First Savings Financial Group, Inc. Reports Financial Results for the Third Fiscal Quarter Ended June 30, 2020

JEFFERSONVILLE, Ind., July 27, 2020 (GLOBE NEWSWIRE) — First Savings Financial Group, Inc. (NASDAQ: FSFG – news) (the “Company”), the holding company for First Savings Bank (the “Bank”), today reported net income of $15.4 million, or $6.51 per diluted share, for the quarter ended June 30, 2020 compared to net income of $4.4 million, or $1.85 per diluted share, for the quarter ended June 30, 2019.

Commenting on the Company’s performance, Larry W. Myers, President and CEO stated: “We are very pleased with the outstanding quarter, including the stellar level of reported earnings, $2.9 million increase in allowance for loan losses, resiliency of asset quality, stability of the net interest margin, significant increase in stockholders’ equity, and substantial increase in shareholder value. The core bank, which is the bedrock of our entrepreneurial enterprise, continues to perform very well each quarter and the ancillary business lines, which provide diversification of our revenue streams, continue to generate additional meaningful return for our shareholders. Given such, I continue in the confidence that the Company is well-positioned to thrive during what is otherwise a very challenging banking environment and I continue to be very proud of our Company and staff.”

COVID-19 Response

The COVID-19 pandemic has placed, and continues to place, significant health, economic and other major hardships throughout the communities we serve, the United States and the entire world. The Company has implemented a number of procedures in response to the pandemic to support the safety and well-being of our customers, employees, and communities:

• Following the guidelines of the Center for Disease Control and local governments, we have updated our branch operating procedures. While our branches have remained open, the lobbies were temporarily closed and transactions were being conducted through drive-up windows or by appointment. Our branches have returned to pre-pandemic service levels, but have implemented safety precautions, including use of personal protective equipment (“PPE”) (where and when prudent), enhanced daily cleaning and instructions to maintain appropriate social distancing. We also actively encourage customers to utilize PPE and alternative banking channels, such as our online and mobile banking platforms. Our customer service and retail departments remain fully staffed and available to assist customers remotely.

• Our corporate and operations offices have predominately returned to pre-pandemic schedules and processes, but we have enhanced daily cleaning and instructed employees to maintain appropriate social distancing. Our employees maintain the ability to work remotely, both safely and efficiently using technology, in the event that such is required or necessary. Most of our normally scheduled meetings, including Board of Director meetings and various committee meetings, are now held virtually instead of in-person.

• We continue to assist customers experiencing COVID-19 related hardships by approving payment extensions or loan forbearance agreements, and waiving or refunding certain fees. During the initial onset of the hardships, we proactively contacted all commercial borrowers and offered uniform payment extensions or loan forbearance agreements, while requests from consumer borrowers were reviewed and approved on case-by-case basis. Beginning with March 18, 2020 and through July 24, 2020, we had approved 206 payment extensions or loan forbearance agreements on approximately $90.6 million of balances in the loan portfolio, of which $81.9 million related to commercial real estate, $7.2 million related to residential real estate and consumer loans, and $1.5 million related to Small Business Administration (“SBA”) lending relationships. These payment extensions or loan forbearance agreements were generally for periods of three months and included deferment of both principle and interest. As of July 24, 2020, we had 48 loans with payment extensions or loan forbearance agreements on approximately $22.1 million of balances that were still in effect and set to expire between July 27, 2020 and October 13, 2020. Following the expiration of the initial payment extensions or loan forbearance agreements, we will entertain requests for extended periods on a case-by-case basis, which will generally include deferment of only the principle portion of payments (but both principle and interest for hotel loans) for a period of up to three months. Included in those 48 agreements in effect as of July 24, 2020, three were for second three-month periods of deferred principle and interest payments, two of which were hotel loans and the other in the entertainment service industry.

• As a result of the passage of the CARES Act, the SBA will make six months of principal and interest payments for loans of existing SBA clients that were in “regular servicing status” (not delinquent) at March 27, 2020 and for SBA loans of new clients originated between March 27, 2020 and September 27, 2020. The aforementioned $1.5 million of SBA lending relationships that were provided payment extensions and forbearance by the Company will also receive the six months of SBA-made payments once the forbearance periods have expired. In addition, the majority of the Company’s SBA clients applied for participation in the SBA’s Paycheck Protection Program (“PPP”).

• We are actively participating in the PPP and had $180.5 million of outstanding PPP loan balances as of June 30, 2020. At June 30, 2020, we had approximately $3.5 million of deferred loan fees related to PPP loans that will be recognized over the life of the loans and as borrowers are granted forgiveness.

• The leisure and hospitality industries carry a higher degree of credit risk due to the COVID-19 pandemic. Based on our evaluation of the allowance for loan losses at June 30, 2020, management believes sufficient reserves are in place to cover estimated losses at that date. However, as the pandemic continues, losses could be recognized.

• The Company had outstanding loan balances to restaurants totaling $167.5 million as of June 30, 2020, of which $76.1 million is fully guaranteed by the SBA, including $74.5 million of PPP loans, and $77.4 million represents commercial real estate loans where the collateral property is leased to national-brand, investment-grade tenants.

