
Consumer		37,138		177		(21)		37,294
	$	1,081,260	$	4,682	$	(766)	$	1,085,176

	Individually		Collectively		Recorded
	Evaluated for		Evaluated for		Investment in
Recorded Investment in Loans as Evaluated for Impairment:	Impairment		Impairment		Loans
	(In thousands)
Residential real estate	$	3,146	$	211,471	$	214,617
Commercial real estate		1,086		138,693		139,779
Single tenant net lease		—		385,093		385,093
SBA commercial real estate		6,360		53,077		59,437
Multifamily		507		40,316		40,823
Residential construction		—		8,316		8,316
Commercial construction		—		2,879		2,879
Land and land development		—		10,947		10,947
Commercial business		1,590		59,771		61,361
SBA commercial business		1,334		123,296		124,630
Consumer		224		37,070		37,294
	$	14,247	$	1,070,929	$	1,085,176

-15-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table provides the components of the recorded investment in loans as of September 30, 2020:

	Principal		Accrued		Net Deferred		Recorded
	Loan		Interest		Loan Origination		Investment
Recorded Investment in Loans:	Balance		Receivable		Fees and Costs		in Loans
	(In thousands)
Residential real estate	$	191,781	$	644	$	(156)	$	192,269
Commercial real estate		141,522		812		(197)		142,137
Single tenant net lease		334,636		1,198		(234)		335,600
SBA commercial real estate		55,508		387		1,082		56,977
Multifamily		42,368		139		(37)		42,470
Residential construction		9,361		25		(28)		9,358
Commercial construction		6,941		24		(26)		6,939
Land and land development		9,403		20		(11)		9,412
Commercial business		60,513		186		43		60,742
SBA commercial business		206,807		975		(2,740)		205,042
Consumer		50,576		175		(23)		50,728
	$	1,109,416	$	4,585	$	(2,327)	$	1,111,674

	Individually		Collectively		Recorded
	Evaluated for		Evaluated for		Investment in
Recorded Investment in Loans as Evaluated for Impairment:	Impairment		Impairment		Loans
	(In thousands)
Residential real estate	$	5,359	$	186,910	$	192,269
Commercial real estate		1,134		141,003		142,137
Single tenant net lease		—		335,600		335,600
SBA commercial real estate		6,927		50,050		56,977
Multifamily		698		41,772		42,470
Residential construction		—		9,358		9,358
Commercial construction		—		6,939		6,939
Land and land development		2		9,410		9,412
Commercial business		1,670		59,072		60,742
SBA commercial business		695		204,347		205,042
Consumer		199		50,529		50,728
	$	16,684	$	1,094,990	$	1,111,674

-16-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment method as of June 30, 2021 and September 30, 2020:

	Individually		Collectively
	Evaluated for		Evaluated for		Ending
	Impairment		Impairment		Balance
	(In thousands)
June 30, 2021:
Residential real estate	$	7	$	1,413	$	1,420
Commercial real estate		—		2,797		2,797
Single tenant net lease		—		2,304		2,304
SBA commercial real estate		468		3,107		3,575
Multifamily		—		685		685
Residential construction		—		202		202
Commercial construction		—		71		71
Land and land development		—		266		266
Commercial business		—		1,377		1,377
SBA commercial business		15		1,361		1,376
Consumer		—		569		569
	$	490	$	14,152	$	14,642
September 30, 2020:
Residential real estate	$	30	$	1,225	$	1,255
Commercial real estate		—		3,058		3,058
Single tenant net lease		—		3,017		3,017
SBA commercial real estate		1,366		2,788		4,154
Multifamily		—		772		772
Residential construction		—		243		243
Commercial construction		—		181		181
Land and land development		—		243		243
Commercial business		—		1,449		1,449
SBA commercial business		47		1,492		1,539
Consumer		—		1,115		1,115
	$	1,443	$	15,583	$	17,026

-17-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2021 and 2020:

	Beginning								Ending
	Balance		Provisions		Charge-Offs		Recoveries		Balance
	(In thousands)
June 30, 2021:
Residential real estate	$	1,622	$	(209)	$	—	$	7	$	1,420
Commercial real estate		3,060		(263)		—		—		2,797
Single tenant net lease		3,349		(1,045)		—		—		2,304
SBA commercial real estate		3,802		(168)		(59)		—		3,575
Multifamily		810		(125)		—		—		685
Residential construction		136		66		—		—		202
Commercial construction		239		(168)		—		—		71
Land and land development		283		(17)		—		—		266
Commercial business		1,536		(159)		—		—		1,377
SBA commercial business		1,549		(162)		(21)		10		1,376
Consumer		1,033		(480)		(28)		44		569
	$	17,419	$	(2,730)	$	(108)	$	61	$	14,642
June 30, 2020:
Residential real estate	$	379	$	131	$	—	$	5	$	515
Commercial real estate		2,493		744		—		—		3,237
Single tenant net lease		1,366		281		—		—		1,647
SBA commercial real estate		3,212		919		—		—		4,131
Multifamily		499		232		—		—		731
Residential construction		186		84		—		—		270
Commercial construction		65		56		—		—		121
Land and land development		203		54		—		—		257
Commercial business		1,642		(221)		—		—		1,421
SBA commercial business		945		391		—		12		1,348
Consumer		701		309		(69)		21		962
	$	11,691	$	2,980	$	(69)	$	38	$	14,640

-18-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended June 30, 2021 and 2020:

	Beginning								Ending
	Balance		Provisions		Charge-Offs		Recoveries		Balance
	(In thousands)
June 30, 2021:
Residential real estate	$	1,255	$	154	$	(5)	$	16	$	1,420
Commercial real estate		3,058		(261)		—		—		2,797
Single tenant net lease		3,017		(713)		—		—		2,304
SBA commercial real estate		4,154		(5)		(581)		7		3,575
Multifamily		772		(87)		—		—		685
Residential construction		243		(41)		—		—		202
Commercial construction		181		(110)		—		—		71
Land and land development		243		23		—		—		266
Commercial business		1,449		(77)		—		5		1,377
SBA commercial business		1,539		(172)		(21)		30		1,376
Consumer		1,115		(486)		(125)		65		569
	$	17,026	$	(1,775)	$	(732)	$	123	$	14,642
June 30, 2020:
Residential real estate	$	317	$	209	$	(36)	$	25	$	515
Commercial real estate		2,540		797		(100)		—		3,237
Single tenant net lease		1,675		(28)		—		—		1,647
SBA commercial real estate		2,293		1,807		(15)		46		4,131
Multifamily		478		253		—		—		731
Residential construction		248		22		—		—		270
Commercial construction		67		54		—		—		121
Land and land development		209		48		—		—		257
Commercial business		889		526		—		6		1,421
SBA commercial business		750		982		(396)		12		1,348
Consumer		574		520		(195)		63		962
	$	10,040	$	5,190	$	(742)	$	152	$	14,640

-19-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents impaired loans individually evaluated for impairment as of June 30, 2021 and for the three and nine-months ended June 30, 2021 and 2020. The Company did not recognize any interest income on impaired loans using the cash receipts method during the three and nine-month periods ended June 30, 2021 and 2020.

							Three Months Ended								Nine Months Ended
	At June 30, 2021						June 30,								June 30,
							2021		2021		2020		2020		2021		2021		2020		2020
			Unpaid				Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential real estate	$	3,019	$	3,666	$	0	$	3,890	$	15	$	5,964	$	33	$	4,591	$	53	$	5,526	$	94
Commercial real estate		1,086		1,144		0		1,149		7		3,882		38		1,163		22		4,597		118
Single tenant net lease		0		0		0		0		0		0		0		—		—		-		—
SBA commercial real estate		4,434		4,944		0		2,856		0		382		4		2,908		—		438		33
Multifamily		507		562		0		627		0		702		0		662		—		351		—
Residential construction		0		0		0		0		0		0		0		—		—		—		—
Commercial construction		0		0		0		0		0		0		0		—		—		—		—
Land and land development		0		0		0		1		0		1		0		1		—		1		—
Commercial business		1,590		1,660		0		1,709		1		1,668		0		1,690		2		1,626		1
SBA commercial business		1,300		1,446		0		931		0		416		0		674		—		208		—
Consumer		100		94		0		75		1		66		1		88		2		74		3
	$	12,036	$	13,516	$	0	$	11,238	$	24	$	13,081	$	76	$	11,777	$	79	$	12,821	$	249
Loans with an allowance recorded:
Residential real estate	$	127	$	126	$	7	$	151	$	0	$	0	$	0	$	119	$	—	$	29	$	—
Commercial real estate		0		0		0		0		0		0		0		—		—		25		—
Single tenant net lease		0		0		0		0		0		0		0		—		—		—		—
SBA commercial real estate		1,926		2,234		468		3,958		0		7,467		0		3,888		—		4,665		—
Multifamily		0		0		0		0		0		0		0		—		—		—		—
Residential construction		0		0		0		0		0		0		0		—		—		—		—
Commercial construction		0		0		0		0		0		0		0		—		—		—		—
Land and land development		0		0		0		0		0		0		0		—		—		—		—
Commercial business		0		0		0		2		0		821		0		1		—		410		—
SBA commercial business		34		133		15		210		0		117		0		304		—		59		—
Consumer		124		124		0		115		0		135		0		175		—		158		—
	$	2,211	$	2,617	$	490	$	4,436	$	0	$	8,540	$	0	$	4,487	$	—	$	5,346	$	—
Total:
Residential real estate	$	3,146	$	3,792	$	7	$	4,041	$	15	$	5,964	$	33	$	4,710	$	53	$	5,555	$	94
Commercial real estate		1,086		1,144		0		1,149		7		3,882		38		1,163		22		4,622		118
Single tenant net lease		0		0		0		0		0		0		0		—		—		—		—
SBA commercial real estate		6,360		7,178		468		6,814		0		7,849		4		6,796		—		5,103		33
Multifamily		507		562		0		627		0		702		0		662		—		351		—
Residential construction		0		0		0		0		0		0		0		—		—		—		—
Commercial construction		0		0		0		0		0		0		0		—		—		—		—
Land and land development		0		0		0		1		0		1		0		1		—		1		—
Commercial business		1,590		1,660		0		1,711		1		2,489		0		1,691		2		2,036		1
SBA commercial business		1,334		1,579		15		1,141		0		533		0		978		—		267		—
Consumer		224		218		0		190		1		201		1		263		2		232		3
	$	14,247	$	10,133	$	490	$	15,674	$	24	$	21,621	$	76	$	16,264	$	79	$	18,167	$	249

-20-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents impaired loans individually evaluated for impairment as of September 30, 2020.

