UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K


(Mark
One)





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





For the
fiscal year ended September 30, 2009





OR





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





For the
transition period from _____________ to _____________





Commission
File Number: 1-34155





FIRST SAVINGS FINANCIAL
GROUP, INC.


(Exact
name of registrant as specified in its charter)





Indiana
                  (State
      or other jurisdiction of
                  incorporation
      or organization)
                37-1567871
                  (I.R.S.
      Employer Identification No.)501 East Lewis & Clark Parkway, Clarksville,
      Indiana
                  (Address of
      principal executive offices)
                47129
                  (Zip
      Code)





Registrant’s
telephone number, including area code:  (812) 283-0724





Securities
registered pursuant to Section 12(b) of the Act:





Title of each class
            
            Name of each exchange on which
      registeredCommon
      Stock, par value $0.01 per share
            
            Nasdaq
      Stock Market, LLC





Securities
registered pursuant to Section 12(g) of the
Act:      None





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.  Yes o   No  x





Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.  Yes o No  x





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
o





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 during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).  Yes o  No o





Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.  x





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


Large Accelerated Filer o
            
            Accelerated Filer oNon-accelerated Filer o
            
            Smaller Reporting Company x





Indicate by check mark whether the
registrant is a shell company (as defined by Rule 12b-2 of the Exchange
Act).


Yes o     No  x





The aggregate market value of the
voting and non-voting common equity held by nonaffiliates was $20.3 million,
based upon the closing price of $9.60 per share as quoted on the Nasdaq Stock
Market as of the last business day of the registrant’s most recently completed
second fiscal quarter ended March 31, 2009.





The number of shares outstanding of the
registrant’s common stock as of December 24, 2009 was 2,414,940.





DOCUMENTS INCORPORATED BY
REFERENCE





Portions
of the Proxy Statement for the 2010 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Form 10-K.





INDEX





PagePart
      IItem
      1.
              Business
              
              1Item
      1A.
              Risk
      Factors
              
              17Item
      1B.
              Unresolved
      Staff Comments
              
              20Item
      2.
              Properties
              
              21Item
      3.
              Legal
      Proceedings
              
              22Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              
              22Part
      IIItem
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              
              22Item
      6.
              Selected
      Financial Data
              
              23Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
              
              25Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              47Item
      8.
              Financial
      Statements and Supplementary Data
              
              47Item
      9.
              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
              
              47Item
      9A(T).
              Controls
      and Procedures
              
              47Item
      9B.
              Other
      Information
              
              48Part
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance
              
              48Item
      11.
              Executive
      Compensation
              
              48Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              
              48Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              
              49Item
      14.
              Principal
      Accountant Fees and Services
              
              49Part
      IVItem
      15.
              Exhibits
      and Financial Statement Schedules
              
              49SIGNATURES







This annual report contains
forward-looking statements that are based on assumptions and may describe future
plans, strategies and expectations of First Savings Financial Group,
Inc.  These forward-looking statements are generally identified by use
of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project”
or similar expressions.  First Savings Financial Group’s ability to
predict results or the actual effect of future plans or strategies is inherently
uncertain.  Factors which could have a material adverse effect on the
operations of First Savings Financial Group and its subsidiary include, but are
not limited to, changes in interest rates, national and regional economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the U.S. government, including policies of the U.S. Treasury and the Federal
Reserve Board, the quality and composition of the loan or investment portfolios,
demand for loan products, deposit flows, competition, demand for financial
services in First Savings Financial Group’s market area, changes in real estate
market values in First Savings Financial Group’s market area, changes in
relevant accounting principles and guidelines and inability of third party
service providers to perform.  Additional factors that may affect our
results are discussed in Item 1A to this Annual Report on Form 10-K titled “Risk
Factors” below.





These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such
statements.  Except as required by applicable law or regulation, First
Savings Financial Group does not undertake, and specifically disclaims any
obligation, to release publicly the result of any revisions that may be made to
any forward-looking statements to reflect events or circumstances after the date
of the statements or to reflect the occurrence of anticipated or unanticipated
events.





Unless the context indicates otherwise,
all references in this annual report to “First Savings Financial Group,”
“Company,” “we,” “us” and “our” refer to First Savings Financial Group and its
subsidiaries.





PART
I





Item
      1.
            BUSINESS





General





First Savings Financial Group, Inc., an
Indiana corporation, was incorporated in May 2008 to serve as the holding
company for First Savings Bank, F.S.B. (the “Bank” or “First Savings Bank”), a
federally-chartered savings bank.  On October 6, 2008, in accordance
with a Plan of Conversion adopted by its board of directors and approved by its
members, the Bank converted from a mutual savings bank to a stock savings bank
and became the wholly-owned subsidiary of First Savings Financial
Group.  In connection with the conversion, the Company issued an
aggregate of 2,542,042 shares of common stock at an offering price of $10.00 per
share.  In addition, in connection with the conversion, First Savings
Charitable Foundation was formed, to which the Company contributed 110,000
shares of common stock and $100,000 in cash.  The Company’s common
stock began trading on the Nasdaq Capital Market on October 7, 2008 under the
symbol “FSFG”.





First Savings Financial Group’s
principal business activity is the ownership of the outstanding common stock of
First Savings Bank.  First Savings Financial Group does not own or
lease any property but instead uses the premises, equipment and other property
of First Savings Bank with the payment of appropriate rental fees, as required
by applicable law and regulations, under the terms of an expense allocation
agreement.  Accordingly, the information set forth in this annual
report including the consolidated financial statements and related financial
data contained herein, relates primarily to the Bank.





First Savings Bank operates as a
community-oriented financial institution offering traditional financial services
to consumers and businesses in its primary market area.  We attract
deposits from the general public and use those funds to originate primarily
residential mortgage loans and, to a lesser but growing extent, commercial
mortgage loans and commercial business loans.  We also originate
residential and commercial construction loans, multi-family loans, land and land
development loans, and consumer loans.  We conduct our lending and
deposit activities primarily with individuals and small businesses in our
primary market area.





On
September 30, 2009, First Savings Bank acquired Community First Bank (“Community
First”), an Indiana-chartered commercial bank.  The acquisition
expanded First Savings Bank’s presence into Harrison, Crawford and Washington
Counties in Indiana.  See note 2 of the notes to consolidated
financial statements beginning on page F-1 of this annual
report.


1




Our website address is
www.fsbbank.net.  Information on our website should not be considered
a part of this annual report.





Market
Area





We are
located in South Central Indiana along the axis of Interstate 65 and Interstate
64, directly across the Ohio River from Louisville, Kentucky.  We
consider Clark, Floyd, Harrison, Crawford and Washington counties, Indiana, in
which all of our offices are located, and the surrounding areas to be our
primary market area.The current top
employment sectors in these counties are the private retail, service and
manufacturing industries, which are likely to continue to be supported by the
projected growth in population and median household income.  These
counties are well-served by barge transportation, rail service, and commercial
and general aviation services, including the United Parcel Service’s major hub,
which are located in our primary market area.





Competition





We face significant competition for the
attraction of deposits and origination of loans.  Our most direct
competition for deposits has historically come from the several financial
institutions, including credit unions, operating in our primary market area and
from other financial service companies such as securities and mortgage brokerage
firms, credit unions and insurance companies.  We also face
competition for investors’ funds from money market funds, mutual funds and other
corporate and government securities.  At June 30, 2009, which is the
most recent date for which data is available from the Federal Deposit Insurance
Corporation, we held approximately 13.20%, 1.34%, 14.73%, 71.15% and 7.37% of
the FDIC-insured deposits in Clark, Floyd, Harrison, Crawford and Washington
Counties, Indiana, respectively.  This data does not reflect deposits
held by credit unions with which we also compete.  In addition, banks
owned by large national and regional holding companies and other community-based
banks also operate in our primary market area.  Some of these
institutions are larger than us and, therefore, may have greater
resources.





Our competition for loans comes
primarily from financial institutions, including credit unions, in our primary
market area and from other financial service providers, such as mortgage
companies and mortgage brokers.  Competition for loans also comes from
non-depository financial service companies entering the mortgage market, such as
insurance companies, securities companies and specialty and captive finance
companies.





We expect competition to increase in
the future as a result of legislative, regulatory and technological changes and
the continuing trend of consolidation in the financial services
industry.  Technological advances, for example, have lowered barriers
to entry, allowed banks to expand their geographic reach by providing services
over the Internet, and made it possible for non-depository institutions to offer
products and services that traditionally have been provided by
banks.  Changes in federal law now permit affiliation among banks,
securities firms and insurance companies, which promotes a competitive
environment in the financial services industry.  Competition for
deposits and the origination of loans could limit our growth in the
future.





Lending
Activities





The Bank
is in the process of transforming the composition of its balance sheet from that
of a traditional thrift institution to that of a commercial bank.  We
intend to continue to emphasize residential lending, primarily secured by
owner-occupied properties, but also continue concentrating on ways to expand our
consumer/retail banking capabilities and our commercial banking services with a
focus on serving small businesses and emphasizing relationship banking in our
primary market area.  This transformation is enhanced by an expanded
commercial lending staff dedicated to growing commercial real estate and
commercial business loans.





The
largest segment of our loan portfolio is real estate mortgage loans, primarily
one-to four- family residential loans, including non-owner occupied residential
loans that were predominately originated before 2005, and, to a lesser but
growing extent, commercial real estate and commercial business
loans.  We also originate residential and commercial construction
loans, multi-family loans, land and land development loans, and consumer
loans.  We generally originate loans for investment purposes,
although, depending on the interest rate environment and our asset/liability
management goals, we may sell into the secondary market the 25-year and 30-year
fixed-rate residential mortgage loans that we originate.  We do not
offer, and have not offered, Alt-A, sub-prime or no-documentation loans and
acquired no such loans in the acquisition of Community First.


2




One-to
Four-Family Residential Loans.Our origination of residential
mortgage loans enables borrowers to purchase or refinance existing homes located
in Clark, Floyd, Harrison, Crawford and Washington Counties, Indiana, and the
surrounding areas.  A significant portion of the residential mortgage
loans that we had originated before 2005 are secured by non-owner occupied
properties.  Loans secured by non-owner occupied properties generally
carry a greater risk of loss than loans secured by owner-occupied properties,
and our non-performing loan balances have increased in recent periods primarily
because of delinquencies in our non-owner occupied residential loan
portfolio.  See “Item 1A. Risk Factors – Risks
Related to Our Business – Our concentration in non-owner occupied real estate
loans may expose us to increased credit risk” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Risk Management –
Analysis of Nonperforming and Classified Assets.” Since 2005, when we
hired a new President and Chief Executive Officer, we have de-emphasized
non-owner occupied residential mortgage lending and have focused, and intend to
continue to focus, our residential mortgage lending primarily on originating
residential mortgage loans secured by owner-occupied properties.





Our residential lending policies and
procedures conform to the secondary market guidelines.  We generally
offer a mix of adjustable rate mortgage loans and fixed-rate mortgage loans with
terms of 10 to 30 years.  Borrower demand for adjustable-rate loans
compared to fixed-rate loans is a function of the level of interest rates, the
expectations of changes in the level of interest rates, and the difference
between the interest rates and loan fees offered for fixed-rate mortgage loans
as compared to an initially discounted interest rate and loan fees for
multi-year adjustable-rate mortgages.  The relative amount of
fixed-rate mortgage loans and adjustable-rate mortgage loans that can be
originated at any time is largely determined by the demand for each in a
competitive environment.  The loan fees, interest rates and other
provisions of mortgage loans are determined by us based on our own pricing
criteria and competitive market conditions.





Interest rates and payments on our
adjustable-rate mortgage loans generally adjust annually after an initial fixed
period that typically ranges from one to five years.  Interest rates
and payments on our adjustable-rate loans generally are adjusted to a rate
typically equal to a margin above the one year U.S. Treasury
index.  The maximum amount by which the interest rate may be increased
or decreased is generally one percentage point per adjustment period and the
lifetime interest rate cap is generally six percentage points over the initial
interest rate of the loan.  However, a portion of the adjustable-rate
mortgage loan portfolio has a maximum amount by which the interest rate may be
increased or decreased of two percentage points per adjustment period and a
lifetime interest rate cap generally of six percentage points over the initial
interest rate of the loan.





While one-to four-family residential
real estate loans are normally originated with up to 30-year terms, such loans
typically remain outstanding for substantially shorter periods because borrowers
often prepay their loans in full either upon sale of the property pledged as
security or upon refinancing the original loan.  Therefore, average
loan maturity is a function of, among other factors, the level of purchase and
sale activity in the real estate market, prevailing interest rates and the
interest rates payable on outstanding loans on a regular basis.  We do
not offer loans with negative amortization and generally do not offer
interest-only loans.





We generally do not make conventional
loans with loan-to-value ratios exceeding 80%, including that for non-owner
occupied residential real estate loans whose loan-to-value ratios generally may
not exceed 75%, or 65% where the borrower has more than five non-owner occupied
loans outstanding.  Non-owner occupied loans originated before 2005,
however, were generally originated with loan-to-value ratios up to
80%.  Loans with loan-to-value ratios in excess of 80% generally
require private mortgage insurance.  However, the total balance of
residential mortgage loans secured by one-to-four family residential properties
with loan-to-value ratios exceeding 90% and without private mortgage insurance
or government guaranty at September 30, 2009 was $3.9 million, including $2.3
million acquired in the acquisition of Community First.  We generally
require all properties securing mortgage loans to be appraised by a
board-approved independent appraiser.  We also generally require title
insurance on all first mortgage loans with principal balances of $250,000 or
more.  Borrowers must obtain hazard insurance, and flood insurance is
required for all loans located flood hazard areas.


3





At
September 30, 2009, our largest one-to four-family residential loan had an
outstanding balance of $2.6 million.  This loan, which was originated
in November 2007 and is secured by 46 non-owner occupied properties, was
performing in accordance with its original terms at September 30,
2009.





Commercial Real
Estate Loans.We offer fixed- and adjustable-rate mortgage
loans secured by commercial real estate.  Our commercial real estate
loans are generally secured by small to moderately-sized office, retail and
industrial properties located in our primary market area and are typically made
to small business owners and professionals such as attorneys and
accountants.





We originate fixed-rate commercial real
estate loans, generally with terms up to five years and payments based on an
amortization schedule of 15 to 20 years, resulting in “balloon” balances at
maturity.  We also offer adjustable-rate commercial real estate loans,
generally with terms up to five years and with interest rates typically equal to
a margin above the prime lending rate or the London Interbank Offered Rate
(LIBOR).  Loans are secured by first mortgages, generally are
originated with a maximum loan-to-value ratio of 80% and often require specified
debt service coverage ratios depending on the characteristics of the
project.Rates and
other terms on such loans generally depend on our assessment of credit risk
after considering such factors as the borrower’s financial condition and credit
history, loan-to-value ratio, debt service coverage ratio and other
factors.





At September 30, 2009, our largest
commercial real estate loan had an outstanding balance of $2.4 million. This
loan, which was originated in July 2009 and is secured by a retail powersport
vehicles dealership facility, was performing in accordance with its original
terms at September 30, 2009.





Construction
Loans.We originate construction loans for one-to four-family
homes and, to a lesser extent, commercial properties such as small industrial
buildings, warehouses, retail shops and office units.  Construction
loans are typically for a term of 12 months with monthly interest only
payments.  Except for speculative loans, discussed below, repayment of
construction loans typically comes from the proceeds of a permanent mortgage
loan for which a commitment is typically in place when the construction loan is
originated.  We originate construction loans to a limited group of
well-established builders in our primary market area and we limit the number of
projects with each builder.  Interest rates on these loans are
generally tied to the prime lending rate.  Construction loans, other
than land development loans, generally will not exceed the lesser of 80% of the
appraised value or 90% of the direct costs, excluding items such as developer
fees, operating deficits or other items that do not relate to the direct
development of the project.  Generally, commercial construction loans
require the personal guarantee of the owners of the business.  We also
offer construction loans for the financing of pre-sold homes, which convert into
permanent loans at the end of the construction period.  Such loans
generally have a six-month construction period with interest only payments due
monthly, followed by an automatic conversion to a 15-year to 30-year permanent
loan with monthly payments of principal and interest.  Occasionally, a
construction loan to a builder of a speculative home will be converted to a
permanent loan if the builder has not secured a buyer within a limited period of
time after the completion of the home.  We generally disburse funds on
a percentage-of-completion basis following an inspection by a third party
inspector.





We also originate speculative
construction loans to builders who have not identified a buyer for the completed
property at the time of origination.  At September 30, 2009, we had
approved commitments for speculative construction loans of $8.2 million, of
which $5.9 million was outstanding.  We require a maximum
loan-to-value ratio of 80% for speculative construction loans.  At
September 30, 2009, our largest construction loan relationship was for a
commitment of $1.4 million, of which $886,000 was outstanding.  This
relationship was performing according to its original terms at September 30,
2009.





Land and Land
Development Loans.On a limited basis, we originate loans to
developers for the purpose of developing vacant land in our primary market area,
typically for residential subdivisions.  Land development loans are
generally interest-only loans for a term of 18 to 24 months.  We
generally require a maximum loan-to-value ratio of 75% of the appraisal market
value upon completion of the project.  We generally do not require any
cash equity from the borrower if there is sufficient indicated equity in the
collateral property.  Development plats and cost verification
documents are required from borrowers before approving and closing the
loan.  Our loan officers are required to personally visit the proposed
development site and the sites of competing developments.  We also
originate loans to individuals secured by undeveloped land held for investment
purposes.  At September 30, 2009, our largest land loan development
had an outstanding balance of $1.8 million.  This loan was performing
in accordance with its original terms at September 30, 2009.


4




Multi-Family Real
Estate Loans.To a limited extent, we offer multi-family
mortgage loans that are generally secured by properties in our primary market
area.  Multi-family loans are secured by first mortgages and generally
are originated with a maximum loan-to-value ratio of 80% and generally require
specified debt service coverage ratios depending on the characteristics of the
project.  Rates and other terms on such loans generally depend on our
assessment of the credit risk after considering such factors as the borrower’s
financial condition and credit history, loan-to-value ratio, debt service
coverage ratio and other factors. At September 30, 2009, our largest
multi-family mortgage loan had an outstanding balance of $3.3
million.  This loan, which was originated in October 2008 and is
secured by an apartment complex, was performing in accordance with its original
terms at September 30, 2009.





Consumer
Loans.Although we offer a variety of consumer loans, our
consumer loan portfolio consists primarily of home equity loans, both fixed-rate
amortizing term loans with terms up to 15 years and adjustable rate lines of
credit with interest rates equal to a margin above the prime lending
rate.  Consumer loans typically have shorter maturities and higher
interest rates than traditional one-to four-family lending.  We
typically do not make home equity loans with loan-to-value ratios exceeding 90%,
including any first mortgage loan balance.  We also offer auto and
truck loans, personal loans and boat loans.  At September 30, 2009,
$3.1 million, or 0.9% of our consumer loan portfolio was comprised of boat
loans.  We no longer are an active originator of boat
loans.  The procedures for underwriting consumer loans include an
assessment of the applicant’s payment history on other debts and ability to meet
existing obligations and payments on the proposed loan.  Although the
applicant’s creditworthiness is a primary consideration, the underwriting
process also includes a comparison of the value of the collateral, if any, to
the proposed loan amount.





Commercial
Business Loans.We typically offer commercial business loans
to small businesses located in our primary market area.  Commercial
business loans are generally secured by equipment and general business
assets.  Key loan terms and covenants vary depending on the
collateral, the borrower’s financial condition, credit history and other
relevant factors, and personal guarantees are typically required as part of the
loan commitment.  At September 30, 2009, our largest commercial
business loan had an outstanding balance of $2.2 million.  This loan,
which was originated in March 2009 and is secured by contract assignments and
accounts receivable, was performing in accordance with its original terms at
September 30, 2009.





Loan
Underwriting Risks





Adjustable-Rate
Loans.While we anticipate that adjustable-rate loans will
better offset the adverse effects of an increase in interest rates as compared
to fixed-rate mortgages, an increased monthly mortgage payment required of
adjustable-rate loan borrowers in a rising interest rate environment could cause
an increase in delinquencies and defaults.  The marketability of the
underlying property also may be adversely affected in a high interest rate
environment.  In addition, although adjustable-rate mortgage loans
make our asset base more responsive to changes in interest rates, the extent of
this interest sensitivity is limited by the annual and lifetime interest rate
adjustment limits.





Non-Owner
Occupied Residential Real Estate Loans.Loans secured by
rental properties represent a unique credit risk to us and, as a result, we
adhere to special underwriting guidelines.  Of primary concern in
non-owner occupied real estate lending is the consistency of rental income of
the property.  Payments on loans secured by rental properties often
depend on the maintenance of the property and the payment of rent by its
tenants.  Payments on loans secured by rental properties often depend
on successful operation and management of the properties.  As a
result, repayment of such loans may be subject to adverse conditions in the real
estate market or the economy.  To monitor cash flows on rental
properties, we require borrowers and loan guarantors, if any, to provide annual
financial statements and we consider and review a rental income cash flow
analysis of the borrower and consider the net operating income of the property,
the borrower’s expertise, credit history and profitability, and the value of the
underlying property.  We generally require collateral on these loans
to be a first mortgage along with an assignment of rents and
leases.  Until recently, if the borrower had multiple loans for rental
properties with us, the loans were not cross-collateralized.  If the
borrower holds loans on more than four rental properties, a loan officer or
collection officer is generally required to inspect these properties annually to
determine if they are being properly maintained and rented. Recently, we
generally have limited these loan relationships to an aggregate total of
$500,000.


5




Multi-Family and
Commercial Real Estate Loans.Loans secured by multi-family
and commercial real estate generally have larger balances and involve a greater
degree of risk than one- to four-family residential mortgage
loans.  Of primary concern in multi-family and commercial real estate
lending is the borrower’s creditworthiness and the feasibility and cash flow
potential of the project.  Payments on loans secured by income
properties often depend on successful operation and management of the
properties.  As a result, repayment of such loans may be subject to
adverse conditions in the real estate market or the economy.  To
monitor cash flows on income properties, we require borrowers and loan
guarantors, if any, to provide annual financial statements on multi-family and
commercial real estate loans.  In addition, some loans may contain
covenants regarding ongoing cash flow coverage requirements.  In
reaching a decision on whether to make a multi-family or commercial real estate
loan, we consider and review a global cash flow analysis of the borrower and
consider the net operating income of the property, the borrower’s expertise,
credit history and profitability, and the value of the underlying
property.  An environmental survey or environmental risk insurance is
obtained when the possibility exists that hazardous materials may have existed
on the site, or the site may have been impacted by adjoining properties that
handled hazardous materials.





Construction and
Land and Land Development Loans.Construction financing is
generally considered to involve a higher degree of risk of loss than long-term
financing on improved, occupied real estate.  Risk of loss on a
construction loan depends largely upon the accuracy of the initial estimate of
the property’s value at completion of construction and the estimated cost of
construction.  During the construction phase, a number of factors
could result in delays and cost overruns.  If the estimate of
construction costs proves to be inaccurate, we may be required to advance funds
beyond the amount originally committed to permit completion of the
building.  If the estimate of value proves to be inaccurate, we may be
confronted, at or before the maturity of the loan, with a building having a
value which is insufficient to assure full repayment if liquidation is
required.  If we are forced to foreclose on a building before or at
completion due to a default, we may be unable to recover all of the unpaid
balance of, and accrued interest on, the loan as well as related foreclosure and
holding costs.  In addition, speculative construction loans, which are
loans made to home builders who, at the time of loan origination, have not yet
secured an end buyer for the home under construction, typically carry higher
risks than those associated with traditional construction
loans.  These increased risks arise because of the risk that there
will be inadequate demand to ensure the sale of the property within an
acceptable time.  As a result, in addition to the risks associated
with traditional construction loans, speculative construction loans carry the
added risk that the builder will have to pay the property taxes and other
carrying costs of the property until an end buyer is found.  Land and
land development loans have substantially similar risks to speculative
construction loans.





Consumer
Loans.Consumer loans may entail greater risk than do
residential mortgage loans, particularly in the case of consumer loans that are
secured by assets that depreciate rapidly, such as motor vehicles and
boats.  In such cases, repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment for the outstanding loan
and a small remaining deficiency often does not warrant further substantial
collection efforts against the borrower.  In the case of home equity
loans, real estate values may be reduced to a level that is insufficient to
cover the outstanding loan balance after accounting for the first mortgage loan
balance.  Consumer loan collections depend on the borrower’s
continuing financial stability, and therefore are likely to be adversely
affected by various factors, including job loss, divorce, illness or personal
bankruptcy.  Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount that can be recovered on such loans.





Commercial
Business Loans.Unlike residential mortgage loans, which
generally are made on the basis of the borrower’s ability to make repayment from
his or her employment income or other income, and which are secured by real
property whose value tends to be more easily ascertainable, commercial business
loans are of higher risk and typically are made on the basis of the borrower’s
ability to make repayment from the cash flow of the borrower’s
business.  As a result, the availability of funds for the repayment of
commercial business loans may depend substantially on the success of the
business itself.  Further, any collateral securing such loans may
depreciate over time, may be difficult to appraise and may fluctuate in
value.




6




Loan
Originations, Sales and Purchases.Loan originations come from
a number of sources.  The primary sources of loan originations are
existing customers, walk-in traffic, advertising and referrals from
customers.  We generally sell in the secondary market long-term
fixed-rate residential mortgage loans that we originate.  We have not
historically sold participation interests in loans that we have originated;
however, $8.0 million of loans we acquired in the acquisition of Community First
included sold participation interests of $4.8 million, for a net position of
$3.2 million outstanding in our portfolio.  We may sell participation
interests in loans originated by us from time to time depending on various
factors.  Our decision to sell loans is based on prevailing market
interest rate conditions, interest rate management, regulatory lending
restrictions and liquidity needs.





We have
not historically purchased whole loans or participation interests to supplement
our lending portfolio; however, we acquired $9.9 million of participation
interests of loans in the acquisition of Community First.  At
September 30, 2009, our largest participation interest was $2.0
million.  This loan, which was originated in August 2008 and is
secured by single family residential real estate, was performing in accordance
with its original terms at September 30, 2009.





Loan Approval
Procedures and Authority.Our lending activities follow
written, non-discriminatory underwriting standards and loan origination
procedures established by our board of directors and
management.  Certain of our employees have been granted individual
lending limits, which vary depending on the individual, the type of loan and
whether the loan is secured or unsecured.  Generally, all loan
requests for lending relationships that exceed the individual officer lending
limits, which is generally $250,000 secured or $50,000 unsecured, require
committee or Board of Directors approval.  Loans resulting in
aggregated lending relationships in excess of $250,000 secured and $50,000
unsecured but less than $1.0 million require approval by the Officer Loan
Committee and loans resulting in aggregated lending relationships in excess of
$1.0 million but less than $2.5 million require approval of the Executive Loan
Committee.  The Executive Loan Committee consists of the President,
Chief Operations Officer, Chief of Credit Administration, Senior Lending Officer
and VP of Commercial Lending and the Officer Loan Committee consists of the same
but also includes certain other officers designated by the Board of
Directors.  Loans resulting in aggregated lending relationships in
excess of $2.5 million require approval by both the Executive Loan Committee and
the Board of Directors.





