First Savings Financial Group, Inc. (FSFG): Weathering Storms and Delivering Consistent Growth

Published on March 13, 2025 | Ticker: FSFG

First Savings Financial Group, Inc. (FSFG) is an entrepreneurial community bank headquartered in Jeffersonville, Indiana, directly across the Ohio River from Louisville, Kentucky. The bank operates 15 depository branches within Southern Indiana and also has two national lending programs, including single-tenant net lease commercial real estate and SBA lending, with offices located predominantly in the Midwest.

Company History and Evolution

First Savings Financial Group, Inc. was founded in 1990 as a financial holding company, with its primary subsidiary being First Savings Bank, an Indiana-chartered commercial bank. The company has a rich history of serving its local community and adapting to evolving market conditions. In its early years, First Savings Bank focused on traditional community banking services, attracting deposits and originating residential mortgages, consumer loans, and commercial real estate loans. The bank gradually expanded its presence in southern Indiana through organic growth and strategic acquisitions of smaller community banks.

A significant milestone for the company came in 2008 when it established a leveraged employee stock ownership plan (ESOP) to provide employees an ownership stake in the company. This move helped align employee interests with those of the company and its shareholders. Around the same time, First Savings Financial Group began diversifying its business model by launching national lending programs in areas like SBA lending and single-tenant net lease commercial real estate, which have since become important contributors to the company's growth and profitability.

In 2019, the company faced a challenge when it was involved in discussions with the Federal Reserve Board regarding an alleged violation of law or regulation. However, the bank cooperated with regulators and was able to resolve the matter without any enforcement action or civil money penalties, demonstrating its commitment to regulatory compliance and sound banking practices.

More recently, in 2023, First Savings Financial made the strategic decision to wind down its national mortgage banking operations. While this division had previously contributed a meaningful portion of the company's non-interest income, management chose to focus the bank's resources on its core community banking and national specialty lending businesses. This decision reflects the company's ability to adapt to changing market conditions and prioritize its most profitable business segments.

Financial Performance

In the fiscal year ended September 30, 2024, First Savings Financial Group reported net income of $13.6 million, or $1.98 per diluted share, compared to $8.2 million, or $1.19 per diluted share, in the prior fiscal year. This impressive 66% increase in net income reflects the company's ability to capitalize on favorable market conditions and its disciplined approach to lending and operations. The company's annual revenue for the fiscal year was $70.48 million, with annual operating cash flow of $91.2 million and annual free cash flow of $90.52 million.

The bank's core banking segment, which includes the Bank and First Savings Investments, Inc., was the primary driver of this strong performance, generating net income of $16.9 million, or $2.47 per diluted share, in fiscal 2024, up from $14.9 million, or $2.18 per diluted share, in the previous year. This 13.4% increase in core banking net income highlights the segment's resilience and the effectiveness of the company's strategic initiatives.

For the most recent quarter ended December 31, 2024, First Savings Financial Group reported revenue of $32.45 million and net income of $6.22 million. This represents a significant increase from the $920,000 net income reported in the same quarter of the previous year. The substantial improvement was driven by higher net interest income, increased noninterest income from gains on loan sales and investments, and lower noninterest expenses due to the wind-down of the national mortgage banking division.

One notable achievement was the bank's successful execution of a $87.2 million bulk sale of residential real estate home equity line of credit loans during the quarter ended December 31, 2024. This transaction not only generated a sizable gain but also streamlined the bank's balance sheet and freed up capital for future growth opportunities.

In addition to its core banking operations, First Savings Financial Group operates a thriving SBA lending segment through its wholly-owned subsidiary, Q2 Business Capital, LLC. This division has consistently demonstrated its ability to capitalize on the robust demand for SBA loans, contributing $711,000 in net gains on loan sales during the first quarter of fiscal 2025.

Business Segments

First Savings Financial Group operates through two primary business segments: Core Banking and SBA Lending.

