First Savings Financial (FSFG) 10-Q 2023 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2023

OR

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

For the transition period from                                 to                             

Commission File No. 1-34155

First Savings Financial Group, Inc.

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices) (Zip Code)

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

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

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

Common stock, $0.01 par value per share	FSFG	The NASDAQ Stock Market, LLC
(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)

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

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

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

Large Accelerated Filer ☐	Accelerated Filer ☒
Non-accelerated Filer ☐	Smaller Reporting Company ☒
Emerging Growth Company ☐

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

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

The number of shares outstanding of the registrant’s common stock as of August 2, 2023 was 6,865,921.

FIRST SAVINGS FINANCIAL GROUP, INC.

INDEX

Part I	Financial Information	Page
	Item 1. Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and September 30, 2022	3
	Condensed Consolidated Statements of Income for the three and nine months ended June 30, 2023 and 2022 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended June 30, 2023 and 2022 (unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended June 30, 2023 and 2022 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2023 and 2022 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8-50
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	51-60
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	61-62
	Item 4. Controls and Procedures	63
Part II	Other Information
	Item 1. Legal Proceedings	65
	Item 1A. Risk Factors	66
	Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	67
	Item 3. Defaults Upon Senior Securities	67
	Item 4. Mine Safety Disclosures	67
	Item 5. Other Information	67
	Item 6. Exhibits	68
Signatures		69

-2-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,		September 30,
(In thousands, except share and per share data)	2023		2022
ASSETS
Cash and due from banks	$	23,722	$	18,312
Interest-bearing deposits with banks		18,753		23,353
Total cash and cash equivalents		42,475		41,665
Interest-bearing time deposits		980		1,613
Debt securities available for sale, at fair value		248,397		316,517
Debt securities held to maturity		1,391		1,558
Loans held for sale, residential mortgage, at fair value		50,066		38,579
Loans held for sale, Small Business Administration		13,076		21,883
Loans, net of allowance for loan losses of $16,838 at June 30, 2023 and $15,360 at September 30, 2022		1,691,289		1,474,544
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		24,939		20,004
Premises and equipment, net		27,999		27,100
Other real estate owned, held for sale		233		203
Accrued interest receivable:
Loans		7,218		5,379
Securities		3,243		2,953
Cash surrender value of life insurance		45,915		45,145
Goodwill		9,848		9,848
Core deposit intangibles		614		775
Residential mortgage loan servicing rights, at fair value		60,649		63,263
Nonresidential mortgage loan servicing rights		116		141
SBA loan servicing rights		3,374		3,790
Other assets		28,599		18,765
Total Assets	$	2,260,421	$	2,093,725
LIABILITIES
Deposits:
Noninterest-bearing	$	315,602	$	340,172
Interest-bearing		1,344,163		1,175,662
Total deposits		1,659,765		1,515,834
Federal Home Loan Bank borrowings		345,000		307,303
Other borrowings		48,387		88,206
Accrued interest payable		5,782		1,302
Advance payments by borrowers for taxes and insurance		907		1,207
Accrued expenses and other liabilities		35,512		28,308
Total Liabilities		2,095,353		1,942,160
STOCKHOLDERS' EQUITY
Preferred stock of $.01 par value per share; authorized 1,000,000 shares; none issued		—		—
Common stock of $.01 par value per share;authorized 20,000,000 shares; issued 7,777,271 shares at June 30, 2023 (7,757,271 at September 30, 2022); outstanding 6,865,921 shares at June 30, 2023 (6,970,631 shares at September 30, 2022)		78		78
Additional paid-in capital		27,440		26,770
Retained earnings - substantially restricted		168,015		161,927
Accumulated other comprehensive loss		(17,565)		(27,079)
Unearned stock compensation		(1,113)		(969)
Less treasury stock, at cost - 911,350 shares (786,640 shares at September 30, 2022)		(11,787)		(9,162)
Total Stockholders’ Equity		165,068		151,565
Total Liabilities and Stockholders’ Equity	$	2,260,421	$	2,093,725

See notes to condensed consolidated financial statements.

-3-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(In thousands, except share and per share data)	2023		2022		2023		2022
INTEREST INCOME
Loans, including fees	$	23,184	$	15,934	$	64,666	$	43,917
Securities:
Taxable		984		769		2,896		1,594
Tax-exempt		1,940		1,570		5,920		4,003
Dividend income		423		169		1,007		464
Interest-bearing deposits with banks		267		37		603		64
Total interest income		26,798		18,479		75,092		50,042
INTEREST EXPENSE
Deposits		7,791		1,047		18,214		2,596
Federal Home Loan Bank borrowings		3,446		811		8,280		2,222
Other borrowings		696		710		2,560		1,397
Total interest expense		11,933		2,568		29,054		6,215
Net interest income		14,865		15,911		46,038		43,827
Provision for loan losses		441		532		1,797		1,028
Net interest income after provision for loan losses		14,424		15,379		44,241		42,799
NONINTEREST INCOME
Service charges on deposit accounts		509		462		1,538		1,329
ATM and interchange fees		615		774		1,940		2,047
Net gain (loss) on sales of available for sale securities		(540)		476		(540)		476
Net unrealized gain (loss) on equity securities		11		(11)		46		(11)
Other than temporary impairment loss on securities		—		—		(28)		—
Net gain on sales of loans, Small Business Administration		497		486		2,179		3,449
Net gain on sales of loans, single tenant net lease		—		—		—		719
Mortgage banking income		4,668		7,093		11,313		36,091
Increase in cash surrender value of life insurance		279		277		770		782
Commission income		247		177		564		522
Real estate lease income		119		155		353		451
Net gain on premises and equipment		—		—		29		—
Income from tax credit investment		—		—		—		10
Gain from repurchase of subordinated debt		660		—		660		—
Other income		131		144		1,076		831
Total noninterest income		7,196		10,033		19,900		46,696
NONINTEREST EXPENSE			���
Compensation and benefits		11,138		15,215		32,230		49,982
Occupancy and equipment		2,277		2,069		6,057		6,261
Data processing		1,020		679		2,780		1,957
Advertising		536		806		1,473		2,600
Professional fees		1,360		1,410		2,931		3,973
FDIC insurance premiums		488		121		1,165		346
Other operating expenses		2,146		2,535		7,839		8,029
Total noninterest expense		18,965		22,835		54,475		73,148
Income before income taxes		2,655		2,577		9,666		16,347
Income tax expense (benefit)		331		(61)		747		2,369
Net Income	$	2,324	$	2,638	$	8,919	$	13,978
Net income per share:
Basic	$	0.34	$	0.37	$	1.30	$	1.97
Diluted	$	0.34	$	0.37	$	1.29	$	1.95
Weighted average shares outstanding:
Basic		6,816,608		7,073,204		6,858,739		7,082,034
Diluted		6,819,748		7,145,288		6,893,766		7,166,632
Dividends per share	$	0.14	$	0.13	$	0.41	$	0.38

See notes to condensed consolidated financial statements.

-4-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(In thousands)	2023		2022		2023		2022
Net Income	$	2,324	$	2,638	$	8,919	$	13,978
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period		(4,819)		(13,732)		11,458		(26,689)
Income tax (expense) benefit		1,026		2,884		(2,393)		5,605
Net of tax amount		(3,793)		(10,848)		9,065		(21,084)
Less: reclassification adjustment for realized (gains) losses included in net income		540		(476)		540		(476)
Income tax (expense) benefit		(113)		100		(113)		100
Net of tax amount		427		(376)		427		(376)
Less: reclassification adjustment for other-than-temporary impairment loss on securities included in net income		—		—		28		—
Income tax benefit		—		—		(6)		—
Net of tax amount		—		—		22		—
Other Comprehensive Income (Loss)		(3,366)		(11,224)		9,514		(21,460)
Comprehensive Income (Loss)	$	(1,042)	$	(8,586)	$	18,433	$	(7,482)

See notes to condensed consolidated financial statements.

-5-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

							Accumulated
							Other		Unearned
	Common		Additional		Retained		Comprehensive		Stock		Treasury
(In thousands, except share and per share data)	Stock		Paid-in Capital		Earnings		Income (Loss)		Compensation		Stock		Total
Three Months Ended June 30, 2022:
Balances at April 1, 2022	$	78	$	27,076	$	159,732	$	(1,336)	$	(1,180)	$	(4,417)	$	179,953
Net income		—		—		2,638		—		—		—		2,638
Other comprehensive loss		—		—		—		(11,224)		—		—		(11,224)
Common stock dividends - $0.13 per share		—		—		(932)		—		—		—		(932)
Stock compensation expense		—		82		—		—		105		—		187
Purchase of 59,120 treasury shares		—		—		—		—		—		(1,409)		(1,409)
Balances at June 30, 2022	$	78	$	27,158	$	161,438	$	(12,560)	$	(1,075)	$	(5,826)	$	169,213
Three Months Ended June 30, 2023:
Balances at April 1, 2023	$	78	$	27,365	$	166,652	$	(14,199)	$	(1,211)	$	(11,787)	$	166,898
Net income		—		—		2,324		—		—		—		2,324
Other comprehensive loss		—		—		—		(3,366)		—		—		(3,366)
Common stock dividends - $0.14 per share		—		—		(961)		—		—		—		(961)
Stock compensation expense		—		75		—		—		98		—		173
Balances at June 30, 2023	$	78	$	27,440	$	168,015	$	(17,565)	$	(1,113)	$	(11,787)	$	165,068
Nine Months Ended June 30, 2022:
Balances at October 1, 2021	$	78	$	25,721	$	150,185	$	8,900	$	(138)	$	(4,369)	$	180,377
Net income		—		—		13,978		—		—		—		13,978
Other comprehensive loss		—		—		—		(21,460)		—		—		(21,460)
Common stock dividends - $0.38 per share		—		—		(2,725)		—		—		—		(2,725)
Restricted stock forfeitures - 45,750 shares		—		1,222		—		—		(1,222)		—		—
Stock compensation expense		—		215		—		—		285		—		500
Purchase of 60,932 treasury shares		—		—		—		—		—		(1,457)		(1,457)
Balances at June 30, 2022	$	78	$	27,158	$	161,438	$	(12,560)	$	(1,075)	$	(5,826)	$	169,213
Nine Months Ended June 30, 2023:
Balances at October 1, 2022	$	78	$	26,770	$	161,927	$	(27,079)	$	(969)	$	(9,162)	$	151,565
Net income		—		—		8,919		—		—		—		8,919
Other comprehensive income		—		—		—		9,514		—		—		9,514
Common stock dividends - $0.41 per share		—		—		(2,831)		—		—		—		(2,831)
Restricted stock grants - 22,000 shares		—		495		—		—		(495)		—		—
Restricted stock forfeitures - 2,000 shares		—		(53)		—		—		53		—		—
Stock compensation expense		—		228		—		—		298		—		526
Purchase of 124,710 treasury shares		—		—		—		—		—		(2,625)		(2,625)
Balances at June 30, 2023	$	78	$	27,440	$	168,015	$	(17,565)	$	(1,113)	$	(11,787)	$	165,068

See notes to condensed consolidated financial statements.

-6-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	June 30,
(In thousands)	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	8,919	$	13,978
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,797		1,028
Depreciation and amortization		1,907		1,850
Amortization of premiums and accretion of discounts on securities, net		510		679
Amortization and accretion of fair value adjustments on loans, net		(1,285)		(1,176)
Loans originated for sale, residential mortgage		(392,217)		(1,485,308)
Loans originated for sale, Small Business Administration		(24,851)		—
Proceeds on sales of loans, residential mortgage		382,694		1,561,351
Proceeds on sales of loans, Small Business Administration		35,910		—
Net realized and unrealized (gain) loss on loans held for sale		(3,566)		11,928
Capitalization of loan servicing rights		(1,808)		(11,513)
Net change in value of residential mortgage loan servicing rights		3,816		(4,679)
Net change in value of SBA and nonresidential mortgage loan servicing rights		1,047		1,169
Net (gain) loss on sales of available for sale securities		540		(476)
Other than temporary impairment loss on securities		28		—
Increase in cash surrender value of life insurance		(770)		(782)
Net (gain) loss on equity securities		(46)		11
Net gain on sale of premises and equipment		(29)		—
Gain from repurchase of subordinated debt		(660)		—
Income from tax credit investments		—		(10)
Deferred income taxes		(2,590)		3,356
Stock compensation expense		526		500
Increase in accrued interest receivable		(2,129)		(1,586)
Increase in accrued interest payable		4,480		462
Change in other assets		(5,447)		3,360
Change in other liabilities		7,204		(5,586)
Net Cash Provided By Operating Activities		13,980		88,556
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in interest-bearing time deposits		(490)		—
Proceeds from maturities of interest-bearing time deposits		1,115		595
Purchase of securities available for sale		(11,664)		(177,646)
Proceeds from sales of securities available for sale		78,003		33,494
Principal collected and proceeds from maturities of securities available for sale		12,741		16,114
Proceeds from maturities of securities held to maturity		159		172
Net increase in loans		(217,981)		(253,166)
Proceeds from redemption of Federal Reserve Bank and Federal Home Loan Bank stock		15		592
Purchase of Federal Reserve Bank and Federal Home Loan Bank stock		(4,950)		(1,038)
Proceeds from life insurance		—		575
Purchase of premises and equipment		(2,524)		(329)
Investement in partnership interests		(4,107)		(340)
Net Cash Used In Investing Activities		(149,683)		(380,977)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		143,931		118,127
Net increase (decrease) in Federal Home Loan Bank line of credit		(12,303)		29,098
Proceeds from Federal Home Loan Bank advances		7,155,000		600,000
Repayment of Federal Home Loan Bank advances		(7,105,000)		(475,000)
Repurchase of subordinated debt		(1,340)		—
Net proceeds from issuance of subordinated note		—		30,258
Net decrease in other borrowings		(37,989)		—
Net decrease in advance payments by borrowers for taxes and insurance		(300)		(960)
Taxes paid on stock award shares for employees		(30)		(48)
Purchase of treasury shares		(2,625)		(1,434)
Dividends paid on common stock		(2,831)		(3,580)
Net Cash Provided By Financing Activities		136,513		296,461
Net Increase in Cash and Cash Equivalents		810		4,040
Cash and cash equivalents at beginning of year		41,665		33,428
Cash and Cash Equivalents at End of Period	$	42,475	$	37,468
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	24,574	$	5,753
Income taxes		57		77

See notes to condensed consolidated financial statements.