Loans to One
Borrower.The maximum amount that we may lend to one borrower
and the borrower’s related entities is limited, by regulation, to generally 15%
of our stated capital and reserves.  At September 30, 2009, our
regulatory limit on loans to one borrower was $6.8 million.  At that
date, our largest lending relationship was $5.9 million, of which $5.7 million
was outstanding, and was performing according to its original terms at that
date.  This loan relationship is secured by commercial real estate and
the borrower’s personal residence.





Loan
Commitments.We issue commitments for residential and
commercial mortgage loans conditioned upon the occurrence of certain
events.  Commitments to originate mortgage loans are legally binding
agreements to lend to our customers.  Generally, our loan commitments
expire after 30 days.  See note 14 to the notes to the consolidated
financial statements beginning on page F-1 of this annual report.





Investment
Activities





We have legal authority to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various government-sponsored agencies and of state and municipal governments,
mortgage-backed securities, collateralized mortgage obligations and certificates
of deposit of federally insured institutions.  Within certain
regulatory limits, we also may invest a portion of our assets in other
permissible securities.  As a member of the Federal Home Loan Bank of
Indianapolis, we also are required to maintain an investment in Federal Home
Loan Bank of Indianapolis stock.





At September 30, 2009, our investment
portfolio consisted primarily of U.S. government agency securities, mortgage
backed securities and collateralized mortgage obligations issued by government
sponsored enterprises, municipal securities and privately issued collateralized
mortgage obligations acquired in the acquisition of Community
First.  We do not currently invest in trading account
securities.




7




Our investment objectives are to
provide and maintain liquidity, to establish an acceptable level of interest
rate and credit risk, and to provide an alternate source of low-risk investments
at a favorable return when loan demand is weak.  Our board of
directors has the overall responsibility for the investment portfolio, including
approval of the investment policy.  Messrs. Myers, our President and
Chief Executive Officer, and Schoen, our Chief Financial Officer, are
responsible for implementation of the investment policy and monitoring our
investment performance.  Our board of directors reviews the status of
our investment portfolio on a quarterly basis, or more frequently if
warranted.





Deposit
Activities and Other Sources of Funds





General.Deposits,
borrowings and loan repayments are the major sources of our funds for lending
and other investment purposes.  Scheduled loan repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general interest rates and money
market conditions.





Deposit
Accounts.Deposits are attracted from within our primary
market area through the offering of a broad selection of deposit instruments,
including non-interest-bearing demand deposits (such as checking accounts),
interest-bearing demand accounts (such as NOW and money market accounts),
regular savings accounts and certificates of deposit.  Deposit account
terms vary according to the minimum balance required, the time periods the funds
must remain on deposit and the interest rate, among other factors.  In
determining the terms of our deposit accounts, we consider the rates offered by
our competition, our liquidity needs, profitability to us, matching deposit and
loan products and customer preferences and concerns.  We generally
review our deposit mix and pricing weekly.  Our deposit pricing
strategy has typically been to offer competitive rates on all types of deposit
products, and to periodically offer special rates in order to attract deposits
of a specific type or term.





Borrowings.We
use advances from the Federal Home Loan Bank of Indianapolis to supplement our
investable funds.  The Federal Home Loan Bank functions as a central
reserve bank providing credit for member financial institutions.  As a
member, we are required to own capital stock in the Federal Home Loan Bank of
Indianapolis and are authorized to apply for advances on the security of such
stock and certain of our mortgage loans and other assets (principally securities
which are obligations of, or guaranteed by, the United States), provided certain
standards related to creditworthiness have been met.  Advances are
made under several different programs, each having its own interest rate and
range of maturities.  Depending on the program, limitations on the
amount of advances are based either on a fixed percentage of an institution’s
net worth or on the Federal Home Loan Bank’s assessment of the institution’s
creditworthiness.  We also utilize retail and broker repurchase
agreements as sources of borrowings and may use brokered certificates of
deposits from time to time depending on our liquidity needs and pricing of these
facilities versus other funding alternatives.





Personnel





As of September 30, 2009, we had 125
full-time employees and 33 part-time employees, none of whom is represented by a
collective bargaining unit.  We believe our relationship with our
employees is good.





Subsidiaries





The Company’s sole subsidiary is the
Bank.  The Bank has three subsidiaries, Southern Indiana Financial
Corporation and FFCC, Inc., both of which are organized as Indiana corporations,
and First Savings Investments, Inc., a Nevada Corporation.  Southern
Indiana Financial Corporation is an independent insurance agency, offering
various types of annuities and life insurance policies.  FFCC, Inc.
was organized for the purposes of purchasing, holding and disposing of real
estate owned.  First Savings Investments, Inc. was organized on
October 3, 2008 for the purpose of holding and managing a portion of the Bank’s
investment securities portfolio.




8





REGULATION
AND SUPERVISION





First Savings Financial Group, as a
savings and loan holding company, is required to file certain reports with, is
subject to examination by, and otherwise must comply with the rules and
regulations of the Office of Thrift Supervision.  First Savings
Financial Group is also subject to the rules and regulations of the Securities
and Exchange Commission under the federal securities laws.  First
Savings Financial Group is listed on the Nasdaq Capital Market and it is subject
to the rules of Nasdaq for listed companies.





First
Savings Bank is subject to extensive regulation, examination and supervision by
the Office of Thrift Supervision, as its primary federal regulator, and the
Federal Deposit Insurance Corporation, as its deposits insurer.  First
Savings Bank is a member of the Federal Home Loan Bank System and its deposit
accounts are insured up to applicable limits by the Deposit Insurance Fund
managed by the Federal Deposit Insurance Corporation.  First Savings
Bank must file reports with the Office of Thrift Supervision and the Federal
Deposit Insurance Corporation concerning its activities and financial condition
in addition to obtaining regulatory approvals before entering into certain
transactions such as mergers with, or acquisitions of, other financial
institutions.  There are periodic examinations by the Office of Thrift
Supervision and, under certain circumstances, the Federal Deposit Insurance
Corporation to evaluate First Savings Bank’s safety and soundness and compliance
with various regulatory requirements.  This regulatory structure is
intended primarily for the protection of the insurance fund and
depositors.  The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with respect
to the classification of assets and the establishment of adequate loan loss
reserves for regulatory purposes.  Any change in such policies,
whether by the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation or Congress, could have a material adverse impact on First Savings
Financial Group and First Savings Bank and their operations.





Certain of the regulatory requirements
that are applicable to First Savings Bank and First Savings Financial Group are
described below.  This description of statutes and regulations is not
intended to be a complete explanation of such statutes and regulations and their
effects on First Savings Bank and First Savings Financial Group and is qualified
in its entirety by reference to the actual statutes and
regulations.





Regulation
of Federal Savings Associations





Business
Activities.Federal law and regulations, primarily the Home
Owners’ Loan Act and the regulations of the Office of Thrift Supervision, govern
the activities of federal savings banks, such as First Savings
Bank.  These laws and regulations delineate the nature and extent of
the activities in which federal savings banks may engage.  In
particular, certain lending authority for federal savings banks, e.g.,
commercial, non-residential real property loans and consumer loans, is limited
to a specified percentage of the institution’s capital or assets.





Branching.Federal
savings banks are authorized to establish branch offices in any state or states
of the United States and its territories, subject to the approval of the Office
of Thrift Supervision.





Capital
Requirements.The Office of Thrift Supervision’s capital
regulations require federal savings institutions to meet three minimum capital
standards: a 1.5% tangible capital to total assets ratio, a 4% leverage ratio
(3% for institutions receiving the highest rating on the CAMELS examination
rating system) and an 8% risk-based capital ratio.  In addition, the
prompt corrective action standards discussed below establish, in effect, a
minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions
receiving the highest rating on the CAMELS system) and, together with the
risk-based capital standard itself, a 4% Tier 1 risk-based capital
standard.  The Office of Thrift Supervision regulations also require
that, in meeting the tangible, leverage and risk-based capital standards,
institutions must generally deduct investments in and loans to subsidiaries
engaged in activities as principal that are not permissible for national
banks.




9


The risk-based capital standard
requires federal savings institutions to maintain Tier 1 (core) and total
capital (which is defined as core capital and supplementary capital) to
risk-weighted assets of at least 4% and 8%, respectively.  In
determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, recourse obligations, residual interests and direct
credit substitutes, are multiplied by a risk-weight factor of 0% to 100%,
assigned by the Office of Thrift Supervision capital regulation based on the
risks believed inherent in the type of asset.  Core (Tier 1) capital
is defined as common stockholders’ equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
other than certain mortgage servicing rights and credit card
relationships.  The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock, the allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market
values.  Overall, the amount of supplementary capital included as part
of total capital cannot exceed 100% of core capital.





The Office of Thrift Supervision also
has authority to establish individual minimum capital requirements in
appropriate cases upon a determination that an institution’s capital level is or
may become inadequate in light of the particular circumstances.  At
September 30, 2009, First Savings Bank met each of these capital
requirements.  See note 21 of the notes to consolidated financial
statements beginning on page F-1 of this annual report.





Prompt Corrective
Regulatory Action.  The Office of Thrift Supervision is
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution’s degree of
undercapitalization.  Generally, a savings institution that has a
ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier
1 (core) capital to risk-weighted assets of less than 4% or a ratio of core
capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be “undercapitalized.” A savings
institution that has a total risk-based capital ratio of less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be “significantly undercapitalized” and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
“critically undercapitalized.”  Subject to a narrow exception, the
Office of Thrift Supervision is required to appoint a receiver or conservator
within specified time frames for an institution that is “critically
undercapitalized.”  An institution must file a capital restoration
plan with the Office of Thrift Supervision within 45 days of the date it
receives notice that it is “undercapitalized,” “significantly undercapitalized”
or “critically undercapitalized.”  Compliance with the plan must be
guaranteed by any parent holding company in the amount of the lesser of 5% of
the association’s total assets when it became undercapitalized or the amount
necessary to achieve full compliance at the time the association first failed to
comply.  In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion.  “Significantly undercapitalized”
and “critically undercapitalized” institutions are subject to more extensive
mandatory regulatory actions.  The Office of Thrift Supervision could
also take any one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of senior executive
officers and directors.





Loans to One
Borrower.Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks.  Subject to certain exceptions, a savings institution may not
make a loan or extend credit to a single or related group of borrowers in excess
of 15% of its unimpaired capital and surplus.  An additional amount
may be lent, equal to 10% of unimpaired capital and surplus, if secured by
specified readily-marketable collateral.  See “Item 1. Business — Loan
Underwriting Risks — Loans to One Borrower.”





Standards for
Safety and Soundness.As required by statute, the federal
banking agencies have adopted Interagency Guidelines Establishing Standards for
Safety and Soundness.  The guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired.  If the Office of Thrift Supervision determines that a
savings institution fails to meet any standard prescribed by the guidelines, the
Office of Thrift Supervision may require the institution to submit an acceptable
plan to achieve compliance with the standard.





Limitation on
Capital Distributions.Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments to stockholders of another institution in a cash-out
merger.  Under the regulations, an application to and the prior
approval of the Office of Thrift Supervision is required before any capital
distribution if the institution does not meet the criteria for “expedited
treatment” of applications under Office of Thrift Supervision regulations (i.e.,
generally, examination and Community Reinvestment Act ratings in the two top
categories), the total capital distributions for the calendar year exceed net
income for that year plus the amount of retained net income for the preceding
two years, the institution would be undercapitalized following the distribution
or the distribution would otherwise be contrary to a statute, regulation or
agreement with the Office of Thrift Supervision.  If an application is
not required, the institution must still provide prior notice to the Office of
Thrift Supervision of the capital distribution if, like First Savings Bank, it
is a subsidiary of a holding company.  If First Savings Bank’s capital
were ever to fall below its regulatory requirements or the Office of Thrift
Supervision notified it that it was in need of increased supervision, its
ability to make capital distributions could be restricted.  In
addition, the Office of Thrift Supervision could prohibit a proposed capital
distribution that would otherwise be permitted by the regulation, if the agency
determines that such distribution would constitute an unsafe or unsound
practice.


10




Qualified Thrift
Lender Test.Federal law requires savings institutions to meet
a qualified thrift lender test.  Under the test, a savings association
is required to either qualify as a “domestic building and loan association”
under the Internal Revenue Code or maintain at least 65% of its “portfolio
assets” (total assets less: (i) specified liquid assets up to 20% of total
assets; (ii) intangibles, including goodwill; and (iii) the value of property
used to conduct business) in certain “qualified thrift investments” (primarily
residential mortgages and related investments, including certain mortgage-backed
securities) in at least 9 months out of each 12-month period.





A savings institution that fails the
qualified thrift lender test is subject to certain operating restrictions and
may be required to convert to a bank charter.  Subsequent legislation
has expanded the extent to which education loans, credit card loans and small
business loans may be considered “qualified thrift investments.”  As
of September 30, 2009, First Savings Bank maintained 84.7% of its portfolio
assets in qualified thrift investments and, therefore, met the qualified thrift
lender test.





Transactions with
Related Parties.First Savings Bank’s authority to engage in
transactions with “affiliates” is limited by Office of Thrift Supervision
regulations and Sections 23A and 23B of the Federal Reserve Act as implemented
by the Federal Reserve Board’s Regulation W.  The term “affiliates”
for these purposes generally means any company that controls or is under common
control with an institution.  First Savings Financial Group and any
non-savings institution subsidiaries would be affiliates of First Savings
Bank.  In general, transactions with affiliates must be on terms that
are as favorable to the institution as comparable transactions with
non-affiliates.  In addition, certain types of transactions are
restricted to 10% of an institution’s capital and surplus with any one affiliate
and 20% of capital and surplus with all affiliates.  Collateral in
specified amounts must usually be provided by affiliates in order to receive
loans from an institution.  In addition, savings institutions are
prohibited from lending to any affiliate that is engaged in activities that are
not permissible for bank holding companies and no savings institution may
purchase the securities of any affiliate other than a subsidiary.





The Sarbanes-Oxley Act of 2002
generally prohibits a company from making loans to its executive officers and
directors.  However, that act contains a specific exception for loans
by a depository institution to its executive officers and directors in
compliance with federal banking laws.  Under such laws, First Savings
Bank’s authority to extend credit to executive officers, directors and 10%
stockholders (“insiders”), as well as entities such persons control, is
limited.  The law restricts both the individual and aggregate amount
of loans First Savings Bank may make to insiders based, in part, on First
Savings Bank’s capital position and requires certain board approval procedures
to be followed.  Such loans must be made on terms substantially the
same as those offered to unaffiliated individuals and not involve more than the
normal risk of repayment.  There is an exception for loans made
pursuant to a benefit or compensation program that is widely available to all
employees of the institution and does not give preference to insiders over other
employees.  There are additional restrictions applicable to loans to
executive officers.  For information about transactions with our
directors and officers, see “Item 13. Certain Relationships and
Related Transactions, and Director Independence.”





Enforcement.The
Office of Thrift Supervision has primary enforcement responsibility over federal
savings institutions and has the authority to bring actions against the
institution and all institution-affiliated parties, including stockholders, and
any attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an insured
institution.  Formal enforcement action may range from the issuance of
a capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership or conservatorship.  Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases.  The Federal
Deposit Insurance Corporation has authority to recommend to the Director of the
Office of Thrift Supervision that enforcement action be taken with respect to a
particular savings institution.  If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take such
action under certain circumstances.  Federal law also establishes
criminal penalties for certain violations.


11





Assessments.Federal
savings banks are required to pay assessments to the Office of Thrift
Supervision to fund its operations.  The general assessments, paid on
a semi-annual basis, are based upon the savings institution’s total assets,
including consolidated subsidiaries, as reported in the institution’s latest
quarterly thrift financial report, the institution’s financial condition and the
complexity of its asset portfolio.





Insurance of
Deposit Accounts.First Savings Bank’s deposits are insured up
to applicable limits by the Deposit Insurance Fund of the Federal Deposit
Insurance Corporation.  The Deposit Insurance Fund is the successor to
the Bank Insurance Fund and the Savings Association Insurance Fund, which were
merged in 2006.





Under the Federal Deposit Insurance
Corporation’s risk-based assessment system, insured institutions are assigned to
one of four risk categories based on supervisory evaluations, regulatory capital
levels and certain other factors, with less risky institutions paying lower
assessments.  An institution’s assessment rate depends upon the
category to which it is assigned.  For calendar 2008, assessments
ranged from five to forty-three basis points of each institution’s deposit
assessment base.  Due to losses incurred by the Deposit Insurance Fund
in 2008 from failed institutions, and anticipated future losses, the Federal
Deposit Insurance Corporation adopted an across the board seven basis point
increase in the assessment range for the first quarter of 2009.  The
Federal Deposit Insurance Corporation made further refinements to its risk-based
assessment that were effective April 1, 2009, and effectively made the range
seven to 771/2 basis
points.  The Federal Deposit Insurance Corporation may adjust the
scale uniformly from one quarter to the next, except that no adjustment can
deviate more than three basis points from the base scale without notice and
comment rulemaking.  No institution may pay a dividend if in default
of the federal deposit insurance assessment.





The Federal Deposit Insurance
Corporation imposed on all insured institutions a special emergency assessment
of five basis points of total assets minus tier 1 capital, as of June 30, 2009
(capped at ten basis points of an institution’s deposit assessment base on the
same date) in order to cover losses to the Deposit Insurance
Fund.  That special assessment was collected on September 30,
2009.  The Federal Deposit Insurance Corporation provided for similar
special assessments during the final two quarters of 2009, if deemed
necessary.  However, in lieu of further special assessments, the
Federal Deposit Insurance Corporation required insured institutions to prepay
estimated quarterly risk-based assessments for the fourth quarter of 2009
through the fourth quarter of 2012.  The estimated assessments, which
include an assumed annual assessment base increase of 5%, was recorded as a
prepaid expense asset as of December 30, 2009.  As of December 31,
2009, and each quarter thereafter, a charge to earnings will be recorded for
each regular assessment with an offsetting credit to the prepaid
asset.





Due to the recent difficult economic
conditions, deposit insurance per account owner has been raised to $250,000 for
all types of accounts until January 1, 2014.  In addition, the FDIC
adopted an optional Temporary Liquidity Guarantee Program by which, for a fee,
noninterest-bearing transaction accounts would receive unlimited insurance
coverage until December 31, 2009, subsequently extended until June 30, 2010, and
certain senior unsecured debt issued by institutions and their holding companies
within a specified time frame would be guaranteed by the FDIC through June 30,
2012, or, in certain cases, December 31, 2012.  The Bank made the
business decision to not participate in the unlimited noninterest-bearing
transaction account coverage and the Bank and the Company opted to not
participate in the unsecured debt guarantee program.





In addition to the assessment for
deposit insurance, institutions are required to make payments on bonds issued in
the late 1980s by the Financing Corporation to recapitalize a predecessor
deposit insurance fund.  That payment is established quarterly and
during the four quarters ending September 30, 2009 averaged 1.08 basis points of
assessable deposits.





The Federal Deposit Insurance
Corporation has authority to increase insurance assessments.  A
significant increase in insurance premiums would likely have an adverse effect
on the operating expenses and results of operations of the
Bank.  Management cannot predict what insurance assessment rates will
be in the future.





Insurance of deposits may be terminated
by the Federal Deposit Insurance Corporation upon a finding that the institution
has engaged in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the Federal Deposit Insurance Corporation or the
Office of Thrift Supervision.  The management of the Bank does not
know of any practice, condition or violation that might lead to termination of
deposit insurance.


12





Federal Home Loan
Bank System.First Savings Bank is a member of the Federal
Home Loan Bank System, which consists of twelve (12) regional Federal Home Loan
Banks.  The Federal Home Loan Bank provides a central credit facility
primarily for member institutions.  First Savings Bank, as a member of
the Federal Home Loan Bank of Indianapolis, is required to acquire and hold
shares of capital stock in that Federal Home Loan Bank.  At September
30, 2009, First Savings Bank complied with this requirement with an investment
in Federal Home Loan Bank stock of $4.2 million.





The Federal Home Loan Banks are
required to provide funds for the resolution of insolvent thrifts in the late
1980s and to contribute funds for affordable housing programs.  These
requirements, and general economic conditions, could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members.  If dividends were reduced, or interest on
future Federal Home Loan Bank advances increased, our net interest income would
likely also be reduced.





Community
Reinvestment Act.Under the Community Reinvestment Act, as
implemented by Office of Thrift Supervision regulations, a savings association
has a continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods.  The Community Reinvestment Act
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution’s discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the Community Reinvestment Act.  The
Community Reinvestment Act requires the Office of Thrift Supervision, in
connection with its examination of a savings association, to assess the
institution’s record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution.





The Community Reinvestment Act requires
public disclosure of an institution’s rating and requires the Office of Thrift
Supervision to provide a written evaluation of an association’s Community
Reinvestment Act performance utilizing a four-tiered descriptive rating
system.





First Savings Bank received a
“satisfactory” rating as a result of its most recent Community Reinvestment Act
assessment.





Other
Regulations





Interest and other charges collected or
contracted for by First Savings Bank are subject to state usury laws and federal
laws concerning interest rates.  First Savings Bank’s operations are
also subject to federal laws applicable to credit transactions, such as
the:





·
            Truth-In-Lending
      Act, governing disclosures of credit terms to consumer
      borrowers;





·
            Home
      Mortgage Disclosure Act of 1975, requiring financial institutions to
      provide information to enable the public and public officials to determine
      whether a financial institution is fulfilling its obligation to help meet
      the housing needs of the community it
serves;





·
              Equal
      Credit Opportunity Act, prohibiting discrimination on the basis of race,
      creed or other prohibited factors in extending credit;


·
            Fair
      Credit Reporting Act of 1978, governing the use and provision of
      information to credit reporting
agencies;





·
            Fair
      Debt Collection Act, governing the manner in which consumer debts may be
      collected by collection agencies;
and





·
            Rules
      and regulations of the various federal agencies charged with the
      responsibility of implementing such federal
  laws.


13





The operations of First Savings Bank
also are subject to the:





·
            Right
      to Financial Privacy Act, which imposes a duty to maintain confidentiality
      of consumer financial records and prescribes procedures for complying with
      administrative subpoenas of financial
records;





·
            Electronic
      Funds Transfer Act and Regulation E promulgated thereunder, which governs
      automatic deposits to and withdrawals from deposit accounts and customers’
      rights and liabilities arising from the use of automated teller machines
      and other electronic banking
services;





·
            Check
      Clearing for the 21st Century Act (also known as “Check 21”), which gives
      “substitute checks,” such as digital check images and copies made from
      that image, the same legal standing as the original paper
      check;





·
            Title
      III of the Uniting and Strengthening America by Providing Appropriate
      Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred
      to as the “USA PATRIOT Act”), which significantly expands the
      responsibilities of financial institutions, including savings and loan
      associations, in preventing the use of the U.S. financial system to fund
      terrorist activities.  Among other provisions, it requires
      financial institutions operating in the United States to develop new
      anti-money laundering compliance programs, due diligence policies and
      controls to ensure the detection and reporting of money
      laundering.  Such required compliance programs are intended to
      supplement existing compliance requirements, also applicable to financial
      institutions, under the Bank Secrecy Act and the Office of Foreign Assets
      Control Regulations; and





·
            The
      Gramm-Leach-Bliley Act places limitations on the sharing of consumer
      financial information with unaffiliated third
      parties.  Specifically, the Gramm-Leach-Bliley Act requires all
      financial institutions offering financial products or services to retail
      customers to provide such customers with the financial institution’s
      privacy policy and provide such customers the opportunity to “opt out” of
      the sharing of personal financial information with unaffiliated third
      parties.





Federal
Reserve System





The Federal Reserve Board regulations
require savings institutions to maintain non-interest earning reserves against
their transaction accounts (primarily Negotiable Order of Withdrawal (“NOW”) and
regular checking accounts).  For 2009, the regulations generally
provided that reserves be maintained against aggregate transaction accounts as
follows: a 3% reserve ratio is assessed on net transaction accounts up to and
including $44.4 million; a 10% reserve ratio is applied above $44.4
million.  The first $10.3 million of otherwise reservable balances
(subject to adjustments by the Federal Reserve Board) are exempted from the
reserve requirements.  The amounts are adjusted annually and for 2010,
require a 3% ratio for up to $55.2 million and an exception of $10.7
million.  First Savings Bank complies with the foregoing
requirements.





Holding
Company Regulation





General.  First
Savings Financial Group is a nondiversified unitary savings and loan holding
company within the meaning of federal law.  The Gramm-Leach-Bliley Act
of 1999 provides that no company may acquire control of a savings institution
after May 4, 1999 unless it engages only in the financial activities permitted
for financial holding companies under the law and for multiple savings and loan
holding companies as described below.  Further, the Gramm-Leach-Bliley
Act specifies that existing savings and loan holding companies may only engage
in such activities.  Upon any non-supervisory acquisition by First
Savings Financial Group of another savings institution or savings bank that
meets the qualified thrift lender test and is deemed to be a savings institution
by the Office of Thrift Supervision, First Savings Financial Group would become
a multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would generally be limited to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act, subject to the prior approval of the Office of Thrift Supervision,
and certain activities authorized by Office of Thrift Supervision
regulation.  However, the Office of Thrift Supervision has issued an
interpretation concluding that multiple savings and loan holding companies may
also engage in activities permitted for financial holding
companies.


14





A savings and loan holding company is
prohibited from, directly or indirectly, acquiring more than 5% of the voting
stock of another savings institution or savings and loan holding company,
without prior written approval of the Office of Thrift Supervision, and from
acquiring or retaining control of a depository institution that is not insured
by the Federal Deposit Insurance Corporation.  In evaluating
applications by holding companies to acquire savings institutions, the Office of
Thrift Supervision considers, among other things, the financial and managerial
resources and future prospects of the company and institution involved, the
effect of the acquisition on the risk to the deposit insurance funds, the
convenience and needs of the community and competitive factors.





The Office of Thrift Supervision may
not approve any acquisition that would result in a multiple savings and loan
holding company controlling savings institutions in more than one state, subject
to two exceptions: (i) the approval of interstate supervisory acquisitions by
savings and loan holding companies; and (ii) the acquisition of a savings
institution in another state if the laws of the state target savings institution
specifically permit such acquisitions.  The states vary in the extent
to which they permit interstate savings and loan holding company
acquisitions.





Although savings and loan holding
companies are not currently subject to specific capital requirements or specific
restrictions on the payment of dividends or other capital distributions, federal
regulations do prescribe such restrictions on subsidiary savings institutions as
described above.  First Savings Bank must notify the Office of Thrift
Supervision 30 days before declaring any dividend to First Savings Financial
Group.  In addition, the financial impact of a holding company on its
subsidiary institution is a matter that is evaluated by the Office of Thrift
Supervision and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.





Acquisition of
Control.Under the federal Change in Bank Control Act, a
notice must be submitted to the Office of Thrift Supervision if any person
(including a company), or group acting in concert, seeks to acquire “control” of
a savings and loan holding company or savings association.  An
acquisition of “control” can occur upon the acquisition of 10% or more of the
voting stock of a savings and loan holding company or savings institution or as
otherwise defined by the Office of Thrift Supervision.  Acquisition of
25% or more of voting stock is definitively deemed a change in
control.  Under the Change in Bank Control Act, the Office of Thrift
Supervision has 60 days from the filing of a complete notice to act, taking into
consideration certain factors, including the financial and managerial resources
of the acquirer and the anti-trust effects of the acquisition.  Any
company that so acquires control would then be subject to regulation as a
savings and loan holding company.