The Core Banking segment, which is the larger of the two, encompasses the Bank and is responsible for originating residential, commercial, and consumer loans, as well as attracting deposits from its customer base. During the three-month period ended December 31, 2024, this segment reported net interest income of $13.76 million, up from $13.11 million in the same period in 2023. The increase was due to higher average interest-earning asset balances, which grew from $2.17 billion to $2.32 billion year-over-year, and an increase in the average yield on interest-earning assets from 5.37% to 5.68%.

The Core Banking segment also recognized a credit for credit losses on loans of $746,000 for the three months ended December 31, 2024, compared to a provision of $49,000 in the prior year period. Noninterest income for this segment increased by $3.57 million year-over-year, from $1.68 million to $5.25 million, primarily driven by a $2.49 million net gain on the sale of home equity lines of credit and a $403,000 net gain on the sale of equity securities.

The SBA Lending segment, comprised primarily of Q2 Business Capital, originates loans guaranteed by the U.S. Small Business Administration and sells the guaranteed portions to outside investors. For the three-month period ended December 31, 2024, this segment reported net interest income of $1.71 million, up from $1 million in the same period in 2023. The increase was driven by higher average loan balances, which grew from $87.43 million to $103.64 million year-over-year.

The SBA Lending segment recognized a provision for credit losses on loans of $255,000 for the three months ended December 31, 2024, compared to a provision of $461,000 in the prior year period. Noninterest income for this segment was $850,000 for the three-month period, down slightly from $1 million in the same period in 2023, primarily due to a $711,000 net gain on the sale of SBA loans.

Liquidity and Capital Position

The company's strong liquidity position, with cash and cash equivalents of $76.2 million as of December 31, 2024, provides ample flexibility to navigate potential market challenges and pursue strategic initiatives. Furthermore, the bank's capital ratios remain well above regulatory requirements, with a total risk-based capital ratio of 13.01% and a Tier 1 leverage ratio of 9.33% as of the same date.

First Savings Financial Group maintains a solid financial foundation with a debt-to-equity ratio of 1.95. The company has access to significant borrowing capacity, including $800 million with the Federal Home Loan Bank (FHLB), of which $295 million was outstanding, a $20 million federal funds purchased line of credit facility, three other federal funds lines totaling $42 million, and a $55.1 million borrowing capacity with the Federal Reserve Discount Window. The company's current ratio and quick ratio both stand at 26.73, indicating strong short-term liquidity.

Resilience and Adaptability

Despite the disruptions caused by the COVID-19 pandemic, First Savings Financial Group has demonstrated its resilience and ability to adapt to changing market conditions. The company's disciplined approach to lending, prudent risk management, and focus on operational efficiency have been key drivers of its consistent financial performance.

Looking ahead, the bank remains well-positioned to capitalize on growth opportunities in its core markets and national lending programs. Management's strategic focus on the core banking and SBA lending segments, following the wind-down of the national mortgage banking division, has already shown positive results in terms of improved profitability and operational efficiency.

However, the banking industry is not without its challenges. Heightened competition, regulatory changes, and potential economic headwinds could impact the company's future performance. Investors should closely monitor First Savings Financial Group's ability to navigate these uncertainties and maintain its strong competitive position.

Geographic Markets

First Savings Financial Group primarily operates in the southern Indiana market, where it maintains 15 depository branches. This regional focus allows the bank to develop deep relationships with local customers and businesses, leveraging its understanding of the local economy and market dynamics.

In addition to its core regional presence, the company has expanded its reach through two national lending programs: single-tenant net lease commercial real estate and SBA lending. These programs, with offices located predominantly in the Midwest, enable First Savings Financial Group to diversify its revenue streams and tap into growth opportunities beyond its immediate geographic footprint.

Conclusion

In conclusion, First Savings Financial Group has proven to be a resilient and adaptable financial institution, delivering consistent growth and shareholder value. Its diversified business model, prudent risk management, and focus on operational excellence position the company well for continued success in the years ahead. The strong performance of both the Core Banking and SBA Lending segments, coupled with the company's solid liquidity position and access to various credit facilities, provide a stable foundation for future growth. As First Savings Financial Group continues to navigate the evolving financial landscape, its ability to adapt to market conditions and capitalize on new opportunities will be crucial in maintaining its trajectory of sustainable growth and profitability.

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