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	(In thousands)
Loans with no related allowance recorded:
Residential real estate	$	5,185	$	5,697	$	0
Commercial real estate		1,134		1,185		0
Single tenant net lease		0		0		0
SBA commercial real estate		1,245		1,178		0
Multifamily		698		700		0
Residential construction		0		0		0
Commercial construction		0		0		0
Land and land development		2		1		0
Commercial business		1,670		1,675		0
SBA commercial business		322		416		0
Consumer		61		63		0
	$	10,317	$	10,915	$	0
Loans with an allowance recorded:
Residential real estate	$	174	$	175	$	30
Commercial real estate		0		0		0
Single tenant net lease		0		0		0
SBA commercial real estate		5,682		6,086		1,366
Multifamily		0		0		0
Residential construction		0		0		0
Commercial construction		0		0		0
Land and land development		0		0		0
Commercial business		0		0		0
SBA commercial business		373		399		47
Consumer		138		138		0
	$	6,367	$	6,798	$	1,443
Total:
Residential real estate	$	5,359	$	5,872	$	30
Commercial real estate		1,134		1,185		0
Single tenant net lease		0		0		0
SBA commercial real estate		6,927		7,264		1,366
Multifamily		698		700		0
Residential construction		0		0		0
Commercial construction		0		0		0
Land and land development		2		1		0
Commercial business		1,670		1,675		0
SBA commercial business		695		815		47
Consumer		199		201		0
	$	16,684	$	17,713	$	1,443

-21-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Nonperforming loans consist of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at June 30, 2021 and September 30, 2020:

	At June 30, 2021						At September 30, 2020
			Loans 90+						Loans 90+
			Days		Total				Days		Total
	Nonaccrual		Past Due		Nonperforming		Nonaccrual		Past Due		Nonperforming
	Loans		Still Accruing		Loans		Loans		Still Accruing		Loans
	(In thousands)
Residential real estate	$	1,911	$	0	$	1,911	$	2,797	$	—	$	2,797
Commercial real estate		656		0		656		685		—		685
Single tenant net lease		0		0		—		—		—		0
SBA commercial real estate		6,360		0		6,360		6,927		—		6,927
Multifamily		507		0		507		698		—		698
Residential construction		0		0		—		—		—		0
Commercial construction		0		0		—		—		—		0
Land and land development		0		0		—		2		—		2
Commercial business		1,475		0		1,475		1,668		—		1,668
SBA commercial business		1,334		0		1,334		695		—		695
Consumer		178		0		178		143		—		143
Total	$	12,421	$	0	$	12,421	$	13,615	$	—	$	13,615

The following table presents the aging of the recorded investment in past due loans at June 30, 2021:

	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	$	1,821	$	859	$	257	$	2,937	$	211,680	$	214,617
Commercial real estate		30		—		656		686		139,093		139,779
Single tenant net lease		—		—		—		—		385,093		385,093
SBA commercial real estate		482		109		4,850		5,441		53,996		59,437
Multifamily		—		—		—		—		40,823		40,823
Residential construction		—		—		—		—		8,316		8,316
Commercial construction		—		—		—		—		2,879		2,879
Land and land development		17		—		—		17		10,930		10,947
Commercial business		—		—		4		4		61,357		61,361
SBA commercial business		491		—		356		847		123,783		124,630
Consumer		11		3		54		68		37,226		37,294
Total	$	2,852	$	971	$	6,177	$	10,000	$	1,075,176	$	1,085,176

-22-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the aging of the recorded investment in past due loans at September 30, 2020:

	30-59		60-89		90+
	Days		Days		Days		Total				Total
	Past Due		Past Due		Past Due		Past Due		Current		Loans
	(In thousands)
Residential real estate	$	1,693	$	480	$	1,631	$	3,804	$	188,465	$	192,269
Commercial real estate		109		—		685		794		141,343		142,137
Single tenant net lease		—		—		—		—		335,600		335,600
SBA commercial real estate		—		—		1,874		1,874		55,103		56,977
Multifamily		—		—		—		—		42,470		42,470
Residential construction		—		—		—		—		9,358		9,358
Commercial construction		—		—		—		—		6,939		6,939
Land and land development		—		—		2		2		9,410		9,412
Commercial business		63		—		—		63		60,679		60,742
SBA commercial business		373		—		322		695		204,347		205,042
Consumer		233		59		4		296		50,432		50,728
Total	$	2,471	$	539	$	4,518	$	7,528	$	1,104,146	$	1,111,674

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:

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.

-23-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following table presents the recorded investment in loans by risk category as of June 30, 2021:

			Special
June 30, 2021:	Pass		Mention		Substandard		Doubtful		Loss		Total
	(In thousands)
Residential real estate	$	212,164	$	—	$	2,277	$	176	$	—	$	214,617
Commercial real estate		132,693		4,106		2,980		—		—		139,779
Single tenant net lease		385,093		—		—		—		—		385,093
SBA commercial real estate		42,347		5,383		8,468		3,239		—		59,437
Multifamily		40,316		—		507		—		—		40,823
Residential construction		8,316		—		—		—		—		8,316
Commercial construction		2,879		—		—		—		—		2,879
Land and land development		10,947		—		—		—		—		10,947
Commercial business		59,606		115		1,640		—		—		61,361
SBA commercial business		120,699		244		3,653		34		—		124,630
Consumer		37,294		—		—		—		—		37,294
Total	$	1,052,354	$	9,848	$	19,525	$	3,449	$	—	$	1,085,176

The following table presents the recorded investment in loans by risk category as of September 30, 2020:

			Special
September 30, 2020:	Pass		Mention		Substandard		Doubtful		Loss		Total
	(In thousands)
Residential real estate	$	188,707	$	—	$	3,435	$	127	$	—	$	192,269
Commercial real estate		133,685		4,112		4,340		—		—		142,137
Single tenant net lease		335,600		—		—		—		—		335,600
SBA commercial real estate		38,124		6,518		12,335		—		—		56,977
Multifamily		41,772		—		698		—		—		42,470
Residential construction		9,358		—		—		—		—		9,358
Commercial construction		6,939		—		—		—		—		6,939
Land and land development		9,410		—		2		—		—		9,412
Commercial business		58,707		235		1,800		—		—		60,742
SBA commercial business		200,578		294		4,170		—		—		205,042
Consumer		50,701		—		27		—		—		50,728
Total	$	1,073,581	$	11,159	$	26,807	$	127	$	—	$	1,111,674

Troubled Debt Restructurings

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

-24-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

The following table summarizes the Company’s recorded investment in TDRs at June 30, 2021 and September 30, 2020. There was 0 specific reserve included in the allowance for loan losses related to TDRs at June 30, 2021. There was $538,000 of specific reserve included in the allowance for loan losses related to TDRs at September 30, 2020.

	Accruing		Nonaccrual		Total
	(In thousands)
June 30,  2021:
Residential real estate	$	1,235	$	—	$	1,235
Commercial real estate		430		495		925
SBA commercial real estate		—		3,239		3,239
Multifamily		—		507		507
Commercial business		115		1,471		1,586
Consumer		46		—		46
Total	$	1,826	$	5,712	$	7,538
September 30,  2020:
Residential real estate	$	2,562	$	116	$	2,678
Commercial real estate		449		512		961
SBA commercial real estate		—		3,800		3,800
Multifamily		—		698		698
Commercial business		2		1,668		1,670
Consumer		56		—		56
Total	$	3,069	$	6,794	$	9,863

-25-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table summarizes information regarding TDRs that were restructured during the three- and nine-month periods ended June 30, 2021 and 2020:

	Number of	Pre-Modification		Post-Modification
	Loans	Principal Balance		Principal Balance
	(Dollars in thousands)
Nine Months Ended June 30, 2021:
Commercial business	1	$	126	$	126
Total	1	$	126	$	126
Three Months Ended June 30, 2020:
Multifamily	2	$	701	$	701
Commercial business	9		1,737		1,737
Total	11	$	2,438	$	2,438
Nine Months Ended June 30, 2020:
Residential real estate	1	$	1,099	$	1,100
SBA Commercial real estate	1		3,831		3,832
Multifamily	2		701		701
Commercial business	9		1,737		1,737
Total	13	$	7,368	$	7,370

There were no TDRs that were restructured during the three-months ended June 30, 2021.

At June 30, 2021 and September 30, 2020, the Company had committed to lend $1,000 to customers with outstanding loans classified as TDRs.

There were principal charge-offs totaling $457,000 recorded as a result of TDRs during the nine-month period ended June 30, 2021. There were principal charge-offs totaling $59,000 recorded as a result of TDRs during the three-month period ended June 30, 2021. There were 0 principal charge-offs recorded as a result of TDRs during the three- and nine-month periods ended June 30, 2020. There were 0 provisions for loan losses related to TDRs for the three- and nine-month periods ended June 30, 2021. Provisions for loan losses related to TDRs were $665,000 for the three-month and nine-month periods ended June 30, 2020. 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 and nine-month periods ended June 30, 2021 and 2020, the Company did not have any TDRs that were modified within the previous twelve months and for which there was a payment default.

On March 22, 2020, the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.” This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. The guidance indicates that, in consultation with the Financial Accounting Standards Board (“FASB”), the federal banking agencies concluded that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not TDRs. The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress on March 27, 2020. The CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs. The Consolidated Appropriations Act of 2021, signed into law on December 27, 2020, further extended the relief from TDR accounting for qualified modifications to the earlier of January 1, 2022 or 60 days after the national emergency concerning COVID-19 terminates.  At June 30, 2021, loans totaling $8.7 million remained under the Company’s payment extension program or a loan forbearance agreement, of which $8.6 million related to commercial real estate and commercial business loans and $127,000 related to residential real estate loans. These payment extensions or loan forbearance agreements are generally for periods of three months or less, but may be extended if the borrower continues to be impacted by the COVID-19 pandemic.

-26-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

SBA Loan Servicing Rights

The Company originates loans to commercial customers under the SBA 7(a) program and other programs, and 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.

The unpaid principal balance of SBA loans serviced for others was $239.5 million, $209.1 million and $190.5 million at June 30, 2021, September 30, 2020 and June 30, 2020, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $32,000 and $69,000 for the three and nine-month periods ended June 30, 2021, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $23,000 and $53,000 for the three and nine-month periods ended June 30, 2020, respectively. Net servicing income (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans was $591,000 and $1.6 million for the three and nine-month periods ended June 30, 2021, respectively. Net servicing income (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans was $502,000 and $1.3 million for the three and nine-month periods ended June 30, 2020, 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 and nine-month periods ended June 30, 2021 and 2020 is as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousands)
Balance, beginning of period	$	4,122	$	2,891	$	3,748	$	3,030
Servicing rights capitalized		505		337		1,577		888
Amortization		(227)		(166)		(603)		(633)
Direct write-offs		(105)		0		(380)		0
Change in valuation allowance		70		129		23		(94)
Balance, end of period	$	4,365	$	3,191	$	4,365	$	3,191

The valuation allowance related to SBA loan servicing rights at June 30, 2021 and September 30, 2020 was $9,000 and $32,000, respectively.