Regulatory Restructuring
Legislation





The Obama Administration has proposed,
and the House of Representatives and Senate are currently considering,
legislation that would restructure the regulation of depository
institutions.  Proposals range from the merger of the Office of Thrift
Supervision with the Office of the Comptroller of the Currency, which regulates
national banks, to the creation of an independent federal agency that would
assume the regulatory responsibilities of the Office of Thrift Supervision,
Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
and Federal Reserve Board.  The federal savings association charter
would be eliminated and federal associations required to become banks under some
proposals, although others would grandfather existing charters such as that of
the Bank.  Savings and loan holding companies would become regulated
as bank holding companies under certain proposals.  Also proposed is
the creation of a new federal agency to administer and enforce consumer and fair
lending laws, a function that is now performed by the depository institution
regulators.  The federal preemption of state laws currently accorded
federally chartered depository institutions would be reduced under certain
proposals as well.





Enactment of any of these proposals
would revise the regulatory structure imposed on the Bank, which could result in
more stringent regulation.  At this time, management has no way of
predicting the contents of any final legislation, or whether any legislation
will be enacted at all.





Federal
Securities Laws





First Savings Financial Group’s common
stock is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended.  First Savings Financial
Group is subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Securities Exchange Act of 1934,
as amended.


15




Federal
Income Taxation





General.We
report our income on a fiscal year basis using the accrual method of
accounting.  The federal income tax laws apply to us in the same
manner as to other corporations with some exceptions, including particularly our
reserve for bad debts discussed below.  The following discussion of
tax matters is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to us.  For its
2009 fiscal year, First Savings Bank’s maximum federal income tax rate was
34%.





First Savings Financial Group and First
Savings Bank have entered into a tax allocation agreement.  Because
First Savings Financial Group owns 100% of the issued and outstanding capital
stock of First Savings Bank, First Savings Financial Group and First Savings
Bank are members of an affiliated group within the meaning of Section 1504(a) of
the Internal Revenue Code, of which group First Savings Financial Group is the
common parent corporation.  As a result of this affiliation, First
Savings Bank may be included in the filing of a consolidated federal income tax
return with First Savings Financial Group and, if a decision to file a
consolidated tax return is made, the parties agree to compensate each other for
their individual share of the consolidated tax liability and/or any tax benefits
provided by them in the filing of the consolidated federal income tax
return.





Our Federal income tax returns have not
been audited during the last five years.





Bad Debt
Reserves.For fiscal years beginning before June 30, 1996,
thrift institutions that qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve.  A reserve could be established
for bad debts on qualifying real property loans, generally secured by interests
in real property improved or to be improved, under the percentage of taxable
income method or the experience method.  The reserve for nonqualifying
loans was computed using the experience method.  Federal legislation
enacted in 1996 repealed the reserve method of accounting for bad debts and the
percentage of taxable income method for tax years beginning after 1995 and
require savings institutions to recapture or take into income certain portions
of their accumulated bad debt reserves.  Approximately $4.6 million of
our accumulated bad debt reserves would not be recaptured into taxable income
unless First Savings Bank makes a “non-dividend distribution” to First Savings
Financial Group as described below.





Distributions.If
First Savings Bank makes “non-dividend distributions” to First Savings Financial
Group, the distributions will be considered to have been made from First Savings
Bank’s unrecaptured tax bad debt reserves, including the balance of its reserves
as of December 31, 1987, to the extent of the “non-dividend distributions,” and
then from First Savings Bank’s supplemental reserve for losses on loans, to the
extent of those reserves, and an amount based on the amount distributed, but not
more than the amount of those reserves, will be included in First Savings Bank’s
taxable income.  Non-dividend distributions include distributions in
excess of First Savings Bank’s current and accumulated earnings and profits, as
calculated for federal income tax purposes, distributions in redemption of
stock, and distributions in partial or complete
liquidation.  Dividends paid out of First Savings Bank’s current or
accumulated earnings and profits will not be so included in First Savings Bank’s
taxable income.





The amount of additional taxable income
triggered by a non-dividend is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the
distribution.  Therefore, if First Savings Bank makes a non-dividend
distribution to First Savings Financial Group, approximately one and one-half
times the amount of the distribution not in excess of the amount of the reserves
would be includable in income for federal income tax purposes, assuming a 34%
federal corporate income tax rate.  First Savings Bank does not intend
to pay dividends that would result in a recapture of any portion of its bad debt
reserves.





State
Taxation





Indiana.Indiana
imposes an 8.5% franchise tax based on a financial institution’s adjusted gross
income as defined by statute.  In computing adjusted gross income,
deductions for municipal interest, U.S. Government interest, the bad debt
deduction computed using the reserve method and pre-1990 net operating losses
are disallowed.


16




Our state
income tax returns have not been audited during the last five
years.





Item
      1A.
            RISK
      FACTORS





Our
concentration in non-owner occupied real estate loans may expose us to increased
credit risk.





At September 30, 2009, $45.2 million,
or 24.3% of our residential mortgage loan portfolio and 12.6% of our total loan
portfolio, consisted of loans secured by non-owner occupied residential
properties.  Loans secured by non-owner occupied properties generally
expose a lender to greater risk of non-payment and loss than loans secured by
owner occupied properties because repayment of such loans depend primarily on
the tenant’s continuing ability to pay rent to the property owner, who is our
borrower, or, if the property owner is unable to find a tenant, the property
owner’s ability to repay the loan without the benefit of a rental income
stream.  In addition, the physical condition of non-owner occupied
properties is often below that of owner occupied properties due to lax property
maintenance standards, which has a negative impact on the value of the
collateral properties.  Furthermore, some of our non-owner occupied
residential loan borrowers have more than one loan outstanding with
us.  At September 30, 2009, we had 12 non-owner occupied residential
loan relationships, each having an outstanding balance over $500,000, with
aggregate outstanding balances of $15.4 million.  Consequently, an
adverse development with respect to one credit relationship may expose us to a
greater risk of loss compared to an adverse development with respect to an owner
occupied residential mortgage loan.  At September 30, 2009,
non-performing non-owner occupied residential loans amounted to
$803,000.  Non-owner occupied residential properties held as real
estate owned amounted to $306,000 at September 30, 2009.  For more
information about the credit risk we face, see“Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Risk
Management.”





Our
recent emphasis on commercial real estate lending and commercial business
lending may expose us to increased lending risks.





At September 30, 2009, $85.0 million,
or 23.6%, of our loan portfolio consisted of commercial real estate loans and
commercial business loans.  Subject to market conditions, we intend to
increase our origination of these loans.  Commercial real estate loans
generally expose a lender to greater risk of non-payment and loss than one- to
four-family residential mortgage loans because repayment of the loans often
depends on the successful operation of the property and the income stream of the
borrowers.  Commercial real estate loans also typically involve larger
loan balances to single borrowers or groups of related borrowers both at
origination and at maturity because many of our commercial real estate loans are
not fully-amortizing, but result in “balloon” balances at
maturity.  Commercial business loans expose us to additional risks
since they typically are made on the basis of the borrower’s ability to make
repayments from the cash flow of the borrower’s business and are secured by
non-real estate collateral that may depreciate over time.  In
addition, some of our commercial borrowers have more than one loan outstanding
with us.  Consequently, an adverse development with respect to one
loan or one credit relationship may expose us to a greater risk of loss compared
to an adverse development with respect to a one- to four-family residential
mortgage loan.  At September 30, 2009, non-performing commercial
business loans and non-performing commercial real estate loans totaled $572,000
and $1.1 million, respectively.  For more information about the credit
risk we face, see“Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Risk Management.”





Our
unseasoned commercial real estate loan and commercial business loan portfolios
may expose us to increased lending risks.





A significant amount of our commercial
real estate loans and commercial business loans are unseasoned, meaning that
they were originated recently.  Our limited experience with these
loans does not provide us with a significant payment history pattern with which
to judge future collectibility.  Furthermore, these loans have not
been subjected to unfavorable economic conditions.  As a result, it
may be difficult to predict the future performance of this part of our loan
portfolio.  These loans may have delinquency or charge-off levels
above our expectations, which could adversely affect our future
performance.


17





Our
construction loan and land and land development loan portfolios may expose us to
increased credit risk.





At September 30, 2009, $33.4 million,
or 9.27% of our loan portfolio consisted of construction loans, farmland and
land and land development loans, and $8.2 million, or 36.9% of the construction
loan portfolio, consisted of speculative construction loans at that
date.  While recently the demand for construction loans has decreased
significantly due to the decline in the housing market, historically,
construction loans, including speculative construction loans, have been a
material part of our loan portfolio.  Speculative construction loans
are loans made to builders who have not identified a buyer for the completed
property at the time of loan origination.  Subject to market
conditions, we intend to continue to emphasize the origination of construction
loans and land and land development loans.  These loan types generally
expose a lender to greater risk of nonpayment and loss than residential mortgage
loans because the repayment of such loans often depends on the successful
operation or sale of the property and the income stream of the borrowers and
such loans typically involve larger balances to a single borrower or groups of
related borrowers.  In addition, many borrowers of these types of
loans have more than one loan outstanding with us so an adverse development with
respect to one loan or credit relationship can expose us to significantly
greater risk of non-payment and loss.  Furthermore, we may need to
increase our allowance for loan losses through future charges to income as the
portfolio of these types of loans grows, which would hurt our
earnings.  For more information about the credit risk we face,
see“Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Risk
Management.”





Changing
interest rates may hurt our earnings and asset value.





Our net
interest income is the interest we earn on loans and investments less the
interest we pay on our deposits and borrowings.  Our net interest
margin is the difference between the yield we earn on our assets and the
interest rate we pay for deposits and our other sources of
funding.  Changes in interest rates—up or down—could adversely affect
our net interest margin and, as a result, our net interest
income.  Although the yield we earn on our assets and our funding
costs tend to move in the same direction in response to changes in interest
rates, one can rise or fall faster than the other, causing our net interest
margin to expand or contract.  Our liabilities tend to be shorter in
duration than our assets, so they may adjust faster in response to changes in
interest rates.  As a result, when interest rates rise, our funding
costs may rise faster than the yield we earn on our assets, causing our net
interest margin to contract until the yield catches up.  Changes in
the slope of the “yield curve”—or the spread between short-term and long-term
interest rates—could also reduce our net interest margin.  Normally,
the yield curve is upward sloping, meaning short-term rates are lower than
long-term rates.  Because our liabilities tend to be shorter in
duration than our assets, when the yield curve flattens or even inverts, we
could experience pressure on our net interest margin as our cost of funds
increases relative to the yield we can earn on our assets.  In
addition, over the last year, the U.S. Federal Reserve has decreased its target
rate for federal funds from 1.00% to 0.25%.  Interest rate decreases
can lead to increased prepayments of loans and mortgage-backed securities as
borrowers refinance their loans to reduce borrowing costs.  Under
these circumstances, we are subject to reinvestment risk as we may have to
redeploy such repayment proceeds into lower yielding investments, which would
likely hurt our income.





Changes
in interest rates also affect the value of our interest-earning assets, and in
particular our securities portfolio.  Generally, the value of
fixed-rate securities fluctuates inversely with changes in interest
rates.  Unrealized gains and losses on securities available for sale
are reported as a separate component of equity, net of tax.  Decreases
in the fair value of securities available for sale resulting from increases in
interest rates could have an adverse effect on stockholders’
equity.  For further discussion of how changes in interest rates could
impact us, see “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations —Risk Management — Interest Rate Risk
Management.”





We
may fail to realize the anticipated benefits of the Community First
acquisition.





The success of the Community First
acquisition depends primarily on our ability to successfully integrate the
operations of Community First by, among other things, realizing anticipated cost
savings, retaining Community First’s loan and deposit customers and its key
personnel, and successfully managing any growth resulting from the
acquisition.  If we are unable to integrate Community First’s
operations successfully, the anticipated benefits of the acquisition may not be
fully realized, if at all, or may take longer to realize than expected, which
may have a material adverse effect of our financial conditions and results of
operations.


18


A
downturn in the local economy or a decline in real estate values could hurt our
profits.





Substantially all of our loans are
secured by real estate in Clark, Floyd, Harrison, Crawford and Washington
Counties, Indiana, and the surrounding areas.  As a result of this
concentration, a downturn in the local economy could significantly increase
nonperforming loans, which would hurt our profits.  A decline in real
estate values could lead to some of our mortgage loans becoming inadequately
collateralized, which would expose us to greater risk of
loss.  Additionally, a decline in real estate values could hurt our
portfolio of construction loans, nonresidential real estate loans, and land and
land development loans and could reduce our ability to originate such
loans.  For a discussion of our primary market area, see “Item 1. Business — Market
Area.”





Strong
competition within our primary market area could hurt our profits and slow
growth.





We face intense competition both in
making loans and attracting deposits.  This competition has made it
more difficult for us to make new loans and attract deposits.  Price
competition for loans and deposits might result in us earning less on our loans
and paying more on our deposits, which would reduce net interest
income.  Competition also makes it more difficult to grow loans and
deposits.  At June 30, 2009, which is the most recent date for which
data is available from the Federal Deposit Insurance Corporation, we held
approximately 13.20%, 1.34%, 14.73%, 71.15% and 7.37% of the FDIC-insured
deposits in Clark, Floyd, Harrison, Crawford and Washington Counties, Indiana,
respectively.  Some of the institutions with which we compete have
substantially greater resources and lending limits than we have and may offer
services that we do not provide.  We expect competition to increase in
the future as a result of legislative, regulatory and technological changes and
the continuing trend of consolidation in the financial services
industry.  Our profitability depends upon our continued ability to
compete successfully in our primary market area.  See “Item 1. Business — Market
Area” and “Item 1.
Business — Competition” for more information about our primary market
area and the competition we face.





We
operate in a highly regulated environment and we may be adversely affected by
changes in laws and regulations.





We are subject to extensive regulation,
supervision and examination by the Office of Thrift Supervision, our chartering
authority, and by the Federal Deposit Insurance Corporation, as insurer of our
deposits.  First Savings Financial Group is also subject to regulation
and supervision by the Office of Thrift Supervision.  Such regulation
and supervision governs the activities in which an institution and its holding
company may engage, and are intended primarily for the protection of the
insurance fund and the depositors and borrowers of First Savings Bank rather
than for holders of First Savings Financial Group common
stock.  Regulatory authorities have extensive discretion in their
supervisory and enforcement activities, including the imposition of restrictions
on our operations, the classification of our assets and determination of the
level of our allowance for loan losses.  If our regulators require us
to charge-off loans or increase our allowance for loan losses, our earnings
would suffer.  Any change in such regulation and oversight, whether in
the form of regulatory policy, regulations, legislation or supervisory action,
may have a material impact on our operations.  For a further
discussion, see “Item 1.
Business – Regulation and Supervision.”





The
current administration has also proposed comprehensive legislation intended to
modernize regulation of the United States financial system. The proposed
legislation contains several provisions that would have a direct impact on First
Savings Financial Group and First Savings Bank. Under the proposed legislation,
the federal savings association charter would be eliminated and the Office of
Thrift Supervision would be consolidated with the Comptroller of the Currency
into a new regulator, the National Bank Supervisor. The proposed legislation
would also require First Savings Bank to convert to a national bank or a
state-chartered institution. In addition, the proposed legislation would
eliminate the status of “savings and loan holding company” and mandate that
First Savings Financial Group register as a bank holding company. Registration
as a bank holding company would represent a significant change because there are
material differences between savings and loan holding company and bank holding
company supervision and regulation. For example, bank holding companies above a
specified asset size are subject to consolidated leverage and risk-based capital
requirements whereas savings and loan holding companies are not subject to such
requirements. The proposed legislation would also create the Consumer Financial
Protection Agency, a new federal agency dedicated to administering and enforcing
fair lending and consumer compliance laws with respect to financial products and
services, which would create new regulatory requirements and increased
regulatory compliance costs for us. If enacted, the proposed legislation may
have a material impact on our operations. However, because any final legislation
may differ significantly from the current administration’s proposal, the
specific effects of the legislation cannot be evaluated at this
time.


19





Expenses
from operating as a public company and from new equity benefit plans will
continue to adversely affect our profitability.





Our
noninterest expenses are impacted as a result of the financial, accounting,
legal and various other additional expenses usually associated with operating as
a public company.  We also recognize additional annual employee
compensation and benefit expenses stemming from the shares that are purchased or
granted to employees and executives under the employee stock ownership plan and
other new benefit plans.  These additional expenses adversely affect
our profitability.  We recognize expenses for our employee stock
ownership plan when shares are committed to be released to participants’
accounts and will recognize expenses for restricted stock awards and stock
options over the vesting period of awards made to recipients.





Our
contribution to First Savings Charitable Foundation may not be tax deductible,
which could hurt our profits.





We believe that our contribution to
First Savings Charitable Foundation, valued at $1.2 million, pre-tax, will be
deductible for federal income tax purposes.  However, we do not have
any assurance that the Internal Revenue Service will grant tax-exempt status to
the foundation.  If the contribution is not deductible, we would not
receive any tax benefit from the contribution.  In addition, even if
the contribution is tax deductible, we may not have sufficient profits to be
able to use the deduction fully.  In the event it is more likely than
not that we will be unable to use the entire deduction, we will be required to
establish a valuation allowance related to any deferred tax asset that has been
recorded for this contribution.





Item
      1B.
            UNRESOLVED
      STAFF COMMENTS





None.


20


Item
      2.
            PROPERTIES





We conduct our business through our
main office and branch offices.  The following table sets forth
certain information relating to these facilities as of September 30,
2009.





Location
                                
                                Year
                                  Opened
                                
                                Owned/
                                  LeasedMain
      Office:Clarksville
      Main Office
                                  501 East Lewis & Clark
      Parkway
                                  Clarksville,
      Indiana
                                
                                1968
                                
                                OwnedBranch
      Offices:Jeffersonville
      - Allison Lane Office
                                  2213 Allison Lane
                                  Jeffersonville,
      Indiana
                                
                                1975
                                
                                OwnedCharlestown
      Office
                                  1100 Market Street
                                  Charlestown,
      Indiana
                                
                                1993
                                
                                OwnedFloyd
      Knobs Office
                                  3711 Paoli Pike
                                  Floyd Knobs,
      Indiana
                                
                                1999
                                
                                OwnedGeorgetown
      Office
                                  1000 Copperfield
      Drive
                                  Georgetown,
    Indiana
                                
                                2003
                                
                                OwnedJeffersonville
      - Court Avenue Office
                                  202 East Court
      Avenue
                                  Jeffersonville,
      Indiana
                                
                                1986
                                
                                OwnedSellersburg
      Office
                                  125 Hunter Station
      Way
                                  Sellersburg,
      Indiana
                                
                                1995
                                
                                OwnedCorydon
      – Hwy 62 Office
                                  900 Hwy 62 NW
                                  Corydon,
Indiana
                                
                                1996
                                
                                OwnedCorydon
      – Chestnut Street Office
                                  117 E Chestnut
      Street
                                  Corydon,
Indiana
                                
                                1994
                                
                                LeasedSalem
      Office
                                  1336 S Jackson
      Street
                                  Salem, Indiana
                                
                                1995
                                
                                OwnedEnglish
      Office
                                  200 Indiana Avenue
                                  English,
Indiana
                                
                                1925
                                
                                OwnedMarengo
      Office
                                  125 W Old Short
      Street
                                  Marengo,
Indiana
                                
                                1984
                                
                                OwnedMilltown
      Office
                                  430 E State Road
64
                                  Milltown,
    Indiana
                                
                                1983
                                
                                OwnedLeavenworth
      Office
                                  510 Hwy 62
                                  Leavenworth,
      Indiana
                                
                                1969
                                
                                Owned




21





Item
      3.
            LEGAL
      PROCEEDINGS





Periodically, there have been various
claims and lawsuits against us, such as claims to enforce liens, condemnation
proceedings on properties in which we hold security interests, claims involving
the making and servicing of real property loans and other issues incident to our
business.  We are not a party to any pending legal proceedings that we
believe would have a material adverse effect on our financial condition, results
of operations or cash flows.





Item
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None.


PART
II





Item
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





Market
for Common Equity and Related Stockholder Matters





The Company’s common stock is listed on
the Nasdaq Capital Market (“Nasdaq”) under the trading symbol
“FSFG.”  The Company completed its initial public offering on October
6, 2008 and commenced trading on October 7, 2008.  As of December 24,
2009, the Company had approximately 355 holders of record and 2,414,940 shares
of common stock outstanding.  The figure of shareholders of record
does not reflect the number of person whose shares are in nominee or “street”
name accounts through brokers.





The
following table sets forth the high and low sales prices for each full quarterly
period during which the Company’s stock was traded during the past fiscal
year.  Because the Company’s stock did not begin trading until October
7, 2008, information is provided beginning with the quarter ended March 31,
2009.  See Item 1, “Business—Regulation and
Supervision—Limitation on Capital Distributions” and note 20 to the notes
to the consolidated financial statements beginning on page F-1 of this annual
report for information regarding dividend restrictions applicable to the
Company.





High
                        
                        
                        Low
                        
                        
                        
                        
                        
                        Market priceSale
                        
                        
                        Sale
                        
                        
                        Dividends
                        
                        
                        end of periodFiscal
      Year Ended September 30, 2009:Fourth
      Quarter
                        
                        $
                        11.00
                        
                        
                        $
                        9.85
                        
                        
                        $
                        0.00
                        
                        
                        $
                        10.70Third
      Quarter
                        
                        
                        10.85
                        
                        
                        
                        9.59
                        
                        
                        
                        0.00
                        
                        
                        
                        9.85Second
      Quarter
                        
                        
                        10.05
                        
                        
                        
                        8.99
                        
                        
                        
                        0.00
                        
                        
                        
                        9.60First
      Quarter
                        
                        
                        N/A
                        
                        
                        
                        N/A
                        
                        
                        
                        N/A
                        
                        
                        
                        N/A





Purchases
of Equity Securities





First Savings Financial Group did not
purchase any shares of its common stock during the fiscal year ended September
30, 2009.




22


Item
      6.
            SELECTED
      FINANCIAL DATA





The following tables contain certain
information concerning our consolidated financial position and results of
operations, which is derived in part from our audited consolidated financial
statements.  The following is only a summary and should be read in
conjunction with the audited consolidated financial statements and notes
beginning on page F-1 of this annual report.





At
      September 30,(In
      thousands)
                                
                                2009
                                
                                
                                2008
                                
                                
                                2007
                                
                                
                                2006
                                
                                
                                2005Financial
      Condition Data:Total
      assets
                                
                                $
                                480,811
                                
                                
                                $
                                228,924
                                
                                
                                $
                                203,321
                                
                                
                                $
                                206,399
                                
                                
                                $
                                205,796Cash
      and cash equivalents
                                
                                
                                10,404
                                
                                
                                
                                21,379
                                
                                
                                
                                10,395
                                
                                
                                
                                15,223
                                
                                
                                
                                14,651Securities
      available-for-sale
                                
                                
                                72,580
                                
                                
                                
                                10,697
                                
                                
                                
                                8,260
                                
                                
                                
                                5,897
                                
                                
                                
                                7,039Securities
      held-to-maturity
                                
                                
                                6,782
                                
                                
                                
                                8,456
                                
                                
                                
                                7,422
                                
                                
                                
                                8,219
                                
                                
                                
                                11,602Loans
      net
                                
                                
                                353,823
                                
                                
                                
                                174,807
                                
                                
                                
                                167,371
                                
                                
                                
                                166,695
                                
                                
                                
                                163,676Deposits
                                
                                
                                350,816
                                
                                
                                
                                189,209
                                
                                
                                
                                168,782
                                
                                
                                
                                175,891
                                
                                
                                
                                175,451Borrowings
      from Federal Home Loan Bank
                                
                                
                                55,773
                                
                                
                                
                                8,000
                                
                                
                                
                                3,000
                                
                                
                                
                                –
                                
                                
                                
                                –Stockholders’
      equity (total equity before September 30, 2009)
                                
                                
                                52,877
                                
                                
                                
                                29,720
                                
                                
                                
                                29,662
                                
                                
                                
                                28,850
                                
                                
                                
                                28,487




For
      the Year Ended September 30,(In
      thousands)
                            
                            2009
                            
                            
                            2008
                            
                            
                            2007
                            
                            
                            2006
                            
                            
                            2005Operating
      Data:Interest
      income
                            
                            $
                            13,008
                            
                            
                            $
                            12,523
                            
                            
                            $
                            13,078
                            
                            
                            $
                            12,223
                            
                            
                            $
                            10,874Interest
      expense
                            
                            
                            4,440
                            
                            
                            
                            5,972
                            
                            
                            
                            6,183
                            
                            
                            
                            5,250
                            
                            
                            
                            4,255Net
      interest income
                            
                            
                            8,568
                            
                            
                            
                            6,551
                            
                            
                            
                            6,895
                            
                            
                            
                            6,973
                            
                            
                            
                            6,619Provision
      for loan losses
                            
                            
                            819
                            
                            
                            
                            1,540
                            
                            
                            
                            758
                            
                            
                            
                            813
                            
                            
                            
                            336Net
      interest income after provision for loan losses
                            
                            
                            7,749
                            
                            
                            
                            5,011
                            
                            
                            
                            6,137
                            
                            
                            
                            6,160
                            
                            
                            
                            6,283Noninterest
      income
                            
                            
                            1,263
                            
                            
                            
                            1,054
                            
                            
                            
                            841
                            
                            
                            
                            889
                            
                            
                            
                            1,306Noninterest
      expense
                            
                            
                            9,231
                            
                            
                            
                            6,555
                            
                            
                            
                            5,737
                            
                            
                            
                            6,453
                            
                            
                            
                            5,601Income
      (loss) before income taxes
                            
                            
                            (219
                            )
                            
                            
                            (490
                            )
                            
                            
                            1,241
                            
                            
                            
                            596
                            
                            
                            
                            1,988Income
      tax expense (benefit)
                            
                            
                            (252
                            )
                            
                            
                            (300
                            )
                            
                            
                            427
                            
                            
                            
                            241
                            
                            
                            
                            784Net
      income (loss)
                            
                            $
                            33
                            
                            
                            $
                            (190
                            )
                            
                            $
                            814
                            
                            
                            $
                            355
                            
                            
                            $
                            1,204




Per
      Share Data:Net
      income - basic
                  
                  $
                  0.01
                  
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  N/ANet
      income - diluted
                  
                  
                  0.01
                  
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  N/ADividends
                  
                  
                  0.00
                  
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  N/A


23





At
      or For the Year Ended September 30,2009
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005Performance
      Ratios:Return
      on average assets
                  
                  
                  0.01
                  %
                  
                  
                  (0.09
                  )%
                  
                  
                  0.40
                  %
                  
                  
                  0.17
                  %
                  
                  
                  0.57
                  %Return
      on average equity
                  
                  
                  0.06
                  
                  
                  
                  (0.64
                  )
                  
                  
                  2.78
                  
                  
                  
                  1.24
                  
                  
                  
                  4.32Interest
      rate spread (1)
                  
                  
                  3.41
                  
                  
                  
                  2.97
                  
                  
                  
                  3.48
                  
                  
                  
                  3.49
                  
                  
                  
                  3.34Net
      interest margin (2)
                  
                  
                  3.93
                  
                  
                  
                  3.38
                  
                  
                  
                  3.77
                  
                  
                  
                  3.74
                  
                  
                  
                  3.50Other
      expenses to average assets
                  
                  
                  3.90
                  
                  
                  
                  3.11
                  
                  
                  
                  2.79
                  
                  
                  
                  3.13
                  
                  
                  
                  2.66Efficiency
      ratio (3)
                  
                  
                  93.90
                  
                  
                  
                  86.19
                  
                  
                  
                  74.16
                  
                  
                  
                  82.08
                  
                  
                  
                  70.68Average
      interest-earning assets to
                    average
      interest-bearing liabilities
                  
                  
                  125.66
                  
                  
                  
                  113.15
                  
                  
                  
                  108.61
                  
                  
                  
                  109.23
                  
                  
                  
                  107.59Average
      equity to average assets
                  
                  
                  21.84
                  
                  
                  
                  14.07
                  
                  
                  
                  14.24
                  
                  
                  
                  13.91
                  
                  
                  
                  13.24Capital
      Ratios:Tangible
      capital (4)
                  
                  
                  7.55
                  %
                  
                  
                  12.87
                  %
                  
                  
                  14.56
                  %
                  
                  
                  13.96
                  %
                  
                  
                  13.82
                  %Core
      capital (4)
                  
                  
                  7.55
                  
                  
                  
                  12.87
                  
                  
                  
                  14.56
                  
                  
                  
                  13.96
                  
                  
                  
                  13.82Risk-based
      capital (4)
                  
                  
                  12.32
                  
                  
                  
                  22.09
                  
                  
                  
                  24.70
                  
                  
                  
                  23.36
                  
                  
                  
                  23.84Asset
      Quality Ratios:Allowance
      for loan losses as a percent of
                    total
      loans
                  
                  
                  1.03
                  %
                  
                  
                  0.98
                  %
                  
                  
                  0.75
                  %
                  
                  
                  0.51
                  %
                  
                  
                  0.52
                  %Allowance
      for loan losses as a percent of
                    non-performing
      loans
                  
                  
                  70.06
                  
                  
                  
                  104.72
                  
                  
                  
                  117.16
                  
                  
                  
                  50.61
                  
                  
                  
                  55.79Net
      charge-offs to average outstanding
                    loans
      during the period
                  
                  
                  0.38
                  
                  
                  
                  0.64
                  
                  
                  
                  0.21
                  
                  
                  
                  0.51
                  
                  
                  
                  0.16Non-performing
      loans as a percent
                    of
      total loans
                  
                  
                  1.49
                  
                  
                  
                  0.94
                  
                  
                  
                  0.64
                  
                  
                  
                  1.01
                  
                  
                  
                  0.93Non-performing
      assets as a percent
                    of
      total assets
                  
                  
                  1.44
                  
                  
                  
                  0.96
                  
                  
                  
                  1.27
                  
                  
                  
                  1.79
                  
                  
                  
                  1.14Other
      Data:Number
      of offices
                  
                  
                  14
                  
                  
                  
                  7
                  
                  
                  
                  7
                  
                  
                  
                  7
                  
                  
                  
                  7Number
      of deposit accounts (5)
                  
                  
                  32,689
                  
                  
                  
                  16,831
                  
                  
                  
                  17,525
                  
                  
                  
                  17,962
                  
                  
                  
                  17,930Number
      of loans (6)
                  
                  
                  6,552
                  
                  
                  
                  2,188
                  
                  
                  
                  2,216
                  
                  
                  
                  2,325
                  
                  
                  
                  2,516





(1)
            Represents
      the difference between the weighted average yield on average
      interest-earning assets and the weighted average cost on average
      interest-bearing liabilities.  Tax exempt income is reported on
      a tax equivalent basis using a federal marginal tax rate of
      34%.


