First Savings Financial Group, Inc. - Quarter Report: 2019 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2019

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

For the transition period from_____________________to__________________

Commission File No. 1-34155

First Savings Financial Group, Inc.

(Exact name of registrant as specified in its charter)

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

501 East Lewis & Clark Parkway, Clarksville, Indiana 47129

(Address of principal executive offices) (Zip Code)

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

	Not applicable
	(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 x No ¨

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

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

Large Accelerated Filer ¨	Accelerated Filer x

Non-accelerated Filer ¨	Smaller Reporting Company x

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 x

The number of shares outstanding of the registrant’s common stock as of February 3, 2020 was 2,357,369.

FIRST SAVINGS FINANCIAL GROUP, INC.

INDEX

		Page
Part I	Financial Information

	Item 1. Financial Statements

	Consolidated Balance Sheets as of December 31, 2019 and September 30, 2019 (unaudited)	3

	Consolidated Statements of Income for the three months ended December 31, 2019 and 2018 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the three months ended December 31, 2019 and 2018 (unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended December 31, 2019 and 2018 (unaudited)	6

	Consolidated Statements of Cash Flows for the three months ended December 31, 2019 and 2018 (unaudited)	7

	Notes to Consolidated Financial Statements (unaudited)	8-53

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	54-61

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	62-63

	Item 4. Controls and Procedures	64

Part II	Other Information

	Item 1. Legal Proceedings	65

	Item 1A. Risk Factors	65

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	66

	Item 3. Defaults Upon Senior Securities	66

	Item 4. Mine Safety Disclosures	66

	Item 5. Other Information	67

	Item 6. Exhibits	67

Signatures		68

-2-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31,			September 30,
(In thousands, except share and per share data)	2019			2019
ASSETS
Cash and due from banks	$	14,051		$	13,008
Interest-bearing deposits with banks		27,276			28,424
Total cash and cash equivalents		41,327			41,432

Interest-bearing time deposits		2,510			2,265
Securities available for sale, at fair value		177,691			177,302
Securities held to maturity		2,300			2,336

Loans held for sale, residential mortgage, at fair value		93,564			80,457
Loans held for sale, Small Business Administration		16,959			15,613
Loans, net of allowance for loan losses of $10,530 at December 31, 2019 and $10,040 at September 30, 2019		851,700			810,658
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		14,149			13,040
Premises and equipment		22,880			19,238
Other real estate owned, held for sale		1,893			1,893
Accrued interest receivable:
Loans		3,508			3,329
Securities		2,066			1,712
Cash surrender value of life insurance		31,189			26,546
Goodwill		9,848			9,848
Core deposit intangibles		1,362			1,416
Other assets		19,627			15,494
Total Assets	$	1,292,573		$	1,222,579

LIABILITIES
Deposits:
Noninterest-bearing	$	180,321		$	173,072
Interest-bearing		705,277			661,312
Total deposits		885,598			834,384

Federal funds purchased		-			4,000
Borrowings from Federal Home Loan Bank		239,566			222,544
Other borrowings		19,746			19,729
Accrued interest payable		772			935
Advance payments by borrowers for taxes and insurance		1,269			1,906
Accrued expenses and other liabilities		21,444			17,824
Total Liabilities		1,168,395			1,101,322

EQUITY
Preferred stock of $.01 par value per share; authorized 1,000,000 shares; none issued		-			-
Common stock of $.01 par value per share; authorized 20,000,000 shares; issued 2,567,542 shares (2,565,606 at September 30, 2019); outstanding 2,357,369 shares (2,350,229 shares at September 30, 2019)		26			26
Additional paid-in capital		27,582			27,494
Retained earnings - substantially restricted		94,455			91,228
Accumulated other comprehensive income		6,712			7,296
Unearned stock compensation		(495	)		(446	)
Less treasury stock, at cost - 210,173 shares (215,377 shares at September 30, 2019)		(4,470	)		(4,545	)
Total First Savings Financial Group, Inc. Stockholders' Equity		123,810			121,053
Noncontrolling interests in subsidiary		368			204
Total Equity		124,178			121,257
Total Liabilities and Equity	$	1,292,573		$	1,222,579

See notes to consolidated financial statements.

-3-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended December 31,
(In thousands, except share and per share data)	2019			2018
INTEREST INCOME
Loans, including fees	$	11,813		$	9,810
Securities:
Taxable		585			747
Tax-exempt		1,010			970
Dividend income		154			121
Interest-bearing deposits with banks		205			153
Total interest income		13,767			11,801

INTEREST EXPENSE
Deposits		1,749			1,424
Repurchase agreements		-			1
Borrowings from Federal Home Loan Bank		808			478
Other borrowings		318			322
Total interest expense		2,875			2,225
Net interest income		10,892			9,576
Provision for loan losses		505			315

Net interest income after provision for loan losses		10,387			9,261

NONINTEREST INCOME
Service charges on deposit accounts		509			511
ATM and interchange fees		503			453
Net unrealized gain on equity securities		2			-
Net gain on sales of loans, Small Business Administration		761			964
Mortgage banking income		15,817			3,289
Increase in cash surrender value of life insurance		162			111
Commission income		27			57
Real estate lease income		151			158
Net gain (loss) on premises and equipment		(4	)		1
Other income		198			237
Total noninterest income		18,126			5,781

NONINTEREST EXPENSE
Compensation and benefits		17,820			7,257
Occupancy and equipment		1,922			1,325
Data processing		502			427
Advertising		1,466			396
Professional fees		627			460
FDIC insurance premiums		4			66
Net (gain) loss on other real estate owned		5			(21	)
Other operating expenses		1,926			1,506
Total noninterest expense		24,272			11,416
Income before income taxes		4,241			3,626
Income tax expense		638			522
Net Income		3,603			3,104
Less: net income attributable to noncontrolling interests		164			173
Net Income Available to Common Shareholders	$	3,439		$	2,931

Net income per share:
Basic	$	1.47		$	1.28
Diluted	$	1.44		$	1.24

Weighted average shares outstanding:
Basic		2,340,619			2,284,665
Diluted		2,382,754			2,371,480

Dividends per share	$	0.16		$	0.15

See notes to consolidated financial statements.

-4-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended December 31,
(In thousands)	2019			2018
Net Income	$	3,603		$	3,104

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period		(747	)		1,780
Income tax benefit (expense)		163			(390	)
Net of tax amount		(584	)		1,390

Other Comprehensive Income (Loss)		(584	)		1,390

Comprehensive Income		3,019			4,494
Less: comprehensive income attributable to noncontrolling interests		164			173

Comprehensive Income Attributable to First Savings Financial Group, Inc.	$	2,855		$	4,321

See notes to consolidated financial statements.

-5-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

									Accumulated
									Other			Unearned						Noncontrolling
	Common		Additional			Retained			Comprehensive			Stock			Treasury			Interests in
(In thousands, except share and per share data)	Stock		Paid-in Capital			Earnings			Income			Compensation			Stock			Subsidiary			Total
Balances at October 1, 2018	$	26	$	27,630		$	76,523		$	382		$	(479	)	$	(5,269	)	$	1,432		$	100,245

Net income		-		-			2,931			-			-			-			173			3,104

Other comprehensive income		-		-			-			1,390			-			-			-			1,390

Common stock dividends - $0.15 per share		-		-			(345	)		-			-			-			-			(345	)

Distributions to noncontrolling interests		-		-			-			-			-			-			(12	)		(12	)

Restricted stock grants, net of forfeitures - 2,329 shares		-		141			-			-			(141	)		-			-			-

Stock compensation expense		-		19			-			-			40			-			-			59

Stock option exercises - 10,500 shares		-		(44	)		-			-			-			196			-			152

Purchase of 540 treasury shares		-		-			-			-			-			(32	)		-			(32	)
Balances at December 31, 2018	$	26	$	27,746		$	79,109		$	1,772		$	(580	)	$	(5,105	)	$	1,593		$	104,561

Balances at October 1, 2019	$	26	$	27,494		$	91,228		$	7,296		$	(446	)	$	(4,545	)	$	204		$	121,257

Cumulative effect adjustment, adoption of ASU 2016-02		-		-			166			-			-			-			-			166

Net income		-		-			3,439			-			-			-			164			3,603

Other comprehensive loss		-		-			-			(584	)		-			-			-			(584	)

Common stock dividends - $0.16 per share		-		-			(378	)		-			-			-			-			(378	)

Restricted stock grants - 1,436 shares		-		95			-			-			(95	)		-			-			-

Stock compensation expense		-		21			-			-			46			-			-			67

Stock option exercises - 6,500 shares		-		(28	)		-			-			-			128			-			100

Purchase of 796 treasury shares		-		-			-			-			-			(53	)		-			(53	)
Balances at December 31, 2019	$	26	$	27,582		$	94,455		$	6,712		$	(495	)	$	(4,470	)	$	368		$	124,178

See notes to consolidated financial statements.

