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 March 31, 2018

OR

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

For the transition period from                            to                           

Commission File No. 1-34155

First Savings Financial Group, Inc.

(Exact name of registrant as specified in its charter)

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

501 East Lewis & Clark Parkway, Clarksville, Indiana 47129

(Address of principal executive offices) (Zip Code)

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

Not applicable

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

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

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

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

(Check one):	Large Accelerated Filer ¨	Accelerated Filer x
	Non-accelerated Filer ¨	Smaller Reporting Company ¨
	Emerging Growth Company ¨

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

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

The number of shares outstanding of the registrant’s common stock as of April 30, 2018 was 2,290,021.

FIRST SAVINGS FINANCIAL GROUP, INC.

INDEX

		Page
Part I	Financial Information
	Item 1.  Financial Statements
	Consolidated Balance Sheets as of March 31, 2018 and September 30, 2017 (unaudited)	3
	Consolidated Statements of Income for the three months and six months ended March 31, 2018 and 2017 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the three months and six months ended March 31, 2018 and 2017 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended March 31, 2018 and 2017 (unaudited)	6
	Consolidated Statements of Cash Flows for the six months ended March 31, 2018 and 2017 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	8-49
	Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	50-61
	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)

	March 31,			September 30,
(In thousands, except share and per share data)	2018			2017
ASSETS
Cash and due from banks	$	12,457		$	11,017
Interest-bearing deposits with banks		26,573			23,242
Total cash and cash equivalents		39,030			34,259
Interest-bearing time deposits		2,756			2,435
Trading account securities, at fair value		5,749			7,175
Securities available for sale, at fair value		189,732			178,099
Securities held to maturity		2,725			2,878
Loans held for sale, residential mortgage		330			727
Loans held for sale, Small Business Administration		21,779			24,908
Loans, net of allowance for loan losses of $8,864 and $8,092		682,441			586,456
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		9,621			6,936
Premises and equipment		12,597			11,270
Other real estate owned, held for sale		-			852
Accrued interest receivable:
Loans		2,217			1,907
Securities		1,657			1,491
Cash surrender value of life insurance		19,750			18,297
Goodwill		9,514			7,936
Core deposit intangibles		2,583			693
Other assets		6,073			4,814
Total Assets	$	1,008,554		$	891,133
LIABILITIES
Deposits:
Noninterest-bearing	$	162,704		$	96,283
Interest-bearing		596,083			573,099
Total deposits		758,787			669,382
Repurchase agreements		1,350			1,348
Borrowings from Federal Home Loan Bank		144,223			118,065
Accrued interest payable		316			283
Advance payments by borrowers for taxes and insurance		980			1,212
Accrued expenses and other liabilities		7,071			7,728
Total Liabilities		912,727			798,018
STOCKHOLDERS' EQUITY
Preferred stock of $.01 par value per share; authorized 1,000,000 shares; none issued		-			-
Common stock of $.01 par value per share; authorized 20,000,000 shares; issued 2,560,907 shares (2,559,307 at September 30, 2017); outstanding 2,279,021 shares (2,242,454 shares at September 30, 2017)		26			25
Additional paid-in capital		27,677			27,798
Retained earnings - substantially restricted		71,361			67,583
Accumulated other comprehensive income		2,178			4,158
Unearned stock compensation		(554	)		(571	)
Less treasury stock, at cost - 281,886 shares (316,853 shares at September 30, 2017)		(5,524	)		(5,878	)
Total First Savings Financial Group, Inc. Stockholders' Equity		95,164			93,115
Noncontrolling interests in subsidiary		663			-
Total Equity		95,827			93,115
Total Liabilities and Equity	$	1,008,554		$	891,133

See notes to consolidated financial statements.

