First Savings Financial Group, Inc. Announces Redemption of Subordinated Notes

Rhea-AI Summary

First Savings Financial Group (NASDAQ: FSFG) announced the redemption of $20.0 million in subordinated notes on April 30, 2025. The notes, originally issued in September 2018 with a 5.95% fixed-to-floating rate due 2028, were yielding 7.66% before redemption. The redemption was facilitated by a $19.0 million dividend from First Savings Bank to the Company, funded through short-term wholesale borrowings at 4.48%. Post-transaction, both the Bank and Company maintained strong capital positions with leverage and total risk-based capital ratios exceeding 9.0% and 12.0%, respectively. CEO Larry W. Myers indicated this move would help expand net interest margin and potentially clear the path for future share repurchases.

Positive

• Redemption of high-cost debt (7.66%) replaced with lower-cost borrowing (4.48%), improving interest expense
• Strong capital ratios maintained post-transaction (>9.0% leverage and >12.0% risk-based)
• Potential for future share repurchases that could be accretive to EPS
• Expected expansion in net interest margin

Negative

• Increased short-term wholesale borrowings of $19.0 million
• Reduction in Bank's immediate cash position due to dividend payment

Insights

Banking Financial Analyst

FSFG redeemed $20M of high-cost debt (7.66%) using lower-cost funding (4.48%), improving interest expense while maintaining strong capital ratios and signaling potential share repurchases.

The redemption of $20 million in subordinated notes represents strategic balance sheet optimization by First Savings Financial Group. This transaction effectively replaces debt costing 7.66% with wholesale borrowings at 4.48%, creating an immediate 318 basis point reduction in funding costs on this portion of their capital structure.

The mechanics are noteworthy: the Bank paid a $19 million dividend to the parent company specifically to facilitate this redemption, funding this dividend through short-term wholesale borrowings. This structure maintains proper capitalization at both the bank and holding company levels, with both entities maintaining leverage ratios and total risk-based capital ratios exceeding 9.0% and 12.0% respectively - solid levels that reflect prudent financial management.

The financial benefit is straightforward: reducing interest expenses on high-cost debt. The company explicitly states they expect this transaction to expand their net interest margin, a critical profitability metric for banking institutions.

For shareholders, management's commentary provides an additional positive signal. CEO Larry Myers directly connects this debt redemption to creating a pathway for potential share repurchases if capital continues building as anticipated. Management specifically notes that such repurchases would be considered if they're accretive to earnings per share.

This transaction demonstrates proactive capital management in the current interest rate environment, enhancing financial flexibility while potentially improving profitability metrics that matter to banking investors.

Corporate Finance Expert

FSFG's strategic debt refinancing reduces annual interest costs by approximately $680K while maintaining capital strength and creating flexibility for potential EPS-accretive share repurchases.

This transaction represents textbook capital structure optimization. First Savings Financial Group has effectively refinanced $20 million of expensive subordinated debt (yielding 7.66%) with $19 million of more cost-effective wholesale borrowings (4.48%). This strategic move generates approximately $680,000 in annual interest expense savings - calculating from the roughly $1.53 million previously paid on the subordinated notes versus approximately $850,000 on the new borrowings.

The timing is opportune given the subordinated notes' initial terms. Originally issued in 2018 as 5.95% fixed-rate notes due 2028, they had converted to floating rate instruments yielding 7.66% by redemption time. With expectations that interest rates will remain elevated, eliminating this floating-rate exposure reduces future interest expense volatility.

From a corporate structure perspective, the mechanics of this transaction are particularly interesting. The Bank subsidiary paid a $19 million dividend up to the holding company specifically to enable this redemption. This coordination between bank and holding company demonstrates sophisticated balance sheet management while maintaining regulatory capital requirements at both levels.

Management's signaling about potential share repurchases adds another dimension to this transaction. By first addressing this high-cost debt, they've created financial flexibility that could be directed toward EPS-accretive share repurchases - a sensible sequencing of capital allocation priorities that prioritizes balance sheet optimization before shareholder returns.

JEFFERSONVILLE, Ind., May 01, 2025 (GLOBE NEWSWIRE) -- First Savings Financial Group, Inc. (NASDAQ: FSFG) (the “Company”), the holding company for First Savings Bank (the “Bank”), announced today the redemption of $20.0 million of subordinated notes, at par, on April 30, 2025. The subordinated notes were issued by the Company on September 20, 2018 as a 5.95% Fixed-to-Floating Rate Subordinated Note due 2028, in the principal amount of $20.0 million. Prior to redemption, the subordinated notes were floating rate and yielded 7.66%. In order to consummate the redemption, the Bank paid the Company a dividend of $19.0 million, which the Bank funded with a like dollar amount of short-term wholesale borrowings at a rate of 4.48%. Subsequent to the dividend, the Bank maintained leverage and total risk-based capital ratios in excess of 9.0% and 12.0%, respectively, as of March 31, 2025. Subsequent to the redemption, the Company maintained leverage and total risk-based capital ratios in excess of 9.0% and 12.0%, respectively, as of April 30, 2025.

Commenting on the redemption, Larry W. Myers, President and CEO, stated “We are very pleased to have redeemed and retired this excess, high-cost debt, which we expect will contribute to expansion in net interest margin. This debt redemption and the repurchase of Company common shares have been strategic initiatives we’ve desired to implement. The redemption helps clear a path for the opportunity to repurchase Company common shares in the forthcoming months should we continue to build excess capital, which we currently anticipate, and should such repurchases be accretive to the Company’s earnings per share.”

The Bank is an entrepreneurial community bank headquartered in Jeffersonville, Indiana, which is directly across the Ohio River from Louisville, Kentucky, and operates fifteen depository branches within Southern Indiana. The Bank also has two national lending programs, including single-tenant net lease commercial real estate and SBA lending, with offices located predominately in the Midwest. The Bank is a recognized leader, both in its local communities and nationally for its lending programs. The employees of First Savings Bank strive daily to achieve the organization’s vision, We Expect To Be The BEST community BANK, which fuels our success. The Company’s common shares trade on The NASDAQ Stock Market under the symbol “FSFG.”

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; changes in market interest rates; changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; and other factors disclosed in the Company's periodic 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 release 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
Chief Financial Officer
(812) 283-0724

FAQ

What is the impact of FSFG's $20 million subordinated notes redemption on the company?

The redemption reduces high-cost debt (7.66%) in favor of lower-cost borrowing (4.48%), which is expected to improve net interest margin and potentially enable future share repurchases while maintaining strong capital ratios.

How did First Savings Financial Group fund the subordinated notes redemption?

The redemption was funded through a $19.0 million dividend from First Savings Bank to the Company, which the Bank obtained through short-term wholesale borrowings at 4.48%.

What are FSFG's capital ratios after the subordinated notes redemption?

After the redemption, both the Bank and Company maintained leverage ratios above 9.0% and total risk-based capital ratios above 12.0% as of April 30, 2025.

What are First Savings Financial Group's plans for future capital management?

The company anticipates building excess capital and may pursue share repurchases in the forthcoming months if such repurchases would be accretive to earnings per share.