-7-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Presentation of Interim Information

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

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

The Captive, which is a wholly-owned insurance subsidiary of the Company, is a Nevada corporation that provides property and casualty insurance to the Company, the Bank and the Bank’s active subsidiaries. In addition, the Captive provides reinsurance to 11 other third-party insurance captives for which insurance may not be currently available or economically feasible in the insurance marketplace. The Company plans to dissolve the Captive during the quarter ending September 30, 2023.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of June 30, 2023, the results of operations for the three- and nine-month periods ended June 30, 2023 and 2022, and the cash flows for the nine-month periods ended June 30, 2023 and 2022. All of these adjustments are of a normal, recurring nature. Such adjustments are the only adjustments included in the unaudited condensed consolidated financial statements. Interim results are not necessarily indicative of results for a full year.

The unaudited condensed consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements, conform to general practices within the banking industry and are presented as permitted by the instructions to Form 10-Q. Accordingly, they do not contain certain information included in the Company’s audited consolidated financial statements and related notes for the year ended September 30, 2022 included in the Company’s Annual Report on Form 10-K, as amended.

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

Loans and Allowance for Loan Losses

Loans Held for Investment

Loans are stated at unpaid principal balances, less net deferred loan fees and the allowance for loan losses. Loan origination and commitment fees, as well as certain direct costs of underwriting and closing loans, are deferred and amortized as a yield adjustment to interest income over the lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status.

Nonaccrual Loans

The recognition of income on a loan is discontinued and previously accrued interest is reversed when interest or principal payments become 90 days past due unless, in the opinion of management, the outstanding interest remains collectible and is well secured and in process of collection. Past due status is determined based on contractual terms. Generally, by applying the cash receipts method, interest income on nonaccrual loans is subsequently recognized only as received until the loan is returned to accrual status. The cash receipts method is used when the likelihood of further loss on the loan is remote. Otherwise, the Company applies the cost recovery method and applies all payments as a reduction of the unpaid principal balance until the

-8-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

loan qualifies for return to accrual status. Interest income on impaired loans is recognized using the cost recovery method, unless the likelihood of further loss is considered remote.

A loan is restored to accrual status when all principal and interest payments are brought current and the borrower has demonstrated the ability to make future payments of principal and interest as scheduled, which generally requires that the borrower demonstrate a period of performance of at least six consecutive months.

Loan Charge-Offs

For portfolio segments other than consumer loans, the Company’s practice is to charge-off any loan or portion of a loan when the loan is determined by management to be uncollectible due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, depreciation of the underlying collateral, the loan’s classification as a loss by regulatory examiners, or for other reasons. A partial charge-off is recorded on a loan when the uncollectibility of a portion of the loan has been confirmed, such as when a loan is discharged in bankruptcy, the collateral is liquidated, a loan is restructured at a reduced principal balance, or other identifiable events that lead management to determine the full principal balance of the loan will not be repaid. A specific reserve is recognized as a component of the allowance for estimated losses on loans individually evaluated for impairment. Partial charge-offs of loans are included in the Company’s historical loss experience used to estimate the general component of the allowance for loan losses as discussed below.

Consumer loans not secured by real estate are typically charged off at 90 days past due, or earlier if deemed uncollectible, unless the loans are in the process of collection. Overdrafts are charged off after 45 days past due. Charge-offs are typically recorded on loans secured by real estate when the property is foreclosed upon when the carrying value of the loan exceeds the property’s fair value, less estimated costs to sell.

Allowance for Loan Losses

The allowance for loan losses reflects management’s judgment of probable incurred loan losses at the balance sheet date. Additions to the allowance for loan losses are made by the provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company evaluates the allowance for loan losses on a quarterly basis based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are individually evaluated for impairment. A specific reserve is established when the underlying discounted collateral value (or present value of estimated future cash flows) of the impaired loan is lower than the carrying value of that loan.

The general component covers loans not considered to be impaired. Such loans are pooled by segment and losses are modeled using annualized historical loss experience adjusted for qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent 60-month period with the exception of the SBA loan portfolio which uses lookback periods of 24 to 48 months.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The Company’s historical loss experience is then adjusted for qualitative factors that are reviewed on a quarterly basis based on the risks present for each portfolio segment. Management considers changes and trends in the following qualitative loss factors: levels of and trends in delinquencies and impaired loans; trends in the volume and term of new loan originations; national and local economic trends and conditions; changes in lending policies, procedures and practices; changes in the experience and ability of lending management and other staff; changes in the quality and depth of the Company’s loan review system; trends in collateral valuation in the Company’s lending area; the existence and effect of any concentrations of credit and other factors as determined by management including peer data and prevailing economic conditions. Each qualitative factor is evaluated and a qualitative factor adjustment is applied to the actual historical loss factors in determining the adjusted loss factors used in management’s allowance for loan losses adequacy calculation.

Management exercises significant judgment in evaluating the relevant historical loss experience and the qualitative factors. Management also monitors the differences between estimated and actual incurred loan losses for loans considered impaired in order to evaluate the effectiveness of the estimation process and make any changes in the methodology as necessary.

The following portfolio segments are considered in the allowance for loan loss analysis: residential real estate, commercial real estate (including single tenant net lease and loans originated through SBA programs), multi-family residential real estate, construction, land and land development, commercial business (including loans originated through SBA programs) and consumer.

Residential real estate loans (including first-lien home equity lines of credit) primarily consist of loans to individuals for the purchase or refinance of their primary residence, with a small portion of the segment secured by non-owner-occupied residential investment properties. The risks associated with residential real estate loans are closely correlated to the local housing market and general economic conditions, as repayment of the loans is primarily dependent on the borrower’s or tenant’s personal cash flow and employment status.

Commercial real estate loans include the single tenant net lease loans and loans originated through SBA programs in addition to the Company’s core commercial loans, and are comprised of loans secured by various types of collateral including office buildings, warehouses, retail space and mixed use buildings located in the Company’s primary lending area and in other states. Risks related to commercial real estate lending are related to the market value of the property taken as collateral, the underlying cash flows and general economic conditions. Repayment of these loans is generally dependent on the ability of the borrower to attract tenants at lease rates that provide for adequate debt service and can be impacted by general economic conditions, which impact vacancy rates. The Company generally obtains loan guarantees from financially capable parties for commercial real estate loans.

Multi-family residential real estate loans primarily consist of loans secured by apartment buildings and other multi-tenant developments generally located in the Company’s primary lending area. Repayment of these loans is primarily dependent on the borrower’s ability to attract tenants and collect rents that provide for adequate debt service. The risks associated with these loans are closely correlated to the local housing market and general economic conditions.

Construction loans consist of single-family residential properties, multi-family properties and commercial projects, and include both owner-occupied and speculative investment properties. Risks inherent in construction lending are related to the market value of the property held as collateral, the cost and timing of constructing or improving a property, the borrower’s ability to use funds generated by a project to service a loan until a project is completed, movements in interest rates and the real estate market during the construction phase, and the ability of the borrower to obtain permanent financing.

Land and land development loans primarily consist of loans secured by farmland and vacant land held for long-term investment or development. The risks associated with land and land development loans are related to the market value of the property taken as collateral and the underlying cash flows for loans secured by farmland, and general economic conditions.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Commercial business loans include loans originated through SBA programs and lines of credit to businesses, term loans and letters of credit secured by business assets such as equipment, accounts receivable, inventory, or other assets excluding real estate and are generally made to finance capital expenditures or fund operations. Commercial loans contain risks related to the value of the collateral securing the loan and the repayment is primarily dependent upon the financial success and viability of the borrower. As with commercial real estate loans, the Company generally obtains loan guarantees from financially capable parties for commercial business loans.

Consumer loans consist primarily of home equity lines of credit and other loans secured by junior liens on the borrower’s personal residence, home improvement loans, automobile and truck loans, boat loans, mobile home loans, loans secured by savings deposits and other personal loans. The risks associated with these loans are related to the local housing market and local economic conditions including the unemployment level.

There were no significant changes to the Company’s accounting policies or methodology used to estimate the allowance for loan losses during the nine-month period ended June 30, 2023.

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Values for collateral dependent loans are generally based on appraisals obtained from independent licensed real estate appraisers, with adjustments applied for estimated costs to sell the property, estimated costs to complete unfinished or repair damaged property, and other known defects. New appraisals are generally obtained for all significant properties when a loan is identified as impaired. Generally, a property is considered significant if the value of the property is estimated to exceed $250,000. Subsequent appraisals are obtained as needed or if management believes there has been a significant change in the market value of a collateral property securing an impaired loan. In instances where it is not deemed necessary to obtain a new appraisal, management would base its impairment and allowance for loan loss analysis on the original appraisal with adjustments for current conditions based on management’s assessment of market factors and management’s inspection of the property.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Troubled Debt Restructurings

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

A TDR can involve a loan remaining on nonaccrual, moving to nonaccrual or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Generally, a nonaccrual loan that is restructured in a TDR remains on nonaccrual status for a period of at least six months following the restructuring in order to ensure that the borrower performs in accordance with the restructured terms, including consistent and timely payments of at least six consecutive months according to the restructured terms.

2. Investment Securities

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

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

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED 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		Gain		Losses		Value
	(In thousands)
June 30, 2023:
Debt securities available for sale:
U.S. Treasury bills and notes	$	31,798	$	—	$	3,329	$	28,469
Agency mortgage-backed		29,235		1		2,917		26,319
Agency CMO		14,206		—		1,030		13,176
Privately-issued CMO		432		3		27		408
Privately-issued ABS		458		14		3		469
SBA certificates		11,707		—		462		11,245
Municipal bonds		180,814		293		14,452		166,655
Other		2,000		—		344		1,656
Total debt securities available for sale	$	270,650	$	311	$	22,564	$	248,397
Debt securities held to maturity:
Agency mortgage-backed	$	37	$	—	$	1	$	36
Municipal bonds		1,354		21		—		1,375
Total debt securities held to maturity	$	1,391	$	21	$	1	$	1,411

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Losses		Value
	(In thousands)
September 30, 2022:
Debt securities available for sale:
U.S. Treasury bills and notes	$	30,809	$	—	$	3,514	$	27,295
Agency mortgage-backed		30,786		3		3,289		27,500
Agency CMO		15,562		—		741		14,821
Privately-issued CMO		495		4		29		470
Privately-issued ABS		561		16		8		569
SBA certificates		12,255		1		244		12,012
Municipal bonds		260,326		167		26,643		233,850
Total debt securities available for sale	$	350,794	$	191	$	34,468	$	316,517
Debt securities held to maturity:
Agency mortgage-backed	$	45	$	—	$	—	$	45
Municipal bonds		1,513		35		—		1,548
Total debt securities held to maturity	$	1,558	$	35	$	—	$	1,593

The amortized cost and fair value of investment securities as of June 30, 2023 by contractual maturity are shown below. CMO, ABS, SBA certificates, and mortgage-backed securities which do not have a single maturity date are shown separately.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)
Due within one year	$	4,570	$	4,538	$	251	$	253
Due after one year through five years		9,576		9,466		694		704
Due after five years through ten years		48,048		43,969		409		418
Due after ten years		152,418		138,807		—		—
CMO		14,638		13,584		—		—
ABS		458		469		—		—
SBA certificates		11,707		11,245		—		—
Mortgage-backed securities		29,235		26,319		37		36
	$	270,650	$	248,397	$	1,391	$	1,411

-14-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Information pertaining to investment securities with gross unrealized losses at June 30, 2023 and September 30, 2022, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

	Number of			Gross
	Investment	Fair		Unrealized
	Positions	Value		Losses
	(Dollars in thousands)
June 30, 2023:
Debt securities available for sale:
Continuous loss position less than twelve months:
U.S. Treasury bills and notes	3	$	879	$	5
Agency mortgage-backed	6		4,999		186
Agency CMO	2		5,328		320
SBA certificates	2		10,339		445
Municipal bonds	36		39,369		966
Other	1		1,656		344
Total less than twelve months	50		62,570		2,266
Continuous loss position more than twelve months:
U.S. Treasury bills and notes	7		27,590		3,324
Agency mortgage-backed	10		21,007		2,731
Agency CMO	13		7,848		710
Privately-issued CMO	2		387		27
Privately-issued ABS	1		226		3
SBA certificates	1		896		17
Municipal bonds	101		92,677		13,486
Total more than twelve months	135		150,631		20,298
Total debt securities available for sale	185	$	213,201	$	22,564
Debt securities held to maturity:
Continuous loss position less than twelve months:
Total less than twelve months	—		—		—
Continuous loss position more than twelve months: Agency mortgage-backed	1		19		1
Total more than twelve months	1		19		1
Total debt securities held to maturity	1	$	19	$	1
September 30, 2022:
Debt securities available for sale:
Continuous loss position less than twelve months:
U.S. Treasury bills and notes	7	$	27,295	$	3,514
Agency mortgage-backed	14		24,987		2,749
Agency CMO	12		8,896		551
Privately-issued CMO	2		424		20
SBA certificates	1		10,775		225
Municipal bonds	259		193,002		24,922
Total less than twelve months	295		265,379		31,981
Continuous loss position more than twelve months:
Agency mortgage-backed	1		2,169		540
Agency CMO	2		1,199		190
Privately-issued CMO	1		19		9
Privately-issued ABS	1		283		8
SBA certificates	2		1,202		19
Municipal bonds	7		6,263		1,721
Total more than twelve months	14		11,135		2,487
Total debt securities available for sale	309	$	276,514	$	34,468

-15-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

At September 30, 2022, 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.