-27-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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.

A valuation model employed by an independent third party calculates the present value of future cash flows and is used to value the MSRs on a monthly basis. 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 MSRs at June 30, 2021 and September 30, 2020 were as follows:

	Range of Assumption	Range of Assumption
	(Weighted Average)	(Weighted Average)
Assumption	June 30, 2021	September 30, 2020
Discount rate	8.50% to 10.00% (8.51%)	9.25%
Prepayment rate	6.05% to 47.48% (10.29%)	2.99% to 86.98% (18.08%)

The unpaid principal balance of residential mortgage loans serviced for others was $4.50 billion and $2.26 billion at June 30, 2021 and September 30, 2020, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing and other liabilities were $30.1 million and $19.3 million at June 30, 2021 and September 30, 2020, 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 $1.6 million and $4.0 million for the three and nine-month periods ended June 30, 2021, 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 $141,000 and $237,000 for the three and nine-month periods ended June 30, 2020, 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 and nine-month periods ended June 30, 2021 and 2020 were as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousands)
Fair value, beginning of period	$	45,245	$	4,055	$	21,703	$	934
Servicing rights capitalized		5,195		7,104		32,678		11,289
Changes in fair value related to:
Loan repayments		(2,336)		(354)		(6,885)		(538)
Change in valuation model inputs or assumptions		(691)		(433)		(83)		(1,313)
Balance, end of period	$	47,413	$	10,372	$	47,413	$	10,372

-28-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

4. Deposits

Deposits at June 30, 2021 and September 30, 2020 consisted of the following:

	June 30,		September 30,
	2021		2020
	(In thousands)
Noninterest-bearing demand deposits	$	281,942	$	242,673
NOW accounts		284,238		218,581
Money market accounts		198,617		143,867
Savings accounts		161,317		142,609
Retail time deposits		138,244		168,276
Brokered and reciprocal time deposits		62,797		132,070
Total	$	1,127,155	$	1,048,076

5. Supplemental Disclosure for Net Income Per Share

Net income per share information is presented below for the three and nine-month periods ended June 30, 2021 and 2020.

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(Dollars in thousands, except per share data)
Basic:
Earnings:
Net income attributable to First Savings Financial Group, Inc.	$	4,308	$	15,405	$	24,718	$	18,217
Shares:
Weighted average common shares outstanding, basic		2,369,827		2,365,217		2,368,835		2,353,816
Net income per common share, basic	$	1.82	$	6.51	$	10.43	$	7.74
Diluted:
Earnings:
Net income attributable to First Savings Financial Group, Inc.	$	4,308	$	15,405	$	24,718	$	18,217
Shares:
Weighted average common shares outstanding, basic		2,369,827		2,365,217		2,368,835		2,353,816
Add: Dilutive effect of outstanding Options		20,022		639		16,913		20,378
Add: Dilutive effect of restricted stock		3,132		931		2,997		3,205
Weighted average common shares outstanding, as adjusted		2,392,981		2,366,787		2,388,745		2,377,399
Net income per common share, diluted	$	1.80	$	6.51	$	10.35	$	7.66

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

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Stock options for 4,800 and 24,313 shares of common stock were excluded from the calculation of diluted net income per common share for the three and nine-month periods ended June 30, 2021, respectively, because their effect was antidilutive.  Stock options for 27,458 and 22,158 shares of common stock were excluded from the calculation of diluted net income per common share for the three and nine-month periods ended June 30, 2020, respectively, because their effect was antidilutive. There were 0 antidilutive restricted stock awards excluded from the calculation of diluted net income per share for the three-and nine-month periods ended June 30, 2021 and 2020.

6. Supplemental Disclosures of Cash Flow Information

	Nine Months Ended
	June 30,
	2021		2020
	(In thousands)
Cash payments for:
Interest	$	6,272	$	8,653
Income taxes (net of refunds received)		8,937		1,254
Noncash investing and financing activities:
Transfers from loans to other real estate owned		375		—
Transfers from loans to loans held for Sale		41,703		—
Noncash exercise of stock options		77		249

7. 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.

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.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and liabilities carried at fair value or the lower of cost or fair value. The tables below present the balances of financial assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2021 and September 30, 2020.

	Carrying Value
	Level 1		Level 2		Level 3		Total
	(In thousands)
June 30,  2021:
Assets Measured – Recurring Basis:
Securities available for sale:
U.S. agency bonds and notes	$	—	$	250	$	—	$	250
Agency mortgage-backed		—		8,999		—		8,999
Agency CMO		—		9,265		—		9,265
Privately-issued CMO		—		831		—		831
Privately-issued ABS		—		805		—		805
SBA certificates		—		2,273		—		2,273
Municipal		—		185,205		—		185,205
Total securities available for sale	$	—	$	207,628	$	—	$	207,628
Residential mortgage loans held for sale – fair value option elected	$	—	$	232,708	$	—	$	232,708
Derivative assets (included in other assets)	$	—	$	51	$	2,473	$	2,524
Equity securities (included in other assets)	$	102	$	—	$	—	$	102
Residential mortgage servicing rights	$	—	$	—	$	47,413	$	47,413
Liabilities Measured – Recurring Basis:
Derivative liabilities (included in other liabilities)	$	—	$	580	$	434	$	1,014
Assets Measured – Nonrecurring Basis:
Impaired loans:
Residential real estate	$	—	$	—	$	3,139	$	3,139
Commercial real estate		—		—		1,086		1,086
SBA commercial real estate		—		—		5,892		5,892
Multifamily		—		—		507		507
Land and land development		—		—		—		—
Commercial business		—		—		1,590		1,590
SBA commercial business		—		—		1,319		1,319
Consumer		—		—		224		224
Total impaired loans	$	—	$	—	$	13,757	$	13,757
Residential mortgage loans held for sale – fair value option not elected	$	—	$	9,649	$	—	$	9,649
Single tenant net lease loans held for sale – fair value option not elected	$	—	$	—	$	17,506	$	17,506
SBA loans held for sale	$	—	$	—	$	17,511	$	17,511
SBA loan servicing rights	$	—	$	—	$	4,365	$	4,365
Other real estate owned, held for sale:
Land and land development	$	—	$	—	$	6	$	6
Former bank premises		—		—		1,728		1,728
Total other real estate owned	$	—	$	—	$	1,734	$	1,734

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

	Carrying Value
	Level 1		Level 2		Level 3		Total
	(In thousands)
September 30, 2020:
Assets Measured – Recurring Basis
Securities available for sale:
Agency mortgage-backed	$	0	$	7,952	$	0	$	7,952
Agency CMO		0		9,805		0		9,805
Privately-issued CMO		0		958		0		958
Privately-issued ABS		0		960		0		960
SBA certificates		0		694		0		694
Municipal bonds		0		181,596		0		181,596
Total securities available for sale	$	0	$	201,965	$	0	$	201,965
Residential mortgage loans held for sale – fair value option elected	$	0	$	208,493	$	0	$	208,493
Derivative assets (included in other assets)	$	0	$	226	$	14,937	$	15,163
Equity securities (included in other assets)	$	66	$	0	$	0	$	66
Residential mortgage servicing rights	$	0	$	0	$	21,703	$	21,703
Liabilities Measured – Recurring Basis
Derivative liabilities (included in other liabilities)	$	0	$	1,827	$	0	$	1,827
Assets Measured – Nonrecurring Basis
Impaired loans:
Residential real estate	$	0	$	0	$	5,329	$	5,329
Commercial real estate		0		0		1,134		1,134
SBA commercial real estate		0		0		5,561		5,561
Multifamily		0		0		698		698
Land and land development		0		0		2		2
Commercial business		0		0		1,670		1,670
SBA commercial business		0		0		648		648
Consumer		0		0		199		199
Total impaired loans	$	0	$	0	$	15,241	$	15,241
Residential mortgage loans held for sale – fair value option not elected	$	0	$	54,913	$	0	$	54,913
SBA loans held for sale	$	0	$	22,119	$	0	$	22,119
SBA loan servicing rights	$	0	$	0	$	3,748	$	3,748
Other real estate owned, held for sale:
Former bank premises	$	0	$	0	$	1,728	$	1,728
Total other real estate owned	$	0	$	0	$	1,728	$	1,728

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. Other than SBA loans held for sale (see discussion below), 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 nine-month period ended June 30, 2021.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Securities Available for Sale and Equity Securities. 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 a portion of its residential mortgage loans held for sale at fair value in accordance with FASB ASC 825-10. Residential mortgage loans held for sale for which the fair value option has not been elected are carried at the lower of cost or market value. 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.

SBA and Single Tenant Net Lease Loans Held for Sale. SBA and single tenant net lease loans held for sale are carried at the lower of cost or market value. At September 30, 2020, the fair value of SBA loans held for sale was obtained from an independent third party pricing firm based on specific prices of the underlying contracts for sale to investors or current secondary market prices for loans with similar characteristics, and was classified as Level 2 in the fair value hierarchy. At June 30, 2021, the fair value of SBA loans held for sale reflects management’s estimate based on the weighted average price of SBA loans sold to investors during the prior quarter, and is classified as Level 3 in the fair value hierarchy. At June 30, 2021, the fair value of single tenant net lease loans held for sale is estimated to approximate carrying value and is classified as Level 3 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.

The table below presents a reconciliation of derivative assets and liabilities (intrest rate lock commitments) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine-month periods ended June 30, 2021 and 2020:

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Beginning balance	$	262	$	5,678	$	14,937	$	3,269
Unrealized gains/(losses) recognized in earnings, net of settlements		1,777		11,328		(12,898)		13,737
Ending balance	$	2,039	$	17,006	$	2,039	$	17,006

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. Gains recognized in earnings for the nine-month periods ended June 30, 2021 and 2020 attributable to Level 3 derivative assets and liabilities held at the balance sheet date were $2.0 million and $17.0 million, respectively.

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 June 30, 2021 and September 30, 2020.