-6-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Month Ended December 31,
(In thousands)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,603		$	3,104
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		505			315
Depreciation and amortization		409			484
Amortization of premiums and accretion of discounts on securities, net		116			126
Amortization and accretion of fair value adjustments on loans, net		(211	)		(129	)
Loans originated for sale		(554,450	)		(79,437	)
Proceeds on sales of loans		550,122			76,830
Net realized and unrealized gain on loans held for sale		(12,385	)		(3,270	)
Net realized and unrealized gain on other real estate owned		-			(27	)
Increase in cash surrender value of life insurance		(162	)		(111	)
Net gain on equity securities		(2	)		-
Net (gain) loss on sale of premises and equipment		4			(1	)
Deferred income taxes		271			(52	)
Stock compensation expense		68			59
Increase in accrued interest receivable		(533	)		(521	)
Increase (decrease) in accrued interest payable		(163	)		253
Change in other assets and liabilities, net		2,103			(1,798	)
Net Cash Used In Operating Activities		(10,705	)		(4,175	)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in interest-bearing time deposits		(490	)		(490	)
Proceeds from sales and maturities of interest-bearing time deposits		245			-
Purchase of securities available for sale		(4,556	)		(8,530	)
Proceeds from maturities of securities available for sale		1,205			385
Proceeds from maturities of securities held to maturity		30			30
Principal collected on securities		2,101			7,919
Net increase in loans		(41,629	)		(30,430	)
Purchase of Federal Home Loan Bank stock		(1,109	)		(575	)
Investment in cash surrender value of life insurance		(4,481	)		-
Proceeds from sale of other real estate owned		-			49
Purchase of premises and equipment		(4,102	)		(7,544	)
Proceeds from sales of premises and equipment		118			51
Net Cash Used In Investing Activities		(52,668	)		(39,135	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		51,214			20,961
Net decrease in federal funds purchased		(4,000	)		-
Increase (decrease) in Federal Home Loan Bank line of credit		(2,978	)		17,019
Proceeds from Federal Home Loan Bank advances		120,000			15,000
Repayment of Federal Home Loan Bank advances		(100,000	)		(15,000	)
Net decrease in advance payments by borrowers for taxes and insurance		(637	)		(363	)
Proceeds from exercise of stock options		100			152
Taxes paid on stock award shares for employees		(53	)		(32	)
Dividends paid on common stock		(378	)		(345	)
Distributions to noncontrolling interests		-			(12	)
Net Cash Provided By Financing Activities		63,268			37,380
Net Decrease in Cash and Cash Equivalents		(105	)		(5,930	)

Cash and cash equivalents at beginning of period		41,432			42,274

Cash and Cash Equivalents at End of Period	$	41,327		$	36,344

See notes to consolidated financial statements.

-7-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Presentation of Interim Information

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

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

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

On April 25, 2017, the Bank formed Q2 Business Capital, LLC (“Q2”), which is an Indiana limited liability company that specializes in the origination and servicing of U.S. Small Business Administration (“SBA”) loans. The Bank owns 51% of Q2 with the option to purchase the minority interest between July 1, 2020 and September 30, 2020. In accordance with Q2’s operating agreement, the Bank was allocated the first $1.7 million of Q2’s cumulative net income with any additional profits and losses allocated 51% to the Bank and 49% to Q2’s minority members.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of December 31, 2019, the results of operations for the three-month periods ended December 31, 2019 and 2018, and the cash flows for the three-month periods ended December 31, 2019 and 2018. All of these adjustments are of a normal, recurring nature. Such adjustments are the only adjustments included in the unaudited consolidated financial statements. Interim results are not necessarily indicative of results for a full year.

The unaudited consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements, conform to general practices within the banking industry and are presented as permitted by the instructions to Form 10-Q. Accordingly, they do not contain certain information included in the Company’s audited consolidated financial statements and related notes for the year ended September 30, 2019 included in the Company’s Annual Report on Form 10-K.

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

-8-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

2.	Investment Securities

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

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

-9-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Securities Available for Sale and Held to Maturity

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

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Losses		Fair Value
	(In thousands)
December 31, 2019:
Securities available for sale:

Agency mortgage-backed	$	12,134	$	317	$	9	$	12,442
Agency CMO		9,349		147		11		9,485
Privately-issued CMO		1,083		118		8		1,193
Privately-issued ABS		1,003		127		4		1,126
SBA certificates		1,072		46		5		1,113
Municipal bonds		144,452		7,938		58		152,332

Total securities available for sale	$	169,093	$	8,693	$	95	$	177,691

Securities held to maturity:

Agency mortgage-backed	$	97	$	7	$	-	$	104
Municipal bonds		2,203		315		-		2,518

Total securities held to maturity	$	2,300	$	322	$	-	$	2,622

-10-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Losses		Fair Value
	(In thousands)
September 30, 2019:
Securities available for sale:

Agency mortgage-backed	$	13,743	$	366	$	12	$	14,097
Agency CMO		8,834		221		7		9,048
Privately-issued CMO		1,242		142		2		1,382
Privately-issued ABS		1,022		156		-		1,178
SBA certificates		1,119		41		6		1,154
Municipal bonds		141,995		8,465		17		150,443

Total securities available for sale	$	167,955	$	9,391	$	44	$	177,302

Securities held to maturity:

Agency mortgage-backed	$	102	$	7	$	-	$	109
Municipal bonds		2,234		327		-		2,561

Total securities held to maturity	$	2,336	$	334	$	-	$	2,670

The amortized cost and fair value of investment securities as of December 31, 2019 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 Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Due within one year	$	3,640	$	3,671	$	248	$	277
Due after one year through five years		23,876		24,600		1,011		1,138
Due after five years through ten years		28,527		30,194		743		866
Due after ten years		88,409		93,867		201		237
CMO		10,432		10,678		-		-
ABS		1,003		1,126		-		-
SBA certificates		1,072		1,113		-		-
Mortgage-backed securities		12,134		12,442		97		104

	$	169,093	$	177,691	$	2,300	$	2,622

-11-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Information pertaining to investment securities with gross unrealized losses at December 31, 2019 and September 30, 2019, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, follows:

	Number of Investment Positions		Fair Value		Gross Unrealized Losses
	(Dollars in thousands)
December 31, 2019:
Securities available for sale:

Continuous loss position less than twelve months:
Agency CMO		2	$	2,716	$	8
Privately-issued ABS		1		520		4
Municipal bonds		6		4,661		58

Total less than twelve months		9		7,897		70

Continuous loss position more than twelve months:
Agency mortgage-backed		1	$	735	$	9
Agency CMO		1		433		3
Privately-issued CMO		1		28		8
SBA certificates		1		409		5

Total more than twelve months		4		1,605		25

Total securities available for sale		13	$	9,502	$	95

September 30, 2019:
Securities available for sale:

Continuous loss position less than twelve months:
Agency mortgage-backed		3	$	1,248	$	1
Agency CMO		1		1,962		1
Municipal bonds		3		1,694		16

Total less than twelve months		7		4,904		18

Continuous loss position more than twelve months:
Agency mortgage-backed		2		785		11
Agency CMO		2		956		6
Privately-issued CMO		1		33		2
SBA certificates		1		451		6
Municipal bonds		1		140		1

Total more than twelve months		7		2,365		26

Total securities available for sale		14	$	7,269	$	44

At December 31, 2019 and September 30, 2019, the Company did not have any securities held to maturity with an unrealized loss.

-12-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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 December 31, 2019, which consisted of U.S. government agency mortgage backed securities and CMOs, privately issued CMOs, SBA certificates and municipal bonds, had a fair value as a percentage of amortized cost of 99.09%. All of the agency and municipal securities are issued by U.S. government-sponsored enterprises and municipal governments, and are generally secured by first mortgage loans and municipal project revenues.

The Company evaluates the existence of a potential credit loss component related to the decline in fair value of the privately issued CMO and ABS portfolios each quarter using an independent third party analysis. At December 31, 2019, the Company held twelve privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $1.0 million and fair value of $1.2 million that have been downgraded to a substandard regulatory classification due to the security’s credit quality rating by various nationally recognized statistical rating organizations (“NRSROs”).

At December 31, 2019, one privately-issued CMO and one privately-issued ABS were in a loss position and had depreciated approximately 1.99% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities have a total fair value of $548,000 and a total unrealized loss of $12,000 at December 31, 2019, and were rated below investment grade by NRSROs. Based on the independent third party analysis of the expected cash flows, management has determined that no other-than-temporary impairment is required to be recognized on the privately issued CMO and ABS portfolios. While the Company does not anticipate additional credit-related impairment losses at December 31, 2019, 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. government agency mortgage-backed securities and CMOs, SBA certificates and municipal bonds relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities to maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

-13-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

During the three-month periods ended December 31, 2019 and 2018, the Company did not realize any gross gains or losses on sales of available for sale securities.

Certain available for sale debt securities were pledged under repurchase agreements and to secure FHLB borrowings at December 31, 2019 and September 30, 2019, and may be pledged to secure federal funds borrowings.

3.	Loans and Allowance for Loan Losses

Loans at December 31, 2019 and September 30, 2019 consisted of the following:

	December 31, 2019			September 30, 2019
	(In thousands)
Real estate mortgage:
1-4 family residential	$	198,923		$	198,067
Commercial		469,666			436,020
Multifamily residential		38,487			38,226
Residential construction		11,388			12,545
Commercial construction		7,075			6,995
Land and land development		10,173			10,536
Commercial business		77,966			73,034

Consumer:
Home equity		32,403			28,651
Auto		12,992			13,347
Other consumer		2,530			2,663
Total Loans		861,603			820,084

Deferred loan origination fees and costs, net		627			614
Allowance for loan losses		(10,530	)		(10,040	)

Loans, net	$	851,700		$	810,658

During the three-month period ended December 31, 2019, there was no significant change in the Company’s lending activities or the methodology used to estimate the allowance for loan losses as disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2019.

At December 31, 2019 and September 30, 2019, the Bank did not own any residential real estate properties where physical possession has been obtained. At December 31, 2019 and September 30, 2019, the recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $1.3 million.

