First Savings Financial (FSFG) 10-Q 2017 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period endedJune 30, 2017

OR

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

For the transition period from                                      to                                 

Commission File No.1-34155

First Savings Financial Group, Inc.

(Exact name of registrant as specified in its charter)

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

501 East Lewis & Clark Parkway, Clarksville, Indiana 47129

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code1-812-283-0724

Not applicable

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

(Check one):	Large Accelerated Filer¨	Accelerated Filer¨
	Non-accelerated Filer¨	Smaller Reporting Companyx
	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  ¨    Nox

The number of shares outstanding of the registrant’s common stock as of June 30, 2017 was 2,242,454.

FIRST SAVINGS FINANCIAL GROUP, INC.

INDEX

		Page
Part I	Financial Information
	Item 1.  Financial Statements
	Consolidated Balance Sheets as of June 30, 2017 and September 30, 2016 (unaudited)	3
	Consolidated Statements of Income for the three months and nine months ended June 30, 2017 and 2016 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the three months and nine months ended June 30, 2017 and 2016 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended June 30, 2017 and 2016 (unaudited)	6
	Consolidated Statements of Cash Flows for the nine months ended June 30, 2017 and 2016 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	8-45
	Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	46-57
	Item 3.  Quantitative and Qualitative Disclosures About Market Risk	58-59
	Item 4.  Controls and Procedures	60
Part II	Other Information
	Item 1.  Legal Proceedings	61
	Item 1A.  Risk Factors	61
	Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	62
	Item 3.  Defaults Upon Senior Securities	62
	Item 4.  Mine Safety Disclosures	62
	Item 5.  Other Information	63
	Item 6.  Exhibits	63
Signatures		64

-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)	2017			2016
ASSETS
Cash and due from banks	$	10,926		$	11,449
Interest-bearing deposits with banks		30,164			17,893
Total cash and cash equivalents		41,090			29,342
Interest-bearing time deposits		2,555			3,100
Trading account securities, at fair value		5,819			9,255
Securities available for sale, at fair value		178,019			174,493
Securities held to maturity		2,955			3,166
Loans held for sale, residential mortgage		755			384
Loans held for sale, Small Business Administration		24,215			5,087
Loans, net of allowance for loan losses of $7,995 and $7,122		564,771			518,611
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		6,936			6,936
Premises and equipment		11,439			11,674
Other real estate owned, held for sale		346			519
Accrued interest receivable:
Loans		1,827			1,451
Securities		1,681			1,355
Cash surrender value of life insurance		18,182			18,214
Goodwill		7,936			7,936
Core deposit intangibles		779			1,037
Other assets		4,777			3,956
Total Assets	$	874,082		$	796,516
LIABILITIES
Deposits:
Noninterest-bearing	$	95,558		$	79,859
Interest-bearing		578,342			499,608
Total deposits		673,900			579,467
Repurchase agreements		1,347			1,345
Borrowings from Federal Home Loan Bank		100,000			121,633
Accrued interest payable		265			195
Advance payments by borrowers for taxes and insurance		992			1,014
Accrued expenses and other liabilities		6,259			6,282
Total Liabilities		782,763			709,936
STOCKHOLDERS' EQUITY
Preferred stock of $.01 par value per share; authorized 1,000,000 shares; none issued		-			-
Common stock of $.01 par value per share; authorized 20,000,000 shares; issued 2,559,307 shares (2,542,042 at September 30, 2016); outstanding 2,242,454 shares (2,204,787 shares at September 30, 2016)		25			25
Additional paid-in capital		27,782			27,182
Retained earnings - substantially restricted		65,558			59,499
Accumulated other comprehensive income		4,438			5,944
Unearned stock compensation		(606	)		-
Less treasury stock, at cost - 316,853 shares (337,255 shares at September 30, 2016)		(5,878	)		(6,070	)
Total Stockholders' Equity		91,319			86,580
Total Liabilities and Stockholders' Equity	$	874,082		$	796,516

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)	2017			2016			2017			2016
INTEREST INCOME
Loans, including fees	$	6,908		$	5,794		$	19,781		$	16,805
Securities:
Taxable		880			916			2,691			2,843
Tax-exempt		754			613			2,082			1,732
Dividend income		79			77			235			231
Interest-bearing deposits with banks		43			22			105			84
Total interest income		8,664			7,422			24,894			21,695
INTEREST EXPENSE
Deposits		689			690			1,930			1,869
Federal funds purchased		14			-			21			-
Repurchase agreements		1			-			3			2
Borrowings from Federal Home Loan Bank		428			384			1,232			1,119
Loans payable		-			41			-			121
Total interest expense		1,132			1,115			3,186			3,111
Net interest income		7,532			6,307			21,708			18,584
Provision for loan losses		321			303			1,002			428
Net interest income after provision for loan losses		7,211			6,004			20,706			18,156
NONINTEREST INCOME
Service charges on deposit accounts		329			289			971			893
Net gain on sales of available for sale securities		30			-			30			-
Net gain on trading account securities		184			285			113			713
Net gain on sales of loans, residential mortgage		104			76			342			313
Net gain on sales of loans, Small Business Administration		938			423			2,741			513
Increase in cash surrender value of life insurance		105			111			318			338
Gain on life insurance		-			-			189			-
Commission income		78			69			283			282
Real estate lease income		-			170			-			496
Net gain on sale of premises and equipment		7			-			30			-
Loss on tax credit investment		-			(4,309	)		(226	)		(4,309	)
Other income		348			310			1,068			891
Total noninterest income		2,123			(2,576	)		5,859			130
NONINTEREST EXPENSE
Compensation and benefits		3,837			3,215			11,035			9,583
Occupancy and equipment		699			670			1,990			2,043
Data processing		329			442			1,031			1,209
Advertising		126			131			363			366
Professional fees		419			279			919			890
FDIC insurance premiums		113			116			342			359
Net (gain) loss on other real estate owned		(14	)		9			(123	)		59
Other operating expenses		796			728			2,354			2,205
Total noninterest expense		6,305			5,590			17,911			16,714
Income (loss) before income taxes		3,029			(2,162	)		8,654			1,572
Income tax (benefit) expense		586			(4,389	)		1,680			(3,533	)
Net Income	$	2,443		$	2,227		$	6,974		$	5,105
Preferred stock dividends declared		-			-			-			62
Net Income Available to Common Shareholders	$	2,443		$	2,227		$	6,974		$	5,043
Net income per common share:
Basic	$	1.10		$	1.01		$	3.15		$	2.30
Diluted	$	1.04		$	0.97		$	2.98		$	2.19
Weighted average common shares outstanding:
Basic		2,225,189			2,204,787			2,217,033			2,197,101
Diluted		2,351,739			2,306,029			2,340,688			2,300,834
Dividends per common share	$	0.14		$	0.13		$	0.41		$	0.38

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)	2017			2016			2017			2016
Net Income	$	2,443		$	2,227		$	6,974		$	5,105
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period		2,307			1,511			(2,309	)		2,803
Income tax benefit (expense)		(800	)		(522	)		823			(956	)
Net of tax amount		1,507			989			(1,486	)		1,847
Less: reclassification adjustment for realized gains included in net income		(30	)		-			(30	)		-
Income tax expense		10			-			10			-
Net of tax amount		(20	)		-			(20	)		-
Other Comprehensive Income (Loss)		1,487			989			(1,506	)		1,847
Comprehensive Income	$	3,930		$	3,216		$	5,468		$	6,952

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			Unearned
									Other			Stock
	Common		Additional			Retained			Comprehensive			Compensation			Treasury
(In thousands, except share and per share data)	Stock		Paid-in Capital			Earnings			Income			and ESOP			Stock			Total
															��
Nine Months Ended June 30, 2016:
Balances at October 1, 2015	$	25	$	43,916		$	52,760		$	4,210		$	(197	)	$	(6,357	)	$	94,357
Net income		-		-			5,105			-			-			-			5,105
Other comprehensive income		-		-			-			1,847			-			-			1,847
Preferred stock dividends		-		-			(62	)		-			-			-			(62	)
Common stock dividends ($0.38 per share)		-		-			(823	)		-			-			-			(823	)
Shares released by ESOP trust		-		504			-			-			197			-			701
Stock options exercises - 26,210 shares		-		(118	)		-			-			-			466			348
Redemption of preferred stock - 17,120 shares		-		(17,120	)		-			-			-			-			(17,120	)
Purchase of 4,933 treasury shares		-		-			-			-			-			(179	)		(179	)
Balances at June 30, 2016	$	25	$	27,182		$	56,980		$	6,057		$	-		$	(6,070	)	$	84,174
Nine Months Ended June 30, 2017:
Balances at October 1, 2016	$	25	$	27,182		$	59,499		$	5,944		$	-		$	(6,070	)	$	86,580
Net income		-		-			6,974			-			-			-			6,974
Other comprehensive loss		-		-			-			(1,506	)		-			-			(1,506	)
Common stock dividends ($0.41 per share)		-		-			(915	)		-			-			-			(915	)
Restricted stock grants - 17,265 shares		-		692			-			-			(692	)		-			-
Stock compensation expense		-		39			-			-			86			-			125
Stock option exercises - 26,858 shares		-		(131	)		-			-			-			486			355
Purchase of 6,456 treasury shares		-		-			-			-			-			(294	)		(294	)
Balances at June 30, 2017	$	25	$	27,782		$	65,558		$	4,438		$	(606	)	$	(5,878	)	$	91,319

See notes to consolidated financial statements.