		Range of Inputs	Range of Inputs
		(Weighted Average)	(Weighted Average)
	Significant	June 30,	September 30,
Financial Instrument	Unobservable Inputs	2021	2020
Interest rate lock commitments	Pull-through rate	0% - 100% (81%)	0% - 100% (80%)
	Direct costs to close	0.39% - 1.65% (0.95%)	0.31% - 1.01% (0.52%)

Mortgage Servicing Rights.  The current market for MSRs is not sufficiently liquid to provide participants with quoted market prices.  Therefore, the Company uses a discounted cash flow valuation model from an independent third party to determine the fair value of MSRs.  The discounted cash flow model approach consists of projecting expected servicing cash flows and calculating the present value.  The key assumptions used in the valuation of MSRs include mortgage prepayment speeds, discount rates and loan servicing costs.  Due to the nature of the valuation inputs, MSRs are classified within Level 3 of the valuation hierarchy. A reconciliation of 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 MSR valuations is presented in Note 3. Changes in the fair value of MSRs are included in mortgage banking income in the accompanying consolidated statements of income.

Impaired Loans. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. The fair value of impaired loans is classified as Level 3 in the fair value hierarchy.

Impaired loans are measured at the present value of estimated future cash flows using the loan’s effective interest rate or the fair value of the collateral if the loan is a collateral-dependent loan. At June 30, 2021 and September 30, 2020, all impaired loans were considered to be collateral dependent for the purpose of determining fair value. 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 generally then discounted by management in order to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral. At June 30, 2021 and September 30, 2020, the significant unobservable inputs used in the fair value measurement of impaired loans included discounts from appraised value ranging from 0.0% to 100.0% and 0.0% to 75.0%, respectively, and estimated costs to sell the collateral ranging from 0.0% to 6.0% and 0.0% to 12.0%, respectively. During the three and nine-month periods ended June 30, 2021, the Company recognized provisions for loan losses on impaired loans of $87,000 and $354,000, respectively. During the three and nine-month periods ended June 30, 2020, the Company recognized provisions for loan losses on impaired loans of $157,000 million and $2.1 million, respectively.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

SBA 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 June 30, 2021, the significant unobservable inputs used in the fair value measurement of SBA loan servicing rights included discount rates ranging from 2.75% to 19.89% with a weighted average of 8.85% and prepayment speed assumptions ranging from 8.54% to 26.24% with a weighted average rate of 16.64%.  At September 30, 2020, the significant unobservable inputs used in the fair value measurement of SBA loan servicing rights included discount rates ranging from 3.58% to 19.68% with a weighted average of 8.36% and prepayment speed assumptions ranging from 8.69% to 26.68% with a weighted average rate of 17.46%.  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 $70,000 and $23,000 on SBA loan servicing rights for the three- and nine-month periods ended June 30, 2021. The Company reversed impairment charges of $129,000 on SBA loan servicing rights for the three-month period ended June 30, 2020, and recognized impairment charges of $94,000 on SBA loan servicing rights for the nine-month period ended June 30, 2020.

Other Real Estate Owned. Other real estate owned held for sale is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. The fair value of other real estate owned is classified as Level 3 in the fair value hierarchy.

Other real estate owned is reported at fair value, less estimated costs to dispose of the property. The fair values are determined by real estate appraisals, which are then generally discounted by management in order to reflect management’s estimate of the fair value of the property given current market conditions and the condition of the property. At June 30, 2021, the significant unobservable inputs used in the fair value measurement of other real estate owned included a discount from appraised value (including estimated costs to sell the property) ranging from 30.9% to 52.9% with a weighted average of 31.0%. At September 30, 2020, the significant unobservable inputs used in the fair value measurement of other real estate owned included a discount from appraised value (including estimated costs to sell the property) of 30.9%.  The Company did not recognize any charges to write down other real estate owned to fair value for the three and nine-month periods ended June 30, 2021 and 2020.

As previously discussed, management used different valuation methodologies related to SBA loans held for sale at June 30, 2021 and September 30, 2020, resulting in a change in classification from Level 2 to Level 3 for those types of instruments.  Other than that change, there were no transfers into or out of the Company’s Level 3 financial assets of the fair value hierarchy for the three and nine-month periods ended June 30, 2021.

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.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The Company has elected the fair value option for substantially all of its residential mortgage loans held for sale effective July 1, 2018, excluding participation interests acquired from correspondent lenders, and certain home equity lines of credit.  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. NaN of these loans were 90 days or more past due, nor were any on nonaccrual status, as of June 30, 2021 and September 30, 2020.

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 June 30, 2021 and September 30, 2020.

			Aggregate
	Aggregate		Principal
	Fair Value		Balance
	June 30,		June 30,
(In thousands)	2021		2021		Difference
Residential mortgage loans held for sale	$	232,708	$	225,051	$	7,657

			Aggregate
	Aggregate		Principal
	Fair Value		Balance
	September 30,		September 30,
(In thousands)	2020		2020		Difference
Residential mortgage loans held for sale	$	208,493	$	198,138	$	10,355

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 and nine-month periods ended June 30, 2021 and 2020:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Gains (losses) – included in mortgage banking income	$	4,647	$	2,271	$	4,838	$	5,627
Interest income		1,134		1,463		4,398		3,059
	$	5,781	$	3,734	$	9,236	$	8,686

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

			Fair Value Measurements
	Carrying		Using:
	Amount		Level 1		Level 2		Level 3
	(In thousands)
June 30, 2021:
Financial assets:
Cash and due from banks	$	14,388	$	14,388	$	—	$	—
Interest-bearing deposits with banks		8,521		8,521		—		—
Interest-bearing time deposits		2,226		—		2,226		—
Securities available for sale		207,628		—		207,628		—
Securities held to maturity		1,923		—		2,168		—
Residential mortgage loans held for sale		242,357		—		247,357		—
Single tenant net lease loans held for sale		17,506		—		—		17,506
SBA loans held for sale		17,511		—		—		20,055
Loans, net		1,065,852		—		—		1,109,243
FRB and FHLB stock		19,258		N/A		N/A		N/A
Accrued interest receivable		7,011		—		7,011		—
Residential mortgage loan servicing rights		47,413		—		—		47,413
SBA loan servicing rights		4,365		—		—		4,660
Derivative assets (included in other assets)		2,524		—		51		2,473
Equity securities (included in other assets)		102		102		—		—
Financial liabilities:
Deposits		1,127,155		—		—		1,127,955
Borrowings from FHLB		283,289		—		285,142		—
Federal Reserve PPPLF borrowings		107,829		—		107,813		—
Subordinated note		19,848		—		23,587		—
Accrued interest payable		684		—		684		—
Advance payments by borrowers for taxes and insurance		1,552		—		1,552		—
Derivative liabilities (included in other liabilities)		1,014		—		580		434

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

			Fair Value Measurements
	Carrying		Using:
	Amount		Level 1		Level 2		Level 3
	(In thousands)
September 30, 2020:
Financial assets:
Cash and due from banks	$	12,807	$	12,807	$	0	$	0
Interest-bearing deposits with banks		20,919		20,919		0		0
Interest-bearing time deposits		2,964		0		2,964		0
Securities available for sale		201,965		0		201,965		0
Securities held to maturity		2,102		0		2,385		0
Residential mortgage loans held for sale		263,406		0		263,519		0
SBA loans held for sale		22,119		0		24,666		0
Loans, net		1,090,063		0		0		1,152,962
FRB and FHLB stock		17,293		N/A		N/A		N/A
Accrued interest receivable		6,462		0		6,462		0
Residential mortgage loan servicing rights		21,703		0		0		21,703
SBA loan servicing rights		3,748		0		0		3,934
Derivative assets (included in other assets)		15,163		0		226		14,937
Equity securities (included in other assets)		66		66		0		0
Financial liabilities:
Deposits		1,048,076		0		0		1,050,569
Borrowings from FHLB		310,858		0		310,766		0
Federal Reserve PPPLF borrowings		174,834		0		174,808		0
Subordinated note		19,797		0		23,788		0
Accrued interest payable		683		0		683		0
Advance payments by borrowers for taxes and insurance		2,615		0		2,615		0
Derivative liabilities (included in other liabilities)		1,827		0		1,827		0

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, interest-bearing time deposits, accrued interest receivable and payable, advance payments by borrowers for taxes and insurance, demand deposits and other transaction accounts.  The fair value of loans (excluding loans held for sale), fixed-maturity certificates of deposit, and borrowed funds is based on discounted cash flows using current market rates applied to the estimated life and credit risk of the instrument.  It is not practicable to determine the fair value of FHLB and other restricted stock due to restrictions placed on its transferability.  The methods and assumptions used to estimate the fair value of investment securities, loans held for sale, loan servicing rights, and derivative assets and liabilities are discussed previously in Note 7.  The methods utilized to measure the fair value of financial instruments at June 30, 2021 and September 30, 2020 represent an approximation of exit price, but an actual exit price may differ.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

8. Employee Stock Ownership Plan

On October 6, 2008, the Company established a leveraged employee stock ownership plan (“ESOP”) covering substantially all employees. The ESOP trust acquired 203,363 shares of Company common stock at a cost of $10.00 per share financed by a term loan with the Company. The employer loan and the related interest income are not recognized in the consolidated financial statements because the debt is serviced from Company contributions. Dividends payable on allocated shares are charged to retained earnings and are satisfied by the allocation of cash dividends to participant accounts or by utilizing the dividends as additional debt service on the ESOP loan. Dividends payable on unallocated shares are not considered dividends for financial reporting purposes. Shares held by the ESOP trust are allocated to participant accounts based on the ratio of the current year principal and interest payments to the total of the current year and future years’ principal and interest to be paid on the employer loan. Compensation expense is recognized based on the average fair value of shares released for allocation to participant accounts during the year with a corresponding credit to stockholders’ equity. 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 or nine-month periods ended June 30, 2021 and 2020. The ESOP trust held 111,986 and 119,654 shares of Company common stock at June 30, 2021 and September 30, 2020, respectively.

9. Stock Based Compensation Plans

The Company maintains two 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, and the 2016 Equity Incentive Plan (“2016 Plan”), approved by the Company’s shareholders in February 2016. The aggregate number of shares of the Company’s common stock available for issuance under the 2016 Plan may not exceed 88,000 shares, consisting of 66,000 stock options and 22,000 shares of restricted stock. At June 30, 2021, there were 0 remaining shares of the Company’s common stock available for issuance under the 2010 Plan. At June 30, 2021, 1,520 shares of the Company’s common stock were available for issuance under the 2016 Plan, of which 500 shares were available for restricted stock and 1,020 shares were available for stock options. The Company generally issues new shares under the 2016 Plan 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 generally 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.