(2)
            Represents
      net interest income as a percent of average interest-earning
      assets.  Tax exempt income is reported on a tax equivalent basis
      using a federal marginal tax rate of
34%.


(3)
            Represents
      other expenses divided by the sum of net interest income and other
      income.


(4)
            Represents
      the capital ratios of only the
Bank.


(5)
              The
      2009 figure includes 16,455 deposit accounts acquired in the acquisition
      of Community First.


(6)
              The
      2009 figure includes 4,595 loans acquired in the acquisition of Community
      First.


24


Item
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
      CONDITION





Overview





Income.Our
primary source of pre-tax income is net interest income.  Net interest
income is the difference between interest income, which is the income that we
earn on our loans and investments, and interest expense, which is the interest
that we pay on our deposits and borrowings.  Other significant sources
of pre-tax income are service charges (mostly from service charges on deposit
accounts and loan servicing fees), increases in the cash surrender value of life
insurance, fees from sale of mortgage loans originated for sale in the secondary
market and commissions on sales of securities and insurance
products.  We also recognize income from the sale of
securities.





Allowance for
Loan Losses.The allowance for loan losses is a valuation
allowance for probable losses inherent in the loan portfolio.  We
evaluate the need to establish allowances against losses on loans on a quarterly
basis.  When additional allowances are necessary, a provision for loan
losses is charged to earnings.





Expenses.The
noninterest expenses we incur in operating our business consist of salaries and
employee benefits expenses, occupancy expenses, data processing expenses,
professional service fees, federal deposit insurance premiums and other
miscellaneous expenses.  Our noninterest expenses increased as a
result of operating as a public company.  These additional expenses
consist primarily of legal and accounting fees, expenses of shareholder
communications and meetings and stock exchange listing fees.





Salaries and employee benefits consist
primarily of: salaries and wages paid to our employees; payroll taxes; and
expenses for health insurance, retirement plans and other employee
benefits.  Upon shareholder approval and adoption of new equity
benefit plans, we will recognize additional annual employee compensation
expenses.  We cannot determine the actual amount of these new
stock-related compensation and benefit expenses at this time because applicable
accounting practices require that they be based on the fair market value of the
shares of common stock at specific points in the future.





Occupancy expenses, which are the fixed
and variable costs of buildings and equipment, consist primarily of depreciation
charges, furniture and equipment expenses, maintenance, real estate taxes and
costs of utilities.  Depreciation of premises and equipment is
computed using the straight-line method based on the useful lives of the related
assets, which range from three to 50 years.





Data processing expenses are the fees
we pay to third parties for processing customer information, deposits and
loans.





Federal deposit insurance premiums are
payments we make to the Federal Deposit Insurance Corporation for insurance of
our deposit accounts.





Our contribution to the charitable
foundation is an additional operating expense that reduced net income during
2009.  The significant expense resulting from the contribution to the
foundation will not be a recurring one.





Other expenses include expenses for
advertising, office supplies, postage, telephone, insurance, regulatory
assessments and other miscellaneous operating expenses.





Critical
Accounting Policies





We consider accounting policies
involving significant judgments and assumptions by management that have, or
could have, a material impact on the carrying value of certain assets or on
income to be critical accounting policies.  We consider the allowance
for loan losses to be our only critical accounting policy.


25





Allowance for
Loan Losses.  The allowance for loan losses is the amount
estimated by management as necessary to cover losses inherent in the loan
portfolio at the balance sheet date.  The allowance is established
through the provision for loan losses, which is charged to
income.  Determining the amount of the allowance for loan losses
necessarily involves a high degree of judgment.  Among the material
estimates required to establish the allowance are: loss exposure at default; the
amount and timing of future cash flows on impacted loans; value of collateral;
and determination of loss factors to be applied to the various elements of the
portfolio.  All of these estimates are susceptible to significant
change.  Management reviews the level of the allowance at least
quarterly and establishes the provision for loan losses based upon an evaluation
of the portfolio, past loss experience, current economic conditions and other
factors related to the collectibility of the loan portfolio.  Although
we believe that we use the best information available to establish the allowance
for loan losses, future adjustments to the allowance may be necessary if
economic or other conditions differ substantially from the assumptions used in
making the evaluation.  In addition, the Office of Thrift Supervision,
as an integral part of its examination process, periodically reviews our
allowance for loan losses and may require us to recognize adjustments to the
allowance based on its judgments about information available to it at the time
of its examination.  A large loss could deplete the allowance and
require increased provisions to replenish the allowance, which would adversely
affect earnings.  See note 4 of the notes to consolidated financial
statements beginning on page F-1 of this annual report.





Operating
Strategy





Our mission is to operate and grow a
profitable community-oriented financial institution.  We plan to
achieve this by executing our strategy of:





·
            continuing
      our historical focus on residential mortgage lending but de-emphasizing
      residential mortgage lending secured by non-owner occupied
      properties;





·
            pursuing
      opportunities to increase commercial real estate lending and commercial
      business lending;





·
            providing
      exceptional customer service to attract and retain customers;
      and





·
            expanding
      our market share and market area by opening new branch offices and
      pursuing opportunities to acquire other financial institutions or
      branches.





Continuing
our historical focus on residential mortgage lending but de-emphasizing
residential mortgage lending secured by non-owner occupied
properties.





Our predominant lending activity has
been residential mortgage lending in our primary market area.  A
significant portion of the residential mortgage loans that we had originated
before 2005 are secured by non-owner occupied properties.  Loans
secured by non-owner occupied properties generally carry a greater risk of loss
than loans secured by owner-occupied properties, and our non-performing loan
balances have increased in recent periods primarily because of delinquencies in
our non-owner occupied residential loan portfolio.  Since 2005, when
we hired a new President and Chief Executive Officer, we have de-emphasized
non-owner occupied residential mortgage lending and have focused, and intend to
continue to focus, our residential mortgage lending primarily on originating
residential mortgage loans secured by owner-occupied properties.  At
September 30, 2009, 51.6% of our total loans were residential mortgage loans and
24.3% of our residential mortgage loans were secured by non-owner occupied
properties.  We intend to expand our emphasis on residential mortgage
lending because this type of lending generally carries lower credit risk and has
contributed to our historically favorable asset quality.





Pursuing opportunities to increase
commercial real estate lending and commercial business lending.





In recent periods, we have begun to
focus on commercial real estate and commercial business lending and intend to
continue this focus.  Commercial real estate loans and commercial
business loans give us the opportunity to earn more income because these loans
have higher interest rates than residential mortgage loans in order to
compensate for the increased credit risk.  At September 30, 2009,
commercial real estate loans and commercial business loans represented 13.4% and
10.3%, respectively, of our total loans.  We intend to continue to
pursue these lending opportunities in our primary market area.


26





Providing exceptional customer service
to attract and retain customers.





As a community-oriented financial
institution, we emphasize providing exceptional customer service as a means to
attract and retain customers.  We deliver personalized service and
respond with flexibility to customer needs.  We believe that our
community orientation is attractive to our customers and distinguishes us from
the larger banks that operate in our primary market area.





Expanding our market share and market
area.





The acquisition of Community First
expanded our market area into Harrison, Crawford and Washington Counties,
Indiana.  We intend to continue to pursue opportunities to expand our
market share and market area by seeking to open additional branch offices and
pursuing opportunities to acquire other financial institutions or branches of
other financial institutions in our primary market area and surrounding
areas.





Balance
Sheet Analysis





Cash and Cash
Equivalents.  At September 30, 2009 and September 30, 2008,
cash and cash equivalents totaled $10.4 million and $21.4 million,
respectively.  Cash and cash equivalents decreased primarily due to
the investment of the stock conversion proceeds which were held on deposit at
September 30, 2008, offset by $4.0 million acquired in the acquisition of
Community First.





Loans.Our
primary lending activity is the origination of loans secured by real
estate.  We originate one-to four-family mortgage loans, multifamily
loans, commercial real estate loans, commercial business loans and construction
loans.  To a lesser extent, we originate various consumer loans
including home equity lines of credit and credit cards.





Residential mortgage loans comprise the
largest segment of our loan portfolio.  At September 30, 2009, these
loans totaled $185.8 million, or 51.6% of total loans, compared to $113.5
million, or 64.2% of total loans at September 30, 2008.  Total
residential mortgage loan balances increased in 2009 primarily due to $77.3
million of these loans acquired in the acquisition of Community First, partially
offset by repayments during 2009.  We generally originate loans for
investment purposes, although, depending on the interest rate environment, we
typically sell 25-year and 30-year fixed-rate residential mortgage loans that we
originate into the secondary market in order to limit exposure to interest rate
risk and to earn noninterest income.  Management intends to continue
offering short-term adjustable rate residential mortgage loans and sell
long-term fixed rate mortgage loans in the secondary market with servicing
released.





Commercial
real estate loans totaled $48.1 million, or 13.4% of total loans at September
30, 2009, compared to $15.5 million, or 8.7% of total loans at September 30,
2008.  The balance of commercial real estate loans has increased
primarily due to $24.4 million of these loans acquired in the acquisition of
Community First and management’s focus on originating these loans during
2009.  In addition, we have had a greater opportunity to originate
these loans during 2009 as a result of our increased commercial lending
personnel and decreased competition in the marketplace.  Management
continues to focus on pursuing nonresidential loan opportunities in order to
continue diversifying the loan portfolio.





Multi-family real estate loans totaled
$12.6 million, or 3.5% of total loans at September 30, 2009, compared to $3.3
million, or 1.9% of total loans at September 30, 2008.  The balance of
multi-family real estate loans increased primarily due to $4.0 million of these
loans acquired in the acquisition of Community First, our increased commercial
lending personnel and our offering of competitive short-term rates on these
loans during 2009.





Residential construction loans totaled
$14.6 million, or 4.0% of total loans, at September 30, 2009 of which $8.2
million were speculative construction loans.  At September 30,
2008, residential construction loans totaled $6.2 million, or 3.5% of total
loans, of which $4.5 million were speculative loans.  The increase in
residential construction loan balances is due primarily to $10.2 million of
these loans acquired in the acquisition of Community First, offset by less
originations of such loans during 2009 due to the general slowdown in the
housing market in our primary market area and, to a lesser extent, increased
competition in the market for these loans.  The Bank is a leading
construction lender in its marketplace and management intends to aggressively
pursue quality construction lending opportunities when the housing market
recovers.


27





Commercial construction loans totaled
$7.6 million, or 2.1% of total loans, at September 30, 2009 compared to $2.0
million, or 1.1% of total loans at September 30,
2008.  Commercial construction loan balances increased primarily due
to $7.2 million of these loans acquired in the acquisition of Community First,
offset by the payoff by permanent financing of a $1.7 million commercial
construction loan during 2009 and a general slowdown of commercial construction
in our primary market area and increased competition in the marketplace for
these loans.





Land and
land development loans totaled $11.2 million, or 3.1% of total loans at
September 30, 2009, compared to $4.7 million, or 2.7% of total loans at
September 30, 2008.  The increase is due primarily due to $6.1 million
of these loans acquired in the acquisition of Community First.  These
loans are primarily secured by vacant lots to be improved for residential and
nonresidential development and farmland.





Commercial business loans totaled $36.9
million, or 10.3% of total loans, at September 30, 2009 compared to $14.4
million, or 8.2% of total loans, at September 30, 2008.  Commercial
business loan balances increased primarily due to $20.6 million of these loans
acquired in the acquisition of Community First and as a result of our increased
commercial lending personnel.





Consumer loans totaled $43.2 million,
or 12.0% of total loans, at September 30, 2009 compared to $17.2 million, or
9.7% of total loans, at September 30, 2008.  The total balance of
consumer loans has increased primarily due to $26.6 million of these loans
acquired in the acquisition of Community First.  In general, consumer
loans, including home equity lines of credit, unsecured loans and loans secured
by deposits, have declined due to pay-downs, payoffs, charge-offs and
management’s decision to focus on other lending opportunities with less inherent
credit risk.


28


The following table sets forth the
composition of our loan portfolio at the dates indicated.





At
      September 30,2009
                                  
                                  
                                  2008
                                  
                                  
                                  2007
                                  
                                  
                                  2006
                                  
                                  
                                  2005(Dollars
      in thousands)
                                  
                                  Amount
                                  
                                  
                                  Percent
                                  
                                  
                                  Amount
                                  
                                  
                                  Percent
                                  
                                  
                                  Amount
                                  
                                  
                                  Percent
                                  
                                  
                                  Amount
                                  
                                  
                                  Percent
                                  
                                  
                                  Amount
                                  
                                  
                                  PercentReal
      estate mortgage:Residential
                                  
                                  $
                                  185,800
                                  
                                  
                                  
                                  51.61
                                  %
                                  
                                  $
                                  113,518
                                  
                                  
                                  
                                  64.20
                                  %
                                  
                                  $
                                  104,297
                                  
                                  
                                  
                                  60.33
                                  %
                                  
                                  $
                                  101,122
                                  
                                  
                                  
                                  59.29
                                  %
                                  
                                  $
                                  105,150
                                  
                                  
                                  
                                  61.62
                                  %Commercial
                                  
                                  
                                  48,090
                                  
                                  
                                  
                                  13.36
                                  
                                  
                                  
                                  15,459
                                  
                                  
                                  
                                  8.74
                                  
                                  
                                  
                                  18,364
                                  
                                  
                                  
                                  10.62
                                  
                                  
                                  
                                  19,090
                                  
                                  
                                  
                                  11.19
                                  
                                  
                                  
                                  11,738
                                  
                                  
                                  
                                  6.88Multi-family
                                  
                                  
                                  12,584
                                  
                                  
                                  
                                  3.50
                                  
                                  
                                  
                                  3,282
                                  
                                  
                                  
                                  1.86
                                  
                                  
                                  
                                  1,275
                                  
                                  
                                  
                                  0.74
                                  
                                  
                                  
                                  1,821
                                  
                                  
                                  
                                  1.07
                                  
                                  
                                  
                                  1,640
                                  
                                  
                                  
                                  0.96Residential
      construction
                                  
                                  
                                  14,555
                                  
                                  
                                  
                                  4.04
                                  
                                  
                                  
                                  6,189
                                  
                                  
                                  
                                  3.50
                                  
                                  
                                  
                                  11,583
                                  
                                  
                                  
                                  6.70
                                  
                                  
                                  
                                  20,562
                                  
                                  
                                  
                                  12.06
                                  
                                  
                                  
                                  22,110
                                  
                                  
                                  
                                  12.96Commercial
      construction
                                  
                                  
                                  7,648
                                  
                                  
                                  
                                  2.12
                                  
                                  
                                  
                                  1,991
                                  
                                  
                                  
                                  1.13
                                  
                                  
                                  
                                  3,265
                                  
                                  
                                  
                                  1.89
                                  
                                  
                                  
                                  29
                                  
                                  
                                  
                                  0.02
                                  
                                  
                                  
                                  2,800
                                  
                                  
                                  
                                  1.64Land
      and land development
                                  
                                  
                                  11,189
                                  
                                  
                                  
                                  3.11
                                  
                                  
                                  
                                  4,748
                                  
                                  
                                  
                                  2.69
                                  
                                  
                                  
                                  5,022
                                  
                                  
                                  
                                  2.91
                                  
                                  
                                  
                                  2,524
                                  
                                  
                                  
                                  1.48
                                  
                                  
                                  
                                  2,917
                                  
                                  
                                  
                                  1.71Total
                                  
                                  
                                  279,866
                                  
                                  
                                  
                                  77.74
                                  
                                  
                                  
                                  145,187
                                  
                                  
                                  
                                  82.12
                                  
                                  
                                  
                                  143,806
                                  
                                  
                                  
                                  83.19
                                  
                                  
                                  
                                  145,148
                                  
                                  
                                  
                                  85.11
                                  
                                  
                                  
                                  146,355
                                  
                                  
                                  
                                  85.77Commercial
      business
                                  
                                  
                                  36,901
                                  
                                  
                                  
                                  10.25
                                  
                                  
                                  
                                  14,411
                                  
                                  
                                  
                                  8.15
                                  
                                  
                                  
                                  12,645
                                  
                                  
                                  
                                  7.31
                                  
                                  
                                  
                                  10,232
                                  
                                  
                                  
                                  6.00
                                  
                                  
                                  
                                  8,462
                                  
                                  
                                  
                                  4.96Consumer:Home
      equity lines of credit
                                  
                                  
                                  17,365
                                  
                                  
                                  
                                  4.82
                                  
                                  
                                  
                                  9,970
                                  
                                  
                                  
                                  5.64
                                  
                                  
                                  
                                  8,275
                                  
                                  
                                  
                                  4.79
                                  
                                  
                                  
                                  6,049
                                  
                                  
                                  
                                  3.55
                                  
                                  
                                  
                                  5,029
                                  
                                  
                                  
                                  2.95Auto
      loans
                                  
                                  
                                  18,279
                                  
                                  
                                  
                                  5.08
                                  
                                  
                                  
                                  1,950
                                  
                                  
                                  
                                  1.10
                                  
                                  
                                  
                                  1,946
                                  
                                  
                                  
                                  1.13
                                  
                                  
                                  
                                  1,675
                                  
                                  
                                  
                                  0.98
                                  
                                  
                                  
                                  1,934
                                  
                                  
                                  
                                  1.13Boat
      loans
                                  
                                  
                                  3,091
                                  
                                  
                                  
                                  0.86
                                  
                                  
                                  
                                  3,257
                                  
                                  
                                  
                                  1.84
                                  
                                  
                                  
                                  3,975
                                  
                                  
                                  
                                  2.30
                                  
                                  
                                  
                                  5,158
                                  
                                  
                                  
                                  3.02
                                  
                                  
                                  
                                  6,237
                                  
                                  
                                  
                                  3.66Other
                                  
                                  
                                  4,476
                                  
                                  
                                  
                                  1.25
                                  
                                  
                                  
                                  2,033
                                  
                                  
                                  
                                  1.15
                                  
                                  
                                  
                                  2,225
                                  
                                  
                                  
                                  1.28
                                  
                                  
                                  
                                  2,300
                                  
                                  
                                  
                                  1.34
                                  
                                  
                                  
                                  2,619
                                  
                                  
                                  
                                  1.53Total
                                  
                                  
                                  43,211
                                  
                                  
                                  
                                  12.01
                                  
                                  
                                  
                                  17,210
                                  
                                  
                                  
                                  9.73
                                  
                                  
                                  
                                  16,421
                                  
                                  
                                  
                                  9.50
                                  
                                  
                                  
                                  15,182
                                  
                                  
                                  
                                  8.89
                                  
                                  
                                  
                                  15,819
                                  
                                  
                                  
                                  9.27Total
      loans
                                  
                                  
                                  359,978
                                  
                                  
                                  
                                  100.00
                                  %
                                  
                                  
                                  176,808
                                  
                                  
                                  
                                  100.00
                                  %
                                  
                                  
                                  172,872
                                  
                                  
                                  
                                  100.00
                                  %
                                  
                                  
                                  170,562
                                  
                                  
                                  
                                  100.00
                                  %
                                  
                                  
                                  170,636
                                  
                                  
                                  
                                  100.00
                                  %Reserve
      for uncollected
                                    interest
                                  
                                  
                                  –
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Deferred
      loan origination
                                    fees
      and costs, net
                                  
                                  
                                  (846
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (795
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (618
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (335
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (204
                                  )Undisbursed
      portion of loans inprocess
                                  
                                  
                                  3,306
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,067
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  4,822
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  3,333
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  6,282Allowance
      for loan losses
                                  
                                  
                                  3,695
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,729
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,297
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  868
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  882Loans,
      net
                                  
                                  $
                                  353,823
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  174,807
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  167,371
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  166,695
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  163,676


29


Loan
Maturity





The following table sets forth certain
information at September 30, 2009 regarding the dollar amount of loan principal
repayments becoming due during the period indicated.  The table does
not include any estimate of prepayments which significantly shorten the average
life of all loans and may cause our actual repayment experience to differ from
that shown below.  Demand loans having no stated schedule of
repayments and no stated maturity, are reported as due in one year or
less.





At September 30, 2009(Dollars in thousands)
                    
                    Residential
                      Real Estate
                      (1)
                    
                    
                    Commercial
                      Real Estate
                      (2)
                    
                    
                    Construction
                      (3)
                    
                    
                    Commercial
                      Business
                    
                    
                    Consumer
                    
                    
                    Total
                      LoansAmounts
      due in:One
      year or less
                    
                    $
                    20,670
                    
                    
                    $
                    17,498
                    
                    
                    $
                    22,203
                    
                    
                    $
                    26,752
                    
                    
                    $
                    11,569
                    
                    
                    $
                    98,692More
      than one year to two years
                    
                    
                    13,248
                    
                    
                    
                    10,741
                    
                    
                    
                    -
                    
                    
                    
                    3,520
                    
                    
                    
                    7,070
                    
                    
                    
                    34,579More
      than two years to three years
                    
                    
                    11,415
                    
                    
                    
                    8,591
                    
                    
                    
                    -
                    
                    
                    
                    2,137
                    
                    
                    
                    5,527
                    
                    
                    
                    27,670More
      than three years to five years
                    
                    
                    18,689
                    
                    
                    
                    10,071
                    
                    
                    
                    -
                    
                    
                    
                    2,507
                    
                    
                    
                    7,738
                    
                    
                    
                    39,005More
      than five years to ten years
                    
                    
                    35,865
                    
                    
                    
                    7,081
                    
                    
                    
                    -
                    
                    
                    
                    1,709
                    
                    
                    
                    6,939
                    
                    
                    
                    51,594More
      than ten years to fifteen years
                    
                    
                    30,925
                    
                    
                    
                    3,066
                    
                    
                    
                    -
                    
                    
                    
                    123
                    
                    
                    
                    4,316
                    
                    
                    
                    38,430More
      than fifteen years
                    
                    
                    67,572
                    
                    
                    
                    2,231
                    
                    
                    
                    -
                    
                    
                    
                    153
                    
                    
                    
                    52
                    
                    
                    
                    70,008Total
                    
                    $
                    198,384
                    
                    
                    $
                    59,279
                    
                    
                    $
                    22,203
                    
                    
                    $
                    36,901
                    
                    
                    $
                    43,211
                    
                    
                    $
                    359,978





(1)
            Includes
      multi-family loans.


(2)
            Includes
      farmland and land and land development
loans.


(3)
            Includes
      construction loans for which the Bank has committed to provide permanent
      financing.





Fixed
vs. Adjustable Rate Loans





The following table sets forth the
dollar amount of all loans at September 30, 2009 that are due after September
30, 2010, and have either fixed interest rates or adjustable interest
rates.  The amounts shown below exclude unearned loan origination
fees.





(In thousands)
                    
                    Fixed Rates
                    
                    
                    Adjustable Rates
                    
                    
                    TotalResidential
      real estate (1)
                    
                    $
                    120,120
                    
                    
                    $
                    57,594
                    
                    
                    $
                    177,714Commercial
      real estate (2)
                    
                    
                    30,320
                    
                    
                    
                    11,461
                    
                    
                    
                    41,781Construction
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Commercial
      business
                    
                    
                    8,206
                    
                    
                    
                    1,943
                    
                    
                    
                    10,149Consumer
                    
                    
                    21,256
                    
                    
                    
                    10,386
                    
                    
                    
                    31,642Total
                    
                    $
                    179,902
                    
                    
                    $
                    81,384
                    
                    
                    $
                    261,286





(1)
            Includes
      multi-family loans.