-3-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
(In thousands, except share and per share data)	2018			2017			2018			2017
INTEREST INCOME
Loans, including fees	$	8,173		$	6,527		$	15,860		$	12,873
Securities:
Taxable		809			874			1,586			1,811
Tax-exempt		899			701			1,700			1,328
Dividend income		149			77			239			156
Interest-bearing deposits with banks		116			40			187			62
Total interest income		10,146			8,219			19,572			16,230
INTEREST EXPENSE
Deposits		807			629			1,669			1,241
Federal funds purchased		-			4			-			7
Repurchase agreements		1			1			2			2
Borrowings from Federal Home Loan Bank		615			398			1,125			804
Total interest expense		1,423			1,032			2,796			2,054
Net interest income		8,723			7,187			16,776			14,176
Provision for loan losses		371			375			833			681
Net interest income after provision for loan losses		8,352			6,812			15,943			13,495
NONINTEREST INCOME
Service charges on deposit accounts		399			306			776			642
Net gain (loss) on trading account securities		(59	)		211			91			(71	)
Net gain on sales of loans, residential mortgage		53			87			168			238
Net gain on sales of loans, Small Business Administration		1,488			949			3,027			1,803
Increase in cash surrender value of life insurance		106			104			213			213
Gain on life insurance		-			-			-			189
Commission income		98			139			226			205
Real estate lease income		1			-			1			-
Net gain on sale of premises and equipment		8			16			15			23
Loss on tax credit investment		-			(226	)		-			(226	)
Other income		473			275			956			720
Total noninterest income		2,567			1,861			5,473			3,736
NONINTEREST EXPENSE
Compensation and benefits		4,408			3,657			8,419			7,198
Occupancy and equipment		923			691			1,665			1,291
Data processing		1,224			328			1,571			702
Advertising		178			130			295			237
Professional fees		493			295			866			500
FDIC insurance premiums		128			119			247			229
Net gain on other real estate owned		(22	)		(19	)		(178	)		(109	)
Other operating expenses		1,027			865			1,856			1,558
Total noninterest expense		8,359			6,066			14,741			11,606
Income before income taxes		2,560			2,607			6,675			5,625
Income tax expense		338			413			960			1,094
Net Income		2,222			2,194			5,715			4,531
Less: net income attributable to noncontrolling interests		576			-			663			-
Net Income Attributable to First Savings Financial Group, Inc.	$	1,646		$	2,194		$	5,052		$	4,531
Net income per share:
Basic	$	0.73		$	0.99		$	2.26		$	2.05
Diluted	$	0.69		$	0.94		$	2.14		$	1.94
Weighted average shares outstanding:
Basic		2,251,425			2,220,773			2,239,823			2,212,955
Diluted		2,370,260			2,344,419			2,363,606			2,336,746
Dividends per share	$	0.15		$	0.14		$	0.29		$	0.27

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						Six Months Ended
	March 31,						March 31,
(In thousands)	2018			2017			2018			2017
Net Income	$	2,222		$	2,194		$	5,715		$	4,531
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period		(2,023	)		868			(3,332	)		(4,616	)
Income tax benefit (expense)		441			(298	)		733			1,623
Other Comprehensive Income (Loss)		(1,582	)		570			(2,599	)		(2,993	)
Comprehensive Income		640			2,764			3,116			1,538
Less: comprehensive income attributable to noncontrolling interests		576			-			663			-
Comprehensive Income Attributable to First Savings Financial Group, Inc.	$	64		$	2,764		$	2,453		$	1,538

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			Interest in
(In thousands, except share and per share data)	Stock		Paid-in Capital			Earnings			Income			Compensation			Stock			Subsidiary		Total
Six Months Ended March 31, 2017:
Balances at October 1, 2016	$	25	$	27,182		$	59,499		$	5,944		$	-		$	(6,070	)	$	-	$	86,580
Net income		-		-			4,531			-			-			-			-		4,531
Other comprehensive loss		-		-			-			(2,993	)		-			-			-		(2,993	)
Common stock dividends ($0.27 per share)		-		-			(601	)		-			-			-			-		(601	)
Restricted stock grants - 17,265 shares		-		692			-			-			(692	)		-			-		-
Stock compensation expense		-		24			-			-			52			-			-		76
Stock options exercises - 26,858 shares		-		(131	)		-			-			-			486			-		355
Purchase of 6,456 treasury shares		-		-			-			-			-			(294	)		-		(294	)
Balances at March 31, 2017	$	25	$	27,767		$	63,429		$	2,951		$	(640	)	$	(5,878	)	$	-	$	87,654
Six Months Ended March 31, 2018:
Balances at October 1, 2017	$	25	$	27,798		$	67,583		$	4,158		$	(571	)	$	(5,878	)	$	-	$	93,115
Net income		-		-			5,052			-			-			-			663		5,715
Other comprehensive loss		-		-			-			(2,599	)		-			-			-		(2,599	)
Reclassification from AOCI to retained earnings for change in federal tax rate		-		-			(619	)		619			-			-			-		-
Common stock dividends ($0.29 per share)		-		-			(655	)		-			-			-			-		(655	)
Restricted stock grants - 1,000 shares		1		56			-			-			(57	)		-			-		-
Stock compensation expense		-		32			-			-			74			-			-		106
Stock option exercises - 42,296 shares		-		(209	)		-			-			-			787			-		578
Purchase of 6,729 treasury shares		-		-			-			-			-			(433	)		-		(433	)
Balances at March 31, 2018	$	26	$	27,677		$	71,361		$	2,178		$	(554	)	$	(5,524	)	$	663	$	95,827