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(Unaudited)

The fair value of options granted during the nine-month period ended June 30, 2021 was determined using the following assumptions:

Expected dividend yield		1.75	%
Risk-free interest rate		2.13	%
Expected volatility		14.6	%
Expected life of options		7.5	years
Weighted average fair value at grant date	$	6.13

A summary of stock option activity as of June 30, 2021, and changes during the nine-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	68,403	$	48.11
Granted	7,555		63.30
Exercised	(1,780)		45.25
Forfeited or expired	(1,320)		50.53
Outstanding at end of period	72,858	$	49.71	6.5	$	1,634
Vested and expected to vest	72,858	$	49.71	6.5	$	1,634
Exercisable at end of period	42,588	$	44.44	5.7	$	1,223

The intrinsic value of stock options exercised during the nine-month periods ended June 30, 2021 and 2020 was $36,000 and $1.4 million, respectively. The Company recognized compensation expense related to stock options of $22,000 and $69,000 for the three and nine-month periods ended June 30, 2021, respectively. The Company recognized compensation expense related to stock options of $22,000 and $64,000 for the three and nine-month periods ended June 30, 2020, respectively. At June 30, 2021, there was $131,000 of unrecognized compensation expense related to nonvested stock options.  The compensation expense is expected to be recognized over a weighted average period of 2.98 years.  Cash received from the exercise of stock options and the tax benefit from the exercise of stock options totaled $4,000 and $6,000, respectively, for the nine-month period ended June 30, 2021.  Cash received from the exercise of stock options and the tax benefit from the exercise of stock options were $148,000 and $134,000, respectively, for the nine-month period ended June 30, 2020.

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 and nine-month periods ended June 30, 2021 was $43,000 and $138,000, respectively. Compensation expense related to restricted stock recognized for the three and nine-month periods ended June 30, 2020 was $49,000 and $144,000, respectively.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

A summary of the Company’s nonvested restricted shares activity as of June 30, 2021 and changes during the nine-month period then ended is presented below.

		Weighted
	Number	Average
	of	Grant Date
	Shares	Fair Value
Nonvested at October 1, 2020	10,808	$	48.04
Granted	—	$	—
Vested	(4,375)	$	44.77
Forfeited	(500)	$	51.57
Nonvested at June 30, 2021	5,933	$	50.15

There were 4,375 restricted shares vested during the nine-month period ended June 30, 2021 with a total fair value of $277,000. There were 4,086 restricted shares that vested during the nine-month period ended June 30, 2020 with a total fair value of $271,000. At June 30, 2021, there was $184,000 of unrecognized compensation expense related to nonvested restricted shares. The compensation expense is expected to be recognized over a weighted average period of 2.13 years.

10. 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 June 30, 2021 and September 30, 2020, the Company had cash collateral posted with certain derivative counterparties of $2.2 million and $3.0 million, respectively, 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.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The tables below provide information on the Company’s derivative financial instruments as of June 30, 2021 and September 30, 2020.

	Notional		Asset		Liability
	Amount		Derivatives		Derivatives
	June 30,		June 30,		June 30,
(In thousands)	2021		2021		2021
Interest rate lock commitments	$	254,033	$	2,473	$	434
Forward mortgage loan sale contracts		346,000		51		580
	$	600,033	$	2,524	$	1,014

	Notional		Asset		Liability
	Amount		Derivatives		Derivatives
	September 30,		September 30,		September 30,
(In thousands)	2020		2020		2020
Interest rate lock commitments	$	793,671	$	14,937	$	0
Forward mortgage loan sale contracts		605,750		226		1,827
	$	1,399,421	$	15,163	$	1,827

Income (loss) related to derivative financial instruments included in mortgage banking income in the accompanying consolidated statements of income for the three and nine-month periods ended June 30, 2021 and 2020 is as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Interest rate lock commitments	$	1,777	$	11,328	$	(12,898)	$	13,737
Forward mortgage loan sale contracts		(6,308)		(5,201)		5,306		(16,018)
	$	(4,531)	$	6,127	$	(7,592)	$	(2,281)

11. 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.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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 phased in from 0.0% for 2015 to 2.5% by 2019. The capital conservation buffer was 2.50%for 2021 and 2020. The Bank met all capital adequacy requirements to which it was subject as of June 30, 2021 and September 30, 2020.

As of June 30, 2021, 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 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 Consolidated 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 June 30, 2021:
Total capital (to risk-weighted assets):
Consolidated	$	189,610	13.55	%	$	111,937	8.00	%		N/A	N/A
Bank		181,167	12.97			111,759	8.00		$	139,699	10.00	%
Tier 1 capital (to risk-weighted assets):
Consolidated	$	155,120	11.09	%	$	83,953	6.00	%		N/A	N/A
Bank		166,525	11.92			83,819	6.00		$	111,759	8.00	%
Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	155,120	11.09	%	$	62,965	4.50	%		N/A	N/A
Bank		166,525	11.92			62,864	4.50		$	90,804	6.50	%
Tier 1 capital (to average adjusted total assets):
Consolidated	$	155,120	9.94	%	$	62,423	4.00	%		N/A	N/A
Bank		166,525	10.62			62,750	4.00		$	78,438	5.00	%
As of September 30, 2020:
Total capital (to risk-weighted assets):
Consolidated	$	168,617	13.37	%	$	100,929	8.00	%		N/A	N/A
Bank		160,452	12.75			100,672	8.00		$	125,840	10.00	%
Tier 1 capital (to risk-weighted assets):
Consolidated	$	133,520	10.58	%	$	75,697	6.00	%		N/A	N/A
Bank		145,152	11.53			75,504	6.00		$	100,672	8.00	%
Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	133,520	10.58	%	$	56,773	4.50	%		N/A	N/A
Bank		145,152	11.53			56,428	4.50		$	81,796	6.50	%
Tier 1 capital (to average adjusted total assets):
Consolidated	$	133,520	8.53	%	$	62,617	4.00	%		N/A	N/A
Bank		145,152	9.37			61,966	4.00		$	77,458	5.00	%

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

12. Recent Accounting Pronouncements

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

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326). The update commonly referred to as the current expected credit loss methodology (“CECL”) replaces the incurred loss methodology for recognizing credit losses under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. For the Company, the amendments in the update were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact the guidance will have upon adoption. Management expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses through retained earnings as of the beginning of the first reporting period in which the new standard is effective; however, the magnitude of the adjustment is unknown. In planning for the implementation of ASU 2016-13, management is currently evaluating software solutions, data requirements and loss methodologies.

In November 2019, the FASB issued ASU No. 2019-10 which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the SEC) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods.  Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is a smaller reporting company as defined by the SEC, and currently does not intend to early adopt CECL.

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.

13. Segment Reporting

The Company’s operations include 3 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 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. Net gains on the sales of loans, 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.

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(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. The amounts reflected in the “Other” column in the tables below represent combined balances of the Company and the Captive, and are the primary differences between the sum of the segment amounts and consolidated totals, along with amounts to eliminate transactions between segments.

	Core		SBA		Mortgage				Consolidated
	Banking		Lending		Banking		Other		Totals
	(In thousands)
Three Months Ended June 30, 2021:
Net interest income (loss)	$	11,709	$	2,510	$	318	$	(308)	$	14,229
Provision (credit) for loan losses		(2,401)		(329)		—		—		(2,730)
Net interest income (loss) after provision		14,110		2,839		318		(308)		16,959
Net gains on sales of loans, SBA		—		2,322		—		—		2,322
Mortgage banking income		—		—		14,351		—		14,351
Noninterest income		1,509		2,675		14,601		—		18,785
Noninterest expense		9,250		2,206		19,049		114		30,619
Income (loss) before taxes		6,369		3,308		(4,130)		(422)		5,125
Income tax expense (benefit)		917		790		(765)		(125)		817
Segment profit (loss)		5,452		2,518		(3,365)		(297)		4,308
Non cash items:
Depreciation and amortization		479		11		61		17		568
Segment assets at June 30, 2021		1,439,697		200,827		301,858		(183,754)		1,758,628

	Core		SBA		Mortgage				Consolidated
	Banking		Lending		Banking		Other		Totals
	(In thousands)
Nine Months Ended June 30, 2021:
Net interest income (loss)	$	34,296	$	7,884	$	1,488	$	(920)	$	42,748
Provision (credit) for loan losses		(1,593)		(182)		—		—		(1,775)
Net interest income (loss) after provision		35,889		8,066		1,488		(920)		44,523
Net gains on sales of loans, SBA		—		6,828		—		—		6,828
Mortgage banking income		2		—		91,501		—		91,503
Noninterest income		4,551		7,467		91,923		—		103,941
Noninterest expense (income)		26,760		7,401		80,437		(293)		114,305
Income (loss) before taxes		13,680		8,132		12,974		(627)		34,159
Income tax expense (benefit)		2,239		1,900		5,270		(370)		9,039
Segment profit (loss)		11,441		6,232		7,704		(257)		25,120
Non cash items:
Depreciation and amortization		1,433		34		182		51		1,700
Segment assets at June 30, 2021		1,439,697		200,827		301,858		(183,754)		1,758,628

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FIRST SAVINGS FINANCIAL GROUP, INC.

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(Unaudited)

	Core		SBA		Mortgage				Consolidated
	Banking		Lending		Banking		Other		Totals
	(In thousands)
Three Months Ended June 30, 2020:
Net interest income (loss)	$	9,948	$	1,584	$	947	$	(303)	$	12,176
Provision for loan losses		1,668		1,312		0		0		2,980
Net interest income (loss) after provision		8,280		272		947		(303)		9,196
Net gains on sales of loans, SBA		0		1,317		0		0		1,317
Mortgage banking income		2		0		43,855		0		43,857
Noninterest income		1,324		1,785		43,853		0		46,962
Noninterest expense (income)		7,763		1,642		25,734		(130)		35,009
Income (loss) before taxes		1,841		415		19,066		(173)		21,149
Income tax expense (benefit)		343		53		5,211		(67)		5,540
Segment profit (loss)		1,498		362		13,855		(106)		15,609
Non cash items:
Depreciation and amortization		441		13		49		17		520
Segment assets at June 30, 2020		1,412,434		277,888		240,612		(269,653)		1,661,281

	Core		SBA		Mortgage				Consolidated
	Banking		Lending		Banking		Other		Totals
	(In thousands)
Nine Months Ended June 30, 2020:
Net interest income (loss)	$	28,592	$	3,952	$	2,089	$	(900)	$	33,733
Provision for loan losses		2,404		2,786		-		-		5,190
Net interest income (loss) after provision		26,188		1,166		2,089		(900)		28,543
Net gains on sales of loans, SBA		-		3,307		-		-		3,307
Mortgage banking income		6		-		68,301		-		68,307
Noninterest income		4,126		3,923		68,278		-		76,327
Noninterest expense (income)		21,765		5,308		54,586		(303)		81,356
Income (loss) before taxes		8,549		(219)		15,781		(597)		23,514
Income tax expense (benefit)		1,660		(28)		4,235		(463)		5,404
Segment profit (loss)		6,889		(191)		11,546		(134)		18,110
Non cash items:
Depreciation and amortization		1,062		40		128		51		1,281
Segment assets at June 30, 2020		1,412,434		277,888		240,612		(269,653)		1,661,281

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

14. 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 and nine-month periods ended June 30, 2021 and 2020:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousand)
Service charges on deposit accounts	$	343	$	269	$	1,067	$	1,219
ATM and interchange fees		650		491		1,795		1,518
Investment advisory income		406		70		905		180
Other		26		23		81		80
Revenue from contracts with customers		1,425		853		3,848		2,997
Gain on sale of securities		—		—		—		7
Gain on sale of SBA loans		2,322		1,317		6,828		3,307
Mortgage banking income		14,351		43,857		91,503		68,307
Increase in cash value of life insurance		179		191		539		547
Real estate lease income		148		138		444		441
Other income		360		606		779		721
Other noninterest income		17,360		46,109		100,093		73,330
Total noninterest income	$	18,785	$	46,962	$	103,941	$	76,327

A description of the Company’s revenue streams accounted for under FASB 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 at the point in time that 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.