-14-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table provides the components of the recorded investment in loans as of December 31, 2019:

	Residential Real Estate			Commercial Real Estate		Multifamily			Construction		Land & Land Development			Commercial Business		Consumer			Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	198,923		$	469,666	$	38,487		$	18,463	$	10,173		$	77,966	$	47,925		$	861,603

Accrued interest receivable		592			2,114		92			105		28			477		100			3,508

Net deferred loan origination fees and costs		(108	)		436		(35	)		19		(2	)		347		(30	)		627

Recorded investment in loans	$	199,407		$	472,216	$	38,544		$	18,587	$	10,199		$	78,790	$	47,995		$	865,738


Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	4,324		$	8,140	$	-		$	-	$	-		$	91	$	275		$	12,830

Collectively evaluated for impairment		195,083			464,076		38,544			18,587		10,199			78,699		47,720			852,908

Ending balance	$	199,407		$	472,216	$	38,544		$	18,587	$	10,199		$	78,790	$	47,995		$	865,738

-15-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table provides the components of the recorded investment in loans as of September 30, 2019:

	Residential Real Estate			Commercial Real Estate		Multifamily			Construction		Land & Land Development			Commercial Business		Consumer			Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	198,067		$	436,020	$	38,226		$	19,540	$	10,536		$	73,034	$	44,661		$	820,084

Accrued interest receivable		627			1,922		99			117		29			448		87			3,329

Net deferred loan origination fees and costs		(98	)		408		(33	)		3		(1	)		366		(31	)		614

Recorded investment in loans	$	198,596		$	438,350	$	38,292		$	19,660	$	10,564		$	73,848	$	44,717		$	824,027


Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	4,448		$	7,647	$	-		$	-	$	-		$	105	$	234		$	12,434

Collectively evaluated for impairment		194,148			430,703		38,292			19,660		10,564			73,743		44,483			811,593

Ending balance	$	198,596		$	438,350	$	38,292		$	19,660	$	10,564		$	73,848	$	44,717		$	824,027

-16-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

An analysis of the allowance for loan losses as of December 31, 2019 is as follows:

	Residential Real Estate		Commercial Real Estate		Multifamily		Construction		Land & Land Development		Commercial Business		Consumer		Total
	(In thousands)
Ending Allowance Balance Attributable to Loans:
Individually evaluated for impairment	$	5	$	554	$	-	$	-	$	-	$	-	$	2	$	561

Collectively evaluated for impairment		334		6,140		481		395		201		1,753		665		9,969

Ending balance	$	339	$	6,694	$	481	$	395	$	201	$	1,753	$	667	$	10,530

An analysis of the allowance for loan losses as of September 30, 2019 is as follows:

	Residential Real Estate		Commercial Real Estate		Multifamily		Construction		Land & Land Development		Commercial Business		Consumer		Total
	(In thousands)
Ending Allowance Balance Attributable to Loans:
Individually evaluated for impairment	$	10	$	512	$	-	$	-	$	-	$	-	$	23	$	545

Collectively evaluated for impairment		328		5,869		478		421		209		1,639		551		9,495

Ending balance	$	338	$	6,381	$	478	$	421	$	209	$	1,639	$	574	$	10,040

-17-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

An analysis of the changes in the allowance for loan losses for the three months ended December 31, 2019 is as follows:

	Residential Real Estate			Commercial Real Estate			Multifamily		Construction			Land & Land Development			Commercial Business		Consumer			Total
	(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance	$	338		$	6,381		$	478	$	421		$	209		$	1,639	$	574		$	10,040
Provisions		24			275			3		(26	)		(8	)		109		128			505
Charge-offs		(32	)		(8	)		-		-			-			-		(64	)		(104	)
Recoveries		9			46			-		-			-			5		29			89

Ending balance	$	339		$	6,694		$	481	$	395		$	201		$	1,753	$	667		$	10,530

An analysis of the changes in the allowance for loan losses for the three months ended December 31, 2018 is as follows:

	Residential Real Estate			Commercial Real Estate			Multifamily			Construction		Land & Land Development		Commercial Business		Consumer			Total
	(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance	$	274		$	6,825		$	195		$	580	$	210	$	1,041	$	198		$	9,323
Provisions		(30	)		(109	)		(37	)		113		9		247		122			315
Charge-offs		(1	)		-			-			-		-		-		(42	)		(43	)
Recoveries		6			-			-			-		-		-		19			25

Ending balance	$	249		$	6,716		$	158		$	693	$	219	$	1,288	$	297		$	9,620

-18-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents impaired loans individually evaluated for impairment as of December 31, 2019 and for the three months ended December 31, 2019 and 2018.

	At December 31, 2019						Three Months Ended December 31,
							2019		2019		2018		2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential real estate	$	4,221	$	4,717	$	-	$	4,884	$	27	$	4,744	$	34
Commercial real estate		6,176		6,202		-		5,805		62		6,547		82
Multifamily		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-
Land and land development		-		-		-		-		-		14		-
Commercial business		91		92		-		99		1		263		2
Consumer		70		84		-		82		2		120		1
	$	10,558	$	11,095	$	-	$	10,870	$	92	$	11,688	$	119

Loans with an allowance recorded:
Residential real estate	$	103	$	110	$	5	$	59	$	-	$	272	$	-
Commercial real estate		1,964		2,174		554		2,405		-		1,237		-
Multifamily		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-
Land and land development		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-
Consumer		205		207		2		181		-		172		-
	$	2,272	$	2,491	$	561	$	2,645	$	-	$	1,681	$	-

Total:
Residential real estate	$	4,324	$	4,827	$	5	$	4,943	$	27	$	5,016	$	34
Commercial real estate		8,140		8,376		554		8,210		62		7,784		82
Multifamily		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-
Land and land development		-		-		-		-		-		14		-
Commercial business		91		92		-		99		1		263		2
Consumer		275		291		2		263		2		292		1
	$	12,830	$	13,586	$	561	$	13,515	$	92	$	13,369	$	119

The Company did not recognize any interest income on impaired loans using the cash receipts method during the three-month periods ended December 31, 2019 and 2018.

-19-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents impaired loans individually evaluated for impairment as of September 30, 2019.

	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Loans with no related allowance recorded:
Residential real estate	$	4,438	$	4,967	$	-
Commercial real estate		5,401		5,408		-
Multifamily		-		-		-
Construction		-		-		-
Land and land development		-		-		-
Commercial business		105		106		-
Consumer		78		81		-
	$	10,022	$	10,562	$	-

Loans with an allowance recorded:
Residential real estate	$	10	$	7	$	10
Commercial real estate		2,246		2,637		512
Multifamily		-		-		-
Construction		-		-		-
Land and land development		-		-		-
Commercial business		-		-		-
Consumer		156		155		23
	$	2,412	$	2,799	$	545

Total:
Residential real estate	$	4,448	$	4,974	$	10
Commercial real estate		7,647		8,045		512
Multifamily		-		-		-
Construction		-		-		-
Land and land development		-		-		-
Commercial business		105		106		-
Consumer		234		236		23
	$	12,434	$	13,361	$	545

-20-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Nonperforming loans consist of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at December 31, 2019:

	Nonaccrual Loans		Loans 90+ Days Past Due Still Accruing		Total Nonperforming Loans
	(In thousands)
Residential real estate	$	2,321	$	10	$	2,331
Commercial real estate		2,967		-		2,967
Multifamily		-		-		-
Construction		-		-		-
Land and land development		-		-		-
Commercial business		-		-		-
Consumer		210		-		210

Total	$	5,498	$	10	$	5,508

The following table presents the recorded investment in nonperforming loans at September 30, 2019:

	Nonaccrual Loans		Loans 90+ Days Past Due Still Accruing		Total Nonperforming Loans
	(In thousands)
Residential real estate	$	2,580	$	12	$	2,592
Commercial real estate		2,425		-		2,425
Multifamily		-		-		-
Construction		-		-		-
Land and land development		-		-		-
Commercial business		-		-		-
Consumer		163		-		163

Total	$	5,168	$	12	$	5,180

-21-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the aging of the recorded investment in past due loans at December 31, 2019:

	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total Past Due		Current		Total Loans
	(In thousands)
Residential real estate	$	2,371	$	1,089	$	1,197	$	4,657	$	194,750	$	199,407
Commercial real estate		2,125		1,124		1,272		4,521		467,695		472,216
Multifamily		-		-		-		-		38,544		38,544
Construction		-		-		-		-		18,587		18,587
Land and land development		-		1		-		1		10,198		10,199
Commercial business		157		-		-		157		78,633		78,790
Consumer		180		35		5		220		47,775		47,995

Total	$	4,833	$	2,249	$	2,474	$	9,556	$	856,182	$	865,738

The following table presents the aging of the recorded investment in past due loans at September 30, 2019:

	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total Past Due		Current		Total Loans
	(In thousands)
Residential real estate	$	1,619	$	577	$	1,121	$	3,317	$	195,279	$	198,596
Commercial real estate		892		772		1,523		3,187		435,163		438,350
Multifamily		-		-		-		-		38,292		38,292
Construction		-		-		-		-		19,660		19,660
Land and land development		-		-		-		-		10,564		10,564
Commercial business		182		-		-		182		73,666		73,848
Consumer		77		17		19		113		44,604		44,717

Total	$	2,770	$	1,366	$	2,663	$	6,799	$	817,228	$	824,027

-22-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

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

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

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

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

-23-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. As of December 31, 2019, and based on the most recent analysis performed, the recorded investment in loans by risk category was as follows:

	Residential Real Estate		Commercial Real Estate		Multifamily		Construction		Land and Land Development		Commercial Business		Consumer		Total
	(In thousands)
Pass	$	195,475	$	458,011	$	37,829	$	18,587	$	10,199	$	75,377	$	47,922	$	843,400
Special Mention		-		1,195		-		-		-		92		-		1,287
Substandard		3,885		13,010		715		-		-		3,321		73		21,004
Doubtful		47		-		-		-		-		-		-		47
Loss		-		-		-		-		-		-		-		-

Total	$	199,407	$	472,216	$	38,544	$	18,587	$	10,199	$	78,790	$	47,995	$	865,738

As of September 30, 2019, the recorded investment in loans by risk category was as follows:

	Residential Real Estate		Commercial Real Estate		Multifamily		Construction		Land and Land Development		Commercial Business		Consumer		Total
	(In thousands)
Pass	$	194,591	$	424,989	$	37,823	$	19,660	$	10,564	$	71,050	$	44,618	$	803,295
Special Mention		-		904		-		-		-		-		-		904
Substandard		3,946		12,457		469		-		-		2,798		97		19,767
Doubtful		59		-		-		-		-		-		2		61
Loss		-		-		-		-		-		-		-		-

Total	$	198,596	$	438,350	$	38,292	$	19,660	$	10,564	$	73,848	$	44,717	$	824,027

-24-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Troubled Debt Restructurings

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

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

The following table summarizes the Company’s recorded investment in TDRs at December 31, 2019 and September 30, 2019. There was no specific reserve included in the allowance for loan losses related to TDRs at December 31, 2019 or September 30, 2019.