The total available for sale debt securities in loss positions at June 30, 2023, which consisted of U.S. Treasury bills and notes, agency mortgage-backed securities, agency CMOs, privately-issued CMOs, privately-issued ABS, municipal bonds and SBA certificates, had a fair value as a percentage of amortized cost of 90.4%. The municipal securities are issued by municipal governments, and are generally secured by municipal project revenues or general obligations of the municipality. The total available for sale debt securities in a loss position at September 30, 2022 had a fair value as a percentage of amortized cost of 88.9%.

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, 2023, the Company held four privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $303,000 and fair value of $305,000 that have been downgraded to a substandard regulatory classification due to the securities credit quality rating by various rating agencies.

At June 30, 2023, two privately-issued CMO securities and one privately-issued ABS were in a loss position, and had depreciated approximately 4.67% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $613,000 and a total unrealized loss of $30,000 at June 30, 2023. Based on the independent third party analysis of the expected cash flows, no other-than-temporary impairment was recognized during the three months ended June 30, 2023. An other-than temporary impairment charge of $28,000 was taken in the nine months ended June 30, 2023. While the Company does not anticipate additional credit-related impairment losses at June 30, 2023, additional deterioration in market and economic conditions may have an adverse impact on the credit quality of the portfolio, and therefore, require a credit related impairment charge in the future.

The unrealized losses on U.S. Treasury bills and notes, agency mortgage-backed securities, agency CMOs, SBA certificates and municipal bonds relate principally to changes in current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the intent and ability to hold debt securities to maturity, or 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, 2023, the Company recognized $341,000 of gross gains and $881,000 of gross losses on sales of available for sale securities. During the three and nine-month periods ended June 30, 2022, the Company recognized $489,000 of gross gains and $13,000 of gross losses on sales of available for sale securities.

At June 30, 2023 and September 30, 2022, available for sale debt securities with a total fair value of $56.2 million and $58.6 million, respectively, were pledged to secure FHLB borrowings.

-16-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

3. Loans and Allowance for Loan Losses

Loans at June 30, 2023 and September 30, 2022 consisted of the following:

	June 30,		September 30,
	2023		2022
		(In thousands)
Real estate mortgage:
Residential	$	487,450	$	368,211
Commercial		187,005		169,861
Single tenant net lease		740,967		674,567
SBA commercial (1)		49,661		59,379
Multifamily		35,260		32,411
Residential construction		18,758		18,261
Commercial construction		10,656		5,938
Land and land development		11,332		11,880
Commercial business		108,375		90,010
SBA commercial business (1)		18,008		20,282
Consumer		39,643		38,052
Total loans		1,707,115		1,488,852
Deferred loan origination fees and costs, net		1,012		1,052
Allowance for loan losses		(16,838)		(15,360)
Loans, net	$	1,691,289	$	1,474,544

(1) Includes discounts on SBA loans of $3.7 million and $4.3 million at June 30, 2023 and September 30, 2022, respectively.

During the nine-month period ended June 30, 2023, there were no significant changes in the Company’s lending activities or the methodology used to estimate the allowance for loan losses as disclosed in the Company’s Annual Report on Form 10-K, as amended, for the year ended September 30, 2022.

At June 30, 2023, the Company owned $30,000 of residential real estate where physical possession has been obtained. At September 30, 2022, the Company did not own any residential real estate properties where physical possession has been obtained. At June 30, 2023 and September 30, 2022, the recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $75,000 and $204,000, respectively.

-17-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table provides the components of loans as of June 30, 2023:

	Individually		Collectively
	Evaluated for		Evaluated for
Loans as Evaluated for Impairment:	Impairment		Impairment		Loans
Residential real estate	$	3,010	$	484,440	$	487,450
Commercial real estate		889		186,116		187,005
Single tenant net lease		—		740,967		740,967
SBA commercial real estate		7,728		41,933		49,661
Multifamily		327		34,933		35,260
Residential construction		—		18,758		18,758
Commercial construction		—		10,656		10,656
Land and land development		—		11,332		11,332
Commercial business		728		107,647		108,375
SBA commercial business		1,173		16,835		18,008
Consumer		225		39,418		39,643
	$	14,080	$	1,693,035	$	1,707,115

The following table provides the components of loans as of September 30, 2022:

	Individually		Collectively
	Evaluated for		Evaluated for
Loans as Evaluated for Impairment:	Impairment		Impairment		Loans
Residential real estate	$	2,244	$	365,967	$	368,211
Commercial real estate		908		168,953		169,861
Single tenant net lease		—		674,567		674,567
SBA commercial real estate		7,582		51,797		59,379
Multifamily		354		32,057		32,411
Residential construction		—		18,261		18,261
Commercial construction		—		5,938		5,938
Land and land development		—		11,880		11,880
Commercial business		998		89,012		90,010
SBA commercial business		1,077		19,205		20,282
Consumer		238		37,814		38,052
	$	13,401	$	1,475,451	$	1,488,852

-18-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment method as of June 30, 2023 and September 30, 2022:

	Individually		Collectively
	Evaluated for		Evaluated for		Ending
	Impairment		Impairment		Balance
	(In thousands)
June 30, 2023:
Residential real estate	$	37	$	4,095	$	4,132
Commercial real estate		—		1,783		1,783
Single tenant net lease		—		3,723		3,723
SBA commercial real estate		192		2,116		2,308
Multifamily		—		265		265
Residential construction		—		327		327
Commercial construction		—		206		206
Land and land development		—		201		201
Commercial business		21		1,472		1,493
SBA commercial business		577		1,345		1,922
Consumer		169		309		478
	$	996	$	15,842	$	16,838
September 30, 2022:
Residential real estate	$	—	$	2,716	$	2,716
Commercial real estate		—		1,590		1,590
Single tenant net lease		—		3,838		3,838
SBA commercial real estate		290		2,288		2,578
Multifamily		—		251		251
Residential construction		—		305		305
Commercial construction		—		107		107
Land and land development		—		212		212
Commercial business		—		1,193		1,193
SBA commercial business		674		1,448		2,122
Consumer		—		448		448
	$	964	$	14,396	$	15,360

-19-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2023 and 2022:

	Beginning Balance		Provisions (Credits)		Charge-Offs		Recoveries		Ending Balance
		(In thousands)
June 30, 2023:
Residential real estate	$	3,537	$	603	$	(8)	$	—	$	4,132
Commercial real estate		1,783		—		—		—		1,783
Single tenant net lease		3,726		(3)		—		—		3,723
SBA commercial real estate		2,607		(263)		(39)		3		2,308
Multifamily		326		(61)		—		—		265
Residential construction		246		81		—		—		327
Commercial construction		83		123		—		—		206
Land and land development		198		3		—		—		201
Commercial business		1,322		162		—		9		1,493
SBA commercial business		2,088		(177)		—		11		1,922
Consumer		542		(27)		(46)		9		478
	$	16,458	$	441	$	(93)	$	32	$	16,838
June 30, 2022:
Residential real estate	$	1,345	$	1,091	$	—	$	5	$	2,441
Commercial real estate		2,451		(916)		—		—		1,535
Single tenant net lease		2,619		944		—		—		3,563
SBA commercial real estate		3,633		(745)		(71)		15		2,832
Multifamily		353		(90)		—		—		263
Residential construction		233		55		—		—		288
Commercial construction		67		21		—		—		88
Land and land development		243		(82)		—		—		161
Commercial business		1,303		(93)		—		30		1,240
SBA commercial business		1,775		377		(1)		20		2,171
Consumer		453		(30)		(37)		12		398
	$	14,475	$	532	$	(109)	$	82	$	14,980

-20-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended June 30, 2023 and 2022:

	Beginning		Provisions						Ending
	Balance		(Credits)		Charge-Offs		Recoveries		Balance
	(In thousands)
June 30, 2023:
Residential real estate	$	2,716	$	1,409	$	(8)	$	15	$	4,132
Commercial real estate		1,590		193		—		—		1,783
Single tenant net lease		3,838		(115)		—		—		3,723
SBA commercial real estate		2,578		(157)		(116)		3		2,308
Multifamily		251		14		—		—		265
Residential construction		305		22		—		—		327
Commercial construction		107		99		—		—		206
Land and land development		212		(11)		—		—		201
Commercial business		1,193		231		—		69		1,493
SBA commercial business		2,122		(49)		(190)		39		1,922
Consumer		448		161		(167)		36		478
	$	15,360	$	1,797	$	(481)	$	162	$	16,838
June 30, 2022:
Residential real estate	$	1,438	$	1,015	$	(23)	$	11	$	2,441
Commercial real estate		2,806		(1,271)		—		—		1,535
Single tenant net lease		2,422		1,141		—		—		3,563
SBA commercial real estate		3,475		(548)		(110)		15		2,832
Multifamily		518		(255)		—		—		263
Residential construction		191		97		—		—		288
Commercial construction		63		25		—		—		88
Land and land development		235		(74)		—		—		161
Commercial business		1,284		(133)		—		89		1,240
SBA commercial business		1,346		1,059		(285)		51		2,171
Consumer		523		(28)		(127)		30		398
	$	14,301	$	1,028	$	(545)	$	196	$	14,980

-21-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents impaired loans individually evaluated for impairment as of June 30, 2023 and for the three and nine-months ended June 30, 2023 and 2022. The Company did not recognize any interest income on impaired loans using the cash receipts method during the three and nine-month periods ended June 30, 2023 and 2022.

	At June 30, 2023						Three Months Ended June 30,								Nine Months Ended June 30,
							2023		2023		2022		2022		2023		2023		2022		2022
			Unpaid				Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
	Balance		Balance		Allowance		Balance		Recognized		Balance		Recognized		Balance		Recognized		Balance		Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential real estate	$	2,488	$	2,737	$	—	$	3,306	$	16	$	3,129	$	15	$	3,070	$	46	$	3,286	$	44
Commercial real estate		889		959		—		969		8		1,024		7		970		21		1,052		21
Single tenant net lease		—		—		—		—		—		—		—		—		—		—		—
SBA commercial real estate		6,783		8,407		—		8,427		—		6,441		—		8,189		—		7,271		—
Multifamily		327		371		—		375		4		411		3		384		14		419		5
Residential construction		—		—		—		—		—		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—		—		—		—		—		—
Land and land development		—		—		—		—		—		—		—		—		—		—		—
Commercial business		676		777		—		815		11		1,188		10		947		35		1,350		18
SBA commercial business		327		1,070		—		1,070		—		444		—		986		—		473		—
Consumer		56		37		—		54		—		100		—		65		—		94		1
	$	11,546	$	14,358	$	—	$	15,016	$	39	$	12,737	$	35	$	14,611	$	116	$	13,945	$	89
Loans with an allowance recorded:
Residential real estate	$	522	$	500	$	37	$	250	$	—	$	261	$	—	$	125	$	—	$	257	$	—
Commercial real estate		—		—		—		—		—		—		—		—		—		—		—
Single tenant net lease		—		—		—		—		—		—		—		—		—		—		—
SBA commercial real estate		945		945		192		1,201		—		1,510		—		1,433		—		1,267		—
Multifamily		—		—		—		—		—		—		—		—		—		—		—
Residential construction		—		—		—		—		—		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—		—		—		—		—		—
Land and land development		—		—		—		—		—		—		—		—		—		—		—
Commercial business		52		135		21		135		—		—		—		101		—		—		—
SBA commercial business		846		1,032		577		1,138		—		454		—		1,202		—		337		—
Consumer		169		169		169		196		—		154		—		190		—		146		—
	$	2,534	$	2,781	$	996	$	2,920	$	—	$	2,379	$	—	$	3,051	$	—	$	2,007	$	—
Total:
Residential real estate	$	3,010	$	3,237	$	37	$	3,556	$	16	$	3,390	$	15	$	3,195	$	46	$	3,543	$	44
Commercial real estate		889		959		—		969		8		1,024		7		970		21		1,052		21
Single tenant net lease		—		—		—		—		—		—		—		—		—		—		—
SBA commercial real estate		7,728		9,352		192		9,628		—		7,951		—		9,622		—		8,538		—
Multifamily		327		371		—		375		4		411		3		384		14		419		5
Residential construction		—		—		—		—		—		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—		—		—		—		—		—
Land and land development		—		—		—		—		—		—		—		—		—		—		—
Commercial business		728		912		21		950		11		1,188		10		1,048		35		1,350		18
SBA commercial business		1,173		2,102		577		2,208		—		898		—		2,188		—		810		—
Consumer		225		206		169		250		—		254		—		255		—		240		1
	$	14,080	$	17,139	$	996	$	17,936	$	39	$	15,116	$	35	$	17,662	$	116	$	15,952	$	89

-22-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents impaired loans individually evaluated for impairment as of September 30, 2022.