Investment Advisory 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.

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FIRST SAVINGS FINANCIAL GROUP, INC.

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(Unaudited)

Other Income: Other income from contracts with customers 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.

15. Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.  The Company is a lessor in certain leasing agreements, such as for office space, and is a lessee in others, such as for certain office space and equipment. The Company’s operating leases have terms that expire at different dates through August 2028, and some include options to extend the leases in five year increments.

On October 1, 2019, the Company adopted FASB ASC 842 and all subsequent updates that modified FASB ASC 842. For the Company, this update primarily affected the accounting treatment for operating lease agreements.  With the adoption of FASB ASC 842, operating lease agreements are required to be recognized on the consolidated balance sheet as a “right of use” (“ROU”) asset and a corresponding lease liability. All of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheet.

The Company’s right to use an asset over the life of a lease is recorded as an ROU asset included in other assets on the consolidated balance sheet and was $6.4 million and $7.9 million at June 30, 2021 and September 30,2020, respectively.  Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received.  The Company recorded a lease liability in other liabilities on the consolidated balance sheet, which had a balance of $6.5 million and $8.0 million at June 30, 2021 and September 30, 2020, respectively.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of minimum lease payments.  Regarding the discount rate, FASB ASC 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable.  As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.  For operating leases existing prior to October 1, 2019, the rate for the remaining lease term as of October 1, 2019 was used.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the term of the lease.  Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more.  The exercise of renewal options on operating leases is at the Company’s sole discretion, and certain leases may include options to purchase the leased property.  If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability.  The Company does not enter into lease agreements which contain material residual value guarantees or material restrictive covenants. At June 30, 2021, the Company had not entered into any leases that had yet to commence.

Lease expense for the three and nine–month periods ended June 30, 2021 was $573,000 and $1.6 million, respectively. Lease expense for the three and nine-month periods ended June 30, 2020 was $493,000 and $1.4 million, respectively.  The components of lease expense for the three and nine-month periods ended June 30, 2021 and 2020 were as follows:

	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2021		2020		2020
Operating lease cost	$	323	$	957	$	356	$	941
Short-term lease cost		250		662		137		452
	$	573	$	1,619	$	493	$	1,393

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Future minimum commitments due under these lease agreements as of June 30, 2021 are as follows, including renewal options that are reasonably certain to be exercised:

2021 (remaining three months)	$	264
2022		987
2023		654
2024		562
2025		445
Thereafter		5,478
Total lease payments		8,390
Less imputed interest		(1,875)
Total	$	6,515

The lease term and discount rate at June 30, 2021 and September 30, 2020 were as follows:

	June 30,		September 30,
	2021		2020
Weighted-average remaining lease term (years)	20.4		22.6
Weighted-average discount rate	2.40	%	2.75	%

Supplemental cash flow information for the nine–month periods ended June 30, 2021 and 2020 related to leases was as follows:

	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,016	$	874
ROU assets obtained in exchange for lease obligations:
Operating leases	$	2,038	$	8,816

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

16.Mortgage Banking Income

The components of mortgage banking income for the three and nine-month periods ended June 30, 2021 and 2020 were as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousand)
Origination and sale of mortgage loans (1)	$	10,409	$	29,034	$	72,512	$	58,023
Net change in fair value of loans held for sale and interest rate lock commitments		6,423		13,600		(15,564)		16,872
Realized and unrealized hedging gains (losses)		(6,308)		(5,201)		5,306		(16,018)
Capitalized residential mortgage loan servicing rights		5,195		7,104		32,678		11,289
Net change in fair value of residential mortgage loan servicing rights		(3,027)		(787)		(6,968)		(1,851)
Loan servicing income		1,618		144		4,072		260
Provisions for loan repurchases and indemnifications		41		(37)		(533)		(268)
Total mortgage banking income	$	14,351	$	43,857	$	91,503	$	68,307

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

17.Loss Contingency

The Bank received notice of a class action lawsuit on March 23, 2021 regarding its policy and practice of assessing customer fees related to items presented on accounts with insufficient funds (NSF items). The Company has not accrued a loss contingency for this pending litigation at June 30, 2021 because it has not determined that a probable loss will occur and cannot reasonably estimate a potential loss amount.

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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, the scope, duration and severity of the COVID-19 pandemic and its effects on our business and operations, our customers, including their ability to make timely payments on loans, our service providers, and on the economy and financial markets, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; 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, 2020 under “Part II, Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies

During the nine-month period ended June 30, 2021, 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, 2020.

COVID-19 Pandemic

The COVID-19 pandemic has placed, and continues to place, significant health, economic and other major hardships throughout the communities we serve, the United States and the entire world.  The outbreak of COVID-19, or the outbreak of any other highly contagious disease, occurring in the United States could negatively affect our business operations, asset valuations, financial condition and results of operations.

The Company has implemented a number of procedures in response to the pandemic to support the safety and well-being of our customers, employees, and communities:

● Following the guidelines of the Center for Disease Control and local governments, we have updated our branch operating procedures.  While our branches remain open, the lobbies were temporarily closed and transactions were being conducted through drive-up windows or by appointment.  Our branches have returned to pre-pandemic service levels, but have implemented safety precautions, including the use of personal protective equipment (“PPE”) (where and when prudent), enhanced daily cleaning and instructions to maintain appropriate social distancing.

● We also actively encourage customers to utilize PPE and alternative banking channels, such as our online and mobile banking platforms.  Our customer service and retail departments remain fully staffed and available to assist customers remotely.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

● Our corporate and operations offices have predominantly returned to pre-pandemic schedules and processes, but we have enhanced daily cleaning and instructed employees to maintain appropriate social distancing.  Our employees maintain the ability to work remotely, both safely and efficiently using technology, in the event that such is required or necessary.  Most of our normally scheduled meetings, including Board of Director meetings and various committee meetings, have returned to in-person.

● We continue to assist customers experiencing COVID-19 related financial hardships by approving payment extensions or loan forbearance agreements, and waiving or refunding certain fees.  During the initial onset of the COVID-19 pandemic, we proactively contacted all commercial borrowers and offered uniform payment extensions or loan forbearance agreements, while requests from consumer borrowers were reviewed and approved on a case-by-case basis.  Payment extensions or loan forbearance agreements were generally for periods of three months and included deferment of both principal and interest.  Following the expiration of the initial payment extensions or loan forbearance agreements, we entertain requests for extended periods on a case-by-case basis, which will generally include deferment of only the principal portion of payments for a period of up to three months. The table below summarizes payment extensions or loan forbearance agreements that were in effect at July 20, 2021.

		Outstanding
	Number of	Principal
	Loans	Balance
(Dollars in thousands)
Residential real estate	2	$	127
Commercial real estate	2		8,609
Commercial business	1		5
Total	5	$	8,741

● Under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was signed into law on March 27, 2020, the SBA made six months of principal and interest payments for loans of existing SBA clients that were in “regular servicing status” (not delinquent) at March 27, 2020 and for loans of new SBA clients originated between March 27, 2020 and September 27, 2020.  The CARES Act provided financial support for many of the Company’s SBA borrowers, which resulted in relatively few of such requiring payment extensions or loan forbearance agreements. The Coronavirus Response and Relief Supplemental Appropriations Act (“CRRSAA”), which was signed into law on December 27, 2020, provides additional SBA-provided loan payments to eligible SBA borrowers beginning in February 2021.

● The Company participated in the first round of the SBA’s Paycheck Protection Program (“PPP”), which was originally authorized by the CARES Act, and the second round of the PPP, which was authorized by the CRRSAA.  At June 30, 2021, the outstanding principal balance of PPP loans was $100.6 million and net deferred loan fees related to PPP loans was approximately $1.4 million, which will be recognized over the life of the loans and as borrowers are granted forgiveness.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

● As a result of the COVID-19 pandemic, the leisure and hospitality industries carry a higher degree of credit risk.  At June 30, 2021, the outstanding principal balance of loans secured by restaurant related collateral was $146.0 million, of which $48.9 million is fully guaranteed by the SBA, including $48.5 million of PPP loans, and $86.7 million is secured by commercial real estate where the collateral property is leased to national-brand, investment-grade tenants.  At June 30, 2021, the outstanding principal balance of loans secured by hotel real estate was $17.5 million, of which $3.9 million is fully guaranteed by the SBA, including $865,000 of PPP loans.  The two commercial real estate loans included in the preceding table totaling $8.6 million are secured by hotel real estate and are not guaranteed by the SBA.  Based on our evaluation of the allowance for loan losses at June 30, 2021, management believes the allowance for loan losses is adequate to cover estimated losses at that date.  However, as the pandemic continues, losses could be recognized beyond those estimated at June 30, 2021.

Management continues to closely monitor the pandemic and may take additional action to respond to the pandemic’s effects on the Company’s business as the situation continues to evolve.  We cannot determine or estimate the impact on our business at this time because the length and severity of the economic downturn is not known.  We believe we are well-positioned to withstand any challenges that may be presented, and we are committed to continuing to serve our customers, employees and communities.

Comparison of Financial Condition at June 30, 2021 and September 30, 2020

Cash and Cash Equivalents. Cash and cash equivalents decreased $10.8 million from $33.7 million at September 30, 2020 to $22.9 million at June 30, 2021.

Loans. Net loans receivable decreased $24.2 million, from $1.09 billion at September 30, 2020 to $1.07 billion at June 30, 2021, primarily due to an $80.0 million decrease in PPP loans and a $17.5 million transfer of single tenant net lease loans from held for investment to held for sale, partially offset by continued growth in the single tenant net lease commercial real estate loan portfolio, which increased $49.3 million during the period.