	Accruing		Nonaccrual		Total
	(In thousands)
December 31, 2019:
Residential real estate	$	2,003	$	185	$	2,188
Commercial real estate		5,173		57		5,230
Commercial business		91		-		91
Consumer		65		-		65
Total	$	7,332	$	242	$	7,574

September 30, 2019:
Residential real estate	$	1,868	$	351	$	2,219
Commercial real estate		5,222		59		5,281
Commercial business		105		-		105
Consumer		70		-		70
Total	$	7,265	$	410	$	7,675

-25-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

There were no TDRs that were restructured during the three-month periods ended December 31, 2019 and 2018.

At December 31, 2019 and September 30, 2019, the Company had committed to lend $1,000 to customers with outstanding loans classified as TDRs.

There were no principal charge-offs recorded as a result of TDRs during the three-month periods ended December 31, 2019 and 2018. There was no specific allowance for loan losses related to TDRs modified during the three-month periods ended December 31, 2019 and 2018. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan.

During the three month period ended December 30, 2019, the Company did not have any TDRs that were modified within the previous twelve months and for which there was a payment default. During the three-month period ended December 30, 2018, the Company had one TDR with an outstanding balance of $114,000 that was modified within the previous twelve months and for which there was a payment default.

-26-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

SBA Loan Servicing Rights

The Company originates loans to commercial customers under the SBA 7(a) 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 loan 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 net gain on sales of SBA loans in the consolidated statements of income.

The unpaid principal balance of SBA loans serviced for others was $169.1 million, $165.0 million and $131.8 million at December 31, 2019, September 30, 2019 and December 31, 2018, respectively. Contractually specified late fees and ancillary fees earned on SBA loans were $16,000 and $7,000 for the three-month periods ended December 31, 2019 and 2018, respectively. Net servicing income (contractually specified servicing fees offset by direct servicing expenses) related to SBA loans was $412,000 and $272,000 for the three-month periods ended December 31, 2019 and 2018, respectively. Net servicing income and costs are included in other noninterest income in the consolidated statements of income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

An analysis of SBA loan servicing rights for the three-month periods ended December 31, 2019 and 2018 is as follows:

(In thousands)	Three Months Ended December 31, 2019			Three Months Ended December 31, 2018
Balance, beginning of period	$	3,030		$	2,405
Servicing rights resulting from transfers of loans		221			251
Amortization		(216	)		(102	)
Change in valuation allowance		(30	)		-
Balance, end of period	$	3,005		$	2,554

The valuation allowance related to SBA loan servicing rights at December 31, 2019 and September 30, 2019 was $178,000 and $148,000, respectively.

Mortgage Servicing Rights (“MSRs”)

The Company originates residential mortgage loans for sale in the secondary market and began retaining servicing for certain of these loans when they are sold in August 2019. 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 portfolio.

A valuation model employed by an independent third party calculates the present value of future cash flows and is used to value the MSRs on a monthly basis. Management periodically compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Key assumptions used to estimate the fair value of the MSRs at December 31, 2019 were as follows:

Assumption	Range of Assumption (Weighted Average)
Discount rate		9.25%
Prepayment rate		4.13% to 71.26% (17.17%)

The unpaid principal balance of residential mortgage loans serviced for others was $304.8 million and $91.6 million at December 31, 2019 and September 30, 2019, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing and other liabilities were $2.1 million and $427,000 at December 30, 2019 and September 30, 2019, respectively. Contractually specified servicing fees (net of direct servicing expenses), late fees and other ancillary fees of $19,000 are included in other noninterest income in the consolidated statements of income for the three months ended December 31, 2019.

Changes in the carrying value of MSRs accounted for at fair value for the three months ended December 31, 2019 were as follows:

(In thousands)	2019
Fair value as of beginning of period	$	934
Servicing rights capitalized		2,277
Changes in fair value related to:
Loan repayments		(39	)
Changes in valuation model inputs or assumptions		82
Fair value as of end of period	$	3,254

4.	Deposits

Deposits at December 31, 2019 and September 30, 2019 consisted of the following:

	December 31, 2019		September 30, 2019
	(In thousands)
Noninterest-bearing demand deposits	$	180,321	$	173,072
NOW accounts		187,923		173,746
Money market accounts		115,949		121,281
Savings accounts		121,484		120,393
Retail time deposits		155,235		146,227
Brokered time deposits		124,686		99,665

Total	$	885,598	$	834,384

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

5.	Supplemental Disclosure for Earnings Per Share

Earnings per share information is presented below for the three-month periods ended December 31, 2019 and 2018.

	Three Months Ended
	December 31,
(Dollars in thousands, except per share data)	2019		2018
Basic:
Earnings:
Net income attributable to First Savings Financial Group, Inc.	$	3,439	$	2,931

Shares:
Weighted average shares outstanding		2,340,619		2,284,665

Net income per share, basic	$	1.47	$	1.28

Diluted:
Earnings:
Net income attributable to First Savings Financial Group, Inc.	$	3,439	$	2,931

Shares:
Weighted average shares outstanding		2,340,619		2,284,665
Add: Dilutive effect of outstanding options		37,008		81,210
Add: Dilutive effect of nonvested restricted stock		5,127		5,605
Weighted average shares outstanding, as adjusted		2,382,754		2,371,480

Net income per share, diluted	$	1.44	$	1.24

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

There were no antidilutive restricted stock awards excluded from the calculation of diluted net income per share for the three-month periods ended December 31, 2019 and 2018. Stock options for 16,758 and 10,200 shares of common stock were excluded from the calculation of diluted net income per common share for the three-month periods ended December 31, 2019, respectively, because their effect was antidilutive.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

6.	Supplemental Disclosures of Cash Flow Information

	Three Months Ended
	December 31,
	2019		2018
		(In thousands)
Cash payments for:
Interest	$	3,044	$	1,974
Income taxes (net of refunds received)		-		(117	)
Noncash investing and financing activities:
Transfers from loans to other real estate owned		-		203
Proceeds from sales of other real estate owned financed through loans		-		47
Right-of-use assets obtained in exchange for lease obligations		6,239		-

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

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

Level 1:

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

Level 2:

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

Level 3:

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

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and liabilities carried at fair value or the lower of cost or fair value. The tables below present the balances of financial assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2019 and September 30, 2019.

	Carrying Value
	Level 1		Level 2		Level 3		Total
	(In thousands)
December 31, 2019:
Assets Measured - Recurring Basis:
Securities available for sale:
Agency mortgage-backed	$	-	$	12,492	$	-	$	12,492
Agency CMO		-		9,485		-		9,485
Privately-issued CMO		-		1,193		-		1,193
Privately-issued ABS		-		1,126		-		1,126
SBA certificates		-		1,113		-		1,113
Municipal		-		152,332		-		152,332
Total securities available for sale	$	-	$	177,691	$	-	$	177,691
Residential mortgage loans held for sale – fair value option elected	$	-	$	93,564	$	-	$	93,564
Derivative assets (included in other assets)	$	-	$	20	$	2,921	$	2,941
Equity securities (included in other assets)	$	86	$	-	$	-	$	86
Mortgage servicing rights (included in other assets)	$	-	$	-	$	3,254	$	3,254
Liabilities Measured - Recurring Basis:
Derivative liabilities (included in other liabilities)	$	-	$	489	$	-	$	489

Assets Measured - Nonrecurring Basis:
Impaired loans:
Residential real estate	$	-	$	-	$	4,319	$	4,319
Commercial real estate		-		-		7,586		7,586
Commercial business		-		-		91		91
Consumer		-		-		273		273
Total impaired loans	$	-	$	-	$	12,269	$	12,269
SBA loans held for sale	$	-	$	-	$	16,959	$	16,959
SBA loan servicing rights	$	-	$	-	$	3,005	$	3,005
Other real estate owned, held for sale:
Former bank premises	$	-	$	-	$	1,893	$	1,893
Total other real estate owned	$	-	$	-	$	1,893	$	1,893

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

	Carrying Value
	Level 1		Level 2		Level 3		Total
	(In thousands)
September 30, 2019:
Assets Measured – Recurring Basis
Securities available for sale:
Agency mortgage-backed	$	-	$	14,097	$	-	$	14,097
Agency CMO		-		9,048		-		9,048
Privately-issued CMO		-		1,382		-		1,382
Privately-issued ABS		-		1,178		-		1,178
SBA certificates		-		1,154		-		1,154
Municipal bonds		-		150,443		-		150,443
Total securities available for sale	$	-	$	177,302	$	-	$	177,302

Residential mortgage loans held for sale – fair value option elected	$	-	$	80,457	$	-	$	80,457
Derivative assets (included in other assets)	$	-	$	130	$	3,269	$	3,399
Equity securities (included in other assets)	$	85	$	-	$	-	$	85
Mortgage servicing rights (included in other assets)	$	-	$	-	$	934	$	934
Liabilities Measured – Recurring Basis
Derivative liabilities (included in other liabilities)	$	-	$	329	$	-	$	329

Assets Measured – Nonrecurring Basis
Impaired loans:
Residential real estate	$	-	$	-	$	4,438	$	4,438
Commercial real estate		-		-		7,135		7,135
Commercial business		-		-		105		105
Consumer		-		-		211		211
Total impaired loans	$	-	$	-	$	11,889	$	11,889

SBA loans held for sale	$	-	$	15,613	$	-	$	15,613

SBA loan servicing rights	$	-	$	-	$	3,030	$	3,030

Other real estate owned, held for sale:
Former bank premises	$	-	$	-	$	1,893	$	1,893
Total other real estate owned	$	-	$	-	$	1,893	$	1,893

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Other than SBA loans held for sale (see discussion below), there have been no changes in the valuation techniques and related inputs used for assets measured at fair value on a recurring and nonrecurring basis during the three-month period ended December 31, 2019.