See notes to consolidated financial statements.

-6-

PART I - FINANCIAL INFORMATION

FIRST SAVINGS FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	March 31,
(In thousands)	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,715		$	4,531
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		833			681
Depreciation and amortization		634			582
Amortization of premiums and accretion of discounts on securities, net		274			369
Decrease in trading account securities		1,426			2,867
Loans originated for sale		(63,144	)		(45,648	)
Proceeds on sales of loans		71,516			36,895
Net gain on sales of loans		(3,195	)		(2,041	)
Net realized and unrealized gain on other real estate owned		(216	)		(142	)
Gain on life insurance		-			(189	)
Increase in cash surrender value of life insurance		(213	)		(213	)
Net gain on sale of premises and equipment		(15	)		(23	)
Loss on tax credit investment		-			226
Deferred income taxes		874			461
Stock compensation expense		106			76
Increase in accrued interest receivable		(149	)		(321	)
Increase in accrued interest payable		32			20
Change in other assets and liabilities, net		(3,691	)		(614	)
Net Cash Provided By (Used In) Operating Activities		10,787			(2,483	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in interest-bearing time deposits		(490	)		(245	)
Proceeds from sales of interest-bearing time deposits		2,741			-
Proceeds from maturities of interest-bearing time deposits		1,245			990
Purchase of securities available for sale		(16,161	)		(16,282	)
Proceeds from sales of securities available for sale		32,262			-
Proceeds from maturities of securities available for sale		1,280			1,830
Proceeds from maturities of securities held to maturity		120			114
Principal collected on securities		7,127			9,056
Net increase in loans		(62,166	)		(31,331	)
Proceeds from redemption of Federal Reserve Bank stock		21			-
Purchase of Federal Home Loan Bank stock		(2,562	)		-
Proceeds from life insurance		540			-
Proceeds from sale of other real estate owned		606			90
Purchase of premises and equipment		(643	)		(202	)
Proceeds from sale of premises and equipment		-			19
Net cash received in the acquisition of Dearmin Bancorp and FNBO		6,667			-
Net Cash Used In Investing Activities		(29,413	)		(35,961	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits		(2,360	)		51,778
Net increase in repurchase agreements		2			2
Decrease in Federal Home Loan Bank line of credit		(3,842	)		(8,583	)
Proceeds from Federal Home Loan Bank advances		179,500			-
Repayment of Federal Home Loan Bank advances		(149,500	)		-
Net increase (decrease) in advance payments by borrowers for taxes and insurance		(232	)		4
Proceeds from exercise of stock options		189			62
Taxes paid on stock award shares for employees		(46	)		-
Dividends paid on common stock		(314	)		(601	)
Net Cash Provided By Financing Activities		23,397			42,662
Net Increase in Cash and Cash Equivalents		4,771			4,218
Cash and cash equivalents at beginning of year		34,259			29,342
Cash and Cash Equivalents at End of Year	$	39,030		$	33,560

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 sixteen 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.

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.

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

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of March 31, 2018, the results of operations for the three- and six-month periods ended March 31, 2018 and 2017, and the cash flows for the six-month periods ended March 31, 2018 and 2017. 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, 2017 included in the Company’s Annual Report on Form 10-K.

-8-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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

2. Acquisition of Dearmin Bancorp and The First National Bank of Odon

On February 9, 2018, the Company acquired Dearmin Bancorp, Inc. (“Dearmin”) and its majority owned subsidiary, The First National Bank of Odon (“FNBO”), a full service community bank located in Odon, Indiana. The acquisition expanded the Company’s presence into Daviess County, Indiana. The Company expects to benefit from growth in this market area as well as from expansion of the banking services provided to the existing customers of FNBO. Cost savings are also expected for the combined bank through economies of scale, efficiencies and the consolidation of business operations.