Loans Held for Sale. Loans held for sale decreased $8.1 million, from $285.5 million at September 30, 2020 to $277.4 million at June 30, 2021, due to decreases in residential mortgage loans held for sale and SBA loans held for sale of $21.0 million and $4.6 million, respectively, partially offset by an increase in single tenant net lease loans held for sale of $17.5 million.  The decreases in residential mortgage loans held for sale and SBA loans held for sale were due to loan sales outpacing originations during the period.

Securities Available for Sale. Securities available for sale increased $5.6 million, from $202.0 million at September 30, 2020 to $207.6 million at June 30, 2021, due primarily to purchases of $22.3 million, partially offset by calls and maturities of $11.7 million, a decrease in the unrealized gain on securities available for sale of $1.1 million, and principal repayments of $3.3 million.

Securities Held to Maturity. Investment securities held to maturity decreased $179,000 from $2.1 million at September 30, 2020 to $1.9 million at June 30, 2021 due to partial calls and principal repayments.  There were no purchases of securities held to maturity during the nine-month period ended June 30, 2021.

Deposits. Total deposits increased $79.1 million, from $1.05 billion at September 30, 2020 to $1.13 billion at June 30, 2021, due to increases in interest bearing deposit accounts and non-interest bearing deposit accounts of $39.8 million and $39.3 million, respectively.

FHLB Borrowings.  Borrowings from the FHLB decreased $27.6 million, from $310.9 million at September 30, 2020 to $283.3 million at June 30, 2021.  The decrease in borrowings was primarily due to maturities during the period that did not need to be replaced due to deposit growth during the period.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Federal Reserve PPPLF Borrowings. The Company utilizes the Federal Reserve PPP Liquidity Facility (“PPPLF”) to fund certain PPP loans, which are pledged as collateral to secure the borrowings.  PPPLF borrowings decreased $67.0 million, from $174.8 million at September 30, 2020 to $107.8 million at June 30, 2021 due to repayments.

Equity. Stockholders’ equity attributable to the Company was $177.7 million at June 30, 2021, an increase of $20.5 million from September 30, 2020 due primarily to a $23.0 million increase in retained earnings.  That increase was partially offset by a decrease in net unrealized gains on available for sale securities included in accumulated other comprehensive income of $851,000 and a decrease in additional paid in capital of $1.8 million due to the Bank’s acquisition of the minority interests in Q2 Business Capital, LLC on December 31, 2020.

Results of Operations for the Three Months Ended June 30, 2021 and 2020

Overview. The Company reported net income of $4.3 million, or $1.80 per diluted share, for the three-month period ended June 30, 2021 compared to net income of $15.4 million, or $6.51 per diluted share, for the three-month period ended June 30, 2020.

Net Interest Income. Net interest income increased $2.1 million, or 16.8%, for the three-month period ended June 30, 2021 as compared to the same period in 2020.  Average interest-earning assets increased $131.6 million and average interest-bearing liabilities increased $55.9 million when comparing the two periods.  The tax-equivalent net interest margin was 3.75% for 2021 compared to 3.52% for 2020.

Total interest income increased $1.4 million, or 9.7%, when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $131.6 million, from $1.42 billion for 2020 to $1.55 billion for 2021 and an increase in the average tax equivalent yield on interest-earning assets from 4.24% for 2020 to 4.25% for 2021.  The increase in average interest-earning assets was primarily due to an increase in the average balance of loans, which increased $110.1 million, or 9.2%, compared to 2020, including an increase of $30.5 million related to PPP loans.  The increase in the weighted-average tax-equivalent yield for 2021 was due primarily to an increase in the yield on PPP loans from 2.34% for 2020 to 3.71% for 2021.  The increase in the yield on PPP loans was due to accelerated recognition of deferred PPP loan fees related to forgiveness payoffs during the quarter ended June 30, 2021.

Total interest expense decreased $622,000, or 24.9%, due to a decrease in the average cost of interest-bearing liabilities from 0.88% for 2020 to 0.63% for 2021, partially offset by an increase in the average balance of interest-bearing liabilities of $55.9 million, from $1.16 billion for 2020 to $1.21 billion for 2021.   The decrease in the average cost of interest-bearing liabilities for 2021 was due primarily to decreasing market interest rates on deposits and FHLB borrowings, as well as increased borrowings under the PPPLF, which carry a fixed interest rate of 0.35%.

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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 June 30, 2021 and 2020. 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 June 30,
	2021						2020
			Interest						Interest
	Average		and		Yield/		Average		and		Yield/
	Balance		Dividends		Cost		Balance		Dividends		Cost
	(Dollars in thousands)
Assets:
Interest-bearing deposits with banks	$	37,683	$	14	0.15	%	$	25,985	$	37	0.57	%
Loans, excluding PPP loans		1,155,958		13,017	4.50			1,076,376		12,164	4.52
PPP loans		145,227		1,347	3.71			114,721		671	2.34
Investment securities - taxable		46,392		447	3.85			43,569		502	4.61
Investment securities - nontaxable		148,280		1,496	4.04			143,702		1,514	4.21
FRB and FHLB stock		19,258		161	3.34			16,804		168	4.00
Total interest-earning assets		1,552,798		16,482	4.25			1,421,157		15,056	4.24
Noninterest-earning assets		165,263						110,772
Total assets	$	1,718,061					$	1,531,929
Liabilities and equity:
NOW accounts	$	274,541	$	187	0.27	%	$	200,933	$	109	0.22	%
Money market deposit accounts		179,379		175	0.39			118,923		126	0.42
Savings accounts		161,399		25	0.06			130,760		24	0.07
Time deposits		192,023		336	0.70			319,786		1,052	1.32
Total interest-bearing deposits		807,342		723	0.36			770,402		1,311	0.68
Federal funds purchased		—		—	0.00			1,978		2	0.40
FHLB borrowings		272,834		780	1.14			292,168		846	1.16
Federal Reserve PPPLF borrowings		114,453		98	0.34			74,218		66	0.36
Subordinated debt		19,836		320	6.45			19,769		318	6.43
Total interest-bearing liabilities		1,214,465		1,921	0.63			1,158,535		2,543	0.88
Noninterest-bearing deposits		288,027						214,907
Other noninterest-bearing liabilities		42,146						30,413
Total liabilities		1,544,638						1,403,855
Total stockholders’ equity		173,423						128,629
Noncontrolling interest in subsidiary		—						(555)
Total equity		173,423						128,074
Total liabilities and equity	$	1,718,061					$	1,531,929
Net interest income (taxable equivalent basis)				14,561						12,513
Less: taxable equivalent adjustment				(332)						(337)
Net interest income			$	14,229					$	12,176
Interest rate spread (taxable equivalent basis)					3.62	%					3.36	%
Net interest margin (taxable equivalent basis)					3.75	%					3.52	%
Net interest margin, excluding PPP and PPPLF (taxable equivalent basis)					3.78	%					3.65	%
Average interest-earning assets to average interest-bearing liabilities					127.86	%					122.67	%

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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 June 30, 2021 and 2020. 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 June 30, 2021
	Compared to
	Three Months Ended June 30, 2020
	Increase (Decrease)
	Due to
	Rate		Volume		Net
			(In thousands)
Interest income:
Interest-bearing deposits with banks	$	(33)	$	10	$	(23)
Loans, excluding PPP loans		(44)		897		853
PPP loans		445		231		676
Investment securities - taxable		(84)		29		(55)
Investment securities - nontaxable		(65)		47		(18)
FRB and FHLB stock		(30)		23		(7)
Total interest-earning assets		189		1,237		1,426
Interest expense:
Deposits		(636)		48		(588)
Federal funds purchased		—		(2)		(2)
Borrowings from FHLB		(10)		(56)		(66)
Federal Reserve PPPLF borrowings		(3)		35		32
Subordinated debt		2		—		2
Total interest-bearing liabilities		(647)		25		(622)
Net increase in net interest income (taxable equivalent basis)	$	836	$	1,212	$	2,048

Provision for Loan Losses. The Company recognized a negative provision for loan losses of $2.7 million for the three-month period ended June 30, 2021 compared to a provision of $3.0 million for the same period in 2020.  The negative provision for loan losses for the quarter ended June 30, 2021 was primarily the result of decreases in certain segments of the loan portfolio and in nonperforming assets, as well as reductions of certain qualitative risk factors within the allowance for loan losses calculation related to the COVID-19 pandemic.

The Company recognized net charge-offs of $47,000 for the three-month period ended June 30, 2021 compared to net charge-offs of $31,000 for the same period in 2020.

Noninterest Income. Noninterest income decreased $28.2 million for the three-month period ended June 30, 2021 as compared to the same period in 2020.  The decrease was due primarily to a decrease in mortgage banking income of $29.5 million, which was partially offset by a $1.0 million increase in net gain on sales of SBA loans.  The decrease in mortgage banking income was due to decreased loan originations and sales by the mortgage banking segment, as well as margin compression in the residential mortgage loan secondary market.  The increase in net gain on sales of SBA loans was due primarily to increases in production and sales volume from the SBA lending segment, as well as higher premiums in the secondary market.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Noninterest Expense.  Noninterest expense decreased $4.4 million for the three-month period ended June 30, 2021 as compared to the same period in 2020.  The decrease was due primarily to a decrease in compensation and benefits of $5.6 million, which was partially offset by increases in other noninterest expense and professional fees of $753,000 and $567,000, respectively.  The decrease in compensation and benefits expense is due primarily to a reduction in incentive compensation for the Company’s mortgage banking segment as a result of decreased mortgage banking income. The increases in other noninterest expense and professional fees were primarily to support the growth of the mortgage banking segment.

Income Tax Expense. The Company recognized income tax expense of $817,000 for the three-month period ended June 30, 2021 as compared to income tax expense of $5.5 million for the same period in 2020.  The decrease is primarily the result of lower pretax income in 2021.  The effective tax rate for 2021 was 15.9% compared to 26.2% for 2020.  The reduction in the effective tax rate is due to lower nondeductible executive compensation in 2021.

Results of Operations for the Nine Months Ended June 30, 2021 and 2020

Overview.  The Company reported net income of $24.7 million, or $10.35 per diluted share, for the nine-month period ended June 30, 2021 compared to net income of $18.2 million, or $7.66 per diluted share, for the nine-month period ended June 30, 2020.

Net Interest Income.  Net interest income increased $9.0 million, or 26.8%, for the nine-month period ended June 30, 2021 as compared to the same period in 2020.  Average interest-earning assets increased $342.7 million and average interest-bearing liabilities increased $253.7 million when comparing the two periods.  The tax-equivalent net interest margin was 3.63% for 2021 compared to 3.66% for 2020.