(2)
            Includes
      farmland and land and land development
loans.


30


Loan
Activity





The following table shows loans
originated, purchased and sold during the periods indicated.





Year
      Ended September 30,(In
      thousands)
                      
                      2009
                      
                      
                      2008
                      
                      
                      2007Total
      loans at beginning of period
                      
                      $
                      176,808
                      
                      
                      $
                      172,872
                      
                      
                      $
                      170,562Loans
      originated:Residential
      real estate (1)
                      
                      
                      22,115
                      
                      
                      
                      38,844
                      
                      
                      
                      25,203Commercial
      real estate (2)
                      
                      
                      8,360
                      
                      
                      
                      7,154
                      
                      
                      
                      7,956Construction
                      
                      
                      3,258
                      
                      
                      
                      7,918
                      
                      
                      
                      23,597Commercial
      business
                      
                      
                      13,883
                      
                      
                      
                      8,648
                      
                      
                      
                      12,798Consumer
                      
                      
                      14,013
                      
                      
                      
                      15,854
                      
                      
                      
                      13,916Total
      loans originated
                      
                      
                      61,629
                      
                      
                      
                      78,418
                      
                      
                      
                      83,470Loans
      purchased
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Increase
      due to acquisition of Community First
                      
                      
                      174,940
                      
                      
                      
                      –
                      
                      
                      
                      –Deduct:Loan
      principal repayments
                      
                      
                      (50,886
                      )
                      
                      
                      (72,603
                      )
                      
                      
                      (80,707
                      )Loan
      sales
                      
                      
                      (2,513
                      )
                      
                      
                      (1,879
                      )
                      
                      
                      (453
                      )Net
      loan activity
                      
                      
                      183,170
                      
                      
                      
                      3,936
                      
                      
                      
                      2,310Total
      loans at end of period
                      
                      $
                      359,978
                      
                      
                      $
                      176,808
                      
                      
                      $
                      172,872





(1)
            Includes
      multi-family loans.


(2)
            Includes
      land and land development loans.





Securities
Available for Sale.Our available for sale securities
portfolio consists primarily of U.S. government agency debt securities,
mortgage-backed securities and collateralized mortgage obligations issued by
government sponsored enterprises, municipal bonds and privately issued
collateralized mortgage obligations.  Available for sale securities
increased by $61.9 million from September 30, 2008 to September 30, 2009
primarily due to $48.9 million of these securities acquired in the acquisition
of Community First, of which $32.2 million were mortgage backed securities
issued by government sponsored enterprises, $11.2 million were privately issued
collateralized mortgage obligations and $5.5 million were municipal
bonds.  These securities also increased due to purchases of $48.6
million of U.S. government agency securities, mortgage-backed securities and a
collateralized mortgage obligation issued by government sponsored enterprises
and municipal securities, offset by maturities and calls of $17.3 million, sales
of $16.0 million and principal repayments of $2.8 million.  The
increase in available for sale securities, excluding those acquired in the
acquisition of Community First, was primarily funded by increases in Federal
Home Loan Bank advances, decreases in interest-earning deposits with banks,
repayments on held to maturity securities and cumulative security portfolio
earnings.





Securities Held
to Maturity.  Our held to maturity securities portfolio
consists primarily of mortgage-backed securities issued by government sponsored
enterprises and a municipal bond.  Held to maturity securities
decreased by $1.7 million, or 19.8%, from September 30, 2008 to September 30,
2009 due primarily to principal repayments of $1.7 million.


31





The
following table sets forth the amortized costs and fair values of our investment
securities at the dates indicated.





At
      September 30,2009
                      
                      
                      2008
                      
                      
                      2007(In
      thousands)
                      
                      Amortized
                        Cost
                      
                      
                      Fair
                        Value
                      
                      
                      Amortized
                        Cost
                      
                      
                      Fair
                        Value
                      
                      
                      Amortized
                        Cost
                      
                      
                      Fair
                        ValueSecurities
      available for sale:Agency
      bonds and notes
                      
                      $
                      5,825
                      
                      
                      $
                      5,845
                      
                      
                      $
                      4,008
                      
                      
                      $
                      4,059
                      
                      
                      $
                      5,000
                      
                      
                      $
                      5,006Agency
      CMO
                      
                      
                      3,343
                      
                      
                      
                      3,473
                      
                      
                      
                      1,891
                      
                      
                      
                      1,900
                      
                      
                      
                      –
                      
                      
                      
                      –Privately-issued
      CMO
                      
                      
                      11,139
                      
                      
                      
                      11,139
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Privately-issued
      asset-backed
                      
                      
                      52
                      
                      
                      
                      52
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Municipal
                      
                      
                      17,081
                      
                      
                      
                      17,512
                      
                      
                      
                      4,669
                      
                      
                      
                      4,642
                      
                      
                      
                      1,119
                      
                      
                      
                      1,115Money
      market preferred stock
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      2,000
                      
                      
                      
                      2,000Agency
      mortgage-backed
                        securities
                      
                      
                      34,368
                      
                      
                      
                      34,483
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Other
      equity securities
                      
                      
                      –
                      
                      
                      
                      76
                      
                      
                      
                      –
                      
                      
                      
                      96
                      
                      
                      
                      –
                      
                      
                      
                      139Total
                      
                      $
                      71,808
                      
                      
                      $
                      72,580
                      
                      
                      $
                      10,568
                      
                      
                      $
                      10,697
                      
                      
                      $
                      8,119
                      
                      
                      $
                      8,260Securities
      held to maturity:Agency
      bonds and notes
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      4,000
                      
                      
                      
                      4,000Municipal
                      
                      
                      305
                      
                      
                      
                      308
                      
                      
                      
                      307
                      
                      
                      
                      310
                      
                      
                      
                      309
                      
                      
                      
                      304Agency
      mortgage-backed
                        securities
                      
                      
                      6,477
                      
                      
                      
                      6,746
                      
                      
                      
                      8,149
                      
                      
                      
                      8,181
                      
                      
                      
                      3,113
                      
                      
                      
                      3,091Total
                      
                      $
                      6,782
                      
                      
                      $
                      7,054
                      
                      
                      $
                      8,456
                      
                      
                      $
                      8,491
                      
                      
                      $
                      7,422
                      
                      
                      $
                      7,395





The following table sets forth the
activity in our investment securities portfolio during the periods
indicated.





At
      or For the Year Ended
                      September
      30,(In
      thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    2007Mortgage-backed
      securities:Mortgage-backed
      securities, beginning of period (1)
                    
                    $
                    8,181
                    
                    
                    $
                    3,091
                    
                    
                    $
                    3,846Purchases
                    
                    
                    4,005
                    
                    
                    
                    6,040
                    
                    
                    
                    –Sales
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Maturities
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Repayments
      and prepayments
                    
                    
                    (3,496
                    )
                    
                    
                    (1,005
                    )
                    
                    
                    (795
                    )Increase
      (decrease) in net unrealized gain
                    
                    
                    352
                    
                    
                    
                    55
                    
                    
                    
                    40Increase
      due to acquisition of Community First
                    
                    
                    32,187
                    
                    
                    
                    –
                    
                    
                    
                    –Net
      increase (decrease) in mortgage-backed
                      securities
                    
                    
                    33,048
                    
                    
                    
                    5,090
                    
                    
                    
                    (755
                    )Mortgage-backed
      securities, end of period (1)
                    
                    $
                    41,229
                    
                    
                    $
                    8,181
                    
                    
                    $
                    3,091Investment
      securities:Investment
      securities, beginning of period (1)
                    
                    $
                    11,007
                    
                    
                    $
                    12,564
                    
                    
                    $
                    10,186Purchases
                    
                    
                    44,547
                    
                    
                    
                    7,577
                    
                    
                    
                    5,311Sales
                    
                    
                    (16,041
                    )
                    
                    
                    –
                    
                    
                    
                    –Maturities
                    
                    
                    (17,300
                    )
                    
                    
                    (9,000
                    )
                    
                    
                    (3,000
                    )Repayments
      and prepayments
                    
                    
                    (1,158
                    )
                    
                    
                    (129
                    )
                    
                    
                    (1
                    )Gains
      (losses) on sales
                    
                    
                    100
                    
                    
                    
                    –
                    
                    
                    
                    –Increase
      (decrease) in net unrealized gain
                    
                    
                    529
                    
                    
                    
                    (5
                    )
                    
                    
                    68Acquired
      with Community First
                    
                    
                    16,721
                    
                    
                    
                    –
                    
                    
                    
                    –Net
      increase (decrease) in investment securities
                    
                    
                    27,398
                    
                    
                    
                    (1,557
                    )
                    
                    
                    2,378Investment
      securities, end of period (1)
                    
                    $
                    38,405
                    
                    
                    $
                    11,007
                    
                    
                    $
                    12,564





(1)
            At
      fair value.





32


The following table set forth the
stated maturities and weighted average yields of debt securities at September
30, 2009. Weighted average yields on tax-exempt securities are presented on a
tax equivalent basis using a federal marginal tax rate of 34%. Certain
mortgage-backed securities and collateralized mortgage obligations have
adjustable interest rates and will reprice annually within the various maturity
ranges. These repricing schedules are not reflected in the table below. Weighted
average yield calculations on investments available for sale do not give effect
to changes in fair value that are reflected as a component of
equity.





One Year
                        or Less
                      
                      
                      More than
                        One Year to
                        Five Years
                      
                      
                      More than
                        Five Years to
                        Ten Years
                      
                      
                      More than
                        Ten Years
                      
                      
                      Total(Dollars in thousands)
                      
                      Carrying
                        Value
                      
                      
                      Weighted
                        Average
                        Yield
                      
                      
                      Carrying
                        Value
                      
                      
                      Weighted
                        Average
                        Yield
                      
                      
                      Carrying
                        Value
                      
                      
                      Weighted
                        Average
                        Yield
                      
                      
                      Carrying
                        Value
                      
                      
                      Weighted
                        Average
                        Yield
                      
                      
                      Carrying
                        Value
                      
                      
                      Weighted
                        Average
                        YieldSecurities
      available for sale:Agency
      bonds and notes
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      1,000
                      
                      
                      
                      5.00
                      
                      
                      
                      4,845
                      
                      
                      
                      5.23
                      
                      
                      
                      5,845
                      
                      
                      
                      5.19Agency
      CMO
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      3,473
                      
                      
                      
                      5.23
                      
                      
                      
                      3,473
                      
                      
                      
                      5.23Privately-issued
      CMO
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      11,139
                      
                      
                      
                      1.60
                      
                      
                      
                      11,139
                      
                      
                      
                      1.60Privately-issued
      asset-backed
                      
                      
                      52
                      
                      
                      
                      0.83
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      52
                      
                      
                      
                      0.83Municipal
                      
                      
                      4,342
                      
                      
                      
                      3.08
                      
                      
                      
                      858
                      
                      
                      
                      7.08
                      
                      
                      
                      3,617
                      
                      
                      
                      7.03
                      
                      
                      
                      8,695
                      
                      
                      
                      7.54
                      
                      
                      
                      17,512
                      
                      
                      
                      6.30Agency
      mortgage-backed securities
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      227
                      
                      
                      
                      7.28
                      
                      
                      
                      7,916
                      
                      
                      
                      6.01
                      
                      
                      
                      26,340
                      
                      
                      
                      5.28
                      
                      
                      
                      34,483
                      
                      
                      
                      5.46Total
                      
                      $
                      4,394
                      
                      
                      
                      3.05
                      %
                      
                      $
                      1,085
                      
                      
                      
                      7.12
                      %
                      
                      $
                      12,533
                      
                      
                      
                      6.09
                      %
                      
                      $
                      54,492
                      
                      
                      
                      4.74
                      %
                      
                      $
                      72,504
                      
                      
                      
                      4.88
                      %Securities
      held to maturity:Municipal
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      305
                      
                      
                      
                      5.84
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      305
                      
                      
                      
                      5.84Agency
      mortgage-backed securities
                      
                      
                      578
                      
                      
                      
                      4.44
                      
                      
                      
                      443
                      
                      
                      
                      4.93
                      
                      
                      
                      300
                      
                      
                      
                      4.83
                      
                      
                      
                      5,156
                      
                      
                      
                      5.18
                      
                      
                      
                      6,477
                      
                      
                      
                      5.08Total
                      
                      $
                      578
                      
                      
                      
                      4.44
                      %
                      
                      $
                      443
                      
                      
                      
                      4.93
                      %
                      
                      $
                      605
                      
                      
                      
                      5.34
                      %
                      
                      $
                      5,156
                      
                      
                      
                      5.18
                      %
                      
                      $
                      6,782
                      
                      
                      
                      5.12
                      %





As of September 30, 2009, we did not
own any investment securities of a single issuer, other than U.S. government and
agency securities, that had an aggregate book value in excess of 10% of the
Company’s stockholders’ equity at that date.





Deposits.Deposit
accounts, generally obtained from individuals and businesses throughout our
primary market area, are our primary source of funds for lending and
investments.  Our deposit accounts are comprised of
noninterest-bearing accounts, interest-bearing savings, checking and money
market accounts and certificates of deposits.  Deposits increased
$161.6 million from September 30, 2008 to September 30, 2009 primarily due to
$179.5 million of deposits acquired in the acquisition of Community First, of
which $19.0 million were noninterest-bearing, $38.1 million were
interest-bearing checking, $25.9 million were money market deposit accounts,
$17.1 million were interest-bearing savings and $79.3 million were time
deposits.  Excluding those deposits acquired in the acquisition of
Community First, deposits would have decreased $17.9 million from September 30,
2008 to September 30, 2009 with noninterest-bearing checking decreasing by
$469,000, interest-bearing checking decreasing by $21.1 million and offset by
money market deposit accounts increasing $206,000, interest-bearing savings
increasing $1.1 million and certificates of deposits increasing $2.4
million.  The decrease in the interest-bearing checking accounts
balance is primarily due to the elimination of the funds on deposit at September
30, 2008 for the stock conversion subscription orders of $20.5
million.  In early 2007, we introduced free checking and sweep
accounts.  We believe that the introduction of these products has made
us more competitive in attracting deposits during recent periods.





The following table sets forth the
balances of our deposit accounts at the dates indicated.





At
      September 30,(In
      thousands)
                      
                      2009
                      
                      
                      2008
                      
                      
                      2007Non-interest-bearing
      demand deposits
                      
                      $
                      25,388
                      
                      
                      $
                      6,843
                      
                      
                      $
                      5,011NOW
      accounts
                      
                      
                      56,398
                      
                      
                      
                      39,340
                      
                      
                      
                      19,127Money
      market accounts
                      
                      
                      34,715
                      
                      
                      
                      8,565
                      
                      
                      
                      6,830Passbook
      accounts
                      
                      
                      36,132
                      
                      
                      
                      17,974
                      
                      
                      
                      18,499Certificates
      of deposit
                      
                      
                      198,183
                      
                      
                      
                      116,487
                      
                      
                      
                      119,315Total
                      
                      $
                      350,816
                      
                      
                      $
                      189,209
                      
                      
                      $
                      168,782




33


The following table indicates the
amount of jumbo certificates of deposit by time remaining until maturity as of
September 30, 2009, of which $4.4 million were brokered deposits maturing
greater than twelve months from September 30, 2009 which were acquired in the
acquisition of Community First.  Jumbo certificates of deposit require
minimum deposits of $100,000.





Maturity
      Period
                    
                    Amount(In
      thousands)Three
      months or less
                    
                    $
                    8,810Over
      three through six months
                    
                    
                    14,949Over
      six through twelve months
                    
                    
                    12,564Over
      twelve months
                    
                    
                    21,214Total
                    
                    $
                    57,537





The following table sets forth time
deposits classified by rates at the dates indicated.





At
      September 30,(In
      thousands)
                          
                          2009
                          
                          
                          2008
                          
                          
                          20070.00
      - 1.00%
                          
                          $
                          5,791
                          
                          
                          $
                          –
                          
                          
                          $
                          –1.01
      - 2.00%
                          
                          
                          49,025
                          
                          
                          
                          –
                          
                          
                          
                          –2.01
      - 3.00% (1)
                          
                          
                          56,141
                          
                          
                          
                          37,847
                          
                          
                          
                          3323.01
      - 4.00%
                          
                          
                          40,015
                          
                          
                          
                          22,816
                          
                          
                          
                          25,2884.01
      - 5.00%
                          
                          
                          34,204
                          
                          
                          
                          38,666
                          
                          
                          
                          73,6745.01
      - 6.00%
                          
                          
                          6,923
                          
                          
                          
                          4,869
                          
                          
                          
                          7,7846.01
      - 7.00%
                          
                          
                          1,186
                          
                          
                          
                          1,153
                          
                          
                          
                          1,4297.01
      - 8.00%
                          
                          
                          4,898
                          
                          
                          
                          4,878
                          
                          
                          
                          5,1168.01
      - 9.00% (2)
                          
                          
                          –
                          
                          
                          
                          6,258
                          
                          
                          
                          5,692Total
                          
                          $
                          198,183
                          
                          
                          $
                          116,487
                          
                          
                          $
                          119,315





(1)
            Includes
      $6.4 million of our pension plan assets invested in certificates of
      deposit at September 30, 2009.


(2)
            Represents
      the investment of our pension plan assets in certificates of
      deposit.





The
following table sets forth the amount and maturities of time deposits at
September 30, 2009.





Amount Due(Dollars in thousands)
                      
                      Less Than
                        One Year
                      
                      
                      More Than
                        One Year to
                        Two Years
                      
                      
                      More Than
                        Two Years to
                        Three Years
                      
                      
                      More Than
                        Three Years
                      
                      
                      Total
                      
                      
                      Percent of Total
                        Time Deposit
                        Accounts0.00
      - 1.00%
                      
                      $
                      5,788
                      
                      
                      $
                      3
                      
                      
                      $
                      –
                      
                      
                      $
                      –
                      
                      
                      $
                      5,791
                      
                      
                      
                      2.92
                      %1.01
      - 2.00%
                      
                      
                      43,807
                      
                      
                      
                      4,798
                      
                      
                      
                      325
                      
                      
                      
                      95
                      
                      
                      
                      49,025
                      
                      
                      
                      24.742.01
      - 3.00%
                      
                      
                      35,493
                      
                      
                      
                      10,577
                      
                      
                      
                      8,362
                      
                      
                      
                      1,709
                      
                      
                      
                      56,141
                      
                      
                      
                      28.333.01
      - 4.00%
                      
                      
                      20,183
                      
                      
                      
                      4,548
                      
                      
                      
                      6,916
                      
                      
                      
                      8,368
                      
                      
                      
                      40,015
                      
                      
                      
                      20.194.01
      - 5.00%
                      
                      
                      12,506
                      
                      
                      
                      7,217
                      
                      
                      
                      9,620
                      
                      
                      
                      4,861
                      
                      
                      
                      34,204
                      
                      
                      
                      17.265.01
      - 6.00%
                      
                      
                      335
                      
                      
                      
                      4,250
                      
                      
                      
                      684
                      
                      
                      
                      1,654
                      
                      
                      
                      6,923
                      
                      
                      
                      3.496.01
      - 7.00%
                      
                      
                      611
                      
                      
                      
                      575
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      1,186
                      
                      
                      
                      0.607.01
      - 8.00%
                      
                      
                      3,448
                      
                      
                      
                      1,333
                      
                      
                      
                      –
                      
                      
                      
                      117
                      
                      
                      
                      4,898
                      
                      
                      
                      2.47Total
                      
                      $
                      122,171
                      
                      
                      $
                      33,301
                      
                      
                      $
                      25,907
                      
                      
                      $
                      16,804
                      
                      
                      $
                      198,183
                      
                      
                      
                      100.00
                      %


34





The following table sets forth deposit
activity for the periods indicated.





Year
      Ended September 30,(In
      thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    2007Beginning
      balance
                    
                    $
                    189,209
                    
                    
                    $
                    168,782
                    
                    
                    $
                    175,891Increase
      due to acquisition of Community First
                    
                    
                    179,460
                    
                    
                    
                    –
                    
                    
                    
                    –Increase
      (decrease) before interest credited
                    
                    
                    (21,633
                    )
                    
                    
                    15,241
                    
                    
                    
                    (8,470
                    )Interest
      credited
                    
                    
                    3,780
                    
                    
                    
                    5,186
                    
                    
                    
                    1,361Net
      increase (decrease) in deposits
                    
                    
                    161,607
                    
                    
                    
                    20,427
                    
                    
                    
                    (7,109
                    )Ending
      balance
                    
                    $
                    350,816
                    
                    
                    $
                    189,209
                    
                    
                    $
                    168,782





Borrowings.We use borrowings from the Federal Home Loan Bank of Indianapolis (FHLBI)
consisting of advances and borrowings under a line of credit arrangement to
supplement our supply of funds for loans and investments. We also utilize retail
and broker repurchase agreements as sources of borrowings.





The following table sets forth certain
information regarding the Bank’s use of Federal Home Loan Bank
advances.





Year
      Ended September 30,(Dollars
      in thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  2007Maximum
      amount of FHLB advances outstanding at any month-end during
      period
                  
                  $
                  55,112
                  
                  
                  $
                  8,000
                  
                  
                  $
                  3,000Average
      FHLB advances outstanding during period
                  
                  
                  14,946
                  
                  
                  
                  6,422
                  
                  
                  
                  153Weighted
      average interest rate during period
                  
                  
                  2.11
                  %
                  
                  
                  3.60
                  %
                  
                  
                  5.23
                  %Balance
      outstanding at end of period
                  
                  $
                  55,112
                  
                  
                  $
                  8,000
                  
                  
                  $
                  3,000Weighted
      average interest rate at end of period
                  
                  
                  1.20
                  %
                  
                  
                  3.36
                  %
                  
                  
                  4.88
                  %





Borrowings from the FHLBI increased
$47.8 million from September 30, 2008 to September 30, 2009 primarily due to
$29.7 million of advances acquired in the acquisition of Community First and
advances drawn to fund the acquisition of Community First.  Advances
were also used to fund loan demand and to purchase available for sale
securities.  See note 10 to the notes to the consolidated financial
statements beginning on page F-1 of this annual report for additional
information regarding FHLBI borrowings.





The Bank acquired a $1.3 million retail
repurchase agreement and $15.9 million of broker repurchase agreements in the
acquisition of Community First having weighted average rates of 0.63% and 1.62%,
respectively, at September 30, 2009.  Prior to the acquisition, the
Bank has not utilized repurchase agreements as sources of
borrowings.  Since the transaction was consummated just prior to the
close of business on September 30, 2009, the Bank had no average balances or
weighted average interest rates during the period for repurchase
agreements.  See note 9 to the notes to the consolidated financial
statements beginning on page F-1 of this annual report for additional
information regarding repurchase agreements.





Results
of Operations for the Years Ended September 30, 2009 and 2008





Overview.
The Company reported net income of $33,000 ($0.01 per share diluted; weighted
average common shares outstanding of 2,315,498, as adjusted) for the year ended
September 30, 2009, compared to a net loss of $190,000 for the year ended
September 30, 2008.  A significant factor that adversely affected net
income for 2009 was the $1.2 million charitable contribution discussed in
“Noninterest Expense” below.  Excluding this charitable contribution,
the Company would have realized net income of $766,000 ($0.35 per share diluted;
weighted average common shares outstanding of 2,207,306, as adjusted) for the
year ended September 30, 2009.  The primary factor that contributed to
the net loss for 2008 was a significant provision for loan losses related to the
workout of problem loans to a large borrower.  The collateral securing
the loans was non-owner occupied, single-family residential real estate
properties for which the condition and market value deteriorated significantly
since the origination of the loans.


35





Net Interest
Income.  Net interest income increased $2.0 million, or 30.8%,
from $6.6 million for the year ended September 30, 2008 to $8.6 million for the
year ended September 30, 2009 primarily as the result of an increase in the
interest rate spread from 2008 to 2009 and an increase in the ratio of average
interest-earning assets to average interest-bearing liabilities from 113.15% for
2008 to 125.66% for 2009.  The interest rate spread, the difference
between the average tax-equivalent yield on interest-earning assets and the
average cost of interest-bearing liabilities, increased from 2.97% in 2008 to
3.41% in 2009.  This increase in the interest rate spread is primarily
due to a decrease in the average cost of funds of 0.93% that more than offset
the decrease in the average tax-equivalent yield on interest-earning assets of
0.49% when comparing the two years.





Total
interest income increased $485,000, or 3.9%, from $12.5 million for 2008 to
$13.0 million for 2009.  The increase was the result of an increase of
$25.4 million, or 13.0%, in the average balance of earning assets from $195.9
million in 2008 to $221.3 million in 2009, partially offset by a decrease in the
average tax-equivalent yield on interest-earning assets of 0.49% from 6.42% for
2008 to 5.93% for 2009.  The average yield on interest-earning assets
decreased primarily as a result of lower market interest rates.  The
average yield on interest-bearing deposits with banks, representing primarily
overnight deposits with FHLBI, experienced the largest decreased from 2.46% for
2008 to 0.76% for 2009 as the economic slowdown resulted in a reduction in
short-term market interest rates.





Interest
income on loans decreased $218,000, or 1.9%, from $11.6 million for 2008 to
$11.4 million for 2009 due to a decrease in the average tax-equivalent yield
from 6.74% in 2008 to 6.30% in 2009 as a result of lower market interest rates,
partially offset by an increase in the average balance of loans
outstanding.  Average loans outstanding increased $8.6 million, or
5.0%, from $172.3 million in 2008 to $180.9 million in 2009.  During
2009, in an effort to increase the size and diversity of the loan portfolio, the
Bank offered competitive rates on short-term multi-family and commercial
mortgage loans and was successful in originating these loans.  The
impact of lower market interest rates reduced the average tax-equivalent yield
earned on loans.





Interest
income on investment securities increased $855,000, or 119.9%, from $713,000 for
2008 to $1.6 million for 2009 due primarily to an increase in the average
balance of investment securities of $18.9 million, or 120.6%, from $15.7 million
in 2008 to $34.6 million in 2009.  The average tax-equivalent yield on
investments securities was relatively consistent when comparing the two years of
4.74% in 2008 compared to 4.78% in 2009.  During 2009, in an effort to
increase the size and diversity of the asset portfolio, the Bank increased its
investments in U.S. government agency debt securities, mortgage-backed
securities and collateralized mortgage obligations issued by government
sponsored enterprises and municipal bonds.





Interest
income on interest-bearing deposits with banks decreased $130,000, or 79.8%, as
a result of a $2.2 million decrease in the average balance for 2009 compared to
2008 and a significant decrease in the average yield from 2.46% in 2008 to 0.76%
in 2009.  During 2009, in order to mitigate the effects of declining
market interest rates, management focused on reducing excess liquidity by
investing in higher yielding loans and investment securities.