-6-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	June 30,
(In thousands)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,974		$	5,105
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		1,002			428
Depreciation and amortization		871			1,103
Amortization of premiums and accretion of discounts on securities, net		516			450
Decrease in trading account securities		3,436			242
Loans originated for sale		(67,128	)		(22,054	)
Proceeds on sales of loans		52,145			22,711
Net gain on sales of loans		(3,083	)		(826	)
Net realized and unrealized gain on other real estate owned		(168	)		(10	)
Net gain on sales of available for sale securities		(30	)		-
Gain on life insurance		(189	)		-
Increase in cash surrender value of life insurance		(318	)		(338	)
Net gain on sale of premises and equipment		(30	)		-
Loss on tax credit investment		226			4,309
Deferred income taxes		1,293			(2,876	)
ESOP and stock compensation expense		125			628
Increase in accrued interest receivable		(702	)		(400	)
Increase in accrued interest payable		70			1
Change in other assets and liabilities, net		(755	)		(967	)
Net Cash Provided By (Used In) Operating Activities		(5,745	)		7,506
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in interest-bearing time deposits		(445	)		-
Proceeds from maturities of interest-bearing time deposits		990			-
Purchase of securities available for sale		(26,422	)		(10,933	)
Proceeds from sales of securities available for sale		4,255			-
Proceeds from maturities of securities available for sale		2,830			5,395
Proceeds from maturities of securities held to maturity		139			1,148
Principal collected on securities		13,047			10,410
Net increase in loans		(48,644	)		(36,486	)
Purchase of Federal Home Loan Bank stock		-			(216	)
Proceeds from sale of other real estate owned		186			430
Investment in real estate development and construction		-			(35	)
Purchase of premises and equipment		(389	)		(223	)
Proceeds from sale of premises and equipment		19			-
Net Cash Used In Investing Activities		(54,434	)		(30,510	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		94,433			40,805
Net increase in repurchase agreements		2			2
Decrease in Federal Home Loan Bank line of credit		(21,633	)		(9,602	)
Proceeds from Federal Home Loan Bank advances		15,000			35,000
Repayment of Federal Home Loan Bank advances		(15,000	)		(25,000	)
Repayment of other long-term debt		-			(141	)
Net decrease in advance payments by borrowers for taxes and insurance		(22	)		(142	)
Redemption of preferred stock		-			(17,120	)
Proceeds from exercise of stock options		62			169
Dividends paid on preferred stock		-			(62	)
Dividends paid on common stock		(915	)		(823	)
Net Cash Provided By Financing Activities		71,927			23,086
Net Increase in Cash and Cash Equivalents		11,748			82
Cash and cash equivalents at beginning of period		29,342			24,994
Cash and Cash Equivalents at End of Period	$	41,090		$	25,076

See notes to consolidated financial statements.

-7-

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 fourteen locations in southern Indiana. The Bank attracts deposits primarily from the general public and uses those funds, along with other borrowings, primarily to originate commercial mortgage, residential mortgage, construction, commercial business and consumer loans, and to a lesser extent, to invest in mortgage-backed securities and other 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. At September 30, 2016, the Bank had a third wholly-owned subsidiary, FFCC, Inc. (“FFCC”), which was an Indiana corporation that participated in commercial real estate development and leasing. In accordance with the Plan of Complete Liquidation adopted by FFCC’s board of directors and approval by the Bank as its sole shareholder on December 21, 2016, FFCC voluntarily dissolved and completely liquidated effective December 31, 2016. As a result of the liquidation, FFCC distributed its net assets to the Bank on December 31, 2016.

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 owns 51% of Q2 with the option to purchase the minority interest between July 1, 2020 and September 30, 2020.

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 eight other third-party insurance captives for which insurance may not be currently available or economically feasible in the insurance marketplace.

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, 2017, the results of operations for the three and nine month periods ended June 30, 2017 and 2016, and the cash flows for the nine month periods ended June 30, 2017 and 2016. 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, 2016 included in the Company’s Annual Report on Form 10-K.

-8-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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.

2. Investment Securities

Agency bonds and notes, agency mortgage-backed securities and agency collateralized mortgage obligations (“CMO”) include securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency, and the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal Home Loan Bank (“FHLB”), which are U.S. government sponsored enterprises. The Company holds municipal bonds issued by municipal governments within the U.S. The Company also holds a pass through asset-backed security 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.

Trading Account Securities

The Company invests in small and medium lot, investment grade municipal bonds through a managed brokerage account.The brokerage account is managed by an investment advisory firm registered with the U.S. Securities and Exchange Commission. At June 30, 2017 and September 30, 2016, trading account securities recorded at fair value totaled $5.8 million and $9.3 million, respectively, and were comprised of investment grade municipal bonds. During the three month periods ended June 30, 2017 and 2016, the Company reported net gains on trading account securities of $184,000 and $285,000, respectively. During the nine month periods ended June 30, 2017 and 2016, the Company reported net gains on trading account securities of $113,000 and $713,000, respectively.

-9-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Securities Available for Sale and Held to Maturity

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

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
June 30, 2017:
Securities available for sale:
Agency mortgage-backed	$	38,941	$	467	$	(68	)	$	39,340
Agency CMO		14,259		32		(56	)		14,235
Privately issued CMO		1,873		205		(19	)		2,059
Privately issued ABS		2,956		813		-			3,769
SBA certificates		1,047		3		-			1,050
Municipal obligations		112,076		5,663		(173	)		117,566
Total securities available for sale	$	171,152	$	7,183	$	(316	)	$	178,019
Securities held to maturity:
Agency mortgage-backed	$	187	$	17	$	-		$	204
Municipal obligations		2,768		371		-			3,139
Total securities held to maturity	$	2,955	$	388	$	-		$	3,343

-10-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
September 30, 2016:
Securities available for sale:
Agency bonds and notes	$	1,024	$	8	$	-		$	1,032
Agency mortgage-backed		46,376		1,029		-			47,405
Agency CMO		16,053		108		(66	)		16,095
Privately issued CMO		2,359		293		-			2,652
Privately issued ABS		3,675		864		(7	)		4,532
SBA certificates		1,220		7		-			1,227
Municipal bonds		94,567		7,002		(19	)		101,550
Total securities available for sale	$	165,274	$	9,311	$	(92	)	$	174,493
Securities held to maturity:
Agency mortgage-backed	$	260	$	23	$	-		$	283
Municipal bonds		2,906		465		-			3,371
Total securities held to maturity	$	3,166	$	488	$	-		$	3,654

The amortized cost and fair value of investment securities as of June 30, 2017 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	$	1,531	$	1,545	$	220	$	248
Due after one year through five years		11,528		12,046		984		1,112
Due after five years through ten years		22,513		24,131		1,055		1,207
Due after ten years		76,504		79,844		509		572
		112,076		117,566		2,768		3,139
CMO		16,132		16,294		-		-
ABS		2,956		3,769		-		-
SBA certificates		1,047		1,050		-		-
Mortgage-backed securities		38,941		39,340		187		204
	$	171,152	$	178,019	$	2,955	$	3,343

-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, 2017 and September 30, 2016, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

	Number				Gross
	of Investment		Fair		Unrealized
	Positions		Value		Losses
	(Dollars in thousands)
June 30, 2017:
Securities available for sale:
Continuous loss position less than twelve months:
Agency mortgage-backed		10	$	9,946	$	68
Agency CMO		7		7,389		42
Privately issued CMO		2		126		19
Municipal obligations		10		6,938		173
Total less than twelve months		29		24,399		302
Continuous loss position more than twelve months:
Agency CMO		3		3,341		14
Total more than twelve months		3		3,341		14
Total securities available for sale		32	$	27,740	$	316
September 30, 2016:
Securities available for sale:
Continuous loss position less than twelve months:
Agency CMO		3	$	3,946	$	12
Privately issued ABS		2		66		7
Municipal obligations		4		2,147		19
Total less than twelve months		9		6,159		38
Continuous loss position more than twelve months:
Agency CMO		2		4,683		54
Total more than twelve months		2		4,683		54
Total securities available for sale		11	$	10,842	$	92

At June 30, 2017 and September 30, 2016, 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.

-12-

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, 2017, which consisted of U.S. government agency mortgage backed securities, agency CMOs, privately issued CMOs and municipal bonds, had a fair value as a percentage of amortized cost of 98.88%. All of the agency and municipal securities are issued by U.S. government-sponsored enterprises and municipal governments, and are generally secured by first mortgage loans and municipal project revenues.

The Company evaluates the existence of a potential credit loss component related to the decline in fair value of the privately issued CMO and ABS portfolios each quarter using an independent third party analysis. At June 30, 2017, the Company held fifteen privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $1.8 million and fair value of $2.5 million that have been downgraded to a substandard regulatory classification due to the security’s credit quality rating by various nationally recognized statistical rating organizations.

At June 30, 2017, two privately-issued CMO were in loss positions and had depreciated approximately 12.92% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $126,000 and a total unrealized loss of $19,000 at June 30, 2017, and were rated below investment grade by NRSROs. Based on the independent third party analysis of the expected cash flows, management has determined that no other-than-temporary impairment is required to be recognized on the privately issued CMO and ABS portfolios. While the Company did not recognize a credit related impairment loss at June 30, 2017, additional deterioration in market and economic conditions may have an adverse impact on the credit quality in the future and therefore, require a credit related impairment charge.

The unrealized losses on U.S. government agency mortgage-backed securities and CMOs and municipal bonds relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities to maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

During the three and nine month periods ended June 30, 2017, the Company realized gross gains on sales of available for sale securities of $96,000 and gross losses of $66,0000. During the three and nine month periods ended June 30, 2016, the Company did not realize any gross gains or losses on sales of available for sale securities.