Pursuant to the terms of the merger agreement, FNBO stockholders received $265.00 in cash for each share of FNBO common stock for total cash consideration of $10.6 million. Under the acquisition method of accounting, the purchase price is assigned to the assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. In accounting for the acquisition, the excess of cost over the fair value of the acquired net assets of $1.6 million has been recorded as goodwill. Transaction and integration costs related to the acquisition totaling $1.3 million were expensed as incurred for the three- and six-month periods ended March 31, 2018.

Following is a condensed balance sheet showing the estimated fair values of the assets acquired and liabilities assumed, based on management’s preliminary analysis, as of the date of acquisition:

	(In thousands)
Cash and due from banks	$	1,310
Interest-bearing deposits with banks		15,957
Interest-bearing time deposits with banks		3,817
Investment securities		39,978
Loans, net		34,467
Premises and equipment		1,125
Goodwill arising in the acquisition		1,578
Core deposit intangible		2,083
Other assets		2,656
Total assets acquired		102,971
Deposit accounts		91,765
Net deferred tax liabilities		233
Other liabilities		373
Total liabilities assumed		92,371
Total consideration	$	10,600

In accounting for the acquisition, $2.1 million was assigned to a core deposit intangible which is amortized over a weighted-average estimated economic life of 7.9 years. It is not anticipated that the core deposit intangible will have a significant residual value. No amount of the goodwill or the core deposit intangible arising in the acquisition is deductible for income tax purposes.

-9-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. On the acquisition date, no loans were identified with evidence of deterioration of credit quality since origination. Loans acquired not subject to ASC 310-30 include non-impaired loans with a fair value of $34.5 million and gross contractual amounts receivable of $41.5 million at the date of acquisition.

The following unaudited pro forma combined results of operations assumes that the acquisition was consummated on October 1, 2016:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2018		2017		2018		2017
	(Dollars in thousands, except per share data)
Interest income	$	10,435	$	8,972	$	20,614	$	17,725
Interest expense		1,426		1,055		2,820		2,103
Net interest income		9,009		7,917		17,794		15,622
Provision for loan losses		371		390		833		711
Net interest income after provision for loan losses		8,638		7,527		16,961		14,911
Noninterest income		2,657		2,048		5,745		4,108
Noninterest expense		7,612		8,025		14,814		14,260
Income before income taxes		3,683		1,550		7,982		4,759
Income tax expense		661		8		1,384		738
Net income		3,022		1,542		6,508		4,021
Net income attributable to noncontrolling interests in subsidiary		576		-		663		-
Net income attributable to First Savings Financial Group, Inc.	$	2,446	$	1,542	$	5,845	$	4,021
Weighted average common shares outstanding, basic		2,251,425		2,220,773		2,239,823		2,212,955
Net income per common share, basic	$	1.09	$	0.69	$	2.61	$	1.82
Weighted average common shares outstanding, basic		2,251,425		2,220,773		2,239,823		2,212,955
Add: Dilutive effect of outstanding options		113,176		120,402		117,518		122,529
Add: Dilutive effect of restricted stock		5,659		3,244		6,265		1,262
Weighted average common shares outstanding, as adjusted		2,370,260		2,344,419		2,363,606		2,336,746
Net income per common share, diluted	$	1.03	$	0.66	$	2.47	$	1.72

-10-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

In addition to combining the historical results of operations, the pro forma calculations consider the purchase accounting adjustments and nonrecurring charges directly related to the acquisition and the related tax effects. The 2018 pro forma information was adjusted to exclude $1.3 million of acquisition-related costs incurred during the period and the 2017 pro forma information was adjusted to include those costs. The pro forma calculations do not include any anticipated cost savings as a result of the acquisition. The pro forma results of operations are presented for informational purposes only and are not necessarily indicative of the actual results of operations that would have occurred had the FNBO acquisition actually been consummated on October 1, 2016, or results that may occur in the future.

