First Savings Financial Group, Inc. Quarterly Report (Form 10-Q)

Analysis of First Savings Financial Group’s Financial Performance

Overview First Savings Financial Group, Inc. is a financial holding company that operates through its subsidiary, First Savings Bank. The company reported strong financial results for the six-month period ended March 31, 2025, with net income of $11.7 million, or $1.68 per diluted share, compared to $5.8 million, or $0.85 per diluted share, for the same period in 2024. This significant increase in profitability was driven by growth in net interest income and noninterest income.

Financial Condition First Savings’ balance sheet remained healthy as of March 31, 2025. Cash and cash equivalents decreased $23.5 million to $28.7 million, as excess cash was used to pay down brokered deposits. Net loans receivable declined $83.7 million to $1.88 billion, primarily due to a $87.2 million bulk sale of residential real estate home equity line of credit loans. Loans held for sale increased $35.5 million to $61.2 million, mainly from an increase in residential mortgage loans held for sale.

Securities available for sale decreased $5.5 million to $243.2 million, driven by net decreases in fair value and principal repayments, partially offset by new purchases. Total deposits decreased $91.7 million to $1.79 billion, as a $112.4 million decline in brokered deposits was only partially offset by increases in money market and interest-bearing demand accounts. FHLB borrowings increased $23.7 million to $325.3 million, replacing the reduction in brokered deposits.

Stockholders’ equity grew $2.1 million to $179.2 million, due to a $9.6 million increase in retained earnings, partially offset by an $8.2 million increase in accumulated other comprehensive loss. The bank remained well-capitalized under regulatory guidelines.

Results of Operations The company’s strong financial performance was reflected in its results of operations. Net interest income increased $1.7 million, or 11.6%, for the three-month period ended March 31, 2025 compared to the same period in 2024. This was driven by a $22.7 million increase in average interest-earning assets and a 27 basis point expansion in the net interest margin to 2.93%.

Total interest income grew $807,000, as the average yield on interest-earning assets increased 9 basis points to 5.57%. This was partially offset by a $846,000 decrease in total interest expense, as the average cost of interest-bearing liabilities declined 24 basis points to 3.01%. The provision for credit losses decreased $372,000 to a net credit of $235,000, reflecting an improvement in asset quality.

Noninterest income declined $150,000, or 3.1%, primarily due to a $539,000 decrease in other income, partially offset by increases in service charges on deposit accounts and net gains on sales of SBA loans. Noninterest expense increased $1.9 million, or 12.5%, driven by higher compensation and benefits and other operating expenses.

For the six-month period ended March 31, 2025, net interest income grew $3.0 million, or 10.6%, as average interest-earning assets increased $88.1 million and the net interest margin expanded 17 basis points to 2.84%. Noninterest income increased $3.2 million, or 66.7%, primarily from a $2.5 million net gain on the sale of loans and $403,000 in net gains on the sale of equity securities. Noninterest expense rose $824,000, or 2.7%, due to higher other operating expenses and compensation and benefits, partially offset by decreases in professional fees and occupancy and equipment.

Strengths and Weaknesses One of First Savings’ key strengths is its ability to grow its net interest income through prudent balance sheet management. The company has been successful in increasing its average interest-earning assets, while also expanding its net interest margin by lowering its cost of funds. This has allowed the bank to generate strong and consistent profitability, with a return on average assets of 0.98% for the six-month period ended March 31, 2025.

Another strength is the bank’s diversified revenue streams, with noninterest income contributing an increasingly significant portion of total revenue. The company has been able to capitalize on opportunities in the secondary mortgage market and generate gains on the sale of loans and securities. This helps offset pressure on the net interest margin and provides a valuable supplement to the core net interest income.

A potential weakness is the bank’s reliance on brokered deposits, which accounted for 31.8% of total deposits as of March 31, 2025. While the bank was able to replace a portion of these deposits with FHLB borrowings, a sudden loss of access to brokered funding could pose liquidity challenges. The bank’s high level of uninsured deposits, at 15.1% of total deposits, also exposes it to potential deposit outflows in a stressed environment.

Additionally, the bank’s investment securities portfolio, which totaled $243.2 million in available-for-sale securities, is susceptible to changes in market interest rates. The $8.2 million increase in accumulated other comprehensive loss during the period reflects the impact of rising rates on the fair value of these securities.

Outlook and Conclusion Looking ahead, First Savings Financial Group appears well-positioned to continue its strong financial performance. The company’s focus on growing its net interest income through balance sheet optimization and its ability to generate noninterest income from secondary market activities should support its profitability.

However, the bank will need to carefully manage its liquidity and funding risks, particularly its reliance on brokered deposits and exposure to changes in market interest rates. Maintaining a well-diversified funding base and prudently managing the investment securities portfolio will be crucial to mitigating these risks.

Overall, First Savings Financial Group has demonstrated its ability to navigate a challenging operating environment and deliver solid financial results. By leveraging its strengths and addressing its weaknesses, the company is poised to continue creating value for its shareholders.