Certain available for sale debt securities were pledged under repurchase agreements and to secure FHLB borrowings at June 30, 2017 and September 30, 2016, 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, 2017 and September 30, 2016 consisted of the following:

	June 30,			September 30,
	2017			2016
	(In thousands)
Real estate mortgage:
1-4 family residential	$	173,620		$	178,364
Commercial		254,871			217,378
Multifamily residential		18,696			18,431
Residential construction		33,837			24,275
Commercial construction		35,829			33,685
Land and land development		9,303			11,137
Commercial business loans		52,411			41,967
Consumer:
Home equity loans		21,811			21,370
Auto loans		6,825			4,858
Other consumer loans		2,120			2,102
Gross loans		609,323			553,567
Undisbursed portion of construction loans		(36,718	)		(27,623	)
Principal loan balance		572,605			525,944
Deferred loan origination fees and costs, net		161			(211	)
Allowance for loan losses		(7,995	)		(7,122	)
Loans, net	$	564,771		$	518,611

During the nine-month period ended June 30, 2017, there was no significant change in the Company’s lending activities or methodology used to estimate the allowance for loan losses as disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2016.

At June 30, 2017 and September 30, 2016, the recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $1.2 million and $837,000, 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, 2017:

	Residential Real Estate		Commercial Real Estate			Multifamily			Construction		Land & Land Development		Commercial Business		Consumer			Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	173,620	$	254,871		$	18,696		$	32,948	$	9,303	$	52,411	$	30,756		$	572,605
Accrued interest receivable		482		844			33			175		22		213		58			1,827
Net deferred loan origination fees and costs		79		(97	)		(15	)		40		4		170		(20	)		161
Recorded investment in loans	$	174,181	$	255,618		$	18,714		$	33,163	$	9,329	$	52,794	$	30,794		$	574,593
Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	4,589	$	5,464		$	-		$	-	$	314	$	198	$	196		$	10,761
Collectively evaluated for impairment		169,592		250,154			18,714			33,163		9,015		52,596		30,598			563,832
Ending balance	$	174,181	$	255,618		$	18,714		$	33,163	$	9,329	$	52,794	$	30,794		$	574,593

-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, 2016:

	Residential Real Estate		Commercial Real Estate			Multifamily			Construction			Land & Land Development		Commercial Business		Consumer			Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	178,364	$	217,378		$	18,431		$	30,337		$	11,137	$	41,967	$	28,330		$	525,944
Accrued interest receivable		505		592			38			95			23		143		55			1,451
Net deferred loan origination fees and costs		158		(254	)		(17	)		(126	)		4		37		(13	)		(211	)
Recorded investment in loans	$	179,027	$	217,716		$	18,452		$	30,306		$	11,164	$	42,147	$	28,372		$	527,184
Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	4,342	$	6,298		$	-		$	-		$	241	$	231	$	249		$	11,361
Collectively evaluated for impairment		174,685		211,418			18,452			30,306			10,923		41,916		28,123			515,823
Ending balance	$	179,027	$	217,716		$	18,452		$	30,306		$	11,164	$	42,147	$	28,372		$	527,184

-16-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

An analysis of the allowance for loan losses as of June 30, 2017 is as follows:

	Residential Real Estate		Commercial Real Estate		Multifamily		Construction		Land & Land Development		Commercial Business		Consumer		Total
	(In thousands)
Ending Allowance Balance Attributable to Loans:
Individually evaluated for impairment	$	189	$	-	$	-	$	-	$	-	$	-	$	2	$	191
Collectively evaluated for impairment		286		5,484		95		820		201		809		109		7,804
Ending balance	$	475	$	5,484	$	95	$	820	$	201	$	809	$	111	$	7,995

An analysis of the allowance for loan losses as of September 30, 2016 is as follows:

	Residential Real Estate		Commercial Real Estate		Multifamily		Construction		Land & Land Development		Commercial Business		Consumer		Total
	(In thousands)
Ending Allowance Balance Attributable to Loans:
Individually evaluated for impairment	$	43	$	-	$	-	$	-	$	-	$	-	$	5	$	48
Collectively evaluated for impairment		292		5,160		109		845		295		284		89		7,074
Ending balance	$	335	$	5,160	$	109	$	845	$	295	$	284	$	94	$	7,122

-17-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

An analysis of the changes in the allowance for loan losses for the three months ended June 30, 2017 is as follows:

	Residential Real Estate			Commercial Real Estate			Multifamily			Construction		Land & Land Development			Commercial Business		Consumer			Total
	(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance	$	311		$	5,870		$	116		$	703	$	267		$	348	$	103		$	7,718
Provisions		201			(386	)		(21	)		117		(66	)		461		(15	)		321
Charge-offs		(41	)		-			-			-		-			-		(25	)		(66	)
Recoveries		4			-			-			-		-			-		18			22
Ending balance	$	475		$	5,484		$	95		$	820	$	201		$	809	$	111		$	7,995

An analysis of the changes in the allowance for loan losses for the nine months ended June 30, 2017 is as follows:

	Residential Real Estate			Commercial Real Estate		Multifamily			Construction			Land & Land Development			Commercial Business			Consumer			Total
	(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance	$	335		$	5,160	$	109		$	845		$	295		$	284		$	94		$	7,122
Provisions		211			324		(14	)		(25	)		(94	)		536			64			1,002
Charge-offs		(80	)		-		-			-			-			(25	)		(87	)		(192	)
Recoveries		9			-		-			-			-			14			40			63
Ending balance	$	475		$	5,484	$	95		$	820		$	201		$	809		$	111		$	7,995

-18-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

An analysis of the changes in the allowance for loan losses for the three months ended June 30, 2016 is as follows:

	Residential Real Estate			Commercial Real Estate		Multifamily			Construction		Land & Land Development			Commercial Business			Consumer			Total
	(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance	$	286		$	4,595	$	157		$	651	$	345		$	625		$	92		$	6,751
Provisions		113			526		(46	)		92		(32	)		(358	)		8			303
Charge-offs		(114	)		-		-			-		-			(10	)		(20	)		(144	)
Recoveries		33			-		-			-		-			1			25			59
Ending balance	$	318		$	5,121	$	111		$	743	$	313		$	258		$	105		$	6,969

An analysis of the changes in the allowance for loan losses for the nine months ended June 30, 2016 is as follows:

	Residential Real Estate			Commercial Real Estate		Multifamily			Construction		Land & Land Development			Commercial Business			Consumer			Total
	(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance	$	444		$	4,327	$	156		$	551	$	369		$	678		$	99		$	6,624
Provisions		(69	)		794		(45	)		192		(56	)		(411	)		23			428
Charge-offs		(170	)		-		-			-		-			(10	)		(77	)		(257	)
Recoveries		113			-		-			-		-			1			60			174
Ending balance	$	318		$	5,121	$	111		$	743	$	313		$	258		$	105		$	6,969

-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, 2017 and for the three and nine months ended June 30, 2017 and 2016.

	At June 30, 2017						Three Months Ended June 30,								Nine Months Ended June 30,
							2017		2017		2016		2016		2017		2017		2016		2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential real estate	$	4,204	$	4,478	$	-	$	4,371	$	36	$	4,929	$	36	$	4,264	$	106	$	5,252	$	109
Commercial real estate		5,464		5,567		-		5,731		50		6,508		48		6,085		149		6,646		148
Multifamily		-		-		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-		-		-
Land and land development		314		270		-		270		1		-		-		254		1		-		-
Commercial business		198		203		-		206		1		248		2		211		4		299		4
Consumer		117		118		-		120		1		197		1		151		3		202		4
	$	10,297	$	10,636	$	-	$	10,698	$	89	$	11,882	$	87	$	10,965	$	263	$	12,399	$	265
Loans with an allowance recorded:
Residential real estate	$	385	$	401	$	189	$	406	$	-	$	72	$	-	$	444	$	-	$	30	$	-
Commercial real estate		-		-		-		-		-		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-		-		-
Land and land development		-		-		-		-		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-		-		-		-		-
Consumer		79		79		2		88		-		83		-		86		-		78		-
	$	464	$	480	$	191	$	494	$	-	$	155	$	-	$	530	$	-	$	108	$	-
Total:
Residential real estate	$	4,589	$	4,879	$	189	$	4,777	$	36	$	5,001	$	36	$	4,708	$	106	$	5,282	$	109
Commercial real estate		5,464		5,567		-		5,731		50		6,508		48		6,085		149		6,646		148
Multifamily		-		-		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-		-		-
Land and land development		314		270		-		270		1		-		-		254		1		-		-
Commercial business		198		203		-		206		1		248		2		211		4		299		4
Consumer		196		197		2		208		1		280		1		237		3		280		4
	$	10,761	$	11,116	$	191	$	11,192	$	89	$	12,037	$	87	$	11,495	$	263	$	12,507	$	265

The Company did not recognize any interest income using the cash receipts method during the three and nine month periods ended June 30, 2017 and 2016.

-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, 2016.