• The Company had outstanding loan balances to hotels totaling $17.5 million as of June 30, 2020, of which $3.7 million is fully guaranteed by the SBA, including $606,000 of PPP loans.

Management continues to closely monitor the pandemic and may take additional action to respond to the pandemic’s effects on the Company’s business as the situation continues to evolve. We cannot determine or estimate the impact on our business at this time because the length and severity of the economic downturn is not known. We believe we are well-positioned to withstand any challenges that may be presented, and we are committed to continuing to serve our customers, employees and communities.

Results of Operations for the Three Months Ended June 30, 2020 and 2019

Net interest income increased $2.9 million, or 29.4%, to $12.8 million for the quarter ended June 30, 2020 as compared to the same quarter in 2019. The increase in net interest income was due to a $2.3 million increase in interest income and a $623,000 decrease in interest expense. Interest income increased due to an increase in the average balance of interest-earning assets of $327.1 million, from $1.09 billion for 2019 to $1.42 billion for 2020, partially offset by a decrease in the weighted average tax-equivalent yield, from 4.88% for 2019 to 4.41% for 2020. Interest expense decreased due to a decrease in the average cost of interest-bearing liabilities, from 1.43% for 2019 to 0.88% for 2020, partially offset by an increase in the average balance of interest-bearing liabilities of $274.0 million, from $884.5 million for 2019 to $1.16 billion for 2020. The decrease in the average cost of interest-bearing liabilities for 2020 was due primarily to decreasing market interest rates on deposits and Federal Home Loan Bank (“FHLB”) borrowings. The Company also began participation in the Federal Reserve Bank’s PPP Liquidity Facility (“PPPLF”) during the quarter ended June 30, 2020. Borrowings under the PPPLF are secured by the outstanding PPP loans and have an interest rate of 0.35%. Additional details are included in the “Summarized Consolidated Average Balance Sheets” table at the end of this release. 

The Company recognized $3.0 million in provision for loan losses for the quarter ended June 30, 2020, compared to $337,000 in 2019. Nonperforming loans, which consist of nonaccrual loans and loans over 90 days past due and still accruing interest, increased $8.6 million, from $5.2 million at September 30, 2019 to $13.8 million at June 30, 2020, of which $3.7 million was guaranteed by the SBA. The Company recognized net charge-offs of $31,000 for the quarter ended June 30, 2020 compared to net charge-offs of $655,000 for the same quarter in 2019. The increase in the provision for loan losses for 2020 was primarily due to increased nonperforming assets as well as changes to qualitative factors within the allowance for loan losses calculation related to economic uncertainties surrounding COVID-19.

Noninterest income increased $33.7 million for the quarter ended June 30, 2020 as compared to the same quarter in 2019. The increase was due primarily to an increase in mortgage banking income of $33.5 million. The increase in mortgage banking income was due to production from the secondary-market residential mortgage lending segment that commenced operations in April 2018. Additional details regarding the financial performance of the mortgage banking and SBA lending segments are included in the “Segmented Statements of Income Information” table at the end of this release. 

Noninterest expense increased $18.5 million for the quarter ended June 30, 2020 as compared to the same quarter in 2019. The increase was due primarily to increases in compensation and benefits and advertising of $15.2 million and $1.1 million, respectively. The increase in compensation and benefits expense is attributable to the addition of new employees primarily to support the growth of the Company’s mortgage banking and SBA lending activities, routine salary and benefits adjustments, and increased incentive compensation as a result of the Company’s performance. The increase in advertising is primarily due to the mortgage banking segment. 

The Company recognized income tax expense of $5.5 million for the quarter ended June 30, 2020, as compared to income tax expense of $748,000 for 2019. The effective tax rate increased from 13.1% for the quarter ended June 20, 2019 to 26.2% for the quarter ended June 30, 2020 primarily due to increases in pre-tax income and nondeductible compensation. 

Results of Operations for the Nine Months Ended June 30, 2020 and 2019

The Company reported net income of $18.2 million, or $7.66 per diluted share, for the nine months ended June 30, 2020 compared to net income of $10.9 million, or $4.58 per diluted share, for the nine months ended June 30, 2019. 

Net interest income increased $5.3 million, or 18.0%, to $34.6 million for the nine months ended June 30, 2020 as compared to the same period in 2019. The increase in net interest income is due to a $5.6 million increase in interest income, which was partially offset by a $364,000 increase in interest expense. Interest income increased due to an increase in the average balance of interest-earning assets of $223.5 million, from $1.04 billion for 2019 to $1.26 billion for 2020, partially offset by a decrease in the weighted-average tax-equivalent yield, from 4.88% for 2019 to 4.62% for 2020. Interest expense increased due to an increase in the average balance of interest-bearing liabilities of $195.9 million, from $829.7 million for 2019 to $1.03 billion for 2020, partially offset by a decrease in the average cost of interest-bearing liabilities, from 1.26% for 2019 to 1.07% for 2020. The decrease in the average cost of interest-bearing liabilities for the nine months ended June 30, 2020 was due primarily to decreasing market interest rates on deposits and FHLB borrowings, as well as the Company’s participation in the PPPLF discussed previously. Additional details are included in the “Summarized Consolidated Average Balance Sheets” table at the end of this release. 

