First Savings Financial (FSFG) - 2024 Q2 - Quarterly Results

Financial Performance Overview Second Quarter Fiscal 2024 Financial Highlights First Savings Financial Group reported a significant increase in net income to $4.9 million, or $0.72 per diluted share, for the second fiscal quarter of 2024, up from $3.7 million, or $0.54 per diluted share, in the prior year Net Income and Diluted EPS | Metric | Q2 2024 (GAAP) | Q2 2023 (GAAP) | Q2 2024 (Non-GAAP) | | :--- | :--- | :--- | :--- | | Net Income | $4.9 million | $3.7 million | $3.6 million | | Diluted EPS | $0.72 | $0.54 | $0.52 | - The Core Banking segment reported net income of $4.5 million, or $0.66 per diluted share for the quarter[1] - Management's strategic focus includes reducing balance sheet and operating inefficiencies, maintaining strong asset quality, selective high-quality lending, growing deposits, and improving liquidity and capital[2] Results of Operations for the Three Months Ended March 31, 2024 For Q2 2024, net interest income decreased by 3.9% to $14.3 million, while noninterest income fell by $3.8 million, primarily due to the cessation of national mortgage banking operations, which was largely offset by a $6.2 million decrease in noninterest expenses - Net interest income decreased by $574,000 due to a significant increase in interest expense on liabilities, driven by higher market rates and deposit migration to higher-yielding accounts[3] - The company recognized a provision for credit losses of $477,000 ($454,000 for loans and $23,000 for securities) compared to a $372,000 provision in the prior-year quarter[4] - Noninterest income decreased by $3.8 million, mainly from a $4.1 million drop in mortgage banking income after ceasing national operations[5] - Noninterest expense decreased by $6.2 million, primarily due to a $2.8 million reduction in compensation and benefits and a $2.4 million decrease in other operating expenses, both linked to the shutdown of the national mortgage business[6] Results of Operations for the Six Months Ended March 31, 2024 For the six months ended March 31, 2024, net income was $5.8 million, a decrease from $6.6 million in the prior year, driven by an 8.7% decrease in net interest income and a $6.2 million drop in noninterest income, partially mitigated by a $7.7 million reduction in noninterest expenses Net Income and Diluted EPS | Metric | Six Months Ended Mar 31, 2024 (GAAP) | Six Months Ended Mar 31, 2023 (GAAP) | Six Months Ended Mar 31, 2024 (Non-GAAP) | | :--- | :--- | :--- | :--- | | Net Income | $5.8 million | $6.6 million | $4.5 million | | Diluted EPS | $0.85 | $0.95 | $0.65 | - Net interest income for the six-month period decreased by $2.7 million, as a $13.1 million increase in interest expense overshadowed a $10.4 million increase in interest income[9] - Nonperforming loans increased by $1.7 million to $15.6 million at March 31, 2024, from September 30, 2023[10] - Noninterest income decreased by $6.2 million, and noninterest expense decreased by $7.7 million, both primarily due to the cessation of national mortgage banking operations[11][12] Comparison of Financial Condition at March 31, 2024 As of March 31, 2024, total assets grew by $76.1 million to $2.36 billion, funded by a $105.7 million increase in deposits, which allowed for a $48.2 million reduction in FHLB borrowings, while common stockholders' equity increased by $14.1 million due to falling interest rates - Total assets increased by $76.1 million to $2.36 billion, primarily due to a $112.2 million growth in net loans held for investment[14] - Residential mortgage loan servicing rights decreased by $59.8 million due to the sale of the entire portfolio during the period[14] - Total liabilities increased by $62.1 million, driven by a $105.7 million growth in deposits, which was partially offset by a $48.2 million decrease in FHLB borrowings[15] - Common stockholders' equity rose by $14.1 million, primarily due to a $12.4 million decrease in accumulated other comprehensive loss resulting from falling long-term market interest rates[16] Consolidated Financial Statements and Data Consolidated Financial Highlights This section provides a comparative summary of the company's operating results and financial condition, showing Q2 2024 net income rose to $4.9 million, with ROA improving to 0.92% and total assets growing to $2.36 billion, while nonperforming loans remained stable Operating Data (in thousands) | Operating Data (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net interest income | $14,338 | $14,912 | | Total noninterest income | $3,710 | $7,516 | | Total noninterest expense | $11,778 | $17,999 | | Net income | $4,927 | $3,724 | Financial Condition (in thousands) | Financial Condition (in thousands) | March 31, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Total assets | $2,364,983 | $2,288,854 | | Gross loans | $1,901,850 | $1,787,143 | | Total liabilities | $2,199,927 | $2,137,873 | | Stockholders' equity | $165,056 | $150,981 | - Key performance ratios for Q2 2024 showed a Return on Average Assets (ROA) of 0.92% and a Return on Average Equity (ROE) of 13.06%, both improving from the prior year[22] Reconciliation of GAAP and Non-GAAP Measures The company provides reconciliations for non-GAAP financial measures to offer investors a clearer understanding of core performance, adjusting GAAP net income of $4.9 million to a non-GAAP net income of $3.6 million for