			Unpaid
	Recorded		Principal		Related
	Balance		Balance		Allowance
	(In thousands)
Loans with no related allowance recorded:
Residential real estate	$	2,244	$	2,524	$	—
Commercial real estate		908		982		—
Single tenant net lease		—		—		—
SBA commercial real estate		5,213		5,952		—
Multifamily		354		398		—
Residential construction		—		—		—
Commercial construction		—		—		—
Land and land development		—		—		—
Commercial business		998		1,189		—
SBA commercial business		221		532		—
Consumer		93		81		—
	$	10,031	$	11,658	$	—
Loans with an allowance recorded:
Residential real estate	$	—	$	—	$	—
Commercial real estate		—		—		—
Single tenant net lease		—		—		—
SBA commercial real estate		2,369		2,919		290
Multifamily		—		—		—
Residential construction		—		—		—
Commercial construction		—		—		—
Land and land development		—		—		—
Commercial business		—		—		—
SBA commercial business		856		1,349		674
Consumer		145		145		—
	$	3,370	$	4,413	$	964
Total:
Residential real estate	$	2,244	$	2,524	$	—
Commercial real estate		908		982		—
Single tenant net lease		—		—		—
SBA commercial real estate		7,582		8,871		290
Multifamily		354		398		—
Residential construction		—		—		—
Commercial construction		—		—		—
Land and land development		—		—		—
Commercial business		998		1,189		—
SBA commercial business		1,077		1,881		674
Consumer		238		226		—
	$	13,401	$	16,071	$	964

-23-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED 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, 2023 and September 30, 2022:

	At June 30,2023						At September 30, 2022
			Loans 90+						Loans 90+
			Days		Total				Days		Total
	Nonaccrual		Past Due		Nonperforming		Nonaccrual		Past Due		Nonperforming
	Loans		Still Accruing		Loans		Loans		Still Accruing		Loans
	(In thousands)
Residential real estate	$	1,995	$	—	$	1,995	$	1,214	$	—	$	1,214
Commercial real estate		524		—		524		518		—		518
Single tenant net lease		—		—		—		—		—		—
SBA commercial real estate		7,728		—		7,728		7,582		—		7,582
Multifamily		—		—		—		—		—		—
Residential construction		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—
Land and land development		—		—		—		—		—		—
Commercial business		62		—		62		73		—		73
SBA commercial business		1,173		—		1,173		1,077		—		1,077
Consumer		225		—		225		238		—		238
Total	$	11,707	$	—	$	11,707	$	10,702	$	—	$	10,702

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

	30-59 Days		60-89 Days		90+ Days		Total				Total
	Past Due		Past Due		Past Due		Past Due		Current		Loans
	(In thousands)
Residential real estate	$	620	$	118	$	1,422	$	2,160	$	485,290	$	487,450
Commercial real estate		63		—		—		63		186,942		187,005
Single tenant net lease		—		—		—		—		740,967		740,967
SBA commercial real estate		651		—		4,063		4,714		44,947		49,661
Multifamily		—		—		—		—		35,260		35,260
Residential construction		—		—		—		—		18,758		18,758
Commercial construction		—		—		—		—		10,656		10,656
Land and land development		—		—		—		—		11,332		11,332
Commercial business		40		201		52		293		108,082		108,375
SBA commercial business		—		56		614		670		17,338		18,008
Consumer		86		7		55		148		39,495		39,643
Total	$	1,460	$	382	$	6,206	$	8,048	$	1,699,067	$	1,707,115

-24-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the aging of past due loans at September 30, 2022:

	30-59 Days		60-89 Days		90+ Days		Total				Total
	Past Due		Past Due		Past Due		Past Due		Current		Loans
	(In thousands)
Residential real estate	$	1,164	$	53	$	204	$	1,421	$	366,790	$	368,211
Commercial real estate		—		—		518		518		169,343		169,861
Single tenant net lease		—		—		—		—		674,567		674,567
SBA commercial real estate		—		—		3,306		3,306		56,073		59,379
Multifamily		—		—		—		—		32,411		32,411
Residential construction		—		—		—		—		18,261		18,261
Commercial construction		—		—		—		—		5,938		5,938
Land and land development		—		—		—		—		11,880		11,880
Commercial business		—		—		73		73		89,937		90,010
SBA commercial business		226		—		238		464		19,818		20,282
Consumer		93		—		58		151		37,901		38,052
Total	$	1,483	$	53	$	4,397	$	5,933	$	1,482,919	$	1,488,852

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.

-25-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following table presents loans by risk category as of June 30, 2023:

			Special
June 30, 2023:	Pass		Mention		Substandard		Doubtful		Loss		Total
	(In thousands)
Residential real estate	$	485,173	$	—	$	2,175	$	99	$	3	$	487,450
Commercial real estate		186,276		—		729		—		—		187,005
Single tenant net lease		740,967		—		—		—		—		740,967
SBA commercial real estate		41,104		—		6,897		1,660		—		49,661
Multifamily		35,260		—		—		—		—		35,260
Residential construction		18,758		—		—		—		—		18,758
Commercial construction		10,656		—		—		—		—		10,656
Land and land development		11,332		—		—		—		—		11,332
Commercial business		108,310		—		65		—		—		108,375
SBA commercial business		15,168		—		2,800		40		—		18,008
Consumer		39,588		—		55		—		—		39,643
Total	$	1,692,592	$	—	$	12,721	$	1,799	$	3	$	1,707,115

The following table presents loans by risk category as of September 30, 2022:

			Special
September 30, 2022:	Pass		Mention		Substandard		Doubtful		Loss		Total
	(In thousands)
Residential real estate	$	366,542	$	—	$	1,499	$	170	$	—	$	368,211
Commercial real estate		169,133		—		728		—		—		169,861
Single tenant net lease		674,567		—		—		—		—		674,567
SBA commercial real estate		49,676		1,102		6,935		1,666		—		59,379
Multifamily		32,411		—		—		—		—		32,411
Residential construction		18,261		—		—		—		—		18,261
Commercial construction		5,938		—		—		—		—		5,938
Land and land development		11,880		—		—		—		—		11,880
Commercial business		89,675		250		85		—		—		90,010
SBA commercial business		17,271		274		2,696		41		—		20,282
Consumer		37,959		—		93		—		—		38,052
Total	$	1,473,313	$	1,626	$	12,036	$	1,877	$	—	$	1,488,852

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.

-26-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

The following table summarizes the Company’s recorded balance of TDRs at June 30, 2023 and September 30, 2022. There was $101,000 of specific reserve included in the allowance for loan losses related to TDRs at June 30, 2023. There was $161,000 of specific reserve included in the allowance for loan losses related to TDRs at September 30, 2022.

	Accruing		Nonaccrual		Total
	(In thousands)
June 30, 2023:
Residential real estate	$	1,015	$	—	$	1,015
Commercial real estate		365		524		889
SBA commercial real estate		—		1,625		1,625
Multifamily		327		—		327
Commercial business		666		—		666
SBA commercial business		—		230		230
Total	$	2,373	$	2,379	$	4,752
September 30,  2022:
Residential real estate	$	1,030	$	—	$	1,030
Commercial real estate		390		432		822
SBA commercial real estate		—		1,627		1,627
Multifamily		354		—		354
Commercial business		925		—		925
SBA commercial business		—		265		265
Total	$	2,699	$	2,324	$	5,023

The following table summarizes information regarding TDRs that were restructured during the three-and nine-month periods ended June 30, 2023 and 2022:

	Number of	Pre-Modification		Post-Modification
	Loans	Principal Balance		Principal Balance
	(Dollars in thousands)
Three Months Ended June 30, 2023:
Residential Real Estate	1	$	31	$	31
Total	1	$	31	$	31
Nine Months Ended June 30, 2023:
Residential Real Estate	1	$	31	$	31
Total	1	$	31	$	31
Three Months Ended June 30, 2022:
SBA commercial business	1	$	397	$	397
Total	1	$	397	$	397
Nine Months Ended June 30, 2022:
SBA commercial business	1	$	397	$	397
Total	1	$	397	$	397

-27-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

At June 30, 2023 and September 30, 2022, the Company had committed to lend $1,000 to customers with outstanding loans classified as TDRs.

There were no principal charge-offs as a result of loans previously designated as TDRs during the three-month period ended June 30, 2023. There were principal charge-offs totaling $6,000 as a result of loans previously designated as TDRs during the nine-month period ended June 30, 2023. There were no principal charge-offs recorded as a result of TDRs during the three- and nine-month periods ended June 30, 2022. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan.

During the three- and nine-month periods ended June 30, 2023 and 2022, the Company did not have any TDRs that were modified within the previous twelve months and for which there was a payment default.

SBA Loan Servicing Rights

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

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

The unpaid principal balance of SBA loans serviced for others was $223.2 million, $238.9 million and $247.5 million at June 30, 2023, September 30, 2022 and June 30, 2022, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $35,000 and $70,000 for the three- and nine-month periods ended June 30, 2023, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $20,000 and $74,000 for the three- and nine-month periods ended June 30, 2022, respectively. Net servicing income (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans was $578,000 and $1.7 million for the three- and nine-month periods ended June 30, 2023, respectively. Net servicing income (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans was $606,000 and $1.9 million for the three- and nine-month periods ended June 30, 2022, respectively. Net servicing income and costs related to SBA loans are included in other noninterest income in the consolidated statements of income.

-28-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

An analysis of SBA loan servicing rights for the three- and nine-month periods ended June 30, 2023 and 2022 is as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
	(In thousands)
Balance, beginning of period	$	3,727	$	4,447	$	3,790	$	4,447
Servicing rights capitalized		147		112		606		772
Amortization		(170)		(219)		(560)		(771)
Direct write-offs		(330)		(103)		(641)		(217)
Change in valuation allowance		—		(187)		179		(181)
Balance, end of period	$	3,374	$	4,050	$	3,374	$	4,050

There was no valuation allowance related to SBA loan servicing rights at June 30, 2023. A valuation allowance of $179,000 related to SBA loan servicing rights at September 30, 2022.

Mortgage Servicing Rights (“MSRs”)

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

A valuation model employed by an independent third party calculates the present value of future cash flows and is used to value the MSRs on a monthly basis. Management periodically compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Key assumptions, which are significant unobservable inputs, used to estimate the fair value of the MSRs at June 30, 2023 and September 30, 2022 were as follows:

	Range of Assumption	Range of Assumption
	(Weighted Average)	(Weighted Average)
Assumption	June 30, 2023	September 30, 2022
Discount rate	9.50% to 14.50% (9.52%)	9.50% to 14.50% (9.51%)
Prepayment rate	5.00% to 79.91% (6.89%)	6.01% to 74.89% (6.63%)

The unpaid principal balance of residential mortgage loans serviced for others was $4.75 billion and $4.88 billion at June 30, 2023 and September 30, 2022, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing and other liabilities were $41.6 million and $46.0 million at June 30, 2023 and September 30, 2022, respectively. Contractually specified servicing fees (net of direct servicing expenses), late fees and other ancillary fees related to residential mortgage loans serviced for others were $2.4 million and $7.2 million for the three- and nine-month periods ended June 30, 2023, respectively. Contractually specified servicing fees (net of direct servicing expenses), late fees and other ancillary fees related to residential mortgage loans serviced for others were $2.2 million and $6.6 million for the three- and nine-month periods ended June 30, 2022, respectively. Contractually specified servicing fees are included in mortgage banking income in the consolidated statements of income.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Changes in the carrying value of MSRs accounted for at fair value for the three- and nine-month periods ended June 30, 2023 and 2022 were as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
	(In thousands)
Fair value, beginning of period	$	61,194	$	63,660	$	63,263	$	49,579
Servicing rights capitalized		764		2,731		1,202		10,581
Changes in fair value related to:
Loan repayments		(1,073)		(1,695)		(3,137)		(6,117)
Change in valuation model inputs or assumptions		(236)		143		(679)		10,796
Balance, end of period	$	60,649	$	64,839	$	60,649	$	64,839

Nonresidential MSRs

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

The unpaid principal balance of nonresidential mortgage loans serviced for others was $43.5 million and $43.7 million at June 30, 2023 and September 30, 2022, respectively. Contractually specified servicing fees, late fees and other ancillary fees related to nonresidential mortgage loans serviced for others were $8,000 and $22,000 for the three- and nine-month periods ended June 30, 2023, respectively. Contractually specified servicing fees, late fees and other ancillary fees related to nonresidential mortgage loans serviced for others were $16,000 and $35,000 for the three- and nine-month periods ended June 30, 2022, respectively. Contractually specified servicing fees on nonresidential mortgage loans serviced for others are included in other noninterest income in the consolidated statements of income.

An analysis of nonresidential MSRs for the three- and nine-month periods ended June 30, 2023 and 2022 is as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
	(In thousands)
Balance, beginning of period	$	124	$	160	$	141	$	—
Servicing rights capitalized		—		—		—		160
Amortization		(8)		(10)		(25)		(10)
Direct write-offs		—		—		—		—
Change in valuation allowance		—		—		—		—
Balance, end of period	$	116	$	150	$	116	$	150

There was no valuation allowance related to nonresidential MSRs at June 30, 2023 and September 30, 2022.

-30-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

4. Deposits

Deposits at June 30, 2023 and September 30, 2022 consisted of the following:

	June 30,		September 30,
	2023		2022
	(In thousands)
Noninterest-bearing demand deposits	$	315,602	$	340,172
NOW accounts		315,187		343,296
Money market accounts		301,787		238,219
Savings accounts		158,007		171,779
Retail time deposits		154,951		129,864
Brokered & reciprocal time deposits		414,231		292,504
Total	$	1,659,765	$	1,515,834

5. Supplemental Disclosure for Net Income Per Share

Net income per share information is presented below for the three- and nine-month periods ended June 30, 2023 and 2022.