	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Loans with no related allowance recorded:
Residential real estate	$	3,891	$	4,171	$	-
Commercial real estate		6,298		6,394		-
Multifamily		-		-		-
Construction		-		-		-
Land and land development		241		238		-
Commercial business		231		224		-
Consumer		175		175		-
	$	10,836	$	11,202	$	-
Loans with an allowance recorded:
Residential real estate	$	451	$	450	$	43
Commercial real estate		-		-		-
Multifamily		-		-		-
Construction		-		-		-
Land and land development		-		-		-
Commercial business		-		-		-
Consumer		74		74		5
	$	525	$	524	$	48
Total:
Residential real estate	$	4,342	$	4,621	$	43
Commercial real estate		6,298		6,394		-
Multifamily		-		-		-
Construction		-		-		-
Land and land development		241		238		-
Commercial business		231		224		-
Consumer		249		249		5
	$	11,361	$	11,726	$	48

-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, 2017:

	Nonaccrual Loans		Loans 90+ Days Past Due Still Accruing		Total Nonperforming Loans
	(In thousands)
Residential real estate	$	1,953	$	378	$	2,331
Commercial real estate		1,423		-		1,423
Multifamily		-		216		216
Construction		-		-		-
Land and land development		282		-		282
Commercial business		85		-		85
Consumer		97		-		97
Total	$	3,840	$	594	$	4,434

The following table presents the recorded investment in nonperforming loans at September 30, 2016:

	Nonaccrual Loans		Loans 90+ Days Past Due Still Accruing		Total Nonperforming Loans
	(In thousands)
Residential real estate	$	1,752	$	22	$	1,774
Commercial real estate		1,606		-		1,606
Multifamily		-		-		-
Construction		-		-		-
Land and land development		241		-		241
Commercial business		136		-		136
Consumer		140		-		140
Total	$	3,875	$	22	$	3,897

-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 June 30, 2017:

	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total Past Due		Current		Total Loans
	(In thousands)
Residential real estate	$	2,140	$	1,134	$	1,304	$	4,578	$	169,603	$	174,181
Commercial real estate		144		-		105		249		255,369		255,618
Multifamily		-		-		216		216		18,498		18,714
Construction		-		-		-		-		33,163		33,163
Land and land development		-		-		282		282		9,047		9,329
Commercial business		10		-		-		10		52,784		52,794
Consumer		44		-		-		44		30,750		30,794
Total	$	2,338	$	1,134	$	1,907	$	5,379	$	569,214	$	574,593

The following table presents the aging of the recorded investment in past due loans at September 30, 2016:

	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total Past Due		Current		Total Loans
	(In thousands)
Residential real estate	$	2,019	$	860	$	1,070	$	3,949	$	175,078	$	179,027
Commercial real estate		367		-		94		461		217,255		217,716
Multifamily		-		-		-		-		18,452		18,452
Construction		-		-		-		-		30,306		30,306
Land and land development		-		-		241		241		10,923		11,164
Commercial business		40		-		42		82		42,065		42,147
Consumer		76		1		40		117		28,255		28,372
Total	$	2,502	$	861	$	1,487	$	4,850	$	522,334	$	527,184

-23-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, public information, historical payment experience, credit documentation, and current economic 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.

-24-

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. As of June 30, 2017, and based on the most recent analysis performed, the recorded investment in loans by risk category was as follows:

	Residential Real Estate		Commercial Real Estate		Multifamily		Construction		Land and Land Development		Commercial Business		Consumer		Total
	(In thousands)
Pass	$	167,238	$	249,223	$	16,180	$	32,624	$	9,015	$	52,700	$	30,632	$	557,612
Special Mention		421		3,133		2,534		95		-		-		11		6,194
Substandard		6,380		3,262		-		444		314		94		149		10,643
Doubtful		142		-		-		-		-		-		2		144
Loss		-		-		-		-		-		-		-		-
Total	$	174,181	$	255,618	$	18,714	$	33,163	$	9,329	$	52,794	$	30,794	$	574,593

As of September 30, 2016, the recorded investment in loans by risk category was as follows:

	Residential Real Estate		Commercial Real Estate		Multifamily		Construction		Land and Land Development		Commercial Business		Consumer		Total
	(In thousands)
Pass	$	173,477	$	211,247	$	18,452	$	30,206	$	10,924	$	41,986	$	28,197	$	514,489
Special Mention		459		-		-		100		-		25		-		584
Substandard		5,002		6,469		-		-		240		136		160		12,007
Doubtful		89		-		-		-		-		-		15		104
Loss		-		-		-		-		-		-		-		-
Total	$	179,027	$	217,716	$	18,452	$	30,306	$	11,164	$	42,147	$	28,372	$	527,184

-25-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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.

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, 2017 and September 30, 2016. There was no specific reserve included in the allowance for loan losses related to TDRs at June 30, 2017 and September 30, 2016.

	Accruing		Nonaccrual		Total
	(In thousands)
June 30, 2017:
Residential real estate	$	2,636	$	77	$	2,713
Commercial real estate		4,041		1,318		5,359
Land and land development		32		-		32
Commercial business		113		85		198
Consumer		99		-		99
Total	$	6,921	$	1,480	$	8,401
September 30, 2016:
Residential real estate	$	2,590	$	-	$	2,590
Commercial real estate		4,692		1,512		6,204
Commercial business		95		120		215
Consumer		109		-		109
Total	$	7,486	$	1,632	$	9,118

-26-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table summarizes information in regard to TDRs that were restructured during the three and nine month periods ended June 30, 2017 and 2016:

	Number of Loans		Pre- Modification Principal Balance		Post- Modification Principal Balance
	(In thousands)
Three Months Ended June 30, 2017:
Residential real estate		1	$	21	$	21
Commercial business		1		103		103
Total		2	$	124	$	124
Nine Months Ended June 30, 2017:
Residential real estate		2	$	472	$	474
Land and land development		1		31		32
Commercial business		1		103		103
Total		4	$	606	$	609
Three Months Ended June 30, 2016:
Commercial real estate		1	$	94	$	131
Commercial business		1		97		97
Total		2	$	191	$	228
Nine Months Ended June 30, 2016:
Residential real estate		5	$	181	$	247
Commercial real estate		1		94		131
Commercial business		3		186		216
Total		9	$	461	$	594

For the TDRs listed above, the terms of modification included deferral of contractual principal and interest payments, reduction of the stated interest rate and extension of the maturity date where the debtor was unable to access funds elsewhere at a market interest rate for debt with similar risk characteristics.

At June 30, 2017 and September 30, 2016, the Company had not committed to lend any additional amounts to customers with outstanding loans classified as TDRs.

There were no principal charge-offs recorded as a result of TDRs during the three and nine month periods ended June 30, 2017 and 2016. There was no specific allowance for loan losses related to TDRs modified during the three and nine month periods ended June 30, 2017 and 2016. 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, 2017 and 2016, the Company did not have any TDRs that were modified within the previous twelve months and for which there was a payment default.

-27-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Loan Servicing Rights

The Company originates loans to commercial customers under the SBA 7(a) and other programs. During the fiscal year ended September 30, 2016, the Company began selling the guaranteed portion of the SBA loans with servicing retained. Loan servicing rights on originated SBA loans that have been sold are initially recorded at fair value. Capitalized servicing rights are then amortized in proportion to and over the period of estimated net servicing income. Impairment of servicing rights is assessed using the present value of estimated future cash flows.

The aggregate fair value of 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 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 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 net gain on sales of loans in the consolidated statements of income.

The unpaid principal balance of SBA loans serviced for others was $45.1 million, $13.6 million and $10.7 million at June 30, 2017, September 30, 2016 and June 30, 2016, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $1,000 and $45,000 for the three and nine month periods ended June 30, 2017, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $35,000 and $62,000 for the three and nine month periods ended June 30, 2016, respectively. Net servicing costs (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans of $41,000 and $110,000 for the three and nine month periods ended June 30, 2017, respectively, and $34,000 and $69,000 for the three and nine month periods ended June 30, 2016, respectively, 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, 2017 and 2016 are as follows:

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2017			2016		2017			2016
	(In thousands)
Balance, beginning of period	$	783		$	156	$	310		$	-
Servicing rights resulting from transfers of loans		274			126		781			282
Amortization		(31	)		-		(65	)		-
Change in valuation allowance		-			-		-			-
Balance, end of period	$	1,026		$	282	$	1,026		$	282

Residential mortgage loans originated for sale in the secondary market continue to be sold with servicing released.

-28-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

4. Investment in Historic Tax Credit Entity

On October 15, 2014, the Bank entered into an agreement to participate in the rehabilitation of a certified historic structure located in Louisville, Kentucky with a regional commercial developer. As part of the agreement, the Bank committed to invest $4.2 million into a limited liability company organized in the state of Kentucky by the commercial developer, for which it received a 99% equity interest in the entity and will receive an allocation of 99% of the operating profit and losses and any historic tax credits generated by the entity. The tax credits initially expected to be allocated to the Bank include federal rehabilitation investment credits totaled $4.7 million available under Internal Revenue Code Section 47. Subsequently, during the quarter ended March 31, 2017, the estimate of tax credits increased to $5.0 million and the Company’s investment in equity increased to $4.5 million, or 90% of the anticipated credits to be received.

The Bank’s investment in the historic tax credit entity is accounted for using the equity method of accounting. In conjunction with receipts of certificates of occupancy for the project and estimates of historic tax credits to be received, the Company recognized losses in noninterest income of $4.3 million for the three months ended June 30, 2016 and $226,000 and $4.3 million for the nine months ended June 30, 2017 and 2016, respectively. The Company recorded historic tax credits in income tax (benefit) expense of $4.8 million for the quarter ended June 30, 2016 and $249,000 and $4.8 million in the nine months ended June 30, 2017 and 2016, respectively.

At June 30, 2017, there were no unfunded capital contribution commitments. At September 30, 2016, the Bank’s remaining unfunded capital contribution commitment of $118,000 was included in other liabilities in the accompanying consolidated balance sheet.