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

Residential Mortgage Loans Held for Sale. Effective July 1, 2018, the Company elected to record substantially all of 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.

SBA Loans Held for Sale. SBA loans held for sale are carried at the lower of cost or market value. At September 30, 2019, the fair value of SBA loans held for sale was obtained from an independent third party pricing firm based on specific prices of the underlying contracts for sale to investors or current secondary market prices for loans with similar characteristics, and was classified as Level 2 in the fair value hierarchy. At December 31, 2019, the fair value of SBA loans held for sale reflects management’s estimate based on the weighted average price of SBA loans sold to investors during the prior quarter and is classified as Level 3 in the fair value hierarchy.

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.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

The table below presents a reconciliation of derivative assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-months ended December 31, 2019 and 2018:

(In thousands)	2019			2018
Beginning balance	$	3,269		$	380
Unrealized gains recognized in earnings, net of settlements		(348	)		278

Ending balance	$	2,921		$	658

The realized and unrealized gains recognized in earnings in the table above are included in mortgage banking income on the accompanying consolidated statements of income. Gains recognized in earnings for the three-month periods ended December 31, 2019 and 2018 attributable to Level 3 derivative assets held at the balance sheet date were $2.9 million and $658,000, respectively.

The table below presents information about significant unobservable inputs (Level 3) used in the valuation of derivative financial instruments measured at fair value on a recurring basis as of December 31, 2019 and September 30, 2019.

Financial Instrument

Significant
Unobservable Inputs

Range of Inputs
December 31,

2019

Range of Inputs
September 30,
2019

Interest rate lock commitments

Pull-through rate

56% - 100%

55% - 100%

Direct costs to close

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

The table below presents a reconciliation of MSRs measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended December 31, 2019:

(In thousands)	2019
Beginning balance	$	934
Issuances (loans sold with servicing retained)		2,277
Net settlements		(39	)
Unrealized gains (losses) included in earnings		82

Ending balance	$	3,254

Changes in the fair value of MSRs are included in mortgage banking income in the accompanying consolidated statements of income.

The table below presents information about significant unobservable inputs (Level 3) used in the valuation of MSRs measured at fair value on a recurring basis as of December 31, 2019.

Financial Instrument

Significant

Unobservable Inputs

2019

Range of Inputs

MSRs

Discount rate

9.25%

Prepayment rate

4.13% - 71.26%

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

Impaired loans are measured at the present value of estimated future cash flows using the loan's effective interest rate or the fair value of the collateral if the loan is a collateral-dependent loan. At December 31, 2019 and September 30, 2019, all impaired loans were considered to be collateral dependent for the purpose of determining fair value. Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable, and its fair value is generally determined based on real estate appraisals or other independent evaluations by qualified professionals. The appraisals are generally then discounted by management in order to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral. At December 31, 2019 and September 30, 2019, the significant unobservable inputs used in the fair value measurement of impaired loans included discounts from appraised value ranging from 0.0% to 75.0% and estimated costs to sell the collateral ranging from 0.0% to 12.0%. During the three-month periods ended December 31, 2019 and 2018, the Company recognized provisions for loan losses of $143,000 and $194,000, respectively, for impaired loans.

SBA Loan Servicing Rights. SBA loan servicing rights represent the value associated with servicing SBA loans that have been sold. The fair value of SBA loan servicing rights is determined on a quarterly basis by an independent third party valuation model using market-based discount rate and prepayment assumptions, and is classified as Level 3 in the fair value hierarchy. At December 31, 2019, the significant unobservable inputs used in the fair value measurement of SBA loan servicing rights included discount rates ranging from 7.73% to 21.44% with a weighted average of 11.72% and prepayment speed assumptions ranging from 7.08% to 22.07% with a weighted average rate of 14.81%. At September 30, 2019, the significant unobservable inputs used in the fair value measurement of SBA loan servicing rights included discount rates ranging from 6.82% to 26.61% with a weighted average of 11.11% and prepayment speed assumptions ranging from 6.80% to 21.17% with a weighted average rate of 14.10%. 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 recognized $30,000 of impairment charges on loan servicing rights for the three-month period ended December 31, 2019. The Company did not recognize any impairment charges on loan servicing rights for the three-month period ended December 31, 2018.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

Other real estate owned is reported at fair value, less estimated costs to dispose of the property. The fair values are determined by real estate appraisals, which are then generally discounted by management in order to reflect management’s estimate of the fair value of the property given current market conditions and the condition of the property. At December 31, 2019, the significant unobservable inputs used in the fair value measurement of other real estate owned included a discount from appraised value (including estimated costs to sell the property) ranging from 0.0% to 30.9% with a weighted average of 29.5%. At September 30, 2019, the significant unobservable inputs used in the fair value measurement of other real estate owned included a discount from appraised value (including estimated costs to sell the property) ranging from 0.0% to 15.0% with a weighted average of 10.5%. The Company did not recognize any charges to write down other real estate owned to fair value for the three-month periods ended December 31, 2019 and 2018.

Transfers Between Categories. As previously described, management used different valuation methodologies related to SBA loans held for sale at December 31, 2019 and September 30, 2019, resulting in a change in classification from Level 2 to Level 3 for those types of instruments. Other than that change, there were no transfers into or out of Levels 1, 2, or 3 of the fair value hierarchy for the three-month periods ended December 31, 2019 and 2018.

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 of an eligible financial asset or financial liability, and may not be revoked once made.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The Company has elected the fair value option for substantially all of its residential mortgage loans held for sale effective July 1, 2018, including all loans originated by the Company’s wholesale lending division. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with the Company’s policy on loans held for investment. None of these loans were 90 days or more past due, nor were any on nonaccrual status, as of December 31, 2019 and September 30, 2019.

The table below presents the difference between the aggregate fair value and the aggregate remaining principal balance for residential mortgage loans held for sale for which the fair value option had been elected as of December 31, 2019 and September 30, 2019.

(In thousands)

Aggregate
Fair Value
December 31,

2019

Aggregate
Principal
Balance
December 31,

2019

Difference

Residential mortgage loans held for sale

93,564

90,160

3,404

(In thousands)

Aggregate
Fair Value
September 30,

2019

Aggregate
Principal
Balance
September 30,

2019

Difference

Residential mortgage loans held for sale

80,457

77,787

2,670

The table below presents gains and losses and interest included in earnings related to financial assets measured at fair value under the fair value option for the three-month periods ended December 31, 2019 and 2018:

	Three Months Ended
	December 31,
(In thousands)	2019		2018
Gains – included in mortgage banking income	$	2,376	$	589
Interest income		891		154

	$	3,267	$	743

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

	Carrying		Fair Value Measurements Using:
	Amount		Level 1		Level 2		Level 3
	(In thousands)
December 31, 2019:
Financial assets:
Cash and due from banks	$	14,051	$	14,051	$	-	$	-
Interest-bearing deposits with banks		27,276		27,276		-		-
Interest-bearing time deposits		2,510		-		2,510		-
Securities available for sale		177,691		-		177,691		-
Securities held to maturity		2,300		-		2,622		-

Loans, net		851,700		-		-		883,086

Residential mortgage loans held for sale		93,564		-		93,564		-
SBA loans held for sale		16,959		-		-		18,675
FRB and FHLB stock		14,149		N/A		N/A		N/A
Accrued interest receivable		5,574		-		5,574		-
SBA loan servicing rights (included in other assets)		3,005		-		-		3,005
Residential mortgage loan servicing rights (included in other assets)		3,254		-		-		3,254
Derivative assets (included in other assets)		2,941		-		20		2,921
Equity securities (included in other assets)		86		86		-		-
Financial liabilities:
Deposits		885,598		-		-		886,503
Borrowings from FHLB		239,566		-		239,294		-
Subordinated note		19,746		-		21,116		-
Accrued interest payable		772		-		772		-
Advance payments by borrowers for taxes and insurance		1,269		-		1,269		-
Derivative liabilities (included in other liabilities)		489		-		489		-

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

	Carrying		Fair Value Measurements Using:
	Amount		Level 1		Level 2		Level 3
	(In thousands)
September 30, 2019:
Financial assets:
Cash and due from banks	$	13,008	$	13,008	$	-	$	-
Interest-bearing deposits with banks		28,424		28,424		-		-
Interest-bearing time deposits		2,265		-		2,265		-
Securities available for sale		177,302		-		177,302		-
Securities held to maturity		2,336		-		2,670		-
Residential mortgage loans held for sale		80,457		-		80,457		-
SBA loans held for sale		15,613		-		17,040		-
Loans, net		810,658		-		-		841,646
FRB and FHLB stock		13,040		N/A		N/A		N/A
Accrued interest receivable		5,041		-		5,041		-
SBA Loan servicing rights (included in other assets)		3,030		-		-		3,030
Residential mortgage loan servicing rights (included in other assets)		934		-		-		934
Derivative assets (included in other assets)		3,399		-		130		3,269
Equity securities (included in other assets)		85		85		-		-

Financial liabilities:
Deposits		834,384		-		-		835,384
Federal funds purchased		4,000		-		4,000		-
Borrowings from FHLB		222,544		-		222,432		-
Subordinated note		19,729		-		21,143		-
Accrued interest payable		935		-		935		-
Advance payments by borrowers for taxes and insurance		1,906		-		1,906		-
Derivative liabilities (included in other liabilities)		329		-		329		-

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

8.	Employee Stock Ownership Plan

On October 6, 2008, the Company established a leveraged employee stock ownership plan (“ESOP”) covering substantially all employees. The ESOP trust acquired 203,363 shares of Company common stock at a cost of $10.00 per share financed by a term loan with the Company. The employer loan and the related interest income are not recognized in the consolidated financial statements because the debt is serviced from Company contributions. Dividends payable on allocated shares are charged to retained earnings and are satisfied by the allocation of cash dividends to participant accounts or by utilizing the dividends as additional debt service on the ESOP loan. Dividends payable on unallocated shares are not considered dividends for financial reporting purposes. Shares held by the ESOP trust are allocated to participant accounts based on the ratio of the current year principal and interest payments to the total of the current year and future years’ principal and interest to be paid on the employer loan. Compensation expense is recognized based on the average fair value of shares released for allocation to participant accounts during the year with a corresponding credit to stockholders’ equity. The ESOP loan was repaid in full during the quarter ended December 31, 2015 and all shares have been allocated to participants in the plan therefore no compensation expense was recognized for the three-month periods ended December 30, 2019 and 2018. The ESOP trust held 136,190 and 136,219 shares of Company common stock at December 31, 2019 and September 30, 2019, respectively.