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(Dollars in thousands, except share and per share data)	2023		2022		2023		2022
Basic:
Earnings:
Net income attributable to First Savings Financial Group, In.	$	2,324	$	2,638	$	8,919	$	13,978
Shares:
Weighted average common shares outstanding, basic		6,816,608		7,073,204		6,858,739		7,082,034
Net income per common share, basic	$	0.34	$	0.37	$	1.30	$	1.97
Diluted:
Earnings:
Net income attributable to First Savings Financial Group, Inc.	$	2,324	$	2,638	$	8,919	$	13,978
Shares:
Weighted average common shares outstanding, basic		6,816,608		7,073,204		6,858,739		7,082,034
Add: Dilutive effect of outstanding Options		3,140		66,816		35,027		74,781
Add: Dilutive effect of restricted stock		—		5,268		—		9,817
Weighted average common shares outstanding, as adjusted		6,819,748		7,145,288		6,893,766		7,166,632
Net income per common share, diluted	$	0.34	$	0.37	$	1.29	$	1.95

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

-31-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Stock options for 282,489 shares of common stock were excluded from the calculation of diluted net income per common share for the three- and nine-month periods ended June 30, 2023, because their effect was antidilutive. Stock options for 137,250 shares of common stock were excluded from the calculation of diluted net income per common share for the three-and nine-month periods ended June 30, 2022, because their effect was antidilutive. There were no antidilutive restricted stock awards excluded from the calculation of diluted net income per share for the three- and nine-month periods ended June 30, 2023 and 2022.

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

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

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

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

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

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED 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. The tables below present the balances of financial assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2023 and September 30, 2022.

	Carrying Value
	Level 1		Level 2		Level 3		Total
	(In thousands)
June 30, 2023:
Assets Measured – Recurring Basis:
Securities available for sale:
U.S. Treasury bills and notes	$	—	$	28,469	$	—	$	28,469
Agency mortgage-backed		—		26,319		—		26,319
Agency CMO		—		13,176		—		13,176
Privately-issued CMO		—		408		—		408
Privately-issued ABS		—		469		—		469
SBA certificates		—		11,245		—		11,245
Municipal bonds		—		166,655		—		166,655
Other		—		1,656		—		1,656
Total securities available for sale	$	—	$	248,397	$	—	$	248,397
Residential mortgage loans held for sale	$	—	$	50,066	$	—	$	50,066
Derivative assets (included in other assets)	$	—	$	388	$	741	$	1,129
Equity securities (included in other assets)	$	149	$	—	$	—	$	149
Residential mortgage servicing rights	$	—	$	—	$	60,649	$	60,649
Liabilities Measured – Recurring Basis:
Derivative liabilities (included in other liabilities)	$	—	$	30	$	67	$	97
Assets Measured – Nonrecurring Basis:
Collateral dependent loans:
SBA commercial real estate	$	—	$	—	$	2,435	$	2,435
Commercial business		—		—		52		52
SBA commercial business		—		—		171		171
Total collateral dependent loans	$	—	$	—	$	2,658	$	2,658

	Carrying Value
	Level 1		Level 2		Level 3		Total
	(In thousands)
September 30, 2022:
Assets Measured – Recurring Basis
Securities available for sale:
U.S. Treasury bills and notes	$	—	$	27,295	$	—	$	27,295
Agency mortgage-backed		—		27,500		—		27,500
Agency CMO		—		14,821		—		14,821
Privately-issued CMO		—		470		—		470
Privately-issued ABS		—		569		—		569
SBA certificates		—		12,012		—		12,012
Municipal bonds		—		233,850		—		233,850
Total securities available for sale	$	—	$	316,517	$	—	$	316,517
Residential mortgage loans held for sale	$	—	$	38,579	$	—	$	38,579
Derivative assets (included in other assets)	$	—	$	872	$	158	$	1,030
Equity securities (included in other assets)	$	103	$	—	$	—	$	103
Residential mortgage servicing rights	$	—	$	—	$	63,263	$	63,263
Liabilities Measured – Recurring Basis
Derivative liabilities (included in other liabilities)	$	—	$	31	$	396	$	427
Assets Measured – Nonrecurring Basis
Collateral dependent loans:
SBA commercial real estate	$	—	$	—	$	2,574	$	2,574
Commercial business		—		—		46		46
SBA commercial business		—		—		290		290
Total collateral dependent loans	$	—	$	—	$	2,910	$	2,910
SBA loan servicing rights	$	—	$	—	$	3,790	$	3,790

-33-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Fair value is based upon quoted market prices where available. If quoted market prices are not available, fair value is based on internally developed models or obtained from third parties that primarily use, as inputs, observable market-based parameters or a matrix pricing model that employs the Bond Market Association’s standard calculations for cash flow and price/yield analysis and observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, or at the lower of cost or fair value. These adjustments may include unobservable parameters. Any such valuation adjustments have been applied consistently over time.

The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. There have been no changes in the valuation techniques and related inputs used for assets measured at fair value on a recurring and nonrecurring basis during the nine-month period ended June 30, 2023.

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

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

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

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

-34-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The table below presents a reconciliation of derivative assets and liabilities (interest rate lock commitments) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three- and nine-month periods ended June 30, 2023 and 2022:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(In thousands)	2023		2022		2023		2022
Beginning balance	$	1,348	$	(2,923)	$	(238)	$	1,567
Unrealized gains (losses) recognized in earnings, net of settlements		(674)		3,526		912		(964)
Ending balance	$	674	$	603	$	674	$	603

The realized and unrealized gains recognized in earnings in the table above are included in mortgage banking income on the accompanying consolidated statements of income. Unrealized gains recognized in earnings for the nine-month period ended June 30, 2023 attributable to Level 3 derivative assets and liabilities held at the balance sheet date were $912,000. Unrealized losses recognized in earnings for the nine-month period ended June 30, 2022 attributable to Level 3 derivative assets and liabilities held at the balance sheet date were $964,000.

The table below presents information about significant unobservable inputs (Level 3) used in the valuation of derivative financial instruments measured at fair value on a recurring basis as of June 30, 2023 and September 30, 2022.

		Range of Inputs	Range of Inputs
	Significant	(Weighted Average)	(Weighted Average)
	Unobservable	June 30,	September 30,
Financial Instrument	Inputs	2023	2022
Interest rate lock commitments	Pull-through rate	39% - 95% (72%)	50% - 100% (78%)
	Direct costs to close	0.00% - 6.28% (0.76%)	0.00% - 4.00% (0.70%)

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

Collateral Dependent Loans. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. In accordance with accounting standards, only impaired loans for which an allowance for loan loss has been established or a partial charge-off recorded require classification in the fair value hierarchy.

-35-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The fair value of impaired loans is based on the fair value of the underlying collateral less estimated costs to sell. Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable. The fair value of the collateral is generally determined based on real estate appraisals or other independent evaluations by qualified professionals, adjusted for estimated costs to sell the property, costs to complete or repair the property and other factors to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral. The fair value of impaired loans is classified as Level 3 in the fair value hierarchy. At June 30, 2023 and September 30, 2022, the significant unobservable inputs used in the fair value measurement of impaired loans were as follows:

		Range of Inputs
	Significant	(Weighted Average)	Range of Inputs (Weighted
	Unobservable	June 30,	Average) September 30,
Financial Instrument	Inputs	2023	2022
Impaired loans	Discount from appraised value	0.0% - 50.0% (14.7%)	0.0% - 80.0% (16.4%)
	Estimated costs to sell	0.0% - 6.0% (5.9%)	0.0% - 10.0% (5.9%)

During the three- and nine -month periods ended June 30, 2023, the Company recognized provisions for loan losses on impaired loans of $261,000 and $825,000, respectively. During the three- and nine-month periods ended June 30, 2022, the Company recognized provisions for loan losses on impaired loans of $508,000 and $1.7 million, respectively.

SBA and Nonresidential Loan Servicing Rights. SBA loan servicing rights represent the value associated with servicing SBA loans that have been sold. The fair value of SBA loan servicing rights is determined on a quarterly basis by an independent third party valuation model using market-based discount rate and prepayment assumptions, and is classified as Level 3 in the fair value hierarchy. At June 30, 2023, there were no SBA loan servicing rights measured at fair value. At September 30, 2022, the significant unobservable inputs used in the fair value measurement of SBA loan servicing rights measured at fair value were as follows:

	Significant	Range of Inputs (Weighted
	Unobservable	Average) September 30,
Financial Instrument	Inputs	2022
SBA loan servicing rights	Discount rate	6.90% - 25.00% (12.71%)
	Prepayment speed	7.08% - 29.26% (15.27%)

Impairment of the SBA loan servicing rights is recognized on a quarterly basis through a valuation allowance to the extent that fair value is less than the carrying amount. The Company did not recognize any impairment charges on SBA loan servicing rights for the three-month period ended June 30, 2023. The Company reversed impairment charges of $179,000 on SBA loan servicing rights for the nine-month period ended June 30, 2023. The Company recognized impairment charges of $187,000 and $181,000 on SBA loan servicing rights for the three- and nine-month periods ended June 30, 2022, respectively.

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

There were no transfers into or out of the Company’s Level 3 financial assets of the fair value hierarchy for the three- and nine-month period ended June 30, 2023.

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

-36-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The Company has elected the fair value option for substantially all of its residential mortgage loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with the Company’s policy on loans held for investment. None of these loans were 90 days or more past due, nor were any on nonaccrual status, as of June 30, 2023 and September 30, 2022.

The table below presents the difference between the aggregate fair value and the aggregate remaining principal balance for residential mortgage loans held for sale for which the fair value option had been elected as of June 30, 2023 and September 30, 2022.

			Aggregate
	Aggregate		Principal
	Fair Value		Balance
	June 30,		June 30,
(In thousands)	2023		2023		Difference
Residential mortgage loans held for sale	$	50,066	$	49,177	$	889

			Aggregate
	Aggregate		Principal
	Fair Value		Balance
	September 30,		September 30,
(In thousands)	2022		2022		Difference
Residential mortgage loans held for sale	$	38,579	$	38,517	$	62

The table below presents gains and losses and interest included in earnings related to financial assets measured at fair value under the fair value option for the three- and nine- month periods ended June 30, 2023 and 2022:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(In thousands)	2023		2022			2023		2022
Gains (losses) – included in mortgage banking income	$	(234)	$	804	$	716	$	(117)
Interest income		704		1,127		1,521		3,080
	$	470	$	1,931	$	2,237	$	2,963

-37-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

	Carrying		Fair Value Measurements Using:
	Amount		Level 1		Level 2		Level 3
	(In thousands)
June 30, 2023:
Financial assets:
Cash and due from banks	$	23,722	$	23,722	$	—	$	—
Interest-bearing deposits with banks		18,753		18,753		—		—
Interest-bearing time deposits		980		—		980		—
Securities available for sale		248,397		—		248,397		—
Securities held to maturity		1,391		—		1,411		—
Residential mortgage loans held for sale		50,066		—		50,066		—
SBA loans held for sale		13,076		—		—		14,191
Loans, net		1,691,289		—		—		1,594,706
FRB and FHLB stock		24,939		N/A		N/A		N/A
Accrued interest receivable		10,461		—		10,461		—
Residential mortgage loan servicing rights		60,649		—		—		60,649
Nonresidential mortgage loan servicing rights		116		—		—		116
SBA loan servicing rights		3,374		—		—		3,537
Derivative assets (included in other assets)		1,129		—		388		741
Equity securities (included in other assets)		149		149		—		—
Financial liabilities:
Noninterest-bearing deposits		315,602		315,602		—		—
Interest-bearing deposits		1,344,163		—		—		1,339,449
Borrowings from FHLB		345,000		—		337,656		—
Subordinated notes		48,387		—		47,139		—
Accrued interest payable		5,782		—		5,782		—
Advance payments by borrowers for taxes and insurance		907		—		907		—
Derivative liabilities (included in other liabilities)		97		—		30		67

-38-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

	Carrying		Fair Value Measurements Using:
	Amount		Level 1		Level 2		Level 3
	(In thousands)
September 30, 2022:
Financial assets:
Cash and due from banks	$	18,312	$	18,312	$	—	$	—
Interest-bearing deposits with banks		23,353		23,353		—		—
Interest-bearing time deposits		1,613		—		1,613		—
Securities available for sale		316,517		—		316,517		—
Securities held to maturity		1,558		—		1,593		—
Residential mortgage loans held for sale		38,579		—		38,579		—
SBA loans held for sale		21,883		—		24,010		—
Loans, net		1,474,544		—		—		1,402,222
FRB and FHLB stock		20,004		N/A		N/A		N/A
Accrued interest receivable		8,332		—		8,332		—
SBA loan servicing rights		3,790		—		—		3,790
Residential mortgage loan servicing rights		63,263		—		—		63,263
Nonresidential mortgage loan servicing rights		141		—		—		141
SBA loan servicing rights		3,790		—		—		3,789
Derivative assets (included in other assets)		1,030		—		872		158
Equity securities (included in other assets)		103		103		—		—
Financial liabilities:
Noninterest-bearing deposits		340,172		340,172		—		—
Interest-bearing deposits		1,175,662		—		—		1,170,620
Borrowings from FHLB		307,303		—		302,090		—
Subordinated note		50,217		—		48,685		—
Other borrowings		37,989		—		—		37,989
Accrued interest payable		1,302		—		1,302		—
Advance payments by borrowers for taxes and insurance		1,207		—		1,207		—
Derivative liabilities (included in other liabilities)		427		—		31		396

7. Employee Stock Ownership Plan

On October 6, 2008, the Company established a leveraged employee stock ownership plan (“ESOP”) covering substantially all employees. The ESOP trust acquired 203,363 shares of Company common stock at a cost of $10.00 per share financed by a term loan with the Company. The ESOP loan was repaid in full during the quarter ended December 31, 2015 and all shares have been allocated to participants in the plan; therefore, no compensation expense was recognized for the three- and nine- month periods ended June 30, 2023 and 2022. The ESOP trust held 293,695 shares of Company common stock at June 30, 2023 and September 30, 2022.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

8. Stock Based Compensation Plans

The Company maintains three equity incentive plans under which stock options and restricted stock have been or may be granted, the 2010 Equity Incentive Plan (“2010 Plan”), approved by the Company’s shareholders in February 2010, the 2016 Equity Incentive Plan (“2016 Plan”), approved by the Company’s shareholders in February 2016, and the 2021 Equity Incentive Plan (“2021 Plan”) approved by the Company’s shareholders in February 2021. At June 30, 2023, there were no remaining shares of the Company’s common stock available for issuance under the 2010 Plan. The aggregate number of shares of the Company’s common stock available for issuance under the 2016 Plan may not exceed 264,000 shares, consisting of 198,000 stock options and 66,000 shares of restricted stock. The aggregate number of shares of the Company’s common stock available for issuance under the 2021 Plan may not exceed 356,058 shares, consisting of 267,043 stock options and 89,015 shares of restricted stock. At June 30, 2023, 4,560 shares of the Company’s common stock were available for issuance under the 2016 Plan, of which 1,500 shares were available for restricted stock and 3,060 shares were available for stock options. At June 30, 2023, 93,058 shares of the Company’s common stock were available for issuance under the 2021 Plan, of which 23,265 shares were available for restricted stock and 69,793 shares were available for stock options. The Company generally issues new shares under the 2016 and 2021 Plans from its authorized but unissued shares. The Company accounts for any forfeitures as they occur, and any previously recognized compensation cost for an award is reversed in the period the award is forfeited.