5. Deposits

Deposits at June 30, 2017 and September 30, 2016 consisted of the following:

	June 30,		September 30,
	2017		2016
	(In thousands)
Noninterest-bearing demand deposits	$	95,558	$	79,859
NOW accounts		183,596		145,816
Money market accounts		69,545		60,702
Savings accounts		90,627		83,911
Retail time deposits		121,667		127,691
Brokered time deposits		112,907		81,488
Total	$	673,900	$	579,467

-29-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

6.       Supplemental Disclosure for Earnings Per Common Share

Earnings per common share information is presented below for the three and nine month periods ended June 30, 2017 and 2016.

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2017		2016		2017			2016
	(Dollars in thousands, except per share data)
Basic:
Earnings:
Net income	$	2,443	$	2,227	$	6,974		$	5,105
Less: Preferred stock dividends declared		-		-		-			(62	)
Net income available to common shareholders	$	2,443	$	2,227	$	6,974	��	$	5,043
Shares:
Weighted average common shares outstanding		2,225,189		2,204,787		2,217,033			2,197,101
Net income per common share, basic	$	1.10	$	1.01	$	3.15		$	2.30
Diluted:
Earnings:
Net income available to common shareholders	$	2,443	$	2,227	$	6,974		$	5,043
Shares:
Weighted average common shares outstanding		2,225,189		2,204,787		2,217,033			2,197,101
Add: Dilutive effect of outstanding options		121,773		101,242		121,267			103,733
Add: Dilutive effect of restricted stock		4,777		-		2,388			-
Weighted average common shares outstanding as adjusted		2,351,739		2,306,029		2,340,688			2,300,834
Net income per common share, diluted	$	1.04	$	0.97	$	2.98		$	2.19

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

Stock options for 51,295 shares of common stock were excluded from the calculation of diluted net income per common share for the nine month period ended June 30, 2017, because their effect was antidilutive. No restricted stock awards were excluded from the calculation of diluted net income per common share for the nine month period ended June 30, 2017. No stock options or restricted stock awards were excluded from the calculation of diluted net income per common share for the three month periods ended June 30, 2017 and 2016 or the nine month period ended June 30, 2016.

-30-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

7. Supplemental Disclosures of Cash Flow Information

	Nine Months Ended
	June 30,
	2017		2016
	(In thousands)
Cash payments for:
Interest	$	3,140	$	3,158
Taxes		301		793
Transfers from loans held for sale to loans		903		1,319
Transfers from loans to foreclosed real estate		163		566
Proceeds from sales of foreclosed real estate financed through loans		189		134
Noncash exercise of stock options		293		179

8. Fair Value Measurements and Disclosures about Fair Value of Financial Instruments

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

Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted market price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

Level 2: Inputs to the valuation methodology include quoted market prices for similar assets or liabilities in active markets; quoted market prices for identical or similar assets or liabilities in markets that are not active; or inputs that are derived principally from or can be corroborated by observable market data by correlation or other means.

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

-31-

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 carried at fair value or the lower of cost or fair value. The tables below present the balances of financial assets measured at fair value on a recurring and nonrecurring basis as of June 30, 2017 and September 30, 2016. The Company had no liabilities measured at fair value as of June 30, 2017 or September 30, 2016.

	Carrying Value
	Level 1		Level 2		Level 3		Total
	(In thousands)
June 30, 2017:
Assets Measured - Recurring Basis:
Trading account securities	$	-	$	5,819	$	-	$	5,819
Securities available for sale:
Agency mortgage-backed	$	-	$	39,340	$	-	$	39,340
Agency CMO		-		14,235		-		14,235
Privately issued CMO		-		2,059		-		2,059
Privately issued ABS		-		3,769		-		3,769
SBA certificates		-		1,050		-		1,050
Municipal		-		117,566		-		117,566
Total securities available for sale	$	-	$	178,019	$	-	$	178,019
Assets Measured - Nonrecurring Basis:
Impaired loans:
Residential real estate	$	-	$	-	$	4,400	$	4,400
Commercial real estate		-		-		5,464		5,464
Land and land development		-		-		314		314
Commercial business		-		-		198		198
Consumer		-		-		194		194
Total impaired loans	$	-	$	-	$	10,570	$	10,570
Loans held for sale:
Residential mortgage loans held for sale	$	-	$	755	$	-	$	755
SBA loans held for sale		-		24,215		-		24,215
Total loans held for sale	$	-	$	24,970	$	-	$	24,970
Loan servicing rights	$	-	$	-	$	1,026	$	1,026
Other real estate owned, held for sale:
Residential real estate	$	-	$	-	$	179	$	179
Commercial real estate		-		-		167		167
Total other real estate owned	$	-	$	-	$	346	$	346

-32-

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, 2016:
Assets Measured - Recurring Basis:
Trading account securities	$	-	$	9,255	$	-	$	9,255
Securities available for sale:
Agency bonds and notes	$	-	$	1,032	$	-	$	1,032
Agency mortgage-backed		-		47,405		-		47,405
Agency CMO		-		16,095		-		16,095
Privately-issued CMO		-		2,652		-		2,652
Privately-issued ABS		-		4,532		-		4,532
SBA certificates		-		1,227		-		1,227
Municipal		-		101,550		-		101,550
Total securities available for sale	$	-	$	174,493	$	-	$	174,493
Assets Measured - Nonrecurring Basis:
Impaired loans:
Residential real estate	$	-	$	-	$	4,299	$	4,299
Commercial real estate		-		-		6,298		6,298
Land and land development		-		-		241		241
Commercial business		-		-		231		231
Consumer		-		-		244		244
Total impaired loans	$	-	$	-	$	11,313	$	11,313
Loans held for sale:
Residential mortgage loans held for sale	$	-	$	384	$	-	$	384
SBA loans held for sale		-		5,087		-		5,087
Total loans held for sale	$	-	$	5,471	$	-	$	5,471
Loan servicing rights	$	-	$	-	$	310	$	310
Other real estate owned, held for sale:
Residential real estate	$	-	$	-	$	397	$	397
Commercial real estate		-		-		122		122
Total other real estate owned	$	-	$	-	$	519	$	519

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.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. There 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, 2017.

Trading Account Securities and Securities Available for Sale. Securities classified as trading and available for sale are reported at fair value on a recurring basis.  These securities are classified as Level 1 of the valuation hierarchy where quoted market prices from reputable third-party brokers are available in an active market. If quoted market prices are not available, the Company obtains fair value measurements from an independent pricing service.  These securities are reported using Level 2 inputs and the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors. For securities where quoted market prices, market prices of similar securities or prices from an independent third party pricing service are not available, fair values are calculated using discounted cash flows or other market indicators and are classified within Level 3 of the fair value hierarchy. Changes in fair value of trading account securities are reported in noninterest income. Changes in fair value of securities available for sale are recorded in other comprehensive income, net of income tax effect.

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

Impaired loans are measured at the present value of estimated future cash flows using the loan's effective interest rate or the fair value of the collateral if the loan is a collateral-dependent loan. Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable, and its fair value is generally determined based on real estate appraisals or other independent evaluations by qualified professionals. The appraisals are 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, 2017 and September 30, 2016, the significant unobservable inputs used in the fair value measurement of impaired loans included discounts from appraised value ranging from 0.0% to 15.0% and estimated costs to sell the collateral ranging from 0.0% to 6.0%. During the three month periods ended June 30, 2017 and 2016, the Company recognized provisions for loan losses of $139,000 and $3,000, respectively, for impaired loans. During the nine month periods ended June 30, 2017 and 2016, the Company recognized provisions for loan losses of $181,000 and $3,000, respectively, for impaired loans.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Loans Held for Sale. Loans held for sale are carried at the lower of cost or market value. The portfolio is comprised of residential mortgage loans and SBA loans. The fair value of loans held for sale is based on specific prices of the underlying contracts for sale to investors, and is classified as Level 2 in the fair value hierarchy.

Loan Servicing Rights. Loan servicing rights represent the value associated with servicing SBA loans that have been sold. The fair value of 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, 2017, the significant unobservable inputs used in the fair value measurement of loan servicing rights included discount rates ranging from 8.41% to 12.93% with a weighted average of 11.41% and prepayment speed assumptions ranging from 3.34% to 8.78% with a weighted average rate of 6.81%. At September 30, 2016, the significant unobservable inputs used in the fair value measurement of loan servicing rights included discount rates ranging from 8.54% to 14.46% with a weighted average of 12.27% and prepayment speed assumptions ranging from 4.25% to 8.71% with a weighted average rate of 6.75%. Impairment of the 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 did not recognize any impairment charges on loan servicing rights for the three and nine month periods ended June 30, 2017 and 2016.

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, 2017, 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 16.1% to 34.2% with a weighted average of 28.6%. At September 30, 2016, 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 15.0% to 34.2% with a weighted average of 24.6%. The Company recognized charges of $3,000 and $13,000 to write-down other real estate owned to fair value for the three and nine months ended June 30, 2017, respectively. The Company recognized charges of $21,000 and $100,000 to write-down other real estate owned to fair value for the three and nine months ended June 30, 2016, respectively.

Transfers Between Categories. There were no transfers into or out of Level 3 financial assets for the three and nine month periods ended June 30, 2017 and 2016.

-35-

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.