Q2 2024, and calculating tangible book value per share at $22.48 - For the three months ended March 31, 2024, GAAP net income of $4.9 million included several nonrecurring items, resulting in a non-GAAP net income of $3.6 million after adjustments[26] Per Share Data | Per Share Data | March 31, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Book value per share (GAAP) | $23.98 | $21.99 | | Tangible book value per share (non-GAAP) | $22.48 | $20.47 | Summarized Financial Information This section provides detailed quarterly financial data for the past five quarters, covering the consolidated balance sheet, income statement, noninterest income components, and key performance ratios, illustrating the financial impact of strategic shifts and trends in asset quality and profitability Consolidated Balance Sheets and Income Statements The five-quarter trend shows consistent growth in total assets, primarily driven by the loan portfolio, with total deposits also growing, while the income statement reflects a significant decline in noninterest income and expense in the last two quarters following the cessation of mortgage banking operations - Total assets grew from $2.24 billion at March 31, 2023, to $2.36 billion at March 31, 2024[28] - Net income has been volatile over the last five quarters, with a net loss of ($747,000) in Q4 2023 and net income of $4.9 million in Q2 2024[28] Noninterest Income and Expense Analysis A detailed five-quarter breakdown of noninterest income shows mortgage banking income dropping from $4.1 million in Q2 2023 to just $53,000 in Q2 2024, while net gain on sales of SBA loans remained a consistent contributor, and noninterest expenses related to the mortgage banking segment were eliminated in the most recent quarter Noninterest Income (in thousands) | Noninterest Income (in thousands) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Mortgage banking income | $53 | $4,149 | | Net gain on sales of loans, SBA | $951 | $907 | | Total noninterest income | $3,710 | $7,516 | - Total noninterest expense for the Mortgage Banking segment was eliminated in Q2 2024, compared to $4.7 million in Q2 2023, following the cessation of operations[33] Key Performance and Asset Quality Ratios Performance ratios over the last five quarters show a recovery in ROA and ROE in Q2 2024 after a dip in late 2023, with the efficiency ratio improving dramatically to 65.26% in Q2 2024, while asset quality ratios remained relatively stable and at low levels Performance Ratios (Annualized) | Performance Ratios (Annualized) | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | | Return on average assets | 0.92% | 0.16% | (0.13%) | 0.41% | 0.68% | | Net interest margin | 2.66% | 2.69% | 3.03% | 2.94% | 3.06% | | Efficiency ratio | 65.26% | 94.93% | 103.19% | 85.97% | 80.25% | Segment Performance Analysis Segmented Income Statement Analysis The Core Banking segment remains the primary earnings driver, posting $4.5 million in net income for Q2 2024, while the SBA Lending segment returned to profitability with a net income of $416,000, and the Mortgage Banking segment recorded no activity or losses after ceasing national operations Net Income (Loss) by Segment (in thousands) | Net Income (Loss) by Segment (in thousands) | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Core Banking | $4,511 | $4,048 | $3,891 | | SBA Lending | $416 | $(470) | $97 | | Mortgage Banking | $0 | $(2,658) | $(264) | - National mortgage banking operations were ceased in the quarter ended December 31, 2023, with subsequent immaterial mortgage lending activity reported within the Core Banking segment[30] - The Core Banking segment's efficiency ratio improved to 63.06% in Q2 2024, while the SBA Lending segment's efficiency ratio was 82.52%[31] SBA Lending Segment Key Metrics The SBA Lending segment showed improved performance in Q2 2024, with the volume of guaranteed loans sold increasing to $15.1 million from $14.1 million in the prior quarter, and the weighted average net gain on these sales improving to 6.28%, contributing to the segment's return to profitability SBA Lending Data | SBA Lending Data | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Final funded loans guaranteed portion sold (in thousands) | $15,144 | $14,098 | $15,337 | | Net gain on sales of loans, SBA (in thousands) | $951 | $834 | $907 | | Weighted average net gain on sales of loans, SBA | 6.28% | 5.92% | 5.91% | Average Balance Sheet and Net Interest Margin Analysis Average Balances, Yields, and Costs For Q2 2024, the tax-equivalent net interest margin compressed to 2.66% from 3.06% YoY, driven by a significant increase in the cost of interest-bearing liabilities to 3.25%, outpacing the rise in the yield on interest-earning assets to 5.48%, despite average interest-earning assets growing by approximately $200 million Net Interest Margin Metrics (Annualized) | Metric (Annualized) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Yield on Interest-Earning Assets | 5.48% | 5.01% | | Cost of Interest-Bearing Liabilities | 3.25% | 2.36% | | Interest Rate Spread | 2.23% | 2.65% | | Net Interest Margin | 2.66% | 3.06% | - Total average interest-earning assets increased to $2.22 billion for the quarter ended March 31, 2024, from $2.02 billion for the same period in 2023[36] - The average cost of interest-bearing deposits rose to 3.24% in Q2 2024 from 2.00% in Q2 2023, reflecting the higher interest rate environment[36]