Stock Options

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

Stock options granted generally vest ratably over five years and are exercisable in whole or in part for a period up to ten years from the date of the grant. Compensation expense is measured based on the fair market value of the options at the grant date and is recognized ratably over the period during which the shares are earned (the vesting period). The fair market value of stock options granted is estimated at the date of grant using a binomial option pricing model. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of options granted represents the period of time that options are expected to be outstanding. The risk free rate for the expected life of the options is based on the U.S. Treasury yield curve in effect at the grant date.

The fair value of options granted during the nine-month periods ended June 30, 2023 and 2022 were determined using the following assumptions:

	Nine Months Ended
	June 30,
	2023			2022
Expected dividend yield		2.93	%		2.32	%
Risk-free interest rate		3.94	%		1.55	%
Expected volatility		27.7	%		27.0	%
Expected life of options		6.8 years			7.1 years
Weighted average fair value at grant date	$	5.71		$	7.03

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

A summary of stock option activity as of June 30, 2023, and changes during the nine-month period then ended is presented below.

				Weighted
				Average
				Remaining
		Weighted		Contractual	Aggregate
	Number of	Average		Term	Intrinsic
	Shares	Exercise Price		(Years)	Value
	(Dollars in thousands, except per share data)
Outstanding at beginning of period	351,369	$	20.57
Granted	66,000		22.49
Exercised	—		—
Forfeited or expired	(6,000)		26.72
Outstanding at end of period	411,369	$	20.79	6.5	$	—
Vested and expected to vest	411,369	$	20.79	6.5	$	—
Exercisable at end of period	226,710	$	17.84	4.9	$	—

There were no stock options exercised during the nine-month periods ended June 30, 2023 and 2022. The Company recognized compensation expense related to stock options of $75,000 and $228,000 for the three- and nine-month periods ended June 30, 2023, respectively. The Company recognized compensation expense related to stock options of $82,000 and $215,000 for the three- and nine-month periods ended June 30, 2022, respectively. At June 30, 2023, there was $883,000 of unrecognized compensation expense related to nonvested stock options. The compensation expense is expected to be recognized over a weighted average period of 3.67 years. There was no cash received or tax benefit from the exercise of stock options during the nine-month periods ended June 30, 2023 and 2022.

Restricted Stock

The vesting period of restricted stock granted under the plans is generally five years beginning one year after the date of grant of the awards. Compensation expense is measured based on the fair market value of the restricted stock at the grant date and is recognized ratably over the vesting period. Compensation expense related to restricted stock recognized for the three- and nine-month periods ended June 30, 2023 was $98,000 and $298,000, respectively. Compensation expense related to restricted stock recognized for the three- and nine-month periods ended June 30, 2022 was $105,000 and $285,000, respectively.

A summary of the Company’s nonvested restricted shares activity as of June 30, 2023 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, 2022	51,324	$	26.07
Granted	22,000	$	22.49
Vested	(16,408)	$	25.68
Forfeited	(2,000)	$	26.72
Nonvested at June 30, 2023	54,916	$	24.73

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

There were 16,408 restricted shares vested during the nine-month period ended June 30, 2023 with a total fair value of $369,000. There were 12,225 restricted shares that vested during the nine-month period ended June 30, 2022 with a total fair value of $327,000. At June 30, 2023, there was $1.1 million of unrecognized compensation expense related to nonvested restricted shares. The compensation expense is expected to be recognized over a weighted average period of 3.68 years.

9. Derivative Financial Instruments

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

Certain financial instruments, including derivatives, may be eligible for offset in the balance sheet when the “right of setoff” exists or when the instruments are subject to an enforceable master netting agreement, which includes the right of the non-defaulting party or non-affected party to offset recognized amounts, including collateral posted with the counterparty, to determine a net receivable or net payable upon early termination of the agreement. Certain of the Company’s derivative instruments are subject to master netting agreements. However, the Company has not elected to offset such financial instruments in the consolidated balance sheets. The Company may be required to post margin collateral to derivative counterparties based on agreements with the dealers. At June 30, 2023 and September 30, 2022, the Company had cash collateral posted with certain derivative counterparties of $1.5 million and $2.4 million, respectively, against its derivative obligations. Cash collateral related to derivative contracts is recorded in interest-bearing deposits with banks or other assets in the consolidated balance sheets.

The tables below provide information on the Company’s derivative financial instruments as of June 30, 2023 and September 30, 2022.

	Notional		Asset		Liability
	Amount		Derivatives		Derivatives
(In thousands)	June 30, 2023		June 30, 2023		June 30, 2023
Interest rate lock commitments	$	111,653	$	741	$	67
Forward mortgage loan sale contracts		104,000		388		30
	$	215,653	$	1,129	$	97

	Notional		Asset		Liability
	Amount		Derivatives		Derivatives
	September 30,		September 30,		September 30,
(In thousands)	2022		2022		2022
Interest rate lock commitments	$	48,952	$	158	$	396
Forward mortgage loan sale contracts		60,000		872		31
	$	108,952	$	1,030	$	427

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Income (loss) related to derivative financial instruments included in mortgage banking income in the accompanying consolidated statements of income for the three-and nine- month periods ended June 30, 2023 and 2022 is as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(In thousands)	2023		2022		2023		2022
Interest rate lock commitments	$	(674)	$	3,526	$	912	$	(964)
Forward mortgage loan sale contracts		1,097		6,091		121		19,098
	$	423	$	9,617	$	1,033	$	18,134

10. Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”) became effective for the Bank on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule through 2019. Under the Basel III rules, the Bank must hold a conservation buffer above the adequately capitalized risk-based capital ratios disclosed in the table below. The capital conservation buffer was 2.50% for 2023 and 2022. The Bank met all capital adequacy requirements to which it was subject as of June 30, 2023 and September 30, 2022.

As of June 30, 2023, the most recent notification from the Federal Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

									Minimum To Be Well
					Minimum				Capitalized Under
					For Capital				Prompt Corrective
	Actual				Adequacy Purposes:				Action Provisions:
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
As of June 30, 2023:
Total capital (to risk-weighted assets):
Consolidated	$	231,481	11.73	%	$	157,860	8.00	%		N/A	N/A
Bank		223,772	11.35			157,747	8.00		$	197,184	10.00	%
Tier 1 capital (to risk-weighted assets):
Consolidated	$	166,256	8.43	%	$	118,395	6.00	%		N/A	N/A
Bank		206,934	10.49			118,311	6.00		$	157,747	8.00	%
Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	166,256	8.43	%	$	88,796	4.50	%		N/A	N/A
Bank		206,934	10.49			88,733	4.50		$	128,170	6.50	%
Tier 1 capital (to average adjusted total assets):
Consolidated	$	166,256	7.28	%	$	91,359	4.00	%		N/A	N/A
Bank		206,934	9.06			91,386	4.00		$	114,232	5.00	%
As of September 30, 2022:
Total capital (to risk-weighted assets):
Consolidated	$	224,895	12.33	%	$	145,973	8.00	%		N/A	N/A
Bank		208,280	11.44			145,713	8.00		$	182,141	10.00	%
Tier 1 capital (to risk-weighted assets):
Consolidated	$	159,318	8.73	%	$	109,480	6.00	%		N/A	N/A
Bank		192,920	10.59			109,285	6.00		$	145,713	8.00	%
Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	159,318	8.73	%	$	82,110	4.50	%		N/A	N/A
Bank		192,920	10.59			81,963	4.50		$	118,392	6.50	%
Tier 1 capital (to average adjusted total assets):
Consolidated	$	159,318	7.96	%	$	80,031	4.00	%		N/A	N/A
Bank		192,920	9.58			80,555	4.00		$	100,693	5.00	%

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

11. Recent Accounting Pronouncements

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

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326). The update commonly referred to as the current expected credit loss methodology (“CECL”) replaces the incurred loss methodology for recognizing credit losses under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. For the Company, the amendments in the update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. In preparation for the implementation of ASU 2016-13, the Company has adopted a software model and intends to adopt the remaining maturity methodology.  The Company is running monthly parallel CECL calculations in order to refine data requirements for this loss methodology, analyze forecast scenarios, and test the volatility of the model.  The Company currently anticipates recording a one-time cumulative effect adjustment upon adoption of CECL effective October 1, 2023 and maintaining regulatory capital ratios in excess of “well-capitalized” after the impact of the one-time cumulative effect adjustment.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the current accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. For public business entities, the ASU also requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. For entities that have not yet adopted the amendments in ASU No. 2016-13, the effective dates for the amendments in the ASU are the same as the effective dates in ASU No. 2016-13. The amendments should generally be applied prospectively, although for the transition method related to the recognition and measurement of TDRs an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company is currently assessing the impact of the guidance, but its adoption is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurements (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. It also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted and the amendments in the ASU should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The adoption of the ASU is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

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

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

12. Segment Reporting

The Company’s operations include three primary segments: core banking, SBA lending, and mortgage banking. The core banking segment originates residential, commercial and consumer loans and attracts deposits from its customer base. Net interest income from loans and investments that are funded by deposits and borrowings is the primary revenue for the core banking segment. The SBA lending segment originates loans guaranteed by the SBA, subsequently selling the guaranteed portion to outside investors. Net gains on sales of loans, net servicing income and net interest income are the primary sources of revenue for the SBA lending segment. The mortgage banking segment originates residential mortgage loans and sells them in the secondary market. Net gains on the sales of loans, net servicing income, income from derivative financial instruments and net interest income are the primary sources of revenue for the mortgage banking segment.

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

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

	Core		SBA		Mortgage		Consolidated
	Banking		Lending		Banking		Totals
Three Months Ended June 30, 2023:
Net interest income	$	13,407	$	1,098	$	360	$	14,865
Provision (credit) for loan losses		881		(440)		—		441
Net interest income after provision		12,526		1,538		360		14,424
Net gains on sales of loans, SBA		—		497		—		497
Mortgage banking income		16		—		4,652		4,668
Noninterest income		1,965		580		4,651		7,196
Noninterest expense		11,010		2,107		5,848		18,965
Income (loss) before taxes		3,481		11		(837)		2,655
Income tax expense (benefit)		561		(21)		(209)		331
Segment profit (loss)		2,920		32		(628)		2,324
Non-cash items:
Depreciation and amortization		618		5		22		645
Segment assets at June 30, 2023		2,058,442		84,394		117,585		2,260,421
	Core		SBA		Mortgage		Consolidated
	Banking		Lending		Banking		Totals
Nine Months Ended June 30, 2023:
Net interest income	$	42,047	$	3,186	$	805	$	46,038
Provision (credit) for loan losses		2,003		(206)		—		1,797
Net interest income after provision		40,044		3,392		805		44,241
Net gains on sales of loans, SBA		—		2,179		—		2,179
Mortgage banking income		8		—		11,305		11,313
Noninterest income		5,626		2,970		11,304		19,900
Noninterest expense		31,458		6,693		16,324		54,475
Income (loss) before taxes		14,212		(331)		(4,215)		9,666
Income tax expense (benefit)		1,908		(108)		(1,053)		747
Segment profit (loss)		12,304		(223)		(3,162)		8,919
Non-cash items:
Depreciation and amortization		1,817		16		74		1,907
Segment assets at June 30, 2023		2,058,442		84,394		117,585		2,260,421

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

	Core		SBA		Mortgage		Consolidated
	Banking		Lending		Banking		Totals
Three Months Ended June 30, 2022:
Net interest income	$	13,848	$	1,449	$	614	$	15,911
Provision (credit) for loan losses		910		(378)		—		532
Net interest income after provision		12,938		1,827		614		15,379
Net gains on sales of loans, SBA		—		486		—		486
Mortgage banking income		—		—		7,093		7,093
Noninterest income		2,379		584		7,070		10,033
Noninterest expense		10,187		2,341		10,307		22,835
Income (loss) before taxes		5,130		70		(2,623)		2,577
Income tax expense (benefit)		568		26		(655)		(61)
Segment profit (loss)		4,562		44		(1,968)		2,638
Non-cash items:
Depreciation and amortization		568		7		39		614
Segment assets at June 30, 2022		1,733,453		103,448		169,765		2,006,666

	Core		SBA		Mortgage		Consolidated
	Banking		Lending		Banking		Totals
Nine Months Ended June 30, 2022:
Net interest income	$	37,190	$	4,926	$	1,711	$	43,827
Provision for loan losses		526		502		—		1,028
Net interest income after provision		36,664		4,424		1,711		42,799
Net gains on sales of loans, SBA		—		3,449		—		3,449
Mortgage banking income (loss)		(2)		—		36,093		36,091
Noninterest income		6,484		4,143		36,069		46,696
Noninterest expense		29,480		6,830		36,838		73,148
Income before taxes		13,668		1,737		942		16,347
Income tax expense		1,398		531		440		2,369
Segment profit		12,270		1,206		502		13,978
Non-cash items:
Depreciation and amortization		1,698		23		129		1,850
Segment assets at June 30, 2022		1,733,453		103,448		169,765		2,006,666