9.	Stock Based Compensation Plans

The Company maintains two equity incentive plans under which stock options and restricted stock have been or can be granted, the 2010 Equity Incentive Plan (“2010 Plan”), approved by the Company’s shareholders in February 2010, and the 2016 Equity Incentive Plan (“2016 Plan”), approved by the Company’s shareholders in February 2016. The aggregate number of shares of the Company’s common stock available for issuance under the 2016 Plan may not exceed 88,000 shares, consisting of 66,000 stock options and 22,000 shares of restricted stock. At December 31, 2019, there were no remaining shares of the Company’s common stock available for issuance under the 2010 Plan. At December 31, 2019, 7,255 shares of the Company’s common stock were available for issuance under the 2016 Plan, all of which were available for stock options. There are no restricted stock shares available for issuance under the 2016 Plan as of December 31, 2019. The Company accounts for any forfeitures as they occur, and any previously recognized compensation cost for an award is reversed in the period the award is forfeited.

Stock Options

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

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(Unaudited)

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

The fair value of options granted during the three-month period ended December 31, 2019 was determined using the following assumptions:

Expected dividend yield	1.75%
Risk-free interest rate	2.13%
Expected volatility	14.6%
Expected life of options	7.0 years
Weighted average fair value at grant date	$ 6.13

A summary of stock option activity as of December 31, 2019, and changes during the three-month period then ended is presented below.

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
	(Dollars in thousands, except per share data)
Outstanding at beginning of period		84,806		$	34.13
Granted		11,958			66.35
Exercised		(6,500	)		15.31
Forfeited or expired		-			-
Outstanding at end of period		90,264		$	39.76		5.9	$	2,478
Vested and expected to vest		90,264		$	39.76		5.9	$	2,478
Exercisable at end of period		50,928		$	29.84		4.2	$	1,900

The intrinsic value of stock options exercised during the three-month period ended December 31, 2019 was $338,000. The intrinsic value of stock options exercised during the three-month period ended December 31, 2018 was $470,000. The Company recognized compensation expense related to stock options of $20,000 and $18,000 for the three-month periods ended December 31, 2019 and 2018, respectively. At December 31, 2019, there was $227,000 of unrecognized compensation expense related to nonvested stock options. The compensation expense is expected to be recognized over a weighted average period of 3.11 years. Cash received from the exercise of stock options and the tax benefit from the exercise of stock options were $100,000 and $44,000, respectively, for the three-month period ended December 31,2019.

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Restricted Stock

The vesting period of restricted stock granted under the plans is generally five years beginning one year after the date of grant of the awards. Compensation expense is measured based on the fair market value of the restricted stock at the grant date and is recognized ratably over the vesting period. Compensation expense related to restricted stock recognized for the three-month periods ended December 30, 2019 and 2018 was $47,000 and $41,000, respectively.

A summary of the Company’s nonvested restricted shares activity as of December 31, 2019 and changes during the three-month period then ended is presented below.

				Weighted
	Number			Average
	of			Grant Date
	Shares			Fair Value
Nonvested at October 1, 2019		13,458		$	44.62
Granted		1,436		$	66.35
Vested		(4,086	)	$	43.24
Forfeited		-			-
Nonvested at December 31, 2019		10,808		$	48.04

There were 4,086 restricted shares vested during the three-month period ended December 31, 2019 with a total fair value of $271,000. There were 3,653 restricted shares that vested during the three-month period ended December 31, 2018 with a total fair value of $216,000. At December 31, 2019, there was $495,000 of unrecognized compensation expense related to nonvested restricted shares. The compensation expense is expected to be recognized over a weighted average period of 2.98 years.

10.

Derivative Financial Instruments

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (i.e., rate lock commitment). The Company also enters into forward mortgage loan commitments to sell 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.

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(Unaudited)

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 tables below provide information on the Company’s derivative financial instruments as of December 31, 2019 and September 30, 2019.

(In thousands)	Notional Amount December 31, 2019		Asset Derivatives December 31, 2019		Liability Derivatives December 31, 2019
Interest rate lock commitments	$	192,337	$	2,921	$	-
Forward mortgage loan sale contracts		170,250		20		489

	$	362,587	$	2,941	$	489

(In thousands)	Notional Amount September 30, 2019		Asset Derivatives September 30, 2019		Liability Derivatives September 30, 2019
Interest rate lock commitments	$	258,545	$	3,269	$	-
Forward mortgage loan sale contracts		203,250		130		329

	$	461,795	$	3,399	$	329

Income (loss) related to derivative financial instruments included in mortgage banking income in the accompanying consolidated statements of income for the three-month periods ended December 31, 2019 and 2018 is as follows:

(In thousands)	2019			2018
Interest rate lock commitments	$	(348	)	$	278
Forward mortgage loan sale contracts		(437	)		(151	)

	$	(785	)	$	127

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

11.

Regulatory Capital

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”) became effective for the Bank on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule through 2019. Under the Basel III rules, the Bank must hold a conservation buffer above the adequately capitalized risk-based capital ratios disclosed in the table below. The capital conservation buffer was phased in from 0.0% for 2015 to 2.5% for 2019. The capital conservation buffer was 1.875% for 2018 and 2.5% for 2019. The Bank met all capital adequacy requirements to which it was subject as of December 31, 2019 and September 30, 2019.

As of December 31, 2019, 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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(Unaudited)

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

											Minimum
											To Be Well
						Minimum					Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes:					Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2019:
Total capital (to risk-weighted assets):
Consolidated	$	134,560		13.40	%	$	80,306		8.00	%		N/A		N/A
Bank		125,295		12.51			80,109		8.00		$	100,136		10.00	%
Tier 1 capital (to risk-weighted assets):
Consolidated	$	104,284		10.39	%	$	60,229		6.00	%		N/A		N/A
Bank		114,765		11.46			60,082		6.00		$	80,109		8.00	%
Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	104,284		10.39	%	$	45,172		4.50	%		N/A		N/A
Bank		114,765		11.46			45,061		4.50		$	65,088		6.50	%
Tier 1 capital (to average adjusted total assets):
Consolidated	$	104,284		8.33	%	$	50,086		4.00	%		N/A		N/A
Bank		114,765		9.27			49,498		4.00		$	61,872		5.00	%
As of September 30, 2019:
Total capital (to risk-weighted assets):
Consolidated	$	130,700		13.85	%	$	75,474		8.00	%		N/A		N/A
Bank		121,160		12.88			75,249		8.00		$	94,061		10.00	%
Tier 1 capital (to risk-weighted assets):
Consolidated	$	100,931		10.70	%	$	56,606		6.00	%		N/A		N/A
Bank		111,120		11.81			56,437		6.00		$	75,249		8.00	%
Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	100,931		10.70	%	$	42,454		4.50	%		N/A		N/A
Bank		111,120		11.81			42,327		4.50		$	61,140		6.50	%
Tier 1 capital (to average adjusted total assets):
Consolidated	$	100,931		8.39	%	$	48,142		4.00	%		N/A		N/A
Bank		111,120		9.34			47,564		4.00		$	59,455		5.00	%

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FIRST SAVINGS FINANCIAL GROUP, INC.

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(Unaudited)

12.

Recent Accounting Pronouncements

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

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The guidance supersedes existing guidance on accounting for leases with the main difference being that operating leases are to be recorded in the statement of financial position as right-of-use assets and lease liabilities, initially measured at the present value of the lease payments. For operating leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. Under the new guidance, lessor accounting is largely unchanged. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an additional, optional transition method related to implementing the new leases standard. ASU 2018-11 provides that companies can initially apply the new leases standard at adoption and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has adopted the new leases standard on October 1, 2019, and as a result the Company recorded a right-of-use asset of $6.2 million, a lease liability of $6.3 million and a cumulative-effect adjustment of $166,000 to increase retained earnings. The Company has elected all applicable practical expedients permitted under the standard, including the option to expense short-term leases with a term of one year or less. The Company also utilized the transition method allowed under ASU 2028-11 and did not restate prior periods.. See Note 15 for further details regarding adoption of the new leases standard.

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

In November 2019, the FASB issued ASU No. 2019-10 which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the SEC) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

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(Unaudited)

In March 2017, the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities. The update shortens the amortization period for certain callable debt securities held at a premium. Specifically, the update requires the premium to be amortized to the earliest call date. The update does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in the update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. An entity should apply the amendments in this update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The adoption of this update effective October 1, 2019 did not have a material impact on the Company’s consolidated financial position or results of operations.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and adds certain disclosure requirements for fair value measurements. Among other changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in the update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

13.

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 and net interest income are the primary sources of revenue for the SBA lending segment. The mortgage banking segment originates residential mortgage loans and sells them in the secondary market. Net gains on the sales of loans, income from derivative financial instruments and net interest income are the primary sources of revenue for the mortgage banking segment.

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FIRST SAVINGS FINANCIAL GROUP, INC.

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(Unaudited)

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 and began operations in April 2018.