Total interest income increased $7.1 million, or 16.9%, when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $342.7 million, from $1.26 billion for 2020 to $1.61 billion for 2021, partially offset by a decrease in the average tax equivalent yield on interest-earning assets from 4.52% for 2020 to 4.15% for 2021.  The increase in average interest-earning assets was primarily due to an increase in the average balance of loans, which increased $324.2 million, or 31.4%, compared to 2020, including an increase of $125.0 million related to PPP loans. The decrease in the weighted-average tax-equivalent yield for 2021 is due primarily to lower market interest rates on loans and investment securities in 2021.

Total interest expense decreased $1.9 million, or 23.6%, due to a decrease in the average cost of interest-bearing liabilities from 1.07% for 2020 to 0.65% for 2021, partially offset by an increase in the average balance of interest-bearing liabilities of $253.7 million, from $1.03 billion for 2020 to $1.28 billion for 2021.  The decrease in the average cost of interest-bearing liabilities for 2021 was due primarily to decreasing market interest rates on deposits and FHLB borrowings, as well as increased PPPLF borrowings.

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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 nine-month periods ended June 30, 2021 and 2020.  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%.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

	Nine Months Ended June 30,
	2021						2020
	Average		Interest and		Yield/		Average		Interest and		Yield/
	Balance		Dividends		Cost		Balance		Dividends		Cost
	(Dollars in thousands)
Assets:
Interest-bearing deposits with banks	$	39,994	$	50	0.17	%	$	40,219	$	395	1.31	%
Loans, excluding PPP loans		1,192,834		39,221	4.38			993,675		35,627	4.78
PPP loans		163,079		4,463	3.65			38,101		668	2.34
Investment securities – taxable		43,760		1,350	4.11			46,651		1,591	4.55
Investment securities – nontaxable		146,934		4,491	4.08			128,798		4,092	4.24
FRB and FHLB stock		18,843		436	3.09			15,273		473	4.13
Total interest-earning assets		1,605,444		50,011	4.15			1,262,717		42,846	4.52
Noninterest-earning assets		156,766						105,576
Total assets	$	1,762,210					$	1,368,293
Liabilities and equity:
NOW accounts	$	256,685	$	539	0.28	%	$	190,659	$	386	0.27	%
Money market deposit accounts		165,239		528	0.43			115,287		674	0.78
Savings accounts		153,586		70	0.06			124,353		73	0.08
Time deposits		244,020		1,293	0.71			300,938		3,552	1.57
Total interest-bearing deposits		819,530		2,430	0.40			731,237		4,685	0.85
Federal funds purchased		—		-	0.00			704		3	0.57
FHLB borrowings		291,030		2,474	1.13			249,257		2,492	1.33
Federal Reserve PPPLF borrowings		148,892		407	0.36			24,649		66	0.36
Subordinated debt		19,819		956	6.43			19,752		955	6.45
Total interest-bearing liabilities		1,279,271		6,267	0.65			1,025,599		8,201	1.07
Noninterest-bearing deposits		268,275						190,237
Other noninterest-bearing liabilities		46,759						27,118
Total liabilities		1,594,305						1,242,954
Total stockholders’ equity		167,743						125,483
Noncontrolling interest in subsidiary		162						(144)
Total equity		167,905						125,339
Total liabilities and equity	$	1,762,210					$	1,368,293
Net interest income (taxable equivalent basis)				43,744						34,645
Less: taxable equivalent adjustment				(996)						(912)
Net interest income			$	42,748					$	33,733
Interest rate spread (taxable equivalent basis)					3.50	%					3.45	%
Net interest margin (taxable equivalent basis)					3.63	%					3.66	%
Net interest margin, excluding PPP and PPPLF (taxable equivalent basis)					3.67	%					3.71	%
Average interest-earning assets to average interest-bearing liabilities					125.50	%					123.12	%

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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 nine-month periods ended June 30, 2021 and 2020.  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.

		Nine Months Ended June 30, 2021
		Compared to
		Nine Months Ended June 30, 2020
		Increase (Decrease)
		Due to
	Rate			Volume		Net
		(In thousands)
Interest income:
Interest-bearing deposits with banks		$	(344)	$	(1)	$	(345)
Loans, excluding PPP loans			(3,223)		6,817		3,594
PPP loans			987		2,808		3,795
Investment securities – taxable			(147)		(94)		(241)
Investment securities – nontaxable			(166)		565		399
FRB and FHLB stock			(134)		97		(37)
Total interest-earning assets			(3,027)		10,192		7,165
Interest expense:
Deposits			(2,669)		414		(2,255)
Fed funds purchased			—		(3)		(3)
Borrowings from FHLB			(403)		385		(18)
Federal Reserve PPPLF borrowings			6		335		341
Subordinated debt			(2)		3		1
Total interest-bearing liabilities			(3,068)		1,134		(1,934)
Net increase in net interest income (taxable equivalent basis)		$	41	$	9,058	$	9,099

Provision for Loan Losses.  The Company recognized a negative provision for loan losses of $1.8 million for the nine-month period ended June 30, 2021 compared to a provision of $5.2 million for the same period in 2020.  The negative provision for loan losses for 2021 was primarily the result of decreases in certain segments of the loan portfolio and nonperforming assets, as well as reductions of certain qualitative risk factors within the allowance for loan losses calculation related to the COVID-19 pandemic.

The Company recognized net charge-offs of $609,000 for the nine-month period ended June 30, 2021 compared to net charge-offs of $590,000 for the same period in 2020.

Noninterest Income.  Noninterest income increased $27.6 million for the nine-month period ended June 30, 2021 as compared to the same period in 2020.  The increase was due primarily to increases in mortgage banking income of $23.2 million and net gain on sales of SBA loans of $3.5 million.  The increase in mortgage banking income was due to increased production from the secondary-market residential mortgage lending segment.  The increase in net gain on sales of SBA loans was due primarily to increases in production and sales volume from the SBA lending segment, as well as higher premiums in the secondary market.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Noninterest Expense.  Noninterest expense increased $32.9 million for the nine-month period ended June 30, 2021 as compared to the same period in 2020.  The increase was due primarily to increases in compensation and benefits of $25.1 million, other operating expense of $3.0 million, professional fees of $2.3 million and occupancy and equipment of $1.6 million.  The increase in compensation and benefits expense is attributable to the addition of new employees primarily to support the growth of the Company’s mortgage banking and SBA lending activities, routine salary and benefits adjustments, and increased incentive compensation primarily as a result of the performance of the Company’s mortgage banking segment.  The increases in other operating expense, professional fees and occupancy and equipment were primarily to support the growth of the mortgage banking segment.

Income Tax Expense.  The Company recognized income tax expense of $9.0 million for the nine-month period ended June 30, 2021 as compared $5.4 million for the same period in 2020.  The increase for 2021 was due primarily to higher pretax income.  The effective tax rate for 2021 was 26.5% as compared to 23.0% for 2020.

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 June 30, 2021, the Bank had cash and cash equivalents of $22.9 million and securities available-for-sale with a fair value of $207.6 million.  If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB, borrowing capacity on a federal funds purchased line of credit facility with another financial institution and additional collateral eligible for repurchase agreements.

The Bank’s primary investing activity is the origination of 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.

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 and the Captive.  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 June 30, 2021, the Company (unconsolidated basis) had liquid assets of $2.8 million.

Capital Management. The Bank is required to maintain specific amounts of capital pursuant to regulatory requirements.  As of June 30, 2021, 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 10.62%, 11.92%, 11.92% and 12.97%, 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 applicable regulatory guidelines.  At June 30, 2021, the Bank was considered “well-capitalized” under applicable regulatory guidelines.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with GAAP, are not recorded on the Company’s financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk.  Such transactions are primarily used to manage customers’ requests for funding and take the form of loan commitments and letters of credit.  A further presentation of the Company’s off-balance sheet arrangements is presented in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020.

For the nine-month period ended June 30, 2021, 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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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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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 June 30, 2021				At September 30, 2020
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	$	(4,045)	(8.99)	%	$	(2,493)	(5.30)	%
200bp		(1,935)	(4.30)			(593)	(1.26)
100bp		(64)	(0.14)			942	2.00
(100)bp		(1,342)	(2.98)			(1,132)	(2.40)
(200)bp		(2,032)	(4.52)			(1,939)	(4.12)

At June 30, 2021, our simulated exposure to an increase in interest rates shows that an immediate and sustained increase in rates of 1.00% will decrease our net interest income by $64,000 or 0.14%, over a one year horizon compared to a flat interest rate scenario. Furthermore, rate increases of 2.00% and 3.00% would cause net interest income to decrease by 4.30% and 8.99%, respectively.  An immediate and sustained decrease in rates of 1.00% will decrease our net interest income by $1.3 million, or 2.98%, 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 decrease by 4.52%. All estimated changes presented in the above table are within the policy guidelines approved by the Company’s Board of Directors.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 4

CONTROLS AND PROCEDURES

Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of June 30, 2021 (the “Evaluation Date”), the Company performed an evaluation, under the supervision of and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.

Changes in Internal Controls. There have been no changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2021, 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

The Company is not a party to any legal proceedings. Periodically, there have been various claims and lawsuits involving the Bank, mainly as a plaintiff, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank’s business. The Bank is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition or results of operations. As previously discussed in Note 17, the Bank received notice of a class action lawsuit on March 23, 2021 regarding its policy and practice of assessment of customer fees related to items presented on accounts with insufficient funds (NSF items).

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, 2020 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.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information regarding the Company’s stock repurchase activity during the quarter ended June 30, 2021:

					(d)
				(c)	Maximum number
				Total number of shares	(or appropriate dollar value)
	(a)	(b)		(or units) purchased as	of shares (or units)
	Total number of	Average price		part of publicly	that may yet be
	shares (or units)	paid per share		announced plans or	purchased under
Period	purchased	(or unit)		programs (1)	the plans or programs
April 1, 2021 through April 30, 2021	—	$	—	—	116,003
May 1, 2021 through May 31, 2021	411	$	69.04	411	115,592
June 1, 2021 through June 30, 2021	—	$	—	—	115,592
Total	—	$	—	—	115,592

(1) On November 16, 2012, the Company announced that its Board of Directors authorized a stock repurchase program to acquire up to 230,217 shares, or 10.0% of the Company’s outstanding common stock. Under the program, repurchases are to be conducted through open market purchases or privately negotiated transactions, and are to be made from time to time depending on market conditions and other factors. There is no guarantee as to the exact number of shares to be repurchased by the Company. Repurchased shares are held in treasury.

Item 3.  Defaults upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

Item 5.  Other Information

None.

Item 6.  Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in iXBRL (Inline 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 (Formatted in Inline XBRL and Contained in Exhibit 101)

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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 August 13, 2021	BY:	/s/ Larry W. Myers
		Larry W. Myers
		President and Chief Executive Officer
Dated August 13, 2021	BY:	/s/ Anthony A. Schoen
		Anthony A. Schoen
		Chief Financial Officer

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