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

13. Revenue from Contracts with Customers

Substantially all of the Company’s revenue from contracts with customers within the scope of FASB ASC 606 is included in the core banking segment and is recognized within noninterest income. The following table presents the Company’s sources of noninterest income for the three- and nine- month periods ended June 30, 2023 and 2022:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
	(In thousand)
In Scope for ASC 606
Service charges on deposit accounts	$	509	$	462	$	1,538	$	1,329
ATM and interchange fees		615		774		1,940		2,047
Investment advisory income		247		177		564		522
Other		27		26		87		84
Revenue from contracts with customers		1,398		1,439		4,129		3,982
Out of Scope for ASC 606
Gain (loss) on securities		(529)		465		(494)		465
Gain on sale of SBA loans		497		486		2,179		3,449
Gain on sale of single tenant net lease loans		—		—		—		719
Mortgage banking income		4,668		7,093		11,313		36,091
Increase in cash value of life insurance		279		277		770		782
Real estate lease income		119		155		353		451
Loan servicing and other income		764		118		1,650		757
Other noninterest income		5,798		8,594		15,771		42,714
Total noninterest income	$	7,196	$	10,033	$	19,900	$	46,696

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

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

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

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

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

14.Mortgage Banking Income

The components of mortgage banking income for the three- and nine-month periods ended June 30, 2023 and 2022 were as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
	(In thousands)
Origination and sale of mortgage loans (1)	$	2,599	$	(6,768)	$	5,216	$	(2,231)
Mortgage brokerage income		74		175		284		713
Net change in fair value of loans held for sale and interest rate lock commitments		(908)		4,330		1,627		(3,098)
Realized and unrealized gains from Forward sales commitments		1,097		6,091		121		19,098
Capitalized residential mortgage loan servicing rights		764		2,731		1,202		10,581
Net change in fair value of residential mortgage loan servicing rights		(1,309)		(1,552)		(3,816)		4,679
Provisions for loan repurchases and indemnifications		(70)		(154)		(559)		(246)
Net loan servicing income		2,421		2,240		7,238		6,595
Total mortgage banking income	$	4,668	$	7,093	$	11,313	$	36,091

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

15.Loss Contingency

The Bank received notice of a class action lawsuit on March 23, 2021 regarding its policy and practice of assessing customer fees related to items presented on accounts with insufficient funds (NSF items). The Company has reached a verbal settlement agreement with the claimant, and the Company has accrued a loss contingency for this pending settlement at June 30, 2023, the amount of which had an immaterial effect on the condensed consolidated financial statements.

The Bank is in discussions with the Federal Reserve Board regarding an alleged violation of law or regulation occurring during 2019. These discussions with the Federal Reserve Board regarding the allegation began in March 2023. The Bank is cooperating with the Federal Reserve Board and continues to review this matter internally and with external legal counsel. The foregoing could result in enforcement action against the Bank including civil money penalties and remedial measures. The Bank is unable to estimate a range of potential loss at this time.

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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, our service providers, and on the economy and financial markets, general economic conditions, including the effects of inflation, changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed herein and in our Annual Report on Form 10-K, as amended, for the year ended September 30, 2022 under “Part II, Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies; Critical Accounting Estimates

During the nine-month period ended June 30, 2023, there was no significant change in the Company’s critical accounting policies or the application of critical accounting policies as disclosed in the Company’s Annual Report on Form 10-K, as amended, for the year ended September 30, 2022.

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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

Comparison of Financial Condition at June 30, 2023 and September 30, 2022

Cash and Cash Equivalents. Cash and cash equivalents increased $810,000 from $41.7 million at September 30, 2022 to $42.5 million at June 30, 2023.

Loans. Net loans receivable increased $216.7 million, from $1.47 billion at September 30, 2022 to $1.69 billion at June 30, 2023, primarily due to growth in residential mortgage loans, single tenant net lease commercial real estate loans, commercial business loans, and commercial real estate loans, which increased by $119.2 million, $66.4 million, $18.4 million, and $17.1 million, respectively.

Loans Held for Sale. Loans held for sale increased $2.7 million, from $60.5 million at September 30, 2022 to $63.1 million at June 30, 2023, due to an increase in residential mortgage loans held for sale of $11.5 million, partially offset by a decrease in SBA loans held for sale of $8.8 million. The increase in residential mortgage loans held for sale was due to originations outpacing loan sales during the period. The decrease in SBA loans held for sale is due to loan sales outpacing originations during the period.

Securities Available for Sale. Securities available for sale decreased $68.1 million, from $316.5 million at September 30, 2022 to $248.4 million at June 30, 2023, due to sales of $78.0 million, calls and maturities of $9.1 million, net decreases in fair value of $3.9 million and principal repayments of $3.7 million, partially offset by purchases of $9.7 million.

Securities Held to Maturity. Investment securities held to maturity decreased $167,000 from $1.6 million at September 30, 2022 to $1.4 million at June 30, 2023, due primarily to calls and maturities during the period.

Mortgage Servicing Rights. Residential mortgage loan servicing rights decreased $2.6 million, from $63.3 million at September 30, 2022 to $60.6 million at June 30, 2023, primarily due to changes in fair value related to loan repayments of $3.1 million and changes in fair value related to changes in model or input assumptions of $679,000, partially offset by new servicing rights capitalized of $1.2 million.

Deposits. Total deposits increased $143.9 million, from $1.52 billion at September 30, 2022 to $1.66 billion at June 30, 2023, due to a $168.5 million increase in interest-bearing deposits, partially offset by a $24.6 million decrease in non-interest bearing deposits. The increase in interest-bearing deposits was primarily due to a $121.7 million increase in brokered deposits.

FHLB Borrowings. Borrowings from the FHLB increased $37.7 million, from $307.3 million at September 30, 2022 to $345.0 million at June 30, 2023. The increase in borrowings was primarily used to fund loan growth during the period.

Equity. Stockholders’ equity increased $13.5 million from $151.6 million at September 30, 2022 to $165.1 million at June 30, 2023, due primarily to a decrease in accumulated other comprehensive loss of $9.5 million and retained net income of $6.1 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

Results of Operations for the Three Months Ended June 30, 2023 and 2022

Overview. The Company reported net income of $2.3 million, or $0.34 per diluted share, for the three-month period ended June 30, 2023 compared to net income of $2.6 million, or $0.37 per diluted share, for the three-month period ended June 30, 2022.

Net Interest Income. Net interest income decreased $1.0 million, or 6.6%, for the three-month period ended June 30, 2023 as compared to the same period in 2022. Average interest-earning assets increased $372.9 million and average interest-bearing liabilities increased $387.8 million when comparing the two periods. The tax-equivalent net interest margin was 2.94% for 2023 compared to 3.77% for 2022.

Total interest income increased $8.3 million when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $372.9 million, from $1.74 billion for 2022 to $2.11 billion for 2023, and an increase in the average tax equivalent yield on interest-earning assets from 4.36% for 2022 to 5.20% for 2023. The increase in the average balance of interest-earning assets was due to increases in the average balance of total loans and investment securities of $334.1 million and $37.4 million, respectively.

Total interest expense increased $9.4 million due to an increase in the average balance of interest-bearing liabilities of $387.8 million, from $1.37 billion for 2022 to $1.76 billion for 2023, and an increase in the average cost of interest-bearing liabilities from 0.75% for 2022 to 2.71% for 2023.  The increase in the average cost of interest-bearing liabilities for 2023 was due primarily to higher rates paid for FHLB borrowings, brokered deposits and money market deposit accounts primarily due to the increase in market interest rates.

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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, 2023 and 2022. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances presented are daily averages. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material. Tax exempt income on loans and investment securities have been adjusted to a tax equivalent basis using a federal marginal tax rate of 21%.

	Three Months Ended June 30,
	2023						2022
			Interest						Interest
	Average		and		Yield/		Average		and		Yield/
	Balance		Dividends		Cost		Balance		Dividends		Cost
	(Dollars in thousands)
Assets:
Interest-bearing deposits with banks	$	20,661	$	267	5.17	%	$	25,068	$	37	0.59	%
Loans		1,719,733		23,279	5.41			1,385,637		15,965	4.61
Investment securities - taxable		109,319		984	3.60			103,536		769	2.97
Investment securities - nontaxable		234,118		2,456	4.20			202,534		1,987	3.92
FRB and FHLB stock		24,509		423	6.90			18,691		169	3.62
Total interest-earning assets		2,108,340		27,409	5.20			1,735,466		18,927	4.36
Noninterest-earning assets		171,110						175,238
Total assets	$	2,279,450					$	1,910,704
Liabilities and equity:
NOW accounts	$	321,904	$	491	0.61	%	$	333,416	$	265	0.32	%
Money market deposit accounts		266,626		1,917	2.88			227,993		235	0.41
Savings accounts		160,639		25	0.06			172,661		27	0.06
Time deposits		529,607		5,358	4.05			264,798		520	0.79
Total interest-bearing deposits		1,278,776		7,791	2.44			998,868		1,047	0.42
Fed funds purchased		11		—	0.00			—		—	0.00
FHLB borrowings		434,182		3,446	3.17			325,460		811	1.00
Subordinated debt and other borrowings		49,339		696	5.64			50,152		710	5.66
Total interest-bearing liabilities		1,762,308		11,933	2.71			1,374,480		2,568	0.75
Noninterest-bearing deposits		308,231						325,948
Other noninterest-bearing liabilities		42,942						36,115
Total liabilities		2,113,481						1,736,543
Total stockholders’ equity		165,969						174,161
Total liabilities and equity	$	2,279,450					$	1,910,704
Net interest income (taxable equivalent basis)				15,476						16,359
Less: taxable equivalent adjustment				(611)						(448)
Net interest income			$	14,865					$	15,911
Interest rate spread (taxable equivalent basis)					2.49	%					3.61	%
Net interest margin (taxable equivalent basis)					2.94	%					3.77	%
Average interest-earning assets to average interest-bearing liabilities					119.64	%					126.26	%

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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, 2023 and 2022. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each.

	Three Months Ended June 30, 2023
	Compared to
	Three Months Ended June 30, 2022
	Increase (Decrease)
	Due to
	Rate		Volume		Net
			(In thousands)
Interest income:
Interest-bearing deposits with banks	$	262	$	(32)	$	230
Loans		3,129		4,185		7,314
Investment securities - taxable		168		47		215
Investment securities - nontaxable		148		321		469
FRB and FHLB stock		177		77		254
Total interest-earning assets		3,884		4,598		8,482
Interest expense:
Deposits		5,743		1,001		6,744
Borrowings from FHLB		2,068		567		2,635
Subordinated debt		(3)		(11)		(14)
Total interest-bearing liabilities		7,808		1,557		9,365
Net increase (decrease) in net interest income (taxable equivalent basis)	$	(3,924)	$	3,041	$	(883)

Provision for Loan Losses. The Company recognized a provision for loan losses of $441,000 for the three-month period ended June 30, 2023, primarily due to loan portfolio growth, compared to a provision for loan losses of $532,000 for the same period in 2022.

The Company recognized net charge-offs of $61,000 for the three-month period ended June 30, 2023 compared to net charge-offs of $27,000 for the same period in 2022.

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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 decreased $2.8 million for the three-month period ended June 30, 2023 as compared to the same period in 2022. The decrease was due primarily to a $2.4 million decrease in mortgage banking income in 2023 compared to the same period in 2022 and a $540,000 net loss on sale of securities available for sale compared to a $476,000 gain recognized in 2022. The decrease in mortgage banking income was primarily due to lower origination and sales volume in 2023 compared to 2022. Mortgage loans originated for sale were $199.9 million in the three months ended June 30, 2023 as compared to $421.4 million for the same period in 2022. The loss on sale of securities available for sale was the result of a strategic initiative to improve the Company’s liquidity posture and to remove an inefficient portion of the Company’s balance sheet in which the cost of funding the securities was higher than the yield earned on the securities. The proceeds from the sale of securities were used to pay down FHLB borrowings and brokered deposits.

Noninterest Expense. Noninterest expense decreased $3.9 million for the three-month period ended June 30, 2023 as compared to the same period in 2022. The decrease was due primarily to a decrease in compensation and benefits of $4.1 million. The decrease in compensation and benefits expense was due primarily to a reduction in staff and incentive compensation for the Company’s mortgage banking segment as a result of decreased mortgage banking income.

Income Tax Expense. The Company recognized income tax expense of $331,000 for the three-month period ended June 30, 2023 as compared to income tax benefit of $61,000 for the same period in 2022. The effective tax rate for 2023 was 12.5%. The increase in the effective tax rate was primarily due to Company’s utilization of capital loss carryovers during the 2022 period with no corresponding utilization in the 2023 period.

Results of Operations for the Nine Months Ended June 30, 2023 and 2022

Overview. The Company reported net income of $8.9 million, or $1.29 per diluted share, for the nine-month period ended June 30, 2023 compared to net income of $14.0 million, or $1.95 per diluted share, for the nine-month period ended June 30, 2022.

Net Interest Income. Net interest income increased $2.2 million, or 5.0%, for the nine-month period ended June 30, 2023 as compared to the same period in 2022. Average interest-earning assets increased $429.9 million and average interest-bearing liabilities increased $417.2 million when comparing the two periods. The tax-equivalent net interest margin was 3.13% for 2023 compared to 3.73% for 2022.