Total
interest expense decreased $1.5 million, or 25.7%, as a result of a decrease in
the average cost of funds from 3.45% in 2008 to 2.52% in 2009, partially offset
by a $3.0 million increase in the average balance of interest-bearing
liabilities from $173.1 in 2008 to $176.1 million in 2009.  The
average balance of interest-bearing deposits was $161.1 million in 2009 compared
to $166.7 million in 2008 and the average cost of funds for deposits was 2.56%
in 2009 compared to 3.44% in 2008.  The average balance of FHLBI
advances was $14.9 million in 2009 compared to $6.4 million in 2008 and the
average cost of funds for advances was 2.11% in 2009 compared to 3.60% in
2008.  The average cost of interest-bearing liabilities decreased for
2009 primarily as a result of a reduction in the rate offered on
interest-bearing deposit and passbook savings accounts during 2009, the
repricing of time deposits at lower market rates during 2009, and the use of
advances from FHLBI during 2009.


36





Average
Balances and Yields.





The following tables present
information regarding average balances of assets and liabilities, the total
dollar amounts of interest income and dividends from average interest-earning
assets, the total dollar amounts of interest expense on average interest-bearing
liabilities, and the resulting annualized average yields and
costs.  The yields and costs for the periods indicated are derived by
dividing income or expense by the average balances of assets or liabilities,
respectively, for the periods presented.  Nonaccrual loans are
included in average balances only.  Loan fees are included in interest
income on loans and are not material.  Tax exempt income on loans and
on investment and mortgage-backed securities has been calculated on a tax
equivalent basis using a federal marginal tax rate of 34%.





Year
      Ended September 30,2009
                                
                                
                                2008
                                
                                
                                2007(Dollars
      in thousands)
                                
                                Average
                                  Balance
                                
                                
                                Interest
                                  and
                                  Dividends
                                
                                
                                Yield/
                                  Cost
                                
                                
                                Average
                                  Balance
                                
                                
                                Interest
                                  and
                                  Dividends
                                
                                
                                Yield/
                                  Cost
                                
                                
                                Average
                                  Balance
                                
                                
                                Interest
                                  and
                                  Dividends
                                
                                
                                Yield/
                                  CostAssets:Interest-bearing
      deposits with banks
                                
                                $
                                4,481
                                
                                
                                $
                                34
                                
                                
                                
                                0.76
                                %
                                
                                $
                                6,638
                                
                                
                                $
                                163
                                
                                
                                
                                2.46
                                %
                                
                                $
                                11,994
                                
                                
                                $
                                602
                                
                                
                                
                                5.02
                                %Loans
                                
                                
                                180,864
                                
                                
                                
                                11,393
                                
                                
                                
                                6.30
                                
                                
                                
                                172,272
                                
                                
                                
                                11,611
                                
                                
                                
                                6.74
                                
                                
                                
                                156,733
                                
                                
                                
                                11,720
                                
                                
                                
                                7.48Investment
      securities
                                
                                
                                24,344
                                
                                
                                
                                1,138
                                
                                
                                
                                4.67
                                
                                
                                
                                9,511
                                
                                
                                
                                451
                                
                                
                                
                                4.74
                                
                                
                                
                                10,374
                                
                                
                                
                                566
                                
                                
                                
                                5.46Mortgage-backed
      securities
                                
                                
                                10,238
                                
                                
                                
                                516
                                
                                
                                
                                5.04
                                
                                
                                
                                6,144
                                
                                
                                
                                291
                                
                                
                                
                                4.74
                                
                                
                                
                                3,466
                                
                                
                                
                                166
                                
                                
                                
                                4.79Federal
      Home Loan Bank stock
                                
                                
                                1,353
                                
                                
                                
                                46
                                
                                
                                
                                3.40
                                
                                
                                
                                1,336
                                
                                
                                
                                68
                                
                                
                                
                                5.09
                                
                                
                                
                                1,344
                                
                                
                                
                                65
                                
                                
                                
                                4.84Total
      interest-earning assets
                                
                                
                                221,280
                                
                                
                                
                                13,127
                                
                                
                                
                                5.93
                                
                                
                                
                                195,901
                                
                                
                                
                                12,584
                                
                                
                                
                                6.42
                                
                                
                                
                                183,911
                                
                                
                                
                                13,119
                                
                                
                                
                                7.13Non-interest-earning
      assets
                                
                                
                                15,384
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                15,109
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                21,526Total
      assets
                                
                                
                                236,664
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                211,010
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                205,437Liabilities
      and equity:NOW
      accounts
                                
                                $
                                20,013
                                
                                
                                $
                                94
                                
                                
                                
                                0.47
                                
                                
                                $
                                21,391
                                
                                
                                $
                                144
                                
                                
                                
                                0.67
                                
                                
                                $
                                19,618
                                
                                
                                $
                                148
                                
                                
                                
                                0.75Money
      market deposit accounts
                                
                                
                                7,702
                                
                                
                                
                                109
                                
                                
                                
                                1.42
                                
                                
                                
                                7,134
                                
                                
                                
                                127
                                
                                
                                
                                1.78
                                
                                
                                
                                7,657
                                
                                
                                
                                137
                                
                                
                                
                                1.79Passbook
      accounts
                                
                                
                                18,528
                                
                                
                                
                                45
                                
                                
                                
                                0.24
                                
                                
                                
                                17,923
                                
                                
                                
                                86
                                
                                
                                
                                0.48
                                
                                
                                
                                21,477
                                
                                
                                
                                296
                                
                                
                                
                                1.38Certificates
      of deposit
                                
                                
                                114,904
                                
                                
                                
                                3,877
                                
                                
                                
                                3.37
                                
                                
                                
                                120,263
                                
                                
                                
                                5,384
                                
                                
                                
                                4.48
                                
                                
                                
                                120,430
                                
                                
                                
                                5,594
                                
                                
                                
                                4.65Total
      interest-bearing deposits
                                
                                
                                161,147
                                
                                
                                
                                4,125
                                
                                
                                
                                2.56
                                
                                
                                
                                166,711
                                
                                
                                
                                5,741
                                
                                
                                
                                3.44
                                
                                
                                
                                169,182
                                
                                
                                
                                6,175
                                
                                
                                
                                3.65Federal
      Home Loan Bank advances
                                
                                
                                14,946
                                
                                
                                
                                315
                                
                                
                                
                                2.11
                                
                                
                                
                                6,422
                                
                                
                                
                                231
                                
                                
                                
                                3.60
                                
                                
                                
                                153
                                
                                
                                
                                8
                                
                                
                                
                                5.23Total
      interest-bearing liabilities
                                
                                
                                176,093
                                
                                
                                
                                4,440
                                
                                
                                
                                2.52
                                
                                
                                
                                173,133
                                
                                
                                
                                5,972
                                
                                
                                
                                3.45
                                
                                
                                
                                169,335
                                
                                
                                
                                6,183
                                
                                
                                
                                3.65Non-interest-bearing
      deposits
                                
                                
                                6,820
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                5,823
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                4,649Other
      non-interest-bearing liabilities
                                
                                
                                2,073
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2,363
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2,197Total
      liabilities
                                
                                
                                184,986
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                181,319
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                176,181Total
      equity
                                
                                
                                51,678
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                29,691
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                29,256Total
      liabilities and equity
                                
                                $
                                236,664
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                211,010
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                205,437Net
      interest income
                                
                                
                                
                                
                                
                                $
                                8,687
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                6,612
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                6,936Interest
      rate spread
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                3.41
                                %
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2.97
                                %
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                3.48
                                %Net
      interest margin
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                3.93
                                %
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                3.38
                                %
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                3.77
                                %Average
      interest-earning assets to
                                  average
      interest-bearing liabilities
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                125.66
                                %
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                113.15
                                %
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                108.61
                                %




37


Rate/Volume
Analysis.The following table sets forth the effects of
changing rates and volumes on our net interest income.  The rate
column shows the effects attributable to changes in rate (changes in rate
multiplied by prior volume).  The volume column shows the effects
attributable to changes in volume (changes in volume multiplied by prior
rate).  The net column represents the sum of the prior
columns.  Changes attributable to changes in both rate and volume have
been allocated proportionally based on the absolute dollar amounts of change in
each.





Year Ended September 30, 2009
                          Compared to
                          Year Ended September 30, 2008
                        
                        
                        Year Ended September 30, 2008
                          Compared to
                          Year Ended September 30, 2007Increase (Decrease)
                          Due to
                        
                        
                        
                        
                        
                        Increase (Decrease)
                          Due to(In
      thousands)
                        
                        Volume
                        
                        
                        Rate
                        
                        
                        Net
                        
                        
                        Volume
                        
                        
                        Rate
                        
                        
                        NetInterest
      income:Interest-bearing
      deposits with banks
                        
                        $
                        (42
                        )
                        
                        $
                        (87
                        )
                        
                        $
                        (129
                        )
                        
                        $
                        (205
                        )
                        
                        $
                        (234
                        )
                        
                        $
                        (439
                        )Loans
      receivable
                        
                        
                        705
                        
                        
                        
                        (923
                        )
                        
                        
                        (218
                        )
                        
                        
                        671
                        
                        
                        
                        (780
                        )
                        
                        
                        (109
                        )Investment
      securities
                        
                        
                        694
                        
                        
                        
                        (7
                        )
                        
                        
                        687
                        
                        
                        
                        (44
                        )
                        
                        
                        (71
                        )
                        
                        
                        (115
                        )Mortgage-backed
      securities
                        
                        
                        206
                        
                        
                        
                        19
                        
                        
                        
                        225
                        
                        
                        
                        127
                        
                        
                        
                        (2
                        )
                        
                        
                        125Other
      interest-earning assets
                        
                        
                        1
                        
                        
                        
                        (23
                        )
                        
                        
                        (22
                        )
                        
                        
                        -
                        
                        
                        
                        3
                        
                        
                        
                        3Total
      interest-earning assets
                        
                        
                        1,564
                        
                        
                        
                        (1,021
                        )
                        
                        
                        543
                        
                        
                        
                        549
                        
                        
                        
                        (1,084
                        )
                        
                        
                        (535
                        )Interest
      expense:Deposits
                        
                        
                        (186
                        )
                        
                        
                        (1,430
                        )
                        
                        
                        (1,616
                        )
                        
                        
                        (88
                        )
                        
                        
                        (346
                        )
                        
                        
                        (434
                        )Federal
      Home Loan Bank advances
                        
                        
                        122
                        
                        
                        
                        (38
                        )
                        
                        
                        84
                        
                        
                        
                        225
                        
                        
                        
                        (2
                        )
                        
                        
                        223Total
      interest-bearing liabilities
                        
                        
                        (64
                        )
                        
                        
                        (1,468
                        )
                        
                        
                        (1,532
                        )
                        
                        
                        137
                        
                        
                        
                        (348
                        )
                        
                        
                        (211
                        )Net
      increase (decrease) in net interest income
                        
                        $
                        1,628
                        
                        
                        $
                        447
                        
                        
                        $
                        2,075
                        
                        
                        $
                        412
                        
                        
                        $
                        (736
                        )
                        
                        $
                        (324
                        )





Provision for
Loan Losses.The provision for loan losses decreased $721,000
from $1.5 million for the year ended September 30, 2008 to $819,000 for the year
ended September 30, 2009.  As discussed above, the primary factor that
contributed to the significant provision to loan losses for 2008 was the workout
of problem loans of a large borrower and the deterioration of the collateral
securing the loans due to substandard maintenance and disrepair.  The
provision for loan losses related to these nonperforming amounted to
approximately $881,000 for 2008.  It is management’s assessment that
the allowance for loan losses at September 30, 2009 was adequate and
appropriately reflected the inherent risk of loss in the Bank’s loan portfolio
at that date.





During
2009, the Bank had net charge-offs of $689,000 compared to $1.1 million for 2008
and the net loan portfolio growth was $6.2 million for 2009, excluding loans
acquired in the acquisition of Community First of $172.9 million, compared to a
net increase of $7.4 million for 2008.  The loan portfolio growth for
2009 was primarily in the multi-family and commercial mortgage loans portfolio,
which generally has a lower level of inherent credit risk than commercial
business loans and consumer loans.  The consistent application of
management’s allowance for loan losses methodology resulted in an increase in
the level of the allowance for loan losses consistent with the increase in
nonperforming loans. See “Analysis of Nonperforming and
Classified Assets” included herein.





Noninterest
Income.Noninterest income increased $209,000, or 19.8%, to
$1.3 million for the year ended September 30, 2009 as compared $1.1 million for
the year ended September 30, 2008.  The Bank’s principal source of
noninterest income is deposit account service charges.  Service
charges on deposits accounts increased $75,000 from $533,000 for 2008 to
$608,000 for 2009 primarily due to an increased fee structure assessed to
customers.  Net gain on sales of mortgage loans was $29,000 for 2009
compared to $21,000 for 2008.  The cash surrender value of life
insurance increased from $159,000 for 2008 to $171,000 for
2009.  Other noninterest income increased $14,000 from $341,000 for
2008 to $355,000 for 2009.  The Company recognized net gains of
$100,000 on sales of investment securities during 2009.  The Company
recognized no gains or losses on sales of investment securities during
2008.





38


Noninterest
Expense.Noninterest expenses increased $2.7 million, or
40.8%, to $9.2 million for the year ended September 30, 2009 compared to $6.6
million for the year ended September 30, 2008.  An increase in
compensation and benefits expense represented $683,000 of the increase in
noninterest expense, primarily due to $227,000 in ESOP compensation expense, as
well as a reduction of $328,000 in compensation and benefits costs deferred in
connection with loan originations as compared to the prior
year.  Occupancy and equipment expense increased $87,000 primarily as
a result of increases in real estate taxes, building maintenance and
depreciation expense.  Data processing expense increased $48,000 due
to increased customer banking activities and normal vendor fee
increases.  Professional fees increased $304,000 primarily due to
operation as a public company, consulting fees related to Sarbanes-Oxley
compliance and evaluation of the Bank’s current and prospective core processing
vendors, and fees related to the organization and operation of the Bank’s
investment subsidiary organized in October 2008.  FDIC insurance
premiums increased $255,000 primarily due to the special assessment for the
quarter ended June 30, 2009 of $97,000, an increase in assessment rates and the
exhaustion of prior credits during 2009.  Charitable contributions
increased $1.2 million when comparing the two periods primarily as a result of
the $1.2 million one-time contribution to First Savings Charitable Foundation
which was organized in connection with, and funded upon completion of, the
Company’s initial public offering.  The contribution consisted of
$100,000 cash and 110,000 shares of Company common stock (issued at $10.00 per
share).  Net loss on foreclosed real estate decreased $287,000,
primarily due to the sale of a substantial number of foreclosed real estate
properties during 2008, of which a significant portion were the deteriorated
non-owner occupied, single-family properties discussed above in “Provision for
Loan Losses”.  Other operating expenses increased $392,000 primarily
due to increases in director fees, officer and employee training expenditures,
fees associated with stock registration and regulatory compliance, and fees
associated with administration of benefit plans.





Income Tax
Expense.The Company recognized an income tax benefit of
$252,000 for the year ended September 30, 2009 compared to a tax benefit of
$300,000 for the year ended September 30, 2008.  The tax benefits for
2009 and 2008 are primarily due to pre-tax losses and increased tax-exempt
sources of income for both years.  See note 13 of the notes to
consolidated financial statements beginning on page F-1 of this annual
report.





Risk
Management





Overview.Managing
risk is essential to successfully managing a financial
institution.  Our most prominent risk exposures are credit risk,
interest rate risk and market risk.  Credit risk is the risk of not
collecting the interest and/or the principal balance of a loan or investment
when it is due.  Interest rate risk is the potential reduction of
interest income as a result of changes in interest rates.  Market risk
arises from fluctuations in interest rates that may result in changes in the
values of financial instruments, such as available-for-sale securities that are
accounted for on a mark-to-market basis.  Other risks that we face are
operational risks, liquidity risks and reputation risk.  Operational
risks include risks related to fraud, regulatory compliance, processing errors,
technology and disaster recovery.  Liquidity risk is the possible
inability to fund obligations to depositors, lenders or
borrowers.  Reputation risk is the risk that negative publicity or
press, whether true or not, could cause a decline in our customer base or
revenue or in the value of our common stock once we become a public
company.





Credit Risk
Management.Our strategy for credit risk management focuses on
having well-defined credit policies and uniform underwriting criteria and
providing prompt attention to potential problem loans.





When a borrower fails to make a
required loan payment, we take a number of steps to have the borrower cure the
delinquency and restore the loan to current status.  When the loan
becomes 15 days past due, a late notice is sent to the borrower and a late fee
is assessed.  When the loan becomes 30 days past due, a more formal
letter is sent.  Between 15 and 30 days past due, telephone calls are
also made to the borrower.  After 30 days, we regard the borrower as
in default.  The borrower may be sent a letter from our attorney and
we may commence collection proceedings.  If a foreclosure action is
instituted and the loan is not brought current, paid in full, or refinanced
before the foreclosure sale, the real property securing the loan generally is
sold at foreclosure.  Generally, when a consumer loan becomes 60 days
past due, we institute collection proceedings and attempt to repossess any
personal property that secures the loan.  Generally, we institute
foreclosure proceedings when a loan is 60 days past due.  Management
informs the board of directors monthly of the amount of loans delinquent more
than 30 days, all loans in foreclosure and repossessed property that we
own.





Analysis of
Nonperforming and Classified Assets.We consider repossessed
assets and loans that are 90 days or more past due to be nonperforming
assets.  Loans are generally placed on non-accrual status when they
become 90 days delinquent at which time the accrual of interest ceases and the
allowance for any uncollectible accrued interest is established and charged
against operations.  Typically, payments received on a non-accrual
loan are first applied to the outstanding principal balance.





39


Real estate that we acquire as a result
of foreclosure or by deed-in-lieu of foreclosure is classified as real estate
owned until it is sold.  When property is acquired it is recorded at
the lower of its cost, which is the unpaid balance of the loan plus foreclosure
costs, or fair market value at the date of foreclosure.  Holding costs
and declines in fair value after acquisition of the property result in charges
against income.





The following table provides
information with respect to our nonperforming assets at the dates indicated. We
had no troubled debt restructurings at any of the dates indicated.





At September 30,(Dollars in thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005Non-accrual
      loans:Residential
      real estate
                    
                    $
                    1,995
                    
                    
                    $
                    472
                    
                    
                    $
                    99
                    
                    
                    $
                    568
                    
                    
                    $
                    221Commercial
      real estate
                    
                    
                    1,022
                    
                    
                    
                    –
                    
                    
                    
                    22
                    
                    
                    
                    211
                    
                    
                    
                    15Multi-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Land
      and land development
                    
                    
                    537
                    
                    
                    
                    33
                    
                    
                    
                    33
                    
                    
                    
                    –
                    
                    
                    
                    –Construction
                    
                    
                    461
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    418
                    
                    
                    
                    –Commercial
      business
                    
                    
                    572
                    
                    
                    
                    119
                    
                    
                    
                    –
                    
                    
                    
                    9
                    
                    
                    
                    –Consumer
                    
                    
                    145
                    
                    
                    
                    174
                    
                    
                    
                    277
                    
                    
                    
                    368
                    
                    
                    
                    591Total
                    
                    
                    4,732
                    
                    
                    
                    798
                    
                    
                    
                    431
                    
                    
                    
                    1,574
                    
                    
                    
                    827Accruing
      loans past due 90 days or more:Residential
      real estate
                    
                    
                    128
                    
                    
                    
                    678
                    
                    
                    
                    572
                    
                    
                    
                    –
                    
                    
                    
                    563Commercial
      real estate
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    104
                    
                    
                    
                    –
                    
                    
                    
                    –Construction
                    
                    
                    228
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Multi-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Land
      and land development
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Commercial
      business
                    
                    
                    67
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Consumer
                    
                    
                    119
                    
                    
                    
                    175
                    
                    
                    
                    –
                    
                    
                    
                    141
                    
                    
                    
                    191Total
                    
                    
                    542
                    
                    
                    
                    853
                    
                    
                    
                    676
                    
                    
                    
                    141
                    
                    
                    
                    754Total
      of non-accrual and 90 days or more past due loans
                    
                    
                    5,274
                    
                    
                    
                    1,651
                    
                    
                    
                    1,107
                    
                    
                    
                    1,715
                    
                    
                    
                    1,581Real
      estate owned
                    
                    
                    1,589
                    
                    
                    
                    390
                    
                    
                    
                    1,278
                    
                    
                    
                    1,941
                    
                    
                    
                    555Other
      non-performing assets
                    
                    
                    64
                    
                    
                    
                    146
                    
                    
                    
                    198
                    
                    
                    
                    45
                    
                    
                    
                    219Total
      non-performing assets
                    
                    $
                    6,927
                    
                    
                    $
                    2,187
                    
                    
                    $
                    2,583
                    
                    
                    $
                    3,701
                    
                    
                    $
                    2,355Total
      non-performing loans to total loans
                    
                    
                    1.49
                    %
                    
                    
                    0.94
                    %
                    
                    
                    0.64
                    %
                    
                    
                    1.01
                    %
                    
                    
                    0.93
                    %Total
      non-performing loans to total assets
                    
                    
                    1.10
                    %
                    
                    
                    0.72
                    %
                    
                    
                    0.54
                    %
                    
                    
                    0.83
                    %
                    
                    
                    0.77
                    %Total
      non-performing assets and troubleddebt
      restructurings to total assets
                    
                    
                    1.44
                    %
                    
                    
                    0.96
                    %
                    
                    
                    1.27
                    %
                    
                    
                    1.79
                    %
                    
                    
                    1.14
                    %





Federal regulations require us to
review and classify our assets on a regular basis.  In addition, the
Office of Thrift Supervision has the authority to identify problem assets and,
if appropriate, require them to be classified.  There are three
classifications for problem assets: substandard, doubtful and
loss.  “Substandard assets” must have one or more defined weaknesses
and are characterized by the distinct possibility that we will sustain some loss
if the deficiencies are not corrected.  “Doubtful assets” have the
weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss.  An asset classified “loss” is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted.  The regulations also provide for a
“special mention” category, described as assets which do not currently expose us
to a sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving our close
attention.  When we classify an asset as substandard or doubtful we
may establish a specific allowance for loan losses.  If we classify an
asset as loss, we charge off an amount equal to 100% of the portion of the asset
classified loss.




40




The
following table shows the aggregate amounts of our classified assets at the
dates indicated.





At September 30,(In thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    2007Special
      mention assets
                    
                    $
                    6,559
                    
                    
                    $
                    3,769
                    
                    
                    $
                    1,605Substandard
      assets
                    
                    
                    8,080
                    
                    
                    
                    1,650
                    
                    
                    
                    4,481Doubtful
      assets
                    
                    
                    1,216
                    
                    
                    
                    618
                    
                    
                    
                    409Loss
      assets
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Total
      classified assets
                    
                    $
                    15,855
                    
                    
                    $
                    6,037
                    
                    
                    $
                    6,495





Classified assets includes loans that
are classified due to factors other than payment delinquencies, such as lack of
current financial statements and other required documentation, insufficient cash
flows or other deficiencies, and, therefore, are not included as non-performing
assets.  Other than as disclosed in the above tables, there are no
other loans where management has serious doubts about the ability of the
borrowers to comply with the present loan repayment terms.





Delinquencies.  The
following table provides information about delinquencies in our loan portfolio
at the dates indicated.





At September 30,
                    
                    
                    At September 30,2009
                    
                    
                    200830-89 Days
                    
                    
                    90 Days or More
                    
                    
                    30-89 Days
                    
                    
                    90 Days or More(Dollars in thousands)
                    
                    Number
                      of
                      Loans
                    
                    
                    Principal
                      Balance
                      of Loans
                    
                    
                    Number
                      of
                      Loans
                    
                    
                    Principal
                      Balance
                      of Loans
                    
                    
                    Number
                      of
                      Loans
                    
                    
                    Principal
                      Balance
                      of Loans
                    
                    
                    Number
                      of
                      Loans
                    
                    
                    Principal
                      Balance
                      of LoansResidential
      real estate
                    
                    
                    34
                    
                    
                    $
                    2,328
                    
                    
                    
                    13
                    
                    
                    $
                    597
                    
                    
                    
                    7
                    
                    
                    $
                    573
                    
                    
                    
                    9
                    
                    
                    $
                    570Commercial
      real estate
                    
                    
                    3
                    
                    
                    
                    94
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Multi-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Construction
                    
                    
                    4
                    
                    
                    
                    316
                    
                    
                    
                    3
                    
                    
                    
                    432
                    
                    
                    
                    1
                    
                    
                    
                    35
                    
                    
                    
                    1
                    
                    
                    
                    252Commercial
      business
                    
                    
                    6
                    
                    
                    
                    701
                    
                    
                    
                    2
                    
                    
                    
                    80
                    
                    
                    
                    1
                    
                    
                    
                    36
                    
                    
                    
                    –
                    
                    
                    
                    –Land
      and land development.
                    
                    
                    1
                    
                    
                    
                    28
                    
                    
                    
                    1
                    
                    
                    
                    33
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    1
                    
                    
                    
                    33Consumer
                    
                    
                    72
                    
                    
                    
                    622
                    
                    
                    
                    27
                    
                    
                    
                    221
                    
                    
                    
                    17
                    
                    
                    
                    118
                    
                    
                    
                    17
                    
                    
                    
                    316Total
                    
                    
                    120
                    
                    
                    $
                    4,089
                    
                    
                    
                    46
                    
                    
                    $
                    1,363
                    
                    
                    
                    26
                    
                    
                    $
                    762
                    
                    
                    
                    28
                    
                    
                    $
                    1,171





At September 30,200730-89 Days
                        
                        
                        90 Days or More(Dollars in thousands)
                        
                        Number
                          of
                          Loans
                        
                        
                        Principal
                          Balance
                          of Loans
                        
                        
                        Number
                          of
                          Loans
                        
                        
                        Principal
                          Balance
                          of LoansResidential
      real estate
                        
                        
                        9
                        
                        
                        $
                        629
                        
                        
                        
                        9
                        
                        
                        $
                        589Commercial
      real estate
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        2
                        
                        
                        
                        116Multi-family
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Construction
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Commercial
      business
                        
                        
                        2
                        
                        
                        
                        295
                        
                        
                        
                        –
                        
                        
                        
                        –Land
      and land development....
                        
                        
                        1
                        
                        
                        
                        400
                        
                        
                        
                        1
                        
                        
                        
                        33Consumer
                        
                        
                        5
                        
                        
                        
                        171
                        
                        
                        
                        10
                        
                        
                        
                        194Total
                        
                        
                        17
                        
                        
                        $
                        1,495
                        
                        
                        
                        22
                        
                        
                        $
                        932





Analysis and Determination of the
Allowance for Loan Losses.





The allowance for loan losses is a
valuation allowance for probable losses inherent in the loan
portfolio.  We evaluate the need to establish allowances against
losses on loans on a quarterly basis.  When additional allowances are
necessary, a provision for loan losses is charged to earnings.





Our methodology for assessing the
appropriateness of the allowance for loan losses consists of: (1) a specific
allowance required for identified problem loans; (2) a general valuation
allowance on the remainder of the loan portfolio; and (3) an unallocated
allowance to cover uncertainties that could affect management’s estimate of
probable losses.  Although we determine the amount of each element of
the allowance separately, the entire allowance for loan losses is available to
absorb losses in the loan portfolio.