The following segment financial information has been derived from the internal financial statements of the Company which are used by management to monitor and manage financial performance. The accounting policies of the three segments are the same as those of the Company. The amounts reflected in the “Other” column in the tables below represent combined balances of the Company and the Captive, and are the primary differences between the sum of the segment amounts and consolidated totals, along with amounts to eliminate transactions between segments.

	Core Banking		SBA Lending			Mortgage Banking		Other			Consolidated Totals
	(In thousands)
Three Months Ended December 31, 2019:
Net interest income	$	9,485	$	1,217		$	487	$	(297	)	$	10,892
Provision for loan losses		520		(15	)		-		-			505
Net interest income after provision		8,965		1,232			487		(297	)		10,387
Net gains on sales of loans, SBA		-		761			-		-			761
Mortgage banking income		1		-			15,816		-			15,817
Noninterest income		1,391		929			15,806		-			18,126
Noninterest expense		7,629		1,825			14,902		(84	)		24,272
Income before taxes		2,727		336			1,391		(213	)		4,241
Income tax expense (benefit)		433		43			348		(186	)		638
Segment profit (loss)		2,294		293			1,043		(27	)		3,603
Non cash items:
Depreciation and amortization		359		13			37		-			409
Segment assets at December 31, 2019		1,174,608		88,989			107,637		(78,661	)		1,292,573

	Core			SBA		Mortgage						Consolidated
Three Months Ended December 31, 2018:	Banking			Lending		Banking			Other			Totals

Net interest income	$	8,880		$	908	$	94		$	(306	)	$	9,576
Provision for loan losses		(16	)		331		-			-			315
Net interest income after provision		8,896			577		94			(306	)		9,261
Net gains on sales of loans, SBA		-			964		-			-			964
Mortgage banking income		7			-		3,262			-			3,289
Noninterest income		1,380			1,137		3,264			-			5,781
Noninterest expense		6,611			1,362		3,468			(25	)		11,416
Income before taxes		3,665			352		(110	)		(281	)		3,626
Income tax expense (benefit)		640			45		(28	)		(135	)		522
Segment profit (loss)		3,025			307		(82	)		(146	)		3,104
Non cash items:
Depreciation and amortization		452			12		20			-			484
Segment assets at December 31, 2018		1,067,069			70,127		17,059			(80,266	)		1,073,989

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(Unaudited)

14.

Revenue from Contracts with Customers

Substantially all of the Company’s revenue from contracts with customers within the scope of FASB ASC 606 is included in the core banking segment and is recognized within noninterest income. The following table presents the Company’s sources of noninterest income for the three-month periods ended December 31, 2019 and 2018:

	Three Months Ended
	December 31,
	2019		2018
Service charges on deposit accounts	$	509	$	511
ATM and interchange fees		503		453
Investment advisory income		27		57
Other		26		37
Revenue from contracts with customers		1,065		1,058

Gain on sale of SBA loans		761		964
Mortgage banking income		15,817		3,289
Increase in cash value of life insurance		162		111
Real estate lease income		151		158
Other		170		201
Other noninterest income		17,061		4,723

Total noninterest income	$	18,126	$	5,781

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

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

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(Unaudited)

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.

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.

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

15.

Leases

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

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

The Company’s right to use an asset over the life of a lease is recorded as an ROU asset included in other assets on the consolidated balance sheet and was $6.0 million at December 31, 2019. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received. The Company recorded a $6.1 million lease liability in other liabilities on the consolidated balance sheet at December 31, 2019.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the term of the lease. Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of renewal options on operating leases is at the Company’s sole discretion, and certain leases may include options to purchase the leased property. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. The Company does not enter into lease agreements which contain material residual value guarantees or material restrictive covenants. At December 31, 2019, the Company had not entered into any leases that had yet to commence.

The components of lease expense were as follows:

		Three Months Ended
		December 31, 2019
Operating lease cost	$	290
Short-term lease cost		120
	$	410

Future minimum commitments due under these lease agreements as of December 31, 2019 are as follows:

2020 (remaining nine months)	$	761
2021		629
2022		497
2023		382
2024		274
Thereafter		5,802
Total lease payments		8,345
Less imputed interest		(2,256	)
Total	$	6,089

The lease term and discount rate at December 31, 2019 were as follows:

Weighted-average remaining lease term (years)		22.6
Weighted-average discount rate		2.75	%

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FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Supplemental cash information at December 31, 2019 related to leases was as follows:

	Three months ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	234

ROU assets obtained in exchange for lease obligations:
Operating leases	$	6,239

-53-

FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Safe Harbor Statement for Forward-Looking Statements

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

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company's actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed herein and in our Annual Report on Form 10-K for the year ended September 30, 2019 under “Part II, Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies

During the three-month period ended December 31, 2019, there was no significant change in the Company's critical accounting policies or the application of critical accounting policies as disclosed in the Company's Annual Report on Form 10-K for the year ended September 30, 2019.

-54-

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 December 31, 2019 and September 30, 2019

Cash and Cash Equivalents. Cash and cash equivalents decreased $105,000 from $41.4 million at September 30, 2019 to $41.3 million at December 31, 2019.

Loans. Net loans receivable increased $41.0 million, from $810.7 million at September 30, 2019 to $851.7 million at December 31, 2019, due primarily to increases in commercial real estate loans of $33.6 million.

Loans Held for Sale. Loans held for sale increased $14.4 million, from $96.1 million at September 30, 2019 to $110.5 million at December 31, 2019, due to an increase in residential mortgage loans held for sale of $13.1 million and an increase in SBA loans held for sale of $1.3 million. The increase in residential mortgage loans held for sale is due to additional staff hired in 2018 and 2019 for the purpose of expanding the Company’s mortgage banking activities. As a result of this expansion, the Company originated $542.6 million of residential loans held for sale in the secondary market for the three-month period ended December 31, 2019 compared to $66.0 million in originations for the three-month period ended December 31, 2018.

Securities Available for Sale. Securities available for sale increased $389,000, from $177.3 million at September 30, 2019 to $177.7 million at December 31, 2019, due primarily to purchases of $4.6 million, partially offset by calls and maturities of $1.2 million, principal repayments of $2.1 million, and a decrease in unrealized gains on securities available for sale of $750,000.

Securities Held to Maturity. Investment securities held to maturity decreased $36,000 from September 30, 2019 to December 31, 2019 due to partial calls and principal repayments. There were no purchases of securities held to maturity during the three-month period ended December 31, 2019.

Deposits. Total deposits increased $51.2 million, from $834.4 million at September 30, 2019 to $885.6 million at December 31, 2019, due primarily to increases in interest bearing deposit accounts and non-interest bearing deposit accounts of $44.0 million and $7.2 million, respectively.

Borrowings. Borrowings from the FHLB increased $17.1 million, from $222.5 million at September 30, 2019 to $239.6 million at December 31, 2019. The increase in borrowings was primarily used to fund loan growth and the expansion of the Bank’s mortgage lending activities.

Equity. Stockholders’ equity attributable to the Company was $123.8 million at December 31, 2019, an increase of $2.7 million from September 30, 2019 due primarily to retained net income of $3.2 million, partially offset by a $584,000 decrease in accumulated other comprehensive income due to a decline in the market value of available for sale securities.

-55-

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 December 31, 2019 and 2018

Overview. The Company reported net income of $3.4 million, or $1.44 per diluted share, for the three-month period ended December 31, 2019 compared to net income of $2.9 million, or $1.24 per diluted share, for the three-month period ended December 31, 2018. The annualized return on average assets and average common stockholders’ equity were 1.09% and 11.24%, respectively, for the three-month period ended December 31, 2019. The annualized return on average assets and average common stockholders’ equity were 1.11% and 11.82%, respectively, for the three-month period ended December 31, 2018.

Net Interest Income. Net interest income increased $1.3 million, or 13.7%, for the three-month period ended December 31, 2019 as compared to the same period in 2018. Average interest-earning assets increased $176.0 million and average interest-bearing liabilities increased $158.0 million when comparing the two periods. The tax-equivalent net interest margin was 3.83% for 2019 compared to 3.98% for 2018.

Total interest income increased $2.0 million, or 16.7%, when comparing the two periods due primarily to an increase in the average balance of interest-earning assets of $176.0 million, from $989.8 million for 2018 to $1.17 billion for 2019, partially offset by a decrease in the average tax equivalent yield on interest-earning assets from 4.88% for 2018 to 4.82% for 2019. The majority of the increase in average interest-earning assets was attributable to loans. The average balance of loans increased $171.6 million, or 22.5%, compared to 2018.

Total interest expense increased $650,000, or 29.2%, due to an increase in the average balance of interest-bearing liabilities of $158.0 million, from $777.1 million for 2018 to $935.1 million for 2019, and an increase in the average cost of interest-bearing liabilities from 1.15% for 2018 to 1.23% for 2019.

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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 December 31, 2019 and 2018. 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 21.0%.