Total interest income increased $25.1 million when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $429.2 million, from $1.61 billion for 2022 to $2.04 billion for 2023, and an increase in the average tax equivalent yield on interest-earning assets from 4.25% for 2022 to 5.03% for 2023. The increase in the average balance of interest-earning assets was primarily due to increases in the average balance of total loans and investment securities of $324.7 million and $109.7 million, respectively.

Total interest expense increased $22.8 million due to an increase in the average balance of interest-bearing liabilities of $417.2 million, from $1.27 billion for 2022 to $1.68 billion for 2023, and an increase in the average cost of interest-bearing liabilities from 0.65% for 2022 to 2.30% for 2023. The increase in the average cost of interest-bearing liabilities for 2023 was due primarily to higher rates paid for FHLB borrowings, brokered deposits and money market deposit accounts primarily due to the increase in market interest rates.

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, 2023 and 2022. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances presented are daily averages. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material. Tax exempt income on loans and investment securities have been adjusted to a tax equivalent basis using a federal marginal tax rate of 21%.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

	Nine Months Ended June 30,
	2023						2022
			Interest						Interest
	Average		and		Yield/		Average		and		Yield/
	Balance		Dividends		Cost		Balance		Dividends		Cost
	(Dollars in thousands)
Assets:
Interest-bearing deposits with banks	$	22,533	$	603	3.57	%	$	31,376	$	64	0.27	%
Loans		1,641,215		64,800	5.26			1,316,515		43,986	4.45
Investment securities – taxable		110,548		2,896	3.49			67,297		1,594	3.16
Investment securities – nontaxable		239,380		7,494	4.17			172,949		5,067	3.91
FRB and FHLB stock		22,609		1,007	5.94			18,991		464	3.26
Total interest-earning assets		2,036,285		76,800	5.03			1,607,128		51,175	4.25
Noninterest-earning assets		159,923						180,561
Total assets	$	2,196,208					$	1,787,689
Liabilities and equity:
NOW accounts	$	336,835	$	1,424	0.56	%	$	326,208	$	855	0.35	%
Money market deposit accounts		245,711		3,837	2.08			228,137		657	0.38
Savings accounts		166,762		79	0.06			168,708		79	0.06
Time deposits		498,313		12,874	3.44			221,682		1,005	0.60
Total interest-bearing deposits		1,247,621		18,214	1.95			944,735		2,596	0.37
Fed funds purchased		3		—	0.00			—		—	0.00
FHLB borrowings		373,075		8,280	2.96			290,032		2,222	1.02
Subordinated debt and other borrowings		62,784		2,560	5.44			31,521		1,397	5.91
Total interest-bearing liabilities		1,683,483		29,054	2.30			1,266,288		6,215	0.65
Noninterest-bearing deposits		316,855						304,806
Other noninterest-bearing liabilities		35,334						36,250
Total liabilities		2,035,672						1,607,344
Total stockholders’ equity		160,536						180,345
Total liabilities and equity	$	2,196,208					$	1,787,689
Net interest income (taxable equivalent basis)				47,746						44,960
Less: taxable equivalent adjustment				(1,708)						(1,133)
Net interest income			$	46,038					$	43,827
Interest rate spread (taxable equivalent basis)					2.73	%					3.60	%
Net interest margin (taxable equivalent basis)					3.13	%					3.73	%
Average interest-earning assets to average interest-bearing liabilities					120.96	%					126.92	%

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, 2023 and 2022. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

		Nine Months Ended June 30, 2023
		Compared to
		Nine Months Ended June 30, 2022
		Increase (Decrease)
		Due to
		Rate		Volume		Net
	(In thousands)
Interest income:
Interest-bearing deposits with banks		$	666	$	(127)	$	539
Loans			8,991		11,823		20,814
Investment securities – taxable			223		1,079		1,302
Investment securities – nontaxable			414		2,013		2,427
FRB and FHLB stock			418		125		543
Total interest-earning assets			10,712		14,913		25,625
Interest expense:
Deposits			12,983		2,635		15,618
Borrowings from FHLB			4,819		1,239		6,058
Subordinated debt			(168)		1,331		1,163
Total interest-bearing liabilities			17,634		5,205		22,839
Net increase (decrease) in net interest income (taxable equivalent basis)		$	(6,922)	$	9,708	$	2,786

Provision for Loan Losses. The Company recognized a provision for loan losses of $1.8 million for the nine-month period ended June 30, 2023, primarily due to loan portfolio growth, compared to a provision of $1.0 million for the same period in 2022.

The Company recognized net charge-offs of $319,000 for the nine-month period ended June 30, 2023, of which $264,000 was related to unguaranteed portions of SBA loans, compared to net charge-offs of $349,000 in 2022, of which $218,000 was related to unguaranteed portions of SBA loans.

Noninterest Income. Noninterest income decreased $26.8 million for the nine-month period ended June 30, 2023 as compared to the same period in 2022. The decrease was due primarily to decreases in mortgage banking income and net gain on sale of SBA loans of $24.8 million and $1.3 million, respectively. The decrease in mortgage banking income was primarily due to lower origination and sales volume in the 2023 period compared to 2022. Mortgage loans originated for sale were $392.2 million in the nine months ended June 30, 2023 as compared to $1.42 billion in 2022. The decrease in net gain on sales of SBA loans was due primarily to decreases in production and sales volume from the SBA lending segment, and lower premiums in the secondary market.

Noninterest Expense. Noninterest expense decreased $18.7 million for the nine-month period ended June 30, 2023 as compared to the same period in 2022. The decrease was due primarily to a decrease in compensation and benefits, advertising expense and professional fees of $17.8 million, $1.1 million and $1.0 million, respectively. The decrease in compensation and benefits expense was due primarily to a reduction in staff and incentive compensation for the Company’s mortgage banking segment as a result of decreased mortgage banking income. The decreases in professional fees and advertising expense were related to the reduced activity and loan origination volume of the mortgage banking segment.

Income Tax Expense. The Company recognized income tax expense of $747,000 for the nine-month period ended June 30, 2023 as compared to income tax expense of $2.4 million for the same period in 2022. The effective tax rate for 2023 was 7.7%, which was a decrease from the effective tax rate of 14.5% in 2022. The decrease was due to recognition of investment tax credits related to solar projects in 2023 and lower pre-tax income in 2023 as compared to 2022.

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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, 2023, the Bank had cash and cash equivalents of $42.5 million and securities available-for-sale with a fair value of $248.4 million, including $192.2 million that are unpledged. If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB, borrowing capacity on federal funds purchased lines of credit facilities with other financial institutions and additional collateral eligible for repurchase agreements. At June 30, 2023, the Bank had the ability to borrow a total of $590.0 million from the FHLB, of which $345.0 million was borrowed and outstanding. In addition, the Bank had the ability to borrow the lesser of $20 million or 25% of the Bank’s equity capital, excluding reserves, using a federal funds purchased line of credit facility with another financial institution at June 30, 2023. The Bank also had two other federal funds line of credit facilities with other financial institutions from which we had the ability to borrow an additional $22 million and $15 million, respectively. The Bank did not have any outstanding federal funds purchased at June 30, 2023.

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

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. If these maturing deposits do not remain with the Bank, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. As of June 30, 2023, deposits exceeding the FDIC insurance limit of $250,000 per insured account were estimated to be not greater than $325.3 million, or 19.6% of total deposits.

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, 2023, the Company (unconsolidated basis) had liquid assets of $9.3 million.

Capital Management. The Bank is required to maintain specific amounts of capital pursuant to regulatory requirements. As of June 30, 2023, the Bank was in compliance with all regulatory capital requirements that were effective as of such date, with Tier 1 capital (to average total assets), common equity Tier 1 capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets) and total capital (to risk-weighted assets) ratios of 9.06%, 10.49%, 10.49% and 11.35%, respectively. The regulatory requirements at that date were 5.0%, 6.5%, 8.0% and 10.0%, respectively, in order to be categorized as “well capitalized” under prompt corrective action provisions. At June 30, 2023, 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, as amended, for the year ended September 30, 2022.

For the nine-month period ended June 30, 2023, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Company’s consolidated financial condition, results of operations or cash flows.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I – ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

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

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

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

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

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Results of our simulation modeling, which assumes an immediate and sustained parallel shift in market interest rates, project that the Company’s net interest income could change as follows over a one-year horizon, relative to our base case scenario.

	At June 30, 2023				At September 30, 2022
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	$	(8,852)	(15.69)	%	$	(15,503)	(27.12)	%
200bp		(5,667)	(10.04)			(8,858)	(15.50)
100bp		(2,721)	(4.82)			(3,224)	(5.64)
(100)bp		2,638	4.67			2,819	4.93
(200)bp		3,480	6.17			5,095	8.91

At June 30, 2023, our simulated exposure to an increase in interest rates shows that an immediate and sustained increase in rates of 1.00% will decrease our net interest income by $2.7 million, or 4.82%, over a one year horizon compared to a flat interest rate scenario. Furthermore, rate increases of 2.00% and 3.00% would cause net interest income to decrease by 10.04% and 15.69%, respectively. An immediate and sustained decrease in rates of 1.00% will increase our net interest income by $2.6 million, or 4.67%, over a one year horizon compared to a flat interest rate scenario while a rate decrease of 2.00% would cause our net interest income to increase by 6.17%.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 4

CONTROLS AND PROCEDURES

Controls and Procedures

Evaluation of Disclosure Controls and Procedures. The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer have concluded that, due to the identification of material weaknesses in internal control over financial reporting, as further described below, the Company’s disclosure controls and procedures were not effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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

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

The system of internal control over financial reporting as it relates to the consolidated financial statements is evaluated for effectiveness by management. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Due to the material weaknesses in internal control over financial reporting identified and described below, management has evaluated the effectiveness of the Company’s internal control over financial reporting as of June 30, 2023 and has concluded that the Company’s internal control over financial reporting was not effective as of that date because of the material weaknesses.

As part of the transition of independent registered public accounting firms, management identified material weaknesses in internal control over financial reporting related to the following:

● Ineffective design and operation of controls over other assets and liabilities. This material weakness occurred due to a failure to design appropriate controls for the evaluation of capitalized professional fees related to the negotiation of a new core processing contract and the accrual of liabilities related to deferred compensation and litigation expenses.

● Ineffective design and operation of controls over participation loan sales. This material weakness occurred due to a failure to design appropriate controls for the review of participation loan sales contracts, and changes to the provisions therein, to ensure the transfers qualify for sales treatment under U.S. GAAP.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 4

CONTROLS AND PROCEDURES

During the quarter ended June 30, 2023, management continued taking steps to remediate the material weaknesses by adding a second level of review by executive management of the significant other assets and other liabilities account reconciliation process, and the review of all changes made to participation loan sales contracts. Management has also provided additional training and management oversight related to these areas.

Changes in Internal Controls. There have been no changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

The Bank is in discussions with the Federal Reserve Board regarding an alleged violation of law or regulation occurring during 2019. These discussions with the Federal Reserve Board regarding the allegation began in March 2023. The Bank is cooperating with the Federal Reserve Board and continues to review this matter internally and with external legal counsel. The foregoing could result in enforcement action against the Bank including civil money penalties and remedial measures. The Bank is unable to estimate a range of potential loss at this time.

As previously discussed in Note 15 of the Condensed Consolidated Financial Statements, the Bank received notice of a class action lawsuit on March 23, 2021 regarding its policy and practice of assessment of customer fees related to items presented on accounts with insufficient funds (NSF items).

Other than the matters noted in the paragraphs above, 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.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

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, as amended, for the year ended September 30, 2022 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, as amended. 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.

Our stock price may be negatively impacted by recent unrelated bank failures and negative depositor confidence in depository institutions. Further, if we are unable to adequately manage our liquidity, interest rate risk, and capital levels, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations.

The recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank have led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions. These events have led to a greater focus by investors and bank regulators on financial institutions’ on-balance sheet liquidity and funding sources, deposit composition, including the amount of uninsured deposits, capital levels, and liquidity and interest rate risk management practices. If we are unable to adequately manage our liquidity and interest rate management and capital levels, it may have a material adverse effect on our financial condition and results of operations.

Failure to address the federal debt ceiling in a timely manner, downgrade of the U.S. credit rating, and uncertain credit and financial market conditions may affect the stability of securities issued or guaranteed by the federal government, which may adversely affect the valuation or liquidity of our investment securities portfolio and increase future borrowing costs.

As a result of uncertain political, credit and financial market conditions, including the potential consequences of the federal government defaulting on its obligations for a period of time due to federal debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose credit default and liquidity risks. Downgrades to the U.S. credit rating could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment securities, and could result in our counterparties requiring additional collateral for our borrowings. Further, unless and until U.S. political, credit and financial market conditions have been sufficiently resolved or stabilized, it may increase our future funding costs.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

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

The following table presents information regarding the Company’s stock repurchase activity during the quarter ended June 30, 2023:

				(c)	(d)
				Total number of shares	Maximum number (or
	(a)	(b)		(or units) purchased as	appropriate dollar value) of
	Total number of	Average price		part of publicly	shares (or units) that may yet
	shares (or units)	paid per share		announced plans or	be purchased under the plans
Period	purchased	(or unit)		programs (1)	or programs
April 1, 2023 through April 30, 2023	—	$	—	—	27,548
May 1, 2023 through May 31, 2023	—	$	—	—	27,548
June 1, 2023 through June 30, 2023	—	$	—	—	27,548
Total	—	$	—	—	27,548

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

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended June 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement “ (as such term is defined in Item 408 of SEC Regulation S-K).

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

Item 6. Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) related notes
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

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

		FIRST SAVINGS FINANCIAL GROUP, INC.
		(Registrant)
Dated	August 9, 2023	BY:	/s/ Larry W. Myers
			Larry W. Myers
			President and Chief Executive Officer
Dated	August 9, 2023	BY:	/s/ Anthony A. Schoen
			Anthony A. Schoen
			Chief Financial Officer

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