3. Investment Securities

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

Trading Account Securities

The Company invests in small and medium lot, investment grade municipal bonds through a managed brokerage account. The brokerage account is managed by an investment advisory firm registered with the U.S. Securities and Exchange Commission. At March 31, 2018 and September 30, 2017, trading account securities recorded at fair value totaled $5.7 million and $7.2 million, respectively, and were comprised of investment grade municipal bonds. During the three-month period ended March 31, 2018, the Company reported a net loss on trading account securities of $59,000. During the three-month period ended March 31, 2017, the Company reported a net gain on trading account securities of $211,000. During the six-month period ended March 31, 2018, the Company reported a net gain on trading account securities of $91,000. During the six-month period ended March 31, 2017, the Company reported a net loss on trading account securities of $71,000.

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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)
March 31, 2018:
Securities available for sale:
Agency mortgage-backed	$	37,159	$	175	$	511	$	36,823
Agency CMO		12,665		10		277		12,398
Privately-issued CMO		1,602		172		50		1,724
Privately-issued ABS		2,241		662		-		2,903
SBA certificates		1,405		84		2		1,487
Municipal bonds		131,824		3,325		752		134,397
Total securities available for sale	$	186,896	$	4,428	$	1,592	$	189,732
Securities held to maturity:
Agency mortgage-backed	$	146	$	11	$	-	$	157
Municipal bonds		2,579		305		-		2,884
Total securities held to maturity	$	2,725	$	316	$	-	$	3,041

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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, 2017:
Securities available for sale:
Agency mortgage-backed	$	36,439	$	382	$	85	$	36,736
Agency CMO		14,605		37		66		14,576
Privately-issued CMO		1,825		204		28		2,001
Privately-issued ABS		2,691		757		-		3,448
SBA certificates		913		-		1		912
Municipal bonds		115,193		5,409		176		120,426
Total securities available for sale	$	171,666	$	6,789	$	356	$	178,099
Securities held to maturity:
Agency mortgage-backed	$	179	$	16	$	-	$	195
Municipal bonds		2,699		412		-		3,111
Total securities held to maturity	$	2,878	$	428	$	-	$	3,306

The amortized cost and fair value of investment securities as of March 31, 2018 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	$	4,021	$	4,102	$	238	$	266
Due after one year through five years		16,303		16,886		987		1,103
Due after five years through ten years		27,829		28,547		965		1,084
Due after ten years		83,671		84,862		389		431
CMO		14,267		14,122		-		-
ABS		2,241		2,903		-		-
SBA certificates		1,405		1,487		-		-
Mortgage-backed securities		37,159		36,823		146		157
	$	186,896	$	189,732	$	2,725	$	3,041

-13-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Information pertaining to investment securities with gross unrealized losses at March 31, 2018 and September 30, 2017, 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)
March 31, 2018:
Securities available for sale:
Continuous loss position less than twelve months:
Agency mortgage-backed		18	$	22,500	$	328
Agency CMO		6		5,815		111
Privately-issued CMO		2		83		50
SBA certificates		1		712		2
Municipal bonds		71		30,970		450
Total less than twelve months		98		60,080		941
Continuous loss position more than twelve months:
Agency mortgage-backed		6		5,518		183
Agency CMO		7		6,348		166
Municipal bonds		5		4,689		302
Total more than twelve months		18		16,555		651
Total securities available for sale		116	$	76,635	$	1,592
September 30, 2017:
Securities available for sale:
Continuous loss position less than twelve months:
Agency mortgage-backed		12	$	13,332	$	85
Agency CMO		9		9,062		52
Privately-issued CMO		2		113		28
Municipal bonds		9		6,522		157
Total less than twelve months		32		29,029		322
Continuous loss position more than twelve months:
Agency CMO		3		2,605		14
SBA certificates		1		912		1
Municipal bonds		1		513		19
Total more than twelve months		5		4,030		34
Total securities available for sale		37	$	33,059	$	356

At March 31, 2018 and September 30, 2017, the Company did not have any securities held to maturity with an unrealized loss.