	Three Months Ended December 31,
	2019								2018
	Average Balance		Interest and Dividends			Yield/ Cost			Average Balance		Interest and Dividends			Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-bearing deposits with banks	$	46,296	$	205			1.77	%	$	30,271	$	153			2.02	%
Loans		935,211		11,830			5.06			763,637		9,828			5.15
Investment securities		157,093		1,780			4.53			156,570		1,783			4.56
Agency mortgage-backed securities		13,057		83			2.54			29,133		193			2.65
FRB and FHLB stock		14,149		154			4.35			10,171		121			4.76
Total interest-earning assets		1,165,806		14,052			4.82			989,782		12,078			4.88

Noninterest-earning assets		99,149								66,632
Total assets	$	1,264,955							$	1,056,414

Liabilities and equity:
NOW accounts	$	185,295	$	138			0.30	%	$	178,846	$	125			0.28	%
Money market deposit accounts		116,426		305			1.05			110,769		316			1.14
Savings accounts		119,631		24			0.08			119,010		23			0.08
Time deposits		286,166		1,282			1.79			242,435		960			1.58
Total interest-bearing deposits		707,518		1,749			0.99			651,060		1,424			0.87

Repurchase agreements		-		-			0.00			1,352		1			0.30
FHLB borrowings		207,851		808			1.55			104,999		478			1.82
Other borrowings (1)		19,735		318			6.45			19,667		322			6.55
Total interest-bearing liabilities		935,104		2,875			1.23			777,078		2,225			1.15

Noninterest-bearing deposits		180,955								167,917
Other noninterest-bearing liabilities		26,390								10,844
Total liabilities		1,142,449								955,839

Total stockholders’ equity		122,399								99,193
Noncontrolling interest in subsidiary		107								1,382
Total equity		122,506							$	100,575

Total liabilities and equity	$	1,264,955							$	1,056,414
Net interest income (taxable equivalent basis)				11,177								9,853
Less:taxable equivalent adjustment				(285	)							(277	)
Net interest income			$	10,892							$	9,576
Interest rate spread							3.59	%							3.73	%
Net interest margin							3.83	%							3.98	%
Average interest-earning assets to average interest-bearing liabilities							124.67	%							127.37	%

(1) Includes subordinated debt.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income on a tax equivalent basis for the three-month periods ended December 31, 2019 and 2018. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each.

	Three Months Ended December 31, 2019 Compared to Three Months Ended December 31, 2018
	Increase (Decrease) Due to
	Rate				Volume			Net
				(In thousands)
Interest income:
Interest-bearing deposits with banks	$	(24	)		$	76		$	52
Loans		(191	)			2,193			2,002
Investment securities		(10	)			7			(3	)
Agency mortgage-backed securities		(6	)			(104	)		(110	)
FRB and FHLB stock		(12	)			45			33
Total interest-earning assets		(243	)			2,217			1,974

Interest expense:
Deposits		199				126			325
Repurchase agreements		-				(1	)		(1	)
Borrowings from FHLB		(107	)			437			330
Subordinated debt		-				(4	)		(4	)
Total interest-bearing liabilities		92				558			650

Net increase (decrease) in net interest income (tax equivalent basis)	$	(335	)		$	1,659		$	1,324

Provision for Loan Losses. The provision for loan losses was $505,000 for the three-month period ended December 31, 2019 compared to $315,000, for the same period in 2018. Gross loans increased approximately $41.5 million for the three-month period ended December 31, 2019 compared to an increase of approximately $30.1 million for the three-month period ended December 31, 2018.

The Company recognized net charge-offs of $15,000 for the three-month period ended December 31, 2019 compared to net charge-offs of $18,000 for the same period in 2018.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Noninterest Income. Noninterest income increased $12.3 million for the three months ended December 31, 2019 as compared to the same period in 2018. The increase was due primarily to an increase in mortgage banking income of $12.5 million partially offset by a decrease in the net gain on sale of loans guaranteed by the SBA of $203,000. The increase in mortgage banking income is due to production from the secondary-market residential mortgage lending segment that commenced operations in April 2018. The Bank’s SBA lending activities are performed under Q2 Business Capital, LLC (“Q2”), which specializes in the origination and servicing of SBA loans. The Bank owns 51% of Q2 with the option to purchase the minority interest in September 2020. Gross revenues and expenses related to Q2 are reported in the consolidated statements of income, and the net income or net loss attributable to noncontrolling interests is then subtracted (in the case of net income) or added (in the case of net loss) to arrive at net income attributable to the Company. Additional details regarding the financial performance of the mortgage banking and SBA lending segments are included in Note 13 to the consolidated financial statements.

Noninterest Expense. Noninterest expense increased $12.9 million for the three months ended December 31, 2019 as compared to the same period in 2018. The increase was due primarily to increases in compensation and benefits, advertising, and occupancy and equipment expense of $10.6 million, $1.1 million and $597,000, respectively. The increase in compensation and benefits expense is attributable to the addition of new employees to support the growth of the Company, primarily its mortgage banking and SBA lending activities, and normal salary and benefits adjustments. The increase in advertising is primarily due to the mortgage banking segment. The increase in occupancy and equipment expense is primarily attributable to increases in lease and rental, depreciation and equipment, and software licensing expenses that are all primarily related to the mortgage banking segment.

Income Tax Expense. The Company recognized income tax expense of $638,000 for the three months ended December 31, 2019, for an effective tax rate of 15.0%, as compared to income tax expense of $522,000, for an effective tax rate of 14.4%, for the same period in 2018. The increase in the effective tax rate for 2019 compared to 2018 is primarily due to an increase in taxable income and a decrease in bond tax credits.

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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 December 31, 2019, the Company had cash and cash equivalents of $41.3 million and securities available-for-sale with a fair value of $177.7 million. If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB, borrowing capacity on a federal funds purchased line of credit facility with another financial institution and additional collateral eligible for repurchase agreements.

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

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. If these maturing deposits do not remain with the Bank, we will be required to seek other sources of funds, including other certificates of deposit and borrowings.

The Company is a separate legal entity from the Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations, to pay any dividends and to repurchase any of its outstanding common stock. The Company’s primary source of income is dividends received from the Bank and the Captive. The amount of dividends that the Bank may declare and pay to the Company in any calendar year cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years. At December 31, 2019, the Company (unconsolidated basis) had liquid assets of $7.1 million.

Capital Management. The Bank is required to maintain specific amounts of capital pursuant to regulatory requirements. As of December 31, 2019, 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 9.27%, 11.46%, 11.46% and 12.51%, respectively. The regulatory requirements at that date were 5.0%, 6.5%, 8.0% and 10.0%, respectively, in order to be categorized as “well capitalized” under applicable regulatory guidelines. At December 31, 2019, the Bank was considered “well-capitalized” under applicable regulatory guidelines.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with GAAP, are not recorded on the Company's financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are primarily used to manage customers’ requests for funding and take the form of loan commitments and letters of credit. A further presentation of the Company’s off-balance sheet arrangements is presented in the Company’s Annual Report on Form 10-K for the year ended September 30, 2019.

For the three-month period ended December 31, 2019, 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, all of which are retained by the Company for its portfolio. The Company relies on retail deposits as its primary source of funds. Management believes the primary use of retail deposits, complimented with a modest allocation of brokered certificates of deposit and FHLB borrowings, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds.

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

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

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I – ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

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

	At December 31, 2019						At September 30, 2019
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	$	(2,841	)		(6.73	)%	$	(4,945	)		(12.43	)%
200bp		(1,090	)		(2.58	)		(2,197	)		(5.52	)
100bp		(392	)		(0.93	)		(993	)		(2.50	)
(100)bp		47			0.11			750			1.89
(200)bp		(2,158	)		(5.11	)		(616	)		(1.55	)

At December 31, 2019, 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 $392,000, or 0.93%, 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 2.58% and 6.73%, respectively. An immediate and sustained decrease in rates of 1.00% will increase our net interest income by $47,000, or 0.11%, over a one year horizon compared to a flat interest rate scenario while a rate decrease of 2.00% would cause our net interest income to decrease by 5.11%. All estimated changes presented in the above table are within the policy guidelines approved by the Company’s Board of Directors.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART I - ITEM 4

CONTROLS AND PROCEDURES

Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of December 31, 2019, (the “Evaluation Date”), the Company carried out an evaluation, under the supervision of and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective due to the material weaknesses disclosed in our Annual Report on Form 10-K for the year ended September 30, 2019 filed with the SEC on December 16, 2019 (the “2019 Form 10-K”).

Changes in Internal Controls. There have been no changes in our internal controls over financial reporting that occurred during the quarter ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As disclosed in our 2019 Form 10-K, management implemented additional controls and procedures described therein starting in the fourth quarter of 2019 in order to remediate the material weaknesses identified, and will continue to take steps as necessary that management and the Audit Committee believe will remediate the control deficiencies. However, the identified control deficiencies that led to the material weaknesses in internal control over financial reporting will not be considered fully addressed until the new and additional controls, processes and procedures have been in operation for a sufficient period of time to allow the Company’s management to conclude, through testing, that the controls are operating effectively and the material weaknesses have been fully remediated. Management expects the remediation of the material weaknesses will be completed by September 30, 2020.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

	Item 1.	Legal Proceedings

		The Company is not a party to any legal proceedings. Periodically, there have been various claims and lawsuits involving the Bank, mainly as a plaintiff, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank’s business. The Bank is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition or results of operations.

	Item 1A.	Risk Factors

		In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2019 which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors described in our Annual Report on Form 10-K, however, these are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

-65-

FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

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

		The following table presents information regarding the Company’s stock repurchase activity during the quarter ended December 31, 2019:

Period	(a) Total number of shares (or units) purchased		(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs (1)		(d) Maximum number (or appropriate dollar value) of shares (or units) that may yet be purchased under the plans or programs
Oct 1, 2019 through Oct 31, 2019		-	$	-		-		49,504
Nov 1, 2019 through Nov 30, 2019		-	$	-		-		49,504
Dec 1, 2019 through Dec 31, 2019		796	$	66.35		796		48,708
Total		796	$	66.35		796		48,708

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

	Item 3.	Defaults upon Senior Securities

		Not applicable.

	Item 4.	Mine Safety Disclosures

		Not applicable.

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FIRST SAVINGS FINANCIAL GROUP, INC.

PART II

OTHER INFORMATION

	Item 5.	Other Information

		None.

Item 6.

Exhibits

31.1

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

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

	32.1	Section 1350 Certification of Chief Executive Officer

	32.2	Section 1350 Certification of Chief Financial Officer

	101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2019, 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

-67-

SIGNATURES

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

	FIRST SAVINGS FINANCIAL GROUP, INC.
	(Registrant)


Dated February 10, 2020	BY:	/s/ Larry W. Myers
		Larry W. Myers
		President and Chief Executive Officer


Dated February 10, 2020	BY:	/s/ Anthony A. Schoen
		Anthony A. Schoen
		Chief Financial Officer

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