	Carrying		Fair Value Measurements Using:
June 30, 2017:	Amount		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	10,926	$	10,926	$	-	$	-
Interest-bearing deposits with banks		30,164		30,164		-		-
Interest-bearing time deposits		2,555		-		2,556		-
Trading account securities		5,819		-		5,819		-
Securities available for sale		178,019		-		178,019		-
Securities held to maturity		2,955		-		3,343		-
Loans, net		564,771		-		-		557,854
Residential  mortgage loans held for sale		755		-		755		-
SBA loans held for sale		24,215		-		24,215		-
FRB and FHLB stock		6,936		n/a		n/a		n/a
Accrued interest receivable		3,508		-		3,508		-
Loan servicing rights (included in other assets)		1,026		-		-		1,026
Financial liabilities:
Deposits		673,900		-		-		674,560
Repurchase agreements		1,347		-		1,347		-
Borrowings from FHLB		100,000		-		99,766		-
Accrued interest payable		265		-		265		-
Advance payments by borrowers for taxes and insurance		992		-		992		-

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

	Carrying		Fair Value Measurements Using:
September 30, 2016:	Amount		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	11,449	$	11,449	$	-	$	-
Interest-bearing deposits with banks		17,893		17,893		-		-
Interest-bearing time deposits		3,100		-		3,114		-
Trading account securities		9,255		-		9,255		-
Securities available for sale		174,493		-		174,493		-
Securities held to maturity		3,166		-		3,654		-
Loans, net		518,611		-		-		522,560
Residential mortgage loans held for sale		384		-		384		-
SBA loans held for sale		5,087		-		5,087		-
FRB and FHLB stock		6,936		n/a		n/a		n/a
Accrued interest receivable		2,806		-		2,806		-
Loan servicing rights (included in other assets)		310		-		-		312
Financial liabilities:
Deposits		579,467		-		-		581,844
Short-term repurchase agreements		1,345		-		1,345		-
Borrowings from FHLB		121,633		-		123,794		-
Accrued interest payable		195		-		195		-
Advance payments by borrowers for taxes and insurance		1,014		-		1,014		-

The carrying amounts in the preceding tables are included in the consolidated balance sheets under the applicable captions. The fair value of financial instruments with off-balance-sheet risk is not material. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Cash and Cash Equivalents

For cash and short-term instruments, including cash and due from banks and interest-bearing deposits with banks, the carrying amount is a reasonable estimate of fair value.

Investment Securities and Interest-Bearing Time Deposits

For debt securities and interest-bearing time deposits, the Company obtains fair value measurements from an independent pricing service and the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.

Loans

The fair value of loans, excluding loans held for sale, is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and terms. Impaired loans are valued at the lower of their carrying value or fair value, as previously described. The carrying amount of accrued interest receivable approximates its fair value.

The fair value of loans held for sale is estimated based on specific prices of underlying contracts for sales to investors, as previously described.

FRB and FHLB Stock

It is not practical to determine the fair value of FRB and FHLB stock due to restrictions placed on transferability.

Loan Servicing Rights

The fair value of loan serving rights is determined by a valuation model employed by an independent third party using market-based discount rate and prepayment assumptions, as previously described.

Deposits

The fair value of demand and savings deposits and other transaction accounts is the amount payable on demand at the balance sheet date. The fair value of fixed-maturity time deposits is estimated by discounting the future cash flows using the rates currently offered for deposits with similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.

Borrowed Funds

Borrowed funds include borrowings from the FHLB and repurchase agreements. Fair value for FHLB advances and long-term repurchase agreements is estimated by discounting the future cash flows at current interest rates for FHLB advances of similar maturities. For short-term repurchase agreements and FHLB line of credit borrowings, the carrying value is a reasonable estimate of fair value.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

9. 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. Compensation expense recognized for the nine month period ended June 30, 2016 amounted to $628,000. The ESOP loan was repaid in full during the quarter ended December 31, 2015 and all shares have been allocated to participants in the plan therefore no compensation expense was recognized for the three month periods ended June 30, 2017 and 2016 and the nine month period ended June 30, 2017. The ESOP trust held 161,987 and 172,870 shares of Company common stock at June 30, 2017 and September 30, 2016, respectively.

10. Stock Based Compensation Plans

The Company maintains two equity incentive plans under which stock options and restricted stock have or can 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. At June 30, 2017, all available awards had been granted under the 2010 Plan. The aggregate number of shares of the Company’s common stock available for issuance under the 2016 Plan may not exceed 88,000 shares, consisting of 66,000 stock options and 22,000 shares of restricted stock. At June 30, 2017, 19,440 shares of the Company’s common stock were available for issuance under the 2016 Plan, consisting of 14,705 stock options and 4,735 shares of restricted stock.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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.

The fair value of options granted during the nine month period ended June 30, 2017 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, 2017, and changes during the nine month period then ended is presented below.

				Weighted		Weighted
				Average		Average
	Number			Exercise		Remaining		Aggregate
	of			Price		Contractual		Intrinsic
	Shares			Per Share		Term (years)		Value
	(Dollars in thousands, except per share data)
Outstanding at October 1, 2016		187,050		$	13.25
Granted		51,295			40.09
Exercised		(26,858	)		13.25
Forfeited or expired		-			-
Outstanding at June 30, 2017		211,487		$	19.76		4.5	$	6,983
Vested and expected to vest		211,487		$	19.76		4.5	$	6,983
Exercisable at June 30, 2017		160,192		$	13.25		2.9	$	6,332

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The intrinsic value of stock options exercised during the nine month period ended June 30, 2017 was $860,000. The Company recognized compensation expense related to stock options of $16,000 and $39,000 for the three and nine month periods ended June 30, 2017. There was no compensation expense related to stock options recognized for the three and nine month periods ended June 30, 2016. At June 30, 2017, there was $275,000 of unrecognized compensation expense related to nonvested stock options. The compensation expense is expected to be recognized over the remaining vesting period of 4.39 years.

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, 2017 was $35,000 and $87,000, respectively. There was no compensation expense related to restricted stock recognized for the three and nine month periods ended June 30, 2016.

A summary of the Company’s nonvested restricted shares activity as of June 30, 2017 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, 2016	-		-
Granted		17,265	$	40.09
Vested		-		-
Forfeited		-		-
Nonvested at June 30, 2017		17,265	$	40.09

There were no restricted shares vested during the nine month periods ended June 30, 2017 and 2016. At June 30, 2017 there was $606,000 of unrecognized compensation expense related to nonvested restricted shares. The compensation expense is expected to be recognized over the remaining vesting period of 4.39 years.

11. Preferred Stock

On August 11, 2011, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with the United States Department of the Treasury, pursuant to which the Company issued 17,120 shares of the its Senior Non-Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), having a liquidation amount per share equal to $1,000, for a total purchase price of $17,120,000. The Purchase Agreement was entered into, and the Series A Preferred Stock was issued, pursuant to the Small Business Lending Fund (“SBLF”) program, a $30 billion fund established under the Small Business Jobs Act of 2010, that encouraged lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Holders of the Series A Preferred Stock were entitled to receive non-cumulative dividends, payable quarterly, on each January 1, April 1, July 1 and October 1, beginning October 1, 2011. The dividend rate in effect during the last fiscal year in which the Preferred Stock was outstanding was 1.0%.

The Series A Preferred Stock was redeemed by the Company for the full liquidation amount of $17,120,000 on February 11, 2016.

12. Regulatory Capital

The Company and Bank are 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 Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and 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 Company and 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 is being phased in from 0.0% for 2015 to 2.5% by 2019. The capital conservation buffer is 1.25% for 2017 and 0.625% for 2016. The Company and Bank met all capital adequacy requirements to which they are subject as of June 30, 2017 and September 30, 2016.

As of June 30, 2017, 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 I risk-based, common equity Tier 1 risk-based and Tier I leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the 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. No amount was deducted from capital for interest-rate risk at either period.

											Minimum
											To Be Well
						Minimum					Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes:					Action Provisions:
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2017:
Total capital (to risk-weighted assets):
Consolidated	$	85,783		12.74	%	$	53,863		8.00	%		N/A		N/A
Bank		81,996		12.19			53,791		8.00		$	67,239		10.00	%
Tier I capital (to risk-weighted assets):
Consolidated	$	77,788		11.55	%	$	40,397		6.00	%		N/A		N/A
Bank		74,001		11.01			40,343		6.00		$	53,791		8.00	%
Common equity tier I capital (to risk-weighted assets):
Consolidated	$	77,788		11.55	%	$	30,298		4.50	%		N/A		N/A
Bank		74,001		11.01			30,258		4.50		$	43,705		6.50	%
Tier I capital (to average adjusted total assets):
Consolidated	$	77,788		9.20	%	$	33,838		4.00	%		N/A		N/A
Bank		74,001		8.77			33,743		4.00		$	42,179		5.00	%
As of September 30, 2016:
Total capital (to risk-weighted assets):
Consolidated	$	72,227		11.82	%	$	48,874		8.00	%		N/A		N/A
Bank		69,056		11.33			48,748		8.00		$	60,934		10.00	%
Tier I capital (to risk-weighted assets):
Consolidated	$	65,105		10.66	%	$	36,655		6.00	%		N/A		N/A
Bank		61,934		10.16			36,561		6.00		$	48,748		8.00	%
Common equity tier I capital (to risk-weighted assets):
Consolidated	$	65,105		10.66	%	$	27,491		4.50	%		N/A		N/A
Bank		61,934		10.16			27,420		4.50		$	39,607		6.50	%
Tier I capital (to average adjusted total assets):
Consolidated	$	65,105		8.43	%	$	30,881		4.00	%		N/A		N/A
Bank		61,934		8.09			30,621		4.00		$	38,277		5.00	%

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

13. 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 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 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently assessing the impact the guidance will have upon adoption, but management expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective.