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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 March 31, 2018, 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 97.99%. 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 March 31, 2018, the Company held fifteen privately-issued CMO and ABS securities, acquired in a 2009 bank merger, with an aggregate amortized cost of $1.7 million and fair value of $2.2 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 March 31, 2018, two privately-issued CMO were in loss positions and had depreciated approximately 37.31% from the Company’s carrying value and were collateralized by residential mortgage loans. These securities had a total fair value of $83,000 and a total unrealized loss of $50,000 at March 31, 2018, and were rated below investment grade by NRSROs. Based on the independent third party analysis of the expected cash flows, management has determined that no other-than-temporary impairment is required to be recognized on the privately issued CMO and ABS portfolios. While the Company did not recognize a credit related impairment loss at March 31, 2018, additional deterioration in market and economic conditions may have an adverse impact on the credit quality in the future and therefore, require a credit related impairment charge.

The unrealized losses on U.S. government agency mortgage-backed securities and CMOs, 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.

During the three- and six-month periods ended March 31, 2018 and 2017, the Company did not realize any gross gains or losses on sales of available for sale securities. Securities and interest-bearing time deposits acquired in the FNBO transaction with a fair value of $35.0 million were sold within a short period following the merger, resulting in no gain or loss for financial reporting purposes.

Certain available for sale debt securities were pledged under repurchase agreements and to secure FHLB borrowings at March 31, 2018 and September 30, 2017, and may be pledged to secure federal funds borrowings.

-15-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

4. Loans and Allowance for Loan Losses

Loans at March 31, 2018 and September 30, 2017 consisted of the following:

	March 31, 2018			September 30, 2017
	(In thousands)
Real estate mortgage:
1-4 family residential	$	191,144		$	171,863
Commercial		318,259			273,106
Multifamily residential		27,520			21,121
Residential construction		18,907			15,088
Commercial construction		22,492			18,385
Land and land development		10,003			9,733
Commercial business		64,009			52,724
Consumer:
Home equity		24,103			22,939
Auto		11,693			7,057
Other consumer		2,897			2,323
Total Loans		691,027			594,339
Deferred loan origination fees and costs, net		278			209
Allowance for loan losses		(8,864	)		(8,092	)
Loans, net	$	682,441		$	586,456

During the six-month period ended March 31, 2018, there was no significant change in the Company’s lending activities or methodology used to estimate the allowance for loan losses as disclosed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017.

The recorded investment in consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure was $1.6 million for both March 31, 2018 and September 30, 2017.

-16-

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 March 31, 2018:

	Residential Real Estate		Commercial Real Estate		Multifamily			Construction			Land & Land Development		Commercial Business		Consumer			Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	191,144	$	318,259	$	27,520		$	41,399		$	10,003	$	64,009	$	38,693		$	691,027
Accrued interest receivable		513		1,114		47			168			35		271		69			2,217
Net deferred loan origination fees and costs		6		126		(9	)		(40	)		3		218		(26	)		278
Recorded investment in loans	$	191,663	$	319,499	$	27,558		$	41,527		$	10,041	$	64,498	$	38,736		$	693,522
Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	5,089	$	6,710	$	-		$	-		$	28	$	349	$	259		$	12,435
Collectively evaluated for impairment		186,574		312,789		27,558			41,527			10,013		64,149		38,477			681,087
Ending balance	$	191,663	$	319,499	$	27,558		$	41,527		$	10,041	$	64,498	$	38,736		$	693,522

-17-

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, 2017:

	Residential Real Estate		Commercial Real Estate		Multifamily			Construction			Land & Land Development		Commercial Business		Consumer			Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	171,863	$	273,106	$	21,121		$	33,473		$	9,733	$	52,724	$	32,319		$	594,339
Accrued interest receivable		493		929		37			137			31		221		59			1,907
Net deferred loan origination fees and costs		50		26		(15	)		(17	)		2		184		(21	)		209
Recorded investment in loans	$	172,406	$	274,061	$	21,143		$	33,593		$	9,766	$	53,129	$	32,357		$	596,455
Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	4,969	$	5,477	$	-		$	-		$	30	$	192	$	196		$	10,864
Collectively evaluated for impairment		167,437		268,584		21,143			33,593			9,736		52,937		32,161			585,591
Ending balance	$	172,406	$	274,061	$	21,143		$	33,593		$	9,766	$	53,129	$	32,357		$	596,455

-18-

FIRST SAVINGS FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

An analysis of the allowance for loan losses as of March 31, 2018 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	$	17	$	-	$	-	$	-	$	-	$	-	$	20	$	37
Collectively evaluated for impairment		231		6,182		146		985		230		927		126		8,827
Ending balance	$	248	$	6,182	$	146	$	985	$	230	$	927	$	146	$	8,864