41


Specific
Allowance Required for Identified Problem Loans.  We establish
a specific allowance for loans that are classified as doubtful or
substandard.  For such loans that are also classified as impaired, an
allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value
of the loan.





General Valuation
Allowance on the Remainder of the Loan Portfolio.We establish
a general allowance for loans that are not currently classified in order to
recognize the inherent losses associated with lending activities.  The
general allowance covers non-classified loans and is based on historical loss
experience adjusted for qualitative factors such as changes in economic
conditions, changes in the volume of past due and non-accrual loans and
classified assets, changes in the nature and volume of the portfolio, changes in
the value of underlying collateral for collateral dependent loans,
concentrations of credit, and other factors.





Unallocated
Valuation Allowance.We establish an unallocated allowance to
cover uncertainties that could affect management’s estimate of probable
losses.  Any unallocated component of the allowance reflects the
margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimate specific and general losses in the loan
portfolio.





The following table sets forth the
breakdown of the allowance for loan losses by loan category at the dates
indicated.





At September 30,2009
                      
                      
                      2008
                      
                      
                      2007(Dollars in thousands)
                      
                      Amount
                      
                      
                      % of
                        Allowance
                        to Total
                        Allowance
                      
                      
                      % of
                        Loans in
                        Category
                        to Total
                        Loans
                      
                      
                      Amount
                      
                      
                      % of
                        Allowance
                        to Total
                        Allowance
                      
                      
                      % of
                        Loans in
                        Category
                        to Total
                        Loans
                      
                      
                      Amount
                      
                      
                      % of
                        Allowance
                        to Total
                        Allowance
                      
                      
                      % of
                        Loans in
                        Category
                        to Total
                        LoansResidential
      real estate
                      
                      $
                      1,493
                      
                      
                      
                      40.40
                      %
                      
                      
                      51.61
                      %
                      
                      $
                      622
                      
                      
                      
                      35.97
                      %
                      
                      
                      64.20
                      %
                      
                      $
                      267
                      
                      
                      
                      20.59
                      %
                      
                      
                      60.33
                      %Commercial
      real estate
                      
                      
                      271
                      
                      
                      
                      7.33
                      
                      
                      
                      13.36
                      
                      
                      
                      220
                      
                      
                      
                      12.73
                      
                      
                      
                      8.74
                      
                      
                      
                      137
                      
                      
                      
                      10.56
                      
                      
                      
                      10.62Multi-family
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      3.50
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      1.86
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      0.74Construction
                      
                      
                      302
                      
                      
                      
                      8.17
                      
                      
                      
                      6.17
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      4.63
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      8.59Land
      and land development
                      
                      
                      258
                      
                      
                      
                      6.98
                      
                      
                      
                      3.11
                      
                      
                      
                      50
                      
                      
                      
                      2.89
                      
                      
                      
                      2.69
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      2.91Commercial
      business
                      
                      
                      444
                      
                      
                      
                      12.02
                      
                      
                      
                      10.25
                      
                      
                      
                      196
                      
                      
                      
                      11.34
                      
                      
                      
                      8.15
                      
                      
                      
                      268
                      
                      
                      
                      20.66
                      
                      
                      
                      7.31Consumer
                      
                      
                      927
                      
                      
                      
                      25.10
                      
                      
                      
                      12.00
                      
                      
                      
                      641
                      
                      
                      
                      37.07
                      
                      
                      
                      9.73
                      
                      
                      
                      625
                      
                      
                      
                      48.19
                      
                      
                      
                      9.50Unallocated
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Total
      allowance for loan Losses
                      
                      $
                      3,695
                      
                      
                      
                      100.00
                      %
                      
                      
                      100.00
                      %
                      
                      $
                      1,729
                      
                      
                      
                      100.00
                      %
                      
                      
                      100.00
                      %
                      
                      $
                      1,297
                      
                      
                      
                      100.00
                      %
                      
                      
                      100.00
                      %





At September 30,2006
                        
                        
                        2005(Dollars in thousands)
                        
                        Amount
                        
                        
                        % of
                          Allowance
                          to Total
                          Allowance
                        
                        
                        % of
                          Loans in
                          Category
                          to Total
                          Loans
                        
                        
                        Amount
                        
                        
                        % of
                          Allowance
                          to Total
                          Allowance
                        
                        
                        % of
                          Loans in
                          Category
                          to Total
                          LoansResidential
      real estate
                        
                        $
                        88
                        
                        
                        
                        10.14
                        %
                        
                        
                        59.29
                        %
                        
                        $
                        114
                        
                        
                        
                        12.93
                        %
                        
                        
                        61.62
                        %Commercial
      real estate
                        
                        
                        118
                        
                        
                        
                        13.59
                        
                        
                        
                        11.19
                        
                        
                        
                        51
                        
                        
                        
                        5.78
                        
                        
                        
                        6.88Multi-family
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        1.07
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        0.96Construction
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        12.08
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        14.60Land
      and land development
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        1.48
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        1.71Commercial
      business
                        
                        
                        157
                        
                        
                        
                        18.09
                        
                        
                        
                        6.00
                        
                        
                        
                        169
                        
                        
                        
                        19.16
                        
                        
                        
                        4.96Consumer
                        
                        
                        505
                        
                        
                        
                        58.18
                        
                        
                        
                        8.89
                        
                        
                        
                        548
                        
                        
                        
                        62.13
                        
                        
                        
                        9.27Unallocated
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Total
      allowance for loan Losses
                        
                        $
                        868
                        
                        
                        
                        100.00
                        %
                        
                        
                        100.00
                        %
                        
                        $
                        882
                        
                        
                        
                        100.00
                        %
                        
                        
                        100.00
                        %




42




Although
we believe that we use the best information available to establish the allowance
for loan losses, future adjustments to the allowance for loan losses may be
necessary and our results of operations could be adversely affected if
circumstances differ substantially from the assumptions used in making the
determinations.  Furthermore, while we believe we have established our
allowance for loan losses in conformity with generally accepted accounting
principles, there can be no assurance that the Office of Thrift Supervision, in
reviewing our loan portfolio, will not require us to increase our allowance for
loan losses.  The Office of Thrift Supervision may require us to
increase our allowance for loan losses based on judgments different from
ours.  In addition, because future events affecting borrowers and
collateral cannot be predicted with certainty, there can be no assurance that
the existing allowance for loan losses is adequate or that increases will not be
necessary should the quality of any loans deteriorate as a result of the factors
discussed above.  Any material increase in the allowance for loan
losses may adversely affect our financial condition and results of
operations.





Analysis of Loan Loss
Experience.





The following table sets forth an
analysis of the allowance for loan losses for the periods
indicated.





Year Ended September 30,(Dollars
      in thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005Allowance
      for loan losses at beginning of period
                    
                    $
                    1,729
                    
                    
                    $
                    1,297
                    
                    
                    $
                    868
                    
                    
                    $
                    882
                    
                    
                    $
                    805Provision
      for loan losses
                    
                    
                    819
                    
                    
                    
                    1,540
                    
                    
                    
                    758
                    
                    
                    
                    813
                    
                    
                    
                    336Charge
      offs:Residential
      real estate
                    
                    
                    580
                    
                    
                    
                    1,085
                    
                    
                    
                    –
                    
                    
                    
                    528
                    
                    
                    
                    30Commercial
      real estate
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    216
                    
                    
                    
                    –
                    
                    
                    
                    –Multi-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Land
      and land development
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Construction
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Commercial
      business
                    
                    
                    39
                    
                    
                    
                    –
                    
                    
                    
                    9
                    
                    
                    
                    –
                    
                    
                    
                    98Consumer
                    
                    
                    209
                    
                    
                    
                    153
                    
                    
                    
                    199
                    
                    
                    
                    314
                    
                    
                    
                    142Total
      charge-offs
                    
                    
                    828
                    
                    
                    
                    1,238
                    
                    
                    
                    424
                    
                    
                    
                    842
                    
                    
                    
                    270Recoveries:Residential
      real estate
                    
                    
                    57
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Non-residential
      real estate
                    
                    
                    –
                    
                    
                    
                    110
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Multi-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Land
      and land development
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Construction
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Commercial
      business
                    
                    
                    
                    
                    
                    
                    –
                    
                    
                    
                    2
                    
                    
                    
                    –
                    
                    
                    
                    –Consumer
                    
                    
                    82
                    
                    
                    
                    20
                    
                    
                    
                    93
                    
                    
                    
                    15
                    
                    
                    
                    11Total
      recoveries
                    
                    
                    139
                    
                    
                    
                    130
                    
                    
                    
                    95
                    
                    
                    
                    15
                    
                    
                    
                    11Net
      charge-offs (recoveries)
                    
                    
                    689
                    
                    
                    
                    1,108
                    
                    
                    
                    329
                    
                    
                    
                    827
                    
                    
                    
                    259Increase
      due to acquisition of Community First
                    
                    
                    1,836
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Allowance
      for loan losses at end of period
                    
                    $
                    3,695
                    
                    
                    $
                    1,729
                    
                    
                    $
                    1,297
                    
                    
                    $
                    868
                    
                    
                    $
                    882Allowance
      for loan losses to non-performing loans
                    
                    
                    70.06
                    %
                    
                    
                    104.72
                    %
                    
                    
                    117.16
                    %
                    
                    
                    50.61
                    %
                    
                    
                    55.79
                    %Allowance
      for loan losses to total loans outstanding at the end of the
      period
                    
                    
                    1.03
                    %
                    
                    
                    0.98
                    %
                    
                    
                    0.75
                    %
                    
                    
                    0.51
                    %
                    
                    
                    0.52
                    %Net
      charge-offs (recoveries) to average loans outstanding during the
      period
                    
                    
                    0.38
                    %
                    
                    
                    0.64
                    %
                    
                    
                    0.21
                    %
                    
                    
                    0.51
                    %
                    
                    
                    0.16
                    %





Interest Rate
Risk Management.We manage the interest rate sensitivity of
our interest-bearing liabilities and interest-earning assets in an effort to
minimize the adverse effects of changes in the interest rate
environment.  Deposit accounts typically react more quickly to changes
in market interest rates than mortgage loans because of the shorter maturities
of deposits.  As a result, sharp increases in interest rates may
adversely affect our earnings while decreases in interest rates may beneficially
affect our earnings.  To reduce the potential volatility of our
earnings, we have sought to improve the match between asset and liability
maturities and rates, while maintaining an acceptable interest rate
spread.  Our strategy for managing interest rate risk emphasizes:
adjusting the maturities of borrowings; adjusting the investment portfolio mix
and duration and generally selling in the secondary market substantially all
newly originated one-to four-family residential real estate loans.  We
currently do not participate in hedging programs, interest rate swaps or other
activities involving the use of derivative financial instruments.





43


We have an Asset/Liability Management
Committee, which includes members of management approved by the Board of
Directors, to communicate, coordinate and control all aspects involving
asset/liability management.  The committee establishes and monitors
the volume, maturities, pricing and mix of assets and funding sources with the
objective of managing assets and funding sources to provide results that are
consistent with liquidity, growth, risk limits and profitability
goals.





Our goal is to manage asset and
liability positions to moderate the effects of interest rate fluctuations on net
interest income and net income.





Net Portfolio
Value Analysis.We use a net portfolio value (NPV) analysis
prepared by the Office of Thrift Supervision to review our level of interest
rate risk.  This analysis measures interest rate risk by capturing
changes in net portfolio value of our cash flows from assets, liabilities and
off-balance sheet items, based on a range of assumed changes in market interest
rates.  NPV represents the market value of portfolio equity and is
equal to the market value of assets minus the market value of liabilities, with
adjustments made for off-balance sheet items.  These analyses assess
the risk of loss in market risk-sensitive instruments in the event of a sudden
and sustained 100 to 300 basis point increase or 100 basis point decrease in
market interest rates with no effect given to any steps that we might take to
counter the effect of that interest rate movement.





The following table, which is based on
information that we provide to the Office of Thrift Supervision, presents the
change in our NPV at September 30, 2009 that would occur in the event of an
immediate change in interest rates based on Office of Thrift Supervision
assumptions, with no effect given to any steps that we might take to counteract
that change.





At September 30, 2009Net Portfolio Value
                      
                      
                      Net Portfolio Value as a
                        Percent of
                        Portfolio Value of AssetsBasis Point (“bp”)
                        Change in Rates
                      
                      Dollar
                        Amount
                      
                      
                      Dollar
                        Change
                      
                      
                      Percent
                        Change
                      
                      
                      NPV Ratio
                      
                      
                      Change(Dollars in thousands)300
                      
                      $
                      54,822
                      
                      
                      $
                      (7,460
                      )
                      
                      
                      (12
                      )%
                      
                      
                      11.22
                      %
                      
                      
                      (117
                      )bp200
                      
                      
                      58,789
                      
                      
                      
                      (3,493
                      )
                      
                      
                      (6
                      )
                      
                      
                      11.89
                      
                      
                      
                      (50
                      )bp100
                      
                      
                      60,928
                      
                      
                      
                      (1,354
                      )
                      
                      
                      (2
                      )
                      
                      
                      12.21
                      
                      
                      
                      (18
                      )bp0
                      
                      
                      62,282
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      12.39
                      
                      
                      
                      -(100)
                      
                      
                      62,242
                      
                      
                      
                      (40
                      )
                      
                      
                      -
                      
                      
                      
                      12.34
                      
                      
                      
                      (5
                      )bp





The
Office of Thrift Supervision uses various assumptions in assessing interest rate
risk.  These assumptions relate to interest rates, loan prepayment
rates, deposit decay rates and the market values of certain assets under
differing interest rate scenarios, among others.  As with any method
of measuring interest rate risk, certain shortcomings are inherent in the
methods of analyses presented in the foregoing tables.  For example,
although certain assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market interest
rates.  Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market
rates.  Additionally, certain assets, such as adjustable-rate mortgage
loans, have features that restrict changes in interest rates on a short-term
basis and over the life of the asset.  Further, if there is a change
in interest rates, expected rates of prepayments on loans and early withdrawals
from certificates could deviate significantly from those assumed in calculating
the table.  Prepayment rates can have a significant impact on interest
income.  Because of the large percentage of loans and mortgage-backed
securities we hold, rising or falling interest rates have a significant impact
on the prepayment speeds of our earning assets that in turn affect the rate
sensitivity position.  When interest rates rise, prepayments tend to
slow.  When interest rates fall, prepayments tend to
rise.  Our asset sensitivity would be reduced if prepayments slow and
vice versa.  While we believe these assumptions to be reasonable,
there can be no assurance that assumed prepayment rates will approximate actual
future mortgage-backed security and loan repayment activity.




44


Liquidity
Management.Liquidity is the ability to meet current and
future short-term financial obligations.  Our primary sources of funds
consist of deposit inflows, loan repayments, maturities and sales of investment
securities and borrowings from the Federal Home Loan Bank of
Indianapolis.  While maturities and scheduled amortization of loans
and securities are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.





We regularly adjust our investments in
liquid assets based upon our assessment of (1) expected loan demand, (2)
expected deposit flows, (3) yields available on interest-earning deposits and
securities and (4) the objectives of our asset/liability management
policy.





Our most liquid assets are cash and
cash equivalents and interest-bearing deposits.  The levels of these
assets depend on our operating, financing, lending and investing activities
during any given period.  At September 30, 2009, cash and cash
equivalents totaled $10.4 million.  Securities classified as
available-for-sale, amounting to $72.6 million at September 30, 2009, provide
additional sources of liquidity.  In addition, at September 30, 2009,
we had the ability to borrow a total of approximately $60.0 million from the
Federal Home Loan Bank of Indianapolis.  At September 30, 2009, we had
$55.8 million Federal Home Loan Bank borrowings outstanding.





At September 30, 2009, we had $64.9
million in commitments to extend credit outstanding.  Certificates of
deposit due within one year of September 30, 2009 totaled $122.2 million, or
61.6% of certificates of deposit.  We believe the large percentage of
certificates of deposit that mature within one year reflects customers’
hesitancy to invest their funds for long periods due to the recent low interest
rate environment and local competitive pressure.  If these maturing
deposits do not remain with us, we will be required to seek other sources of
funds, including other certificates of deposit and
borrowings.  Depending on market conditions, we may be required to pay
higher rates on such deposits or other borrowings than we currently pay on the
certificates of deposit due on or before September 30, 2010.  We
believe, however, based on past experience that a significant portion of our
certificates of deposit will remain with us.  We have the ability to
attract and retain deposits by adjusting the interest rates
offered.





The following tables present certain of
our contractual obligations as of September 30, 2009.





Payments due by period(In thousands)
                          
                          Total
                          
                          
                          Less than
                            One Year
                          
                          
                          One to
                            Three Years
                          
                          
                          Three to
                            Five Years
                          
                          
                          More Than
                            Five YearsDeferred
      director fee agreements
                          
                          $
                          350
                          
                          
                          $
                          6
                          
                          
                          $
                          11
                          
                          
                          $
                          11
                          
                          
                          $
                          322Deferred
      compensation agreements (1)
                          
                          
                          247
                          
                          
                          
                          31
                          
                          
                          
                          68
                          
                          
                          
                          77
                          
                          
                          
                          71Operating
      lease obligations
                          
                          
                          3
                          
                          
                          
                          3
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Repurchase
      agreements
                          
                          
                          17,239
                          
                          
                          
                          1,304
                          
                          
                          
                          15,935
                          
                          
                          
                          –
                          
                          
                          
                          –Federal
      funds purchased
                          
                          
                          1,180
                          
                          
                          
                          1,180
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –FHLB
      borrowings
                          
                          
                          55,773
                          
                          
                          
                          37,311
                          
                          
                          
                          5,175
                          
                          
                          
                          13,287
                          
                          
                          
                          –Total
                          
                          $
                          74,792
                          
                          
                          $
                          39,835
                          
                          
                          $
                          21,189
                          
                          
                          $
                          13,375
                          
                          
                          $
                          393





(1)
            Includes
      deferred compensation agreement with a former officer that calls for
      annual payments of $9,000 until his
death.





Our primary investing activities are
the origination of loans and the purchase of securities.  Our primary
financing activities consist of activity in deposit accounts and Federal Home
Loan Bank advances.  Deposit flows are affected by the overall level
of interest rates, the interest rates and products offered by us and our local
competitors and other factors.  We generally manage the pricing of our
deposits to be competitive.  Occasionally, we offer promotional rates
on certain deposit products to attract deposits.





45




Financing
and Investing Activities





The
following table presents our primary investing and financing activities during
the periods indicated.





Year Ended September 30,(In thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    2007Investing
      activities:Loan
      purchases
                    
                    $
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    –Loan
      originations
                    
                    
                    (61,629
                    )
                    
                    
                    (78,418
                    )
                    
                    
                    (83,470
                    )Loan
      principal repayments
                    
                    
                    50,885
                    
                    
                    
                    72,603
                    
                    
                    
                    80,707Loan
      sales
                    
                    
                    2,513
                    
                    
                    
                    1,879
                    
                    
                    
                    453Proceeds
      from maturities and principal repayments of investment
      securities
                    
                    
                    17,300
                    
                    
                    
                    9,107
                    
                    
                    
                    3,000Proceeds
      from maturities and principal repayments of mortgage-backed
      securities
                    
                    
                    4,438
                    
                    
                    
                    992
                    
                    
                    
                    789Proceeds
      from sales of investment securities available- for-sale
                    
                    
                    16,041
                    
                    
                    
                    –
                    
                    
                    
                    –Proceeds
      from sales of mortgage-backed securities
available-for-sale
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Purchases
      of investment securities
                    
                    
                    (44,547
                    )
                    
                    
                    (7,577
                    )
                    
                    
                    (5,311
                    )Purchases
      of mortgage-backed securities
                    
                    
                    (4,005
                    )
                    
                    
                    (6,040
                    )
                    
                    
                    –Financing
      activities:Increase
      (decrease) in deposits
                    
                    
                    (17,854
                    )
                    
                    
                    20,427
                    
                    
                    
                    (7,109
                    )Increase
      in Federal Home Loan Bank borrowings
                    
                    
                    18,061
                    
                    
                    
                    5,000
                    
                    
                    
                    3,000





Capital
Management.We are subject to various regulatory capital
requirements administered by the Office of Thrift Supervision, including a
risk-based capital measure.  The risk-based capital guidelines include
both a definition of capital and a framework for calculating risk-weighted
assets by assigning balance sheet assets and off-balance sheet items to broad
risk categories.  At September 30, 2009, we exceeded all of our
regulatory capital requirements.  We are considered “well capitalized”
under regulatory guidelines.  See “Item 1. Business — Regulation and
Supervision — Regulation of Federal Savings Associations — Capital
Requirement,” and note 21 of the notes to consolidated financial
statements beginning on page F-1 of this annual report.





Off-Balance Sheet
Arrangements.  In the normal course of operations, we engage in
a variety of financial transactions that, in accordance with generally accepted
accounting principles, are not recorded in our financial
statements.  These transactions involve, to varying degrees, elements
of credit, interest rate and liquidity risk.  Such transactions are
used primarily to manage customers’ requests for funding and take the form of
loan commitments and lines of credit.  For information about our loan
commitments and unused lines of credit, see note 15 of the notes to consolidated
financial statements beginning on page F-1 of this annual report.





For the year ended September 30, 2009,
we did not engage in any off-balance sheet transactions reasonably likely to
have a material effect on our financial condition, results of operations or cash
flows.





Impact
of Recent Accounting Pronouncements





For a discussion of the impact of
recent accounting pronouncements, see note 1 of the notes to consolidated
financial statements beginning on page F-1 of this annual report.





Effect
of Inflation and Changing Prices





The consolidated financial statements
and related financial data presented in this annual report have been prepared
according to generally accepted accounting principles in the United States,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation.  The primary
impact of inflation on our operations is reflected in increased operating
costs.  Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature.  As a
result, interest rates generally have a more significant impact on a financial
institution’s performance than do general levels of
inflation.  Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and
services.





46




Item
7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK





The information required by this item
is incorporated herein by reference to Part II, “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operation.”





Item
8.        FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA





Information required by this item is
included herein beginning on page F-1.





Item
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.





None.





Item
9A(T).  CONTROLS AND PROCEDURES





(a)
            Disclosure
      Controls and Procedures





The
Company’s management, including the Company’s principal executive officer and
principal financial officer, have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”).  Based upon their evaluation, the principal executive
officer and principal financial officer concluded that, as of the end of the
period covered by this report, the Company’s disclosure controls and procedures
were effective for the purpose of ensuring that the information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required
disclosure.





(b)           Internal
Controls Over Financial Reporting





The management of the Company is
responsible for establishing and maintaining adequate internal control over
financial reporting.  The internal control process has been designed
under our supervision to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of the Company’s financial statements
for external reporting purposes in accordance with accounting principles
generally accepted in the United States of America.





Management conducted an assessment of
the effectiveness of the Company’s internal control over financial reporting as
of September 30, 2009, utilizing the framework established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  Based on this assessment, management has
determined that the Company’s internal control over financial reporting as of
September 30, 2009 is effective.





Our internal control over financial
reporting includes policies and procedures that pertain to the maintenance of
records that accurately and fairly reflect, in reasonable detail, transactions
and dispositions of assets; and provide reasonable assurances
that:  (1) transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States; (2) receipts and expenditures are being
made only in accordance with authorizations of management and the directors of
the Company; and (3) unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the Company’s financial
statements are prevented or timely detected.





47


All internal control systems, no matter
how well designed, have inherent limitations.  Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.  Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.





This annual report does not include an
attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting.  Management’s report was
not subject to attestation by the Company’s registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.





(c)
            Changes
      to Internal Control Over Financial
Reporting





There were no changes in the Company’s
internal control over financial reporting during the three months ended
September 30, 2009 that have materially affected, or are reasonable likely to
materially affect, the Company’s internal control over financial
reporting.





Item
9B.    OTHER INFORMATION





None.





PART
III





Item
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The information relating to the
directors and officers of the Company, information regarding compliance with
Section 16(a) of the Exchange Act and information regarding the audit committee
and audit committee financial expert is incorporated herein by reference to the
Company’s Proxy Statement for the 2010 Annual Meeting of Stockholders (the
“Proxy Statement”).




The Company has adopted a code of
ethics and business conduct which applies to all of the Company’s and the Bank’s
directors, officers and employees.  A copy of the code of ethics and
business conduct is available to stockholders on the Investor Relations portion
of the Bank’s website at www.fsbbank.net.





Item
11.     EXECUTIVE COMPENSATION





The information regarding executive
compensation is incorporated herein by reference to the Proxy
Statement.





Item
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





(a)
            Security
      Ownership of Certain Beneficial
Owners




Information
required by this item is incorporated herein by reference to the section
captioned “Stock Ownership” in the Proxy Statement.




(b)
            Security
      Ownership of Management




Information
required by this item is incorporated herein by reference to the section
captioned “Stock Ownership” in the Proxy Statement.




(c)           Changes
in Control




48




Management
of the Company knows of no arrangements, including any pledge by any person of
securities of the Company, the operation of which may at a subsequent date
result in a change in control of the registrant.




(d)
            Equity
      Compensation Plan Information




None.




Item
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





The information relating to certain
relationships and related transactions and director independence is incorporated
herein by reference to the Proxy Statement.





Item
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





The
information relating to the principal accountant fees and expenses is
incorporated herein by reference
to the Proxy Statement.





Item
15.     EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES





(1)
            The
      financial statements required in response to this item are incorporated by
      reference from Item 8 of this Annual Report on Form
  10-K.





(2)
            All
      financial statement schedules are omitted because they are not required or
      applicable, or the required information is shown in the consolidated
      financial statements or the notes
thereto.





(3)
            Exhibits





No.
              
              Description3.1
              
              Articles
      of Incorporation of First Savings Financial Group, Inc.
  (1)3.2
              
              Bylaws
      of First Savings Financial Group, Inc. (1)4.0
              
              Specimen
      Stock Certificate of First Savings Financial Group, Inc.
    (1)10.1
              
              Employment
      Agreement by and among First Savings Financial Group, Inc., First Savings
      Bank, F.S.B. and Larry W. Myers, dated October 7, 2009*
  (2)10.2
              
              Employment
      Agreement by and among First Savings Financial Group, Inc., First Savings
      Bank, F.S.B. and John P. Lawson, Jr., dated October 7, 2009*
      (2)10.3
              
              Employment
      Agreement by and among First Savings Financial Group, Inc., First Savings
      Bank, F.S.B. and Anthony A. Schoen, dated October 7, 2009*
    (2)10.4
              
              Employment
      Agreement by and among First Savings Financial Group, Inc., First Savings
      Bank, F.S.B. and Samuel E. Eckart, dated October 7, 2009*
    (2)10.5
              
              First
      Savings Bank, F.S.B. Employee Severance Compensation Plan*
    (2)10.6
              
              First
      Savings Bank, F.S.B. Supplemental Executive Retirement Plan*
      (2)21.0
              
              Subsidiaries
      of the Registrant23.0
              
              Consent
      of Monroe Shine & Co., Inc.31.1
              
              Rule
      13a-14(a)/15d-14(a) Certificate of Chief Executive
  Officer31.2
              
              Rule
      13a-14(a)/15d-14(a) Certificate of Chief Financial
  Officer32.0
              
              Section
      1350 Certificate of Chief Executive Officer and Chief Financial
      Officer





*
            Management
      contract or compensatory plan, contract or
  arrangement


(1)
            Incorporated
      herein by reference to the exhibits to the Company’s Registration
      Statement on Form S-1 (File No. 333-151636), as amended, initially filed
      with the Securities and Exchange Commission on June 13,
    2008.