The Company recognized $5.2 million in provision for loan losses for the nine months ended June 30, 2020, compared to $992,000 for the same period in 2019. The Company recognized net charge-offs of $590,000 for the nine months ended June 30, 2020, of which $353,000 was related to unguaranteed portions of SBA loans. The Company recognized net charge-offs of $699,000 for the same period in 2019, of which $645,000 was related to unguaranteed portions of SBA loans. The increase in the provision for loan losses for 2020 was primarily due to increased nonperforming assets for the period, as well as changes to qualitative factors within the allowance for loan losses calculation related to economic uncertainties surrounding COVID-19.

Noninterest income increased $49.9 million for the nine months ended June 30, 2020 as compared to the same period in 2019. The increase was due primarily to an increase in mortgage banking income of $49.2 million. Additional details regarding the financial performance of the mortgage banking and SBA lending segments are included in the “Segmented Income Statement Information” table at the end of this release. 

Noninterest expense increased $40.6 million for the nine months ended June 30, 2020 as compared to the same period in 2019. The increase was due primarily to increases in compensation and benefits and advertising of $32.4 million and $3.4 million, respectively. The increase in compensation and benefits expense is attributable to the addition of new employees primarily to support the growth of the Company’s mortgage banking and SBA lending activities, routine salary and benefits adjustments, and increased incentive compensation as a result of the Company’s performance. The increase in advertising is primarily due to the mortgage banking segment. 

The Company recognized income tax expense of $5.4 million for the nine months ended June 30, 2020, compared to $1.7 million for the same period in 2019. The effective tax rate increased from 13.3% for the nine months ended June 30, 2019 to 23.0% for the same period in 2020 primarily due to increases in pre-tax income and nondeductible executive compensation. 

Comparison of Financial Condition at June 30, 2020 and September 30, 2019

Total assets increased $438.7 million, from $1.22 billion at September 30, 2019 to $1.66 billion at June 30, 2020. Net loans increased $270.7 million during the nine months ended June 30, 2020, due primarily to continued growth in the commercial business, commercial real estate and SBA loan portfolios, as well as $180.5 million in PPP loans outstanding at June 30, 2020. Residential mortgage loans held for sale and SBA loans held for sale also increased by $109.8 million and $4.2 million, respectively, during the nine months ended June 30, 2020 due to increased production from the mortgage banking and SBA lending segments. Total liabilities increased $417.8 million primarily due to a $174.8 million increase in Federal Reserve PPP Liquidity Facility advances, a $76.1 million increase in FHLB borrowings and a $148.5 million increase in total deposits.

Common stockholders’ equity increased $21.3 million, from $121.1 million at September 30, 2019 to $142.4 million at June 30, 2020, due primarily to increases in retained net income and net unrealized gains on available for sale securities included in accumulated other comprehensive income of $17.2 million and $3.8 million, respectively. At June 30, 2020 and September 30, 2019, the Bank was considered “well-capitalized” under applicable regulatory capital guidelines.

Prior Period Restatement

On November 19, 2019, the Company filed with the Securities and Exchange Commission (“SEC”) a Current Report on Form 8-K to report the Company’s conclusion that its interim consolidated financial statements, and related notes, contained in its Form 10-Q for the period ended June 30, 2019 should no longer be relied upon. The accounting matters underlying this conclusion relate primarily to significant accounting assumptions used in the fair value calculations for interest rate lock commitments and mortgage loans held-for-sale relating to the Company’s mortgage banking operations segment and unrecognized accruals for incentive compensation related to such segment. On December 4, 2019, the Company filed with the SEC an amended Form 10-Q for the period ended June 30, 2019, containing restated interim consolidated financial statements, and related notes, for the period then ended. All financial information at June 30, 2019 and for periods then ended contained in this earnings release have been restated accordingly.

First Savings Bank has fifteen offices in the Indiana communities of Clarksville, Jeffersonville, Charlestown, Sellersburg, New Albany, Georgetown, Corydon, Lanesville, Elizabeth, English, Marengo, Salem, Odon and Montgomery. Access to First Savings Bank accounts, including online banking and electronic bill payments, is available anywhere with Internet access through the Bank’s website at www.fsbbank.net.

This release 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 to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, changes in general economic conditions, including the duration, extent and severity of the COVID-19 pandemic, including its effect on our customers, service providers and on the economy and financial markets in general, changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; and other factors disclosed periodically in the Company’s filings with the Securities and Exchange Commission.

Because of the risks and uncertainties inherent in forward-looking statements, readers are cautioned not to place undue reliance on them, whether included in this report or made elsewhere from time to time by the Company or on its behalf. Except as may be required by applicable law or regulation, the Company assumes no obligation to update any forward-looking statements.

Contact:
Tony A. Schoen, CPA
Chief Financial Officer
812-283-0724