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

	Residential Real Estate		Commercial Real Estate		Multifamily		Construction		Land & Land Development		Commercial Business		Consumer		Total
	(In thousands)
Ending Allowance Balance Attributable to Loans:
Individually evaluated for impairment	$	2	$	-	$	-	$	-	$	-	$	-	$	21	$	23
Collectively evaluated for impairment		250		5,739		106		810		223		839		102		8,069
Ending balance	$	252	$	5,739	$	106	$	810	$	223	$	839	$	123	$	8,092

-19-

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 March 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	$	233		$	6,106	$	102	$	903	$	219	$	816	$	132		$	8,511
Provisions		17			76		44		82		11		110		31			371
Charge-offs		(11	)		-		-		-		-		-		(32	)		(43	)
Recoveries		9			-		-		-		-		1		15			25
Ending balance	$	248		$	6,182	$	146	$	985	$	230	$	927	$	146		$	8,864

An analysis of the changes in the allowance for loan losses for the six months ended March 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	$	252		$	5,739	$	106	$	810	$	223	$	839	$	123		$	8,092
Provisions		(1	)		443		40		175		7		87		82			833
Charge-offs		(24	)		-		-		-		-		-		(84	)		(108	)
Recoveries		21			-		-		-		-		1		25			47
Ending balance	$	248		$	6,182	$	146	$	985	$	230	$	927	$	146		$	8,864

-20-

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 March 31, 2017 is as follows:

	Residential Real Estate			Commercial Real Estate		Multifamily		Construction			Land & Land Development		Commercial Business			Consumer			Total
	(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance	$	312		$	5,313	$	105	$	1,026		$	261	$	310		$	92		$	7,419
Provisions		19			557		11		(323	)		6		62			43			375
Charge-offs		(22	)		-		-		-			-		(25	)		(44	)		(91	)
Recoveries		2			-		-		-			-		1			12			15
Ending balance	$	311		$	5,870	$	116	$	703		$	267	$	348		$	103		$	7,718

An analysis of the changes in the allowance for loan losses for the six months ended March 31, 2017 is as follows:

	Residential Real Estate			Commercial Real Estate		Multifamily		Construction			Land & Land Development			Commercial Business			Consumer			Total
	(In thousands)
Changes in Allowance for Loan Losses:
Beginning balance	$	335		$	5,160	$	109	$	845		$	295		$	284		$	94		$	7,122
Provisions		10			710		7		(142	)		(28	)		75			49			681
Charge-offs		(39	)		-		-		-			-			(25	)		(62	)		(126	)
Recoveries		5			-		-		-			-			14			22			41
Ending balance	$	311		$	5,870	$	116	$	703		$	267		$	348		$	103		$	7,718

-21-

FIRST SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents impaired loans individually evaluated for impairment as of March 31, 2018 and for the three and six months ended March 31, 2018 and 2017.

	At March 31, 2018						Three Months Ended March 31,								Six Months Ended March 31,
							2018		2018		2017		2017		2018		2018		2017		2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential real estate	$	4,784	$	5,267	$	-	$	5,247	$	35	$	4,255	$	37	$	5,136	$	71	$	4,191	$	70
Commercial real estate		6,710		6,895		-		6,941		80		6,230		51		6,610		144		6,288		99
Multifamily		-		-		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-		-		-
Land and land development		28		29		-		29		-		254		-		29		-		247		-
Commercial business		349		358		-		361		4		211		1		291		6		214		3
Consumer		143		150		-		121		1		158		1		110		2		165		2
	$	12,014	$	12,699	$	-	$	12,699	$	120	$	11,108	$	90	$	12,176	$	223	$	11,105	$	174
Loans with an allowance recorded:
Residential real estate	$	305	$	329	$	17	$	255	$	-	$	468	$	-	$	272	$	-	$	460	$	-
Commercial real estate		-		-		-		-		-		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-		-		-
Land and land development		-		-		-		-		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-		-		-		-		-
Consumer		116		116		20		129		-		82		-		124		-		83		-
	$	421	$	445	$	37	$	384	$	-	$	550	$	-	$	396	$	-	$	543	$	-
Total:
Residential real estate	$	5,089	$	5,596