In January 2017, the FASB issued ASU No. 2017-04,Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment. The update simplifies the measurement of goodwill impairment by eliminating Step 2 from the goodwill impairment test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss should not exceed the total amount of goodwill allocated to the reporting unit. The amendments in the update are effective for the Company for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

In March 2017, the FASB issued ASU No. 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities. The update shortens the amortization period for certain callable debt securities held at a premium. Specifically, the update requires the premium to be amortized to the earliest call date. The update does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in the update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The Company is currently assessing the impact the guidance will have upon adoption, but the adoption of this update is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

14. Subsequent Event – Pending Acquisition

On July 21, 2017, the Company entered into a definitive agreement to acquire Dearmin Bancorp, Inc. (“Dearmin”) and its majority owned subsidiary, The First National Bank of Odon (“FNBO”) pursuant to which FNBO will be merged into the Bank. The all-cash transaction is valued at $10.6 million, subject to possible adjustment. The closing of the transaction is subject to certain customary conditions, including shareholder and regulatory approval. Closing is expected to occur in the fourth calendar quarter of 2017. As of June 30, 2017, FNBO had $99.2 million of assets, including net loans of $35.2 million and securities available for sale of $47.5 million.

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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, 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, 2016 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, 2017, 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, 2016.

Comparison of Financial Condition at June 30, 2017 and September 30, 2016

Cash and Cash Equivalents. Cash and cash equivalents increased $11.8 million from $29.3 million at September 30, 2016 to $41.1 million at June 30, 2017.

Loans. Net loans receivable increased $46.2 million, from $518.6 million at September 30, 2016 to $564.8 million at June 30, 2017, due primarily to increases in commercial real estate loans and commercial business loans of $37.4 million and $10.4 million, respectively, which more than offset a decrease in residential real estate loans of $4.7 million.

Loans Held for Sale. Loans held for sale increased $19.5 million, from $5.5 million at September 30, 2016 to $25.0 million at June 30, 2017, due to increases in residential mortgage loans held for sale of $371,000 and SBA loans held for sale of $19.1 million. The Company originated $55.5 million of SBA loans held for sale in the secondary market for the nine month period ended June 30, 2017 compared to $13.1 million in originations for the nine month period ended June 30, 2016, as management continues to focus on expanding the SBA lending program.

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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

Trading Account Securities. Trading account securities decreased $3.5 million, from $9.3 million at September 30, 2016 to $5.8 million at June 30, 2017. Trading account securities are comprised of investment grade municipal bonds and the portfolio is managed by an investment advisory firm registered with the U.S. Securities and Exchange Commission.

Securities Available for Sale. Securities available for sale increased $3.5 million, from $174.5 million at September 30, 2016 to $178.0 million at June 30, 2017, due primarily to purchases of $26.4 million, which slightly offset decreases in net unrealized gains/losses on securities available for sale of $2.3 million, sales of $4.3 million, calls and maturities of $2.8 million and principal repayments of $13.0 million.

Securities Held to Maturity. Investment securities held to maturity decreased $211,000, from $3.2 million at September 30, 2016 to $3.0 million at June 30, 2017. There were no purchases of securities held to maturity, and partial calls and principal repayments on mortgage-backed securities and municipal obligations totaled $211,000 during the nine-month period ended June 30, 2017.

Deposits. Total deposits increased $94.4 million, from $579.5 million at September 30, 2016 to $673.9 million at June 30, 2017, due primarily to increases in interest-bearing deposit accounts and non-interest bearing demand deposit accounts of $78.7 million and $15.7 million, respectively. The increase interest-bearing deposit accounts is due primarily to increases in cash management accounts and brokered certificates of deposit of $25.1 million and $31.4 million, respectively, partially offset by a decrease in certificates of deposit of $6.0 million.

Borrowings. Borrowings from the FHLB decreased $21.6 million, from $121.6 million at September 30, 2016 to $100.0 million at June 30, 2017 due to a reduction in the Bank’s line of credit.

Stockholders’ Equity. Stockholders’ equity increased $4.7 million, from $86.6 million at September 30, 2016 to $91.3 million at June 30, 2017. The increase in stockholders’ equity is primarily due to retained net income of $6.0 million which was partially offset by a decrease in accumulated other comprehensive income of $1.5 million due a reduction in the unrealized gain on securities available for sale.

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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

Results of Operations for the Three Months Ended June 30, 2017 and 2016

Overview. The Company reported net income and net income available to common shareholders of $2.4 million, or $1.04 per diluted common share, for the three month period ended June 30, 2017 compared to net income and net income available to common shareholders of $2.2 million, or $0.97 per diluted common share, for the three month period ended June 30, 2016. The annualized return on average assets, average equity and average common stockholders’ equity were 1.14%, 11.01% and 11.01%, respectively, for the three month period ended June 30, 2017. The annualized return on average assets, average equity and average common stockholders’ equity were 1.15%, 10.87% and 10.87%, respectively, for the three month period ended June 30, 2016.

Net Interest Income. Net interest income increased $1.2 million, or 19.4%, for the three month period ended June 30, 2017 as compared to the same period in 2016. Average interest-earning assets increased $96.8 million and average interest-bearing liabilities increased $59.9 million when comparing the two periods. The tax-equivalent net interest margin was 3.97% for 2017 compared to 3.78% for 2016.

Total interest income increased $1.2 million, or 16.7%, when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $96.8 million, from $703.5 million for 2016 to $800.3 million for 2017, and an increase in the average tax equivalent yield on interest-earning assets from 4.41% for 2016 to 4.54% for 2017. The majority of the increase in average interest-earning assets was attributable to loans which increased $91.4 million compared to 2016.

Total interest expense increased $17,000, or 1.5%, due to an increase in the average balance of interest-bearing liabilities of $59.9 million, from $603.4 million for 2016 to $663.3 million for 2017, which more than offset a decrease in the average cost of interest-bearing liabilities from 0.74% for 2016 to 0.68% for 2017.

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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, 2017 and 2016. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material. Tax exempt income on loans and investment securities has been calculated on a tax equivalent basis using a federal marginal tax rate of 34%.

	Three Months Ended June 30,
	2017								2016
	Average Balance		Interest and Dividends			Yield/ Cost			Average Balance		Interest and Dividends			Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-bearing deposits with banks	$	23,901	$	43			0.72	%	$	18,378	$	22			0.48	%
Loans		589,050		6,932			4.71			497,601		5,820			4.68
Investment securities		140,295		1,804			5.14			130,605		1,586			4.86
Agency mortgage-backed securities		40,135		218			2.17			50,020		259			2.07
Dividend income		6,936		79			4.56			6,936		77			4.44
Total interest-earning assets		800,317		9,076			4.54			703,540		7,764			4.41
Noninterest-earning assets		54,722								68,387
Total assets	$	855,039							$	771,927
Liabilities and equity:
NOW accounts	$	174,904	$	108			0.25	%	$	147,699	$	75			0.20	%
Money market deposit accounts		66,516		53			0.32			57,615		37			0.26
Savings accounts		90,962		16			0.07			82,211		15			0.07
Time deposits		211,832		512			0.97			207,399		563			1.09
Total interest-bearing deposits		544,214		689			0.51			494,924		690			0.56
Borrowings (1)		119,080		443			1.49			108,485		425			1.57
Total interest-bearing liabilities		663,294		1,132			0.68			603,409		1,115			0.74
Noninterest-bearing deposits		95,306								75,336
Other noninterest-bearing liabilities		7,661								11,201
Total liabilities		766,261								689,946
Total equity		88,778								81,981
Total liabilities and equity	$	855,039							$	771,927
Net interest income (taxable equivalent basis)			$	7,944							$	6,649
Less:  taxable equivalent adjustment				(412	)							(342	)
Net interest income			$	7,532							$	6,307
Interest rate spread							3.86	%							3.67	%
Net interest margin							3.97	%							3.78	%
Average interest-earning assets to average interest-bearing liabilities							120.66	%							116.59	%

(1) Includes FHLB borrowings, federal funds purchased, repurchase agreements and other long term debt.

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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, 2017 and 2016. 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, 2017 Compared to Three Months Ended June 30, 2016
	Increase (Decrease) Due to
	Rate			Volume			Net
				(In thousands)
Interest income:
Interest-bearing deposits with banks	$	13		$	8		$	21
Loans		37			1,075			1,112
Investment securities		95			123			218
Agency mortgage-backed securities		14			(55	)		(41	)
Dividend income		2			-			2
Total interest-earning assets		161			1,151			1,312
Interest expense:
Deposits		9			(10	)		(1	)
Borrowings (1)		(20	)		38			18
Total interest-bearing liabilities		(11	)		28			17
Net increase in net interest income (tax equivalent basis)	$	172		$	1,123		$	1,295

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

Provision for Loan Losses. The provision for loan losses was $321,000 for the three month period ended June 30, 2017 compared to $303,000, for the same period in 2016. The increase in the provision for loans losses for 2017 as compared to the prior period was due primarily to growth in the loan portfolio.

The Company recognized net charge-offs of $44,000 for the three month period ended June 30, 2017 compared to net charge-offs of $85,000 for the same period in 2016.

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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 Income. Noninterest income increased $4.7 million for the three month period ended June 30, 2017 as compared to the same period in 2016. The increase was due primarily to a $4.3 million impairment loss on a historic tax credit investment during the 2016 quarter that was not repeated in 2017 as well as an increase in net gain on sales of loans guaranteed by the U.S. Small Business Administration (“SBA”) of $515,000. The aforementioned increases in noninterest income were offset by decreases in real estate lease income and net gain on trading account securities of $170,000 and $101,000, respectively. The decrease in real estate lease income was due to the sale of the Company’s commercial real estate development in September 2016.

Noninterest Expense. Noninterest expenses increased $715,000 for the three month period ended June 30, 2017 as compared to the same period in 2016 primarily due to an increase in compensation and benefits of $622,000, which more than offset a decrease in data processing of $113,000. The increase in compensation and benefits was attributable to the addition of new employees to support the Company’s SBA lending activities as well as normal salary and benefits increases. The decrease in data processing was primarily due to new contracts signed in 2017, which resulted in lower monthly processing fees.

Income Tax Expense. The Company recognized income tax expense of $586,000 for the quarter ended June 30, 2017, for an effective tax rate of 19.3% as compared to income tax benefit of $4.4 million for the same period in 2016. The tax benefit for the 2016 quarter was due to the recognition of $4.8 million in historic tax credits 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

Results of Operations for the Nine Months Ended June 30, 2017 and 2016

Overview. The Company reported net income and net income available to common shareholders of $7.0 million, or $2.98 per diluted common share, for the nine month period ended June 30, 2017 compared to net income of $5.1 million and net income available to common shareholders of $5.0 million, or $2.19 per diluted common share, for the nine month period ended June 30, 2016. The annualized return on average assets, average equity and average common stockholders’ equity were 1.12%, 10.70% and 10.70%, respectively, for the nine month period ended June 30, 2017. The annualized return on average assets, average equity and average common stockholders’ equity were 0.90%, 7.69% and 8.49%, respectively, for the nine month period ended June 30, 2016.

Net Interest Income. Net interest income increased $3.1 million, or 16.8%, for the nine month period ended June 30, 2017 as compared to the same period in 2016. Average interest-earning assets increased $83.4 million and average interest-bearing liabilities increased $59.8 million when comparing the two periods. The tax-equivalent net interest margin was 3.95% for 2017 compared to 3.78% for 2016.

Total interest income increased $3.2 million, or 14.7%, when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $83.4 million, from $688.8 million for 2016 to $772.2 million for 2017, and an increase in the average tax equivalent yield on interest-earning assets from 4.38% for 2016 to 4.50% for 2017. The average balance of loans increased $82.3 million for the nine month period ended June 30, 2017 as compared to the same period in 2016.

Total interest expense increased $75,000, or 2.4%, due to an increase in the average balance of interest-bearing liabilities of $59.8 million, from $583.5 million for 2016 to $643.3 million for 2017, which more than offset a decrease in the average cost of interest-bearing liabilities from 0.71% for 2016 to 0.66% for 2017.

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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, 2017 and 2016. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material. Tax exempt income on loans and investment securities has been calculated on a tax equivalent basis using a federal marginal tax rate of 34%.

	Nine Months Ended June 30,
	2017								2016
	Average Balance		Interest and Dividends			Yield/ Cost			Average Balance		Interest and Dividends			Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-bearing deposits with banks	$	23,633	$	105			0.59	%	$	21,117	$	84			0.53	%
Loans		562,839		19,854			4.70			480,551		16,865			4.68
Investment securities		136,518		5,168			5.05			131,424		4,690			4.76
Agency mortgage-backed securities		42,251		678			2.14			48,922		777			2.12
Dividend income		6,936		235			4.52			6,833		231			4.51
Total interest-earning assets		772,177		26,040			4.50			688,847		22,647			4.38
Noninterest-earning assets		57,111								68,215
Total assets	$	829,288							$	757,062
Liabilities and equity:
NOW accounts	$	167,121	$	280			0.22	%	$	145,812	$	226			0.21	%
Money market deposit accounts		63,155		131			0.28			57,308		110			0.26
Savings accounts		87,805		46			0.07			79,013		41			0.07
Time deposits		209,393		1,473			0.94			196,179		1,492			1.01
Total interest-bearing deposits		527,474		1,930			0.49			478,312		1,869			0.52
Borrowings (1)		115,799		1,256			1.45			105,233		1,242			1.57
Total interest-bearing liabilities		643,273		3,186			0.66			583,545		3,111			0.71
Noninterest-bearing deposits		91,909								74,098
Other noninterest-bearing liabilities		7,206								10,920
Total liabilities		742,388								668,563
Total equity		86,900								88,499
Total liabilities and equity	$	829,288							$	757,062
Net interest income (taxable equivalent basis)			$	22,854							$	19,536
Less:  taxable equivalent adjustment				(1,146	)							(952	)
Net interest income			$	21,708							$	18,584
Interest rate spread							3.84	%							3.67	%
Net interest margin							3.95	%							3.78	%
Average interest-earning assets to average interest-bearing liabilities							120.04	%							118.05	%

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

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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, 2017 and 2016. 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, 2017 Compared to Nine Months Ended June 30, 2016
	Increase (Decrease) Due to
	Rate			Volume			Net
				(In thousands)
Interest income:
Interest-bearing deposits with banks	$	11		$	10		$	21
Loans		73			2,916			2,989
Investment securities		292			186			478
Agency mortgage-backed securities		8			(107	)		(99	)
Dividend income		1			3			4
Total interest-earning assets		385			3,008			3,393
Interest expense:
Deposits		(77	)		138			61
Borrowings (1)		(44	)		58			14
Total interest-bearing liabilities		(121	)		196			75
Net increase in net interest income (tax equivalent basis)	$	506		$	2,812		$	3,318

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

Provision for Loan Losses. The provision for loan losses was $1.0 million for the nine month period ended June 30, 2017 compared to $428,000 for the same period in 2016. The increase in the provision for loans losses for 2017 as compared to the prior period was due primarily to growth in the loan portfolio. Loans increased approximately $46.7 million during the nine month period ended June 30, 2017 compared to an increase of approximately $37.4 million during the nine month period ended June 30, 2016.

The Company recognized net charge-offs of $129,000 for the nine month period ended June 30, 2017 compared to net charge-offs of $83,000 for the same period in 2016.

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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 Income. Noninterest income increased $5.7 million for the nine month period ended June 30, 2017 as compared to 2016. The increase was due primarily to a $4.3 million impairment loss on a historic tax credit investment during the 2016 period as compared to $226,000 in 2017. Additionally, the Company recognized net gains on sales of SBA loans of $2.7 million in 2017 compared to $513,000 in 2016. The increases in noninterest income described above were partially offset by decreases in the net gain on trading account securities and real estate lease income of $600,000 and $496,000, respectively. The decrease in net gain on trading account securities was due to volatility in the municipal bond market during the nine months ended June 30, 2017. The decrease in real estate lease income was due to the sale of the Company’s commercial real estate development in September 2016.

Noninterest Expense. Noninterest expenses increased $1.2 million for the nine month period ended June 30, 2017 as compared to 2016. The increase was due primarily to increases in compensation and benefits of $1.5 million, which more than offset decreases in net (gain) loss on other real estate owned and data processing fees of $182,000 and $178,000, respectively. The increase in compensation and benefits expense was attributable to the addition of new employees to support the Company’s SBA lending activities as well as normal salary and benefits increases. The decrease in net (gain) loss on other real estate owned was due primarily to the recognition of previously deferred gains for properties sold and financed by the Company. The decrease in data processing was primarily due to new contracts signed in 2017, which resulted in a decrease in monthly processing fees.

Income Tax Expense.The Company recognized income tax expense of $1.7 million for the nine month period ended June 30, 2017, for an effective tax rate of 19.4%, as compared to income tax benefit of $3.5 million for the same period in 2016. The tax benefit for the 2016 period was due to the recognition of $4.8 million in historic tax credits 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

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, 2017, the Bank had cash and cash equivalents of $41.1 million, trading account securities with a fair value of $5.8 million and securities available-for-sale with a fair value of $178.0 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, 2017, the Company (unconsolidated basis) had liquid assets of $1.6 million.

Capital Management. The Bank is required to maintain specific amounts of capital pursuant to regulatory requirements. As of June 30, 2017, 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 8.77%, 11.01%, 11.01% and 12.19%, 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, 2017, 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, 2016.

For the nine months ended June 30, 2017, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Company's financial condition, results of operations or cash flows.

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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, all of which are retained by the Company for its portfolio. The Company relies on retail deposits as its primary source of funds. Management believes the primary use of retail deposits, complimented with a modest allocation of brokered certificates of deposit and FHLB borrowings, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds.

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

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

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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, 2017						At September, 2016
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	$	889			3.04	%	$	274			1.07	%
200bp		626			2.14			219			0.85
100bp		312			1.07			165			0.65
Static		-			-			-			-
(100)bp		(695	)		(2.38	)		(668	)		(2.61	)

At June 30, 2017, our simulated exposure to an increase in interest rates shows that an immediate and sustained increase in rates of 1.00% will increase our net interest income by $312,000, or 1.07%, 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 increase by 2.14% and 3.04%, respectively. Conversely, an immediate and sustained decrease in rates of 1.00% will decrease our net interest income by $695,000, or 2.38%, over a one year horizon compared to a flat interest rate scenario.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 4

CONTROLS AND PROCEDURES

Controls and Procedures

The Company’s management, including the Company’s principal executive officer and the Company’s principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on their evaluation, the principal executive officer and the principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that information required to be disclosed in reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s Rules and Forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended June 30, 2017, there were no changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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.

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, 2016 which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors described in our Annual Report on Form 10-K, however, these are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

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

The Company did not purchase its common stock during the quarter ended June 30, 2017.

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, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) related notes

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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 14, 2017	BY:	/s/ Larry W. Myers
		Larry W. Myers
		President and Chief Executive Officer
Dated  August 14, 2017	BY:	/s/ Anthony A. Schoen
		Anthony A. Schoen
		Chief Financial Officer

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