(2)
            Incorporated
      herein by reference to the exhibits to the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on October 8,
      2009.


49




FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONTENTS
 
 PageReport
      of Independent Registered Public Accounting Firm
                F-2CONSOLIDATED
      BALANCE SHEETS
                F-3CONSOLIDATED
      STATEMENTS OF INCOME
                F-4CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                F-5CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                F-6NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                F-7
  F-1
  
 
 Report
of Independent Registered Public Accounting Firm
 
 The Board
of Directors
 First
Savings Financial Group, Inc.
 Clarksville,
Indiana
 
 We have
audited the accompanying consolidated balance sheets of First Savings Financial Group, Inc.
and Subsidiaries as of September 30, 2009 and 2008, and the related
consolidated statements of income, changes in stockholders equity and cash flows
for the years then ended.  The Company's management is responsible for
these consolidated financial statements.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of First Savings Financial Group, Inc.
and Subsidiaries as of September 30, 2009 and 2008, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of
America.
 
 
 New
Albany, Indiana
 November
13, 2009
  MONROE
SHINE & CO., INC.  ̈ CERTIFIED
PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS
 F-2
 
 FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 SEPTEMBER
30, 2009 AND 2008
 
 (In
      thousands, except share and per share data)
                      
                      2009
                      
                      
                      2008ASSETSCash
      and due from banks
                      
                      $
                      8,359
                      
                      
                      $
                      5,378Interest-bearing
      deposits with banks
                      
                      
                      2,045
                      
                      
                      
                      16,001Total
      cash and cash equivalents
                      
                      
                      10,404
                      
                      
                      
                      21,379Securities
      available for sale, at fair value
                      
                      
                      72,580
                      
                      
                      
                      10,697Securities
      held to maturity (fair value of $7,054 in 2009 and $8,491 in
      2008)
                      
                      
                      6,782
                      
                      
                      
                      8,456Loans
      held for sale
                      
                      
                      317
                      
                      
                      
                      -Loans,
      net of allowance for loan losses of $3,695 in 2009 and $1,729 in
      2008
                      
                      
                      353,823
                      
                      
                      
                      174,807Federal
      Home Loan Bank stock, at cost
                      
                      
                      4,170
                      
                      
                      
                      1,336Premises
      and equipment
                      
                      
                      9,916
                      
                      
                      
                      4,242Foreclosed
      real estate
                      
                      
                      1,589
                      
                      
                      
                      390Accrued
      interest receivable:Loans
                      
                      
                      1,607
                      
                      
                      
                      770Securities
                      
                      
                      493
                      
                      
                      
                      160Cash
      surrender value of life insurance
                      
                      
                      3,931
                      
                      
                      
                      3,755Goodwill
                      
                      
                      5,882
                      
                      
                      
                      -Core
      deposit intangible
                      
                      
                      2,741
                      
                      
                      
                      -Other
      assets
                      
                      
                      6,576
                      
                      
                      
                      2,932Total
      Assets
                      
                      $
                      480,811
                      
                      
                      $
                      228,924LIABILITIESDeposits:Noninterest-bearing
                      
                      $
                      25,388
                      
                      
                      $
                      6,843Interest-bearing
                      
                      
                      325,428
                      
                      
                      
                      182,366Total
      deposits
                      
                      
                      350,816
                      
                      
                      
                      189,209Federal
      funds purchased
                      
                      
                      1,180
                      
                      
                      
                      -Repurchase
      agreements
                      
                      
                      17,239
                      
                      
                      
                      -Borrowings
      from Federal Home Loan Bank
                      
                      
                      55,773
                      
                      
                      
                      8,000Accrued
      interest payable
                      
                      
                      516
                      
                      
                      
                      143Advance
      payments by borrowers for taxes and insurance
                      
                      
                      341
                      
                      
                      
                      398Accrued
      expenses and other liabilities
                      
                      
                      2,069
                      
                      
                      
                      1,454Total
      Liabilities
                      
                      
                      427,934
                      
                      
                      
                      199,204COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITYPreferred
      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
      2,542,042 shares
                      
                      
                      25
                      
                      
                      
                      -Additional
      paid-in capital
                      
                      
                      24,263
                      
                      
                      
                      -Retained
      earnings - substantially restricted
                      
                      
                      29,453
                      
                      
                      
                      29,420Accumulated
      other comprehensive income
                      
                      
                      932
                      
                      
                      
                      300Unearned
      ESOP shares
                      
                      
                      (1,796
                      )
                      
                      
                      -Total
      Stockholders' Equity
                      
                      
                      52,877
                      
                      
                      
                      29,720Total
      Liabilities and Stockholders' Equity
                      
                      $
                      480,811
                      
                      
                      $
                      228,924
 
 See notes
to consolidated financial statements.
  F-3
 
 FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME
 YEARS
ENDED SEPTEMBER 30, 2009 AND 2008
 
 (In
      thousands, except share and per share data)
                                
                                2009
                                
                                
                                2008INTEREST
      INCOMELoans,
      including fees
                                
                                $
                                11,361
                                
                                
                                $
                                11,579Securities:Taxable
                                
                                
                                1,402
                                
                                
                                
                                657Tax-exempt
                                
                                
                                166
                                
                                
                                
                                56Dividend
      income
                                
                                
                                46
                                
                                
                                
                                68Interest-bearing
      deposits with banks
                                
                                
                                33
                                
                                
                                
                                163Total
      interest income
                                
                                
                                13,008
                                
                                
                                
                                12,523INTEREST
      EXPENSEDeposits
                                
                                
                                4,125
                                
                                
                                
                                5,741Borrowings
      from Federal Home Loan Bank
                                
                                
                                315
                                
                                
                                
                                231Total
      interest expense
                                
                                
                                4,440
                                
                                
                                
                                5,972Net
      interest income
                                
                                
                                8,568
                                
                                
                                
                                6,551Provision
      for loan losses
                                
                                
                                819
                                
                                
                                
                                1,540Net
      interest income after provision for loan losses
                                
                                
                                7,749
                                
                                
                                
                                5,011NONINTEREST
      INCOMEService
      charges on deposit accounts
                                
                                
                                608
                                
                                
                                
                                533Net
      gain on sale of investment securities
                                
                                
                                100
                                
                                
                                
                                -Net
      gain on sales of mortgage loans
                                
                                
                                29
                                
                                
                                
                                21Increase
      in cash surrender value of life insurance
                                
                                
                                171
                                
                                
                                
                                159Other
      income
                                
                                
                                355
                                
                                
                                
                                341Total
      noninterest income
                                
                                
                                1,263
                                
                                
                                
                                1,054NONINTEREST
      EXPENSECompensation
      and benefits
                                
                                
                                3,787
                                
                                
                                
                                3,104Occupancy
      and equipment
                                
                                
                                902
                                
                                
                                
                                815Data
      processing
                                
                                
                                647
                                
                                
                                
                                599Advertising
                                
                                
                                167
                                
                                
                                
                                142Professional
      fees
                                
                                
                                520
                                
                                
                                
                                216FDIC
      insurance premiums
                                
                                
                                277
                                
                                
                                
                                22Charitable
      contributions
                                
                                
                                1,211
                                
                                
                                
                                42Net
      loss on foreclosed real estate
                                
                                
                                88
                                
                                
                                
                                375Other
      operating expenses
                                
                                
                                1,632
                                
                                
                                
                                1,240Total
      noninterest expense
                                
                                
                                9,231
                                
                                
                                
                                6,555Loss
      before income taxes
                                
                                
                                (219
                                )
                                
                                
                                (490
                                )Income
      tax benefit
                                
                                
                                (252
                                )
                                
                                
                                (300
                                )Net
      Income (Loss)
                                
                                $
                                33
                                
                                
                                $
                                (190
                                )Net
      income per common share:Basic
                                
                                $
                                0.01
                                
                                
                                
                                N/ADiluted
                                
                                $
                                0.01
                                
                                
                                
                                N/AWeighted
      average number of shares outstanding:Basic
                                
                                
                                2,315,498
                                
                                
                                
                                N/ADiluted
                                
                                
                                2,315,498
                                
                                
                                
                                N/A
  See notes
to consolidated financial statements.
  F-4
  CONSOLIDATED
BALANCE SHEETS
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 YEARS
ENDED SEPTEMBER 30, 2009 AND 2008
 
 Accumulated
      OtherComprehensive
      Income (Loss)NetUnrealizedGain
      on
                        
                        
                        DefinedAdditional
                        
                        
                        
                        
                        
                        Securities
                        
                        
                        Benefit
                        
                        
                        UnearnedCommon
                        
                        
                        Paid
      in
                        
                        
                        Retained
                        
                        
                        Available
                        
                        
                        Pension
                        
                        
                        ESOP(In
      thousands, except share and per share data)
                        
                        Stock
                        
                        
                        Capital
                        
                        
                        Earnings
                        
                        
                        for
      Sale
                        
                        
                        Plan
                        
                        
                        Shares
                        
                        
                        TotalBalances
      at October 1, 2007
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        29,610
                        
                        
                        $
                        85
                        
                        
                        $
                        (33
                        )
                        
                        $
                        -
                        
                        
                        $
                        29,662COMPREHENSIVE
      INCOMENet
      loss
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (190
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (190
                        )Other
      comprehensive income:Change
      in unrealized gain on securities available for sale, net of deferred
      income tax benefit of $5
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (7
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (7
                        )Defined
      benefit pension plan:Net
      unrecognized gain, net of deferred income tax expense of
    $167
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        255
                        
                        
                        
                        -
                        
                        
                        
                        255Amortization
      of transition asset, net of deferred income tax expense of
    $2
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3
                        
                        
                        
                        -
                        
                        
                        
                        3Amortization
      of prior service cost, net of deferred income tax benefit of
      $2
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (3
                        )
                        
                        
                        -
                        
                        
                        
                        (3
                        )Total
      comprehensive income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        58Balances
      at September 30, 2008
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        29,420
                        
                        
                        $
                        78
                        
                        
                        $
                        222
                        
                        
                        $
                        -
                        
                        
                        $
                        29,720COMPREHENSIVE
      INCOMENet
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        33
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        33Other
      comprehensive income:Change
      in unrealized gain on securities available for sale, net of deferred
      income tax expense of $319
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        486
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        486Less:  Reclassification
      adjustment for realized securties gains in earnings, net of tax benefit of
      $40
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (60
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (60
                        )Defined
      benefit pension plan:Net
      unrecognized gain, net of deferred income tax expense of
    $135
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        206
                        
                        
                        
                        -
                        
                        
                        
                        206Total
      comprehensive income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        665Issuance
      of common stock
                        
                        
                        25
                        
                        
                        
                        24,269
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (2,034
                        )
                        
                        
                        22,260Shares
      released by ESOP trust
                        
                        
                        -
                        
                        
                        
                        (6
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        238
                        
                        
                        
                        232Balances
      at September 30, 2009
                        
                        $
                        25
                        
                        
                        $
                        24,263
                        
                        
                        $
                        29,453
                        
                        
                        $
                        504
                        
                        
                        $
                        428
                        
                        
                        $
                        (1,796
                        )
                        
                        $
                        52,877
  See notes
to consolidated financial statements.
  F-5
 
 FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 YEARS
ENDED SEPTEMBER 30, 2009 AND 2008
 
 (In
      thousands)
                        
                        2009
                        
                        
                        2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                        
                        $
                        33
                        
                        
                        $
                        (190
                        )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Provision
      for loan losses
                        
                        
                        819
                        
                        
                        
                        1,540Depreciation
                        
                        
                        301
                        
                        
                        
                        295Amortization
      of premiums and accretion of discounts on securities, net
                        
                        
                        215
                        
                        
                        
                        35Mortgage
      loans originated for sale
                        
                        
                        (2,484
                        )
                        
                        
                        (1,858
                        )Proceeds
      on sale of mortgage loans
                        
                        
                        2,513
                        
                        
                        
                        1,879Gain
      on sale of mortgage loans
                        
                        
                        (29
                        )
                        
                        
                        (21
                        )Net
      realized and unrealized (gain) loss on foreclosed real
    estate
                        
                        
                        (21
                        )
                        
                        
                        278Net
      gain on sale of investment securities
                        
                        
                        (100
                        )
                        
                        
                        -Increase
      in cash value of life insurance
                        
                        
                        (176
                        )
                        
                        
                        (159
                        )Deferred
      income taxes
                        
                        
                        (537
                        )
                        
                        
                        (129
                        )ESOP
      compensation expense
                        
                        
                        227
                        
                        
                        
                        -Contribution
      of common stock to charitable foundation
                        
                        
                        1,100
                        
                        
                        
                        -(Increase)
      decrease in accrued interest receivable
                        
                        
                        (43
                        )
                        
                        
                        151Decrease
      in accrued interest payable
                        
                        
                        (33
                        )
                        
                        
                        (33
                        )Change
      in other assets and liabilities, net
                        
                        
                        1,392
                        
                        
                        
                        (1,244
                        )Net
      Cash Provided By Operating Activities
                        
                        
                        3,177
                        
                        
                        
                        544CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of securities available for sale
                        
                        
                        (48,552
                        )
                        
                        
                        (7,577
                        )Proceeds
      from sales of securities available for sale
                        
                        
                        16,041
                        
                        
                        
                        -Proceeds
      from maturities of securities available for sale
                        
                        
                        17,300
                        
                        
                        
                        5,000Purchase
      of securities held to maturity
                        
                        
                        -
                        
                        
                        
                        (6,040
                        )Proceeds
      from maturities of securities held to maturity
                        
                        
                        -
                        
                        
                        
                        4,000Principal
      collected on mortgage-backed securities
                        
                        
                        4,438
                        
                        
                        
                        1,099Net
      increase in loans
                        
                        
                        (8,077
                        )
                        
                        
                        (8,941
                        )Purchase
      of Federal Home Loan Bank Stock
                        
                        
                        (34
                        )
                        
                        
                        -Investment
      in cash surrender value of life insurance
                        
                        
                        -
                        
                        
                        
                        (3,000
                        )Proceeds
      from sale of foreclosed real estate
                        
                        
                        155
                        
                        
                        
                        574Purchase
      of premises and equipment
                        
                        
                        (178
                        )
                        
                        
                        (168
                        )Net
      cash paid in acquisition of Community First Bank
                        
                        
                        (16,548
                        )
                        
                        
                        -Net
      Cash Used In Investing Activities
                        
                        
                        (35,455
                        )
                        
                        
                        (15,053
                        )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      increase (decrease) in deposits
                        
                        
                        (17,854
                        )
                        
                        
                        20,427Increase
      in Federal Home Loan Bank line of credit
                        
                        
                        661
                        
                        
                        
                        -Proceeds
      from Federal Home Loan Bank advances
                        
                        
                        46,950
                        
                        
                        
                        8,000Repayment
      of Federal Home Loan Bank advances
                        
                        
                        (29,550
                        )
                        
                        
                        (3,000
                        )Net
      (increase) decrease in advance payments by borrowers for taxes and
      insurance
                        
                        
                        (64
                        )
                        
                        
                        66Proceeds
      from issuance of common stock
                        
                        
                        21,160
                        
                        
                        
                        -Net
      Cash Provided By Financing Activities
                        
                        
                        21,303
                        
                        
                        
                        25,493Net
      Increase (Decrease) in Cash and Cash Equivalents
                        
                        
                        (10,975
                        )
                        
                        
                        10,984Cash
      and cash equivalents at beginning of year
                        
                        
                        21,379
                        
                        
                        
                        10,395Cash
      and Cash Equivalents at End of Year
                        
                        $
                        10,404
                        
                        
                        $
                        21,379
 
   F-6
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (1)
              SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES
 
 Nature
of Operations
 
 First
Savings Financial Group, Inc. (the Company) is the thrift holding company of
First Savings Bank, F.S.B. (the Bank), a wholly-owned subsidiary. The Bank is a
federally-chartered savings bank which provides a variety of banking services to
individuals and business customers through fourteen locations in southern
Indiana. The Bank’s primary source of revenue is interest earned on residential
mortgage loans.
 
 The Bank
has three-wholly owned subsidiaries: First Savings Investments, Inc., a Nevada
corporation that manages a portion of the Bank’s securities portfolio, Southern
Indiana Financial Corporation which sells non-deposit investment products, and
FFCC, Inc., which is currently inactive.
 
 On
October 6, 2008, in accordance with a Plan of Conversion adopted by its board of
directors and approved by its members, the Bank converted from a mutual savings
bank to a stock savings bank and became the wholly-owned subsidiary of the
Company.  In connection with the conversion, the Company issued an
aggregate of 2,542,042 shares of common stock at an offering price of $10.00 per
share.  In addition, in connection with the conversion, First Savings
Charitable Foundation was formed, to which the Company contributed 110,000
shares of common stock and $100,000 in cash.  The Company’s common
stock began trading on the Nasdaq Capital Market on October 7, 2008 under the
symbol “FSFG”.  Accordingly, the reported results for the year ended
September 30, 2008 relate solely to the operations of the Bank and its
subsidiaries.
 
 Basis
of Consolidation and Reclassifications
 
 The
consolidated financial statements include the accounts of the Company and its
subsidiaries and have been prepared with generally accepted accounting
principles and conform to general practices in the banking
industry.  Intercompany balances and transactions have been
eliminated.  Certain prior year amounts have been reclassified to
conform with current year presentation.
 
 Statements
of Cash Flows
 
 For
purposes of the statements of cash flows, the Company has defined cash and cash
equivalents as cash and amounts due from banks and interest-bearing deposits
with other banks.
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.
 
 Material
estimates that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses and the valuation of real estate
and other assets acquired in connection with foreclosures or in satisfaction of
loans.  In connection with the determination of the allowances for
loan losses and foreclosed real estate, management obtains independent
appraisals for significant properties.
  F-7
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 Use
of Estimates - continued
 
 A
majority of the Bank’s loan portfolio consists of single-family residential and
commercial real estate loans in the southern Indiana
area.  Accordingly, the ultimate collectibility of a substantial
portion of the Bank’s loan portfolio and the recovery of the carrying amount of
foreclosed real estate are susceptible to changes in local market
conditions.
 
 While
management uses available information to recognize losses on loans and
foreclosed real estate, further reductions in the carrying amounts of loans and
foreclosed assets may be necessary based on changes in local economic
conditions.  In addition, regulatory agencies, as an integral part of
their examination process, periodically review the estimated losses on loans and
foreclosed real estate.  Such agencies may require the Bank to
recognize additional losses based on their judgments about information available
to them at the time of their examination.  Because of these factors,
it is reasonably possible the estimated losses on loans and foreclosed real
estate may change materially in the near term.  However, the amount of
the change that is reasonably possible cannot be estimated.
 
 Investment
Securities
 
 Securities Available for
Sale:  Securities available for sale consist primarily of U.S.
government agency debt securities, including mortgage-backed securities and
collateralized mortgage obligations, municipal bonds, nonagency collateralized
mortgage obligations and nonagency asset-back securities and are stated at fair
value.  Amortization of premium and accretion of discount are
recognized in interest income using methods approximating the interest method
over the period to maturity.  Unrealized gains and losses, net of tax,
on securities available for sale are included in other comprehensive income and
the accumulated unrealized holding gains and losses are reported as a separate
component of equity until realized.  Realized gains and losses on the
sale of securities available for sale are determined using the specific
identification method and are included in other noninterest income and, when
applicable, are reported as a reclassification adjustment, net of tax, in other
comprehensive income.
 
 Securities Held to
Maturity:U.S.
government agency issued mortgage-backed securities and municipal debt
securities for which the Bank has the positive intent and ability to hold to
maturity are reported at cost, adjusted for amortization of premium and
accretion of discount that are recognized in interest income using methods
approximating the interest method over the period to maturity, adjusted for
anticipated prepayments.  Mortgage-backed securities represent
participating interests in pools of long-term first mortgage loans originated
and serviced by issuers of the securities.
 
 Declines
in the fair value of individual available for sale and held to maturity
securities below their amortized cost that are other than temporary result in
write-downs of the individual securities to their fair value.  The
related write-downs are included in earnings as realized losses.  In
estimating other-than-temporary impairment losses, management considers (1) the
length of time and the extent to which the fair value has been less than
amortized cost, (2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Bank to retain its investment for
a period of time sufficient to allow for any anticipated recovery in fair
value.
  F-8
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (1 -
continued)
 
 Derivative
Financial Instruments
 
 The
Company applies Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 815, Derivatives and Hedging, in
accounting for derivative financial instruments, including certain derivative
instruments embedded in other contracts and for hedging
activities.  Derivative financial instruments are recognized in the
consolidated balance sheet at fair value.
 
 Mortgage
Banking Activities
 
 Mortgage
loans originated and intended for sale in the secondary market are carried at
the lower of aggregate cost or market value.  Aggregate market value
is determined based on the quoted prices under a “best efforts” sales agreement
with a third party.  Net unrealized losses are recognized through a
valuation allowance by charges to income.  Realized gains on sales of
mortgage loans are included in noninterest income.  Mortgage loans are
sold with servicing released.
 
 Commitments
to originate mortgage loans held for sale are considered derivative financial
instruments to be accounted for at fair value.  The Bank’s mortgage
loan commitments subject to derivative accounting are fixed rate mortgage loan
commitments at market rates when initiated.  Fair value is estimated
based on fees that would be charged on commitments with similar
terms.  The Bank had no outstanding commitments to originate fixed
rate mortgage loans intended for sale in the secondary market at September 30,
2009.
 
 Loans
and Allowance for Loan Losses
 
 The Bank
grants real estate mortgage, commercial business and consumer
loans.  A substantial portion of the loan portfolio is represented by
residential mortgage loans to customers in southern Indiana.  The
ability of the Bank’s customers to honor their contracts is dependent upon the
real estate and general economic conditions in this area.
 
 Loans are
stated at unpaid principal balances, less net deferred loan fees and the
allowance for loan losses.
 
 Loan
origination and commitment fees, as well as, certain direct costs of
underwriting and closing loans are deferred and amortized as a yield adjustment
to interest income over the lives of the related loans using the interest
method.  Amortization of deferred loan fees is discontinued when a
loan is placed on nonaccrual status.
 
 The
recognition of income on a loan is discontinued and previously accrued interest
is reversed, when interest or principal payments become ninety (90) days past
due unless, in the opinion of management, the outstanding interest remains
collectible.  Past due status is determined based on contractual
terms.  Generally, by applying the cash receipts method, interest
income is subsequently recognized only as received until the loan is returned to
accrual status.  The cash receipts method is used when the likelihood
of further loss on the loan is remote.  Otherwise, the Bank applies
the cost recovery method and applies all payments as a reduction of the unpaid
principal balance until the loan qualifies for return to accrual
status.  A loan is restored to accrual status when all principal and
interest payments are brought current and the borrower has demonstrated the
ability to make future payments of principal and interest as
scheduled.  The Bank’s practice is to charge off any loan or portion
of a loan when the loan is determined by management to be uncollectible due to
the borrower’s failure to meet repayment terms, the borrower’s deteriorating or
deteriorated financial condition, the depreciation of the underlying collateral,
the loans classification as a loss by regulatory examiners, or for other
reasons.
 
 The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to
earnings.  Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
  F-9
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (1 -
continued)
 
 Loans
and Allowance for Loan Losses - continued
 
 The
allowance for loan losses is evaluated on a regular basis by management and is
based upon management’s periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral, and prevailing economic
conditions.  This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.
 
 The
allowance consists of specific and general components.  The specific
component relates to loans that are classified as doubtful, substandard, or
special mention.  For such loans that are also classified as impaired,
an allowance is established when the discounted cash flows (or collateral value
or observable market price) of the impaired loan is lower than the carrying
value of that loan.  The general component covers non-classified loans
and is based on historical loss experience adjusted for qualitative
factors.
 
 A loan is
considered impaired when, based on current information and events, it is
probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement.  Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due.  Loans that
experience insignificant payment delays and payment shortfalls generally are not
classified as impaired.  Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed.  Impairment is measured on a loan-by-loan
basis by either the present value of expected future cash flows discounted at
the loan’s effective interest rate, the loan’s obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.
 
 Premises
and Equipment
 
 The
Company uses the straight line method of computing depreciation at rates
adequate to amortize the cost of the applicable assets over their estimated
useful lives.  Items capitalized as part of premises and equipment are
valued at cost.  Maintenance and repairs are expensed as
incurred.  The cost and related accumulated depreciation of assets
sold, or otherwise disposed of, are removed from the related accounts and any
gain or loss is included in earnings.
 
 Goodwill
and Other Intangibles
 
 Goodwill
recognized in a business combination represents the excess of the cost of the
acquired entity over the net of the amounts assigned to assets acquired and
liabilities assumed. Goodwill is carried at its implied fair value and is
evaluated for possible impairment at least annually or more frequently upon the
occurrence of an event or change in circumstances that would more likely than
not reduce the fair value of the reporting unit below its carrying amount. Such
circumstances could include, but are not limited to: (1) a significant adverse
change in legal factors or in business climate, (2) unanticipated competition,
or (3) an adverse action or assessment by a regulator. If the carrying amount of
the goodwill exceeds its implied fair value, an impairment loss is recognized in
earnings equal to that excess amount. The loss recognized cannot exceed the
carrying amount of goodwill. After a goodwill impairment loss is recognized, the
adjusted carrying amount of goodwill is its new accounting
basis.
  F-10
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (1 -
continued)
 
 Goodwill
and Other Intangibles - continued
 
 Other
intangible assets consist of acquired core deposit intangibles. Core deposit
intangibles are amortized over the estimated economic lives of the acquired core
deposits. The carrying amount of core deposit intangibles and the remaining
estimated economic life are evaluated annually or whenever events or
circumstances indicate the carrying amount may not be recoverable or the
remaining period of amortization requires revision. After an impairment loss is
recognized, the adjusted carrying amount of the intangible asset is its new
accounting basis.
 
 Foreclosed
Real Estate
 
 Foreclosed
real estate includes both formally foreclosed property and in-substance
foreclosed property. In-substance foreclosed properties are those properties for
which the Bank has taken physical possession, regardless of whether formal
foreclosure proceedings have taken place.
 
 At the
time of foreclosure, foreclosed real estate is recorded at the lower of fair
value less estimated costs to sell or cost, which becomes the property’s new
basis.  Any write-downs based on the property’s fair value at date of
acquisition are charged to the allowance for loan losses.  After
foreclosure, valuations are periodically performed by management and property
held for sale is carried at the lower of the new cost basis or fair value less
cost to sell.  Costs incurred in maintaining foreclosed real estate
and subsequent impairment adjustments to the carrying amount of a property, if
any, are included in other noninterest expense.
 
 Securities
Lending and Financing Arrangements
 
 Securities
purchased under agreements to resell (reverse repurchase agreements) and
securities sold under agreements to repurchase (repurchase agreements) are
treated as collateralized lending and borrowing transactions, respectively, and
are carried at the amounts at which the securities were initially acquired or
sold.
 
 Benefit
Plans
 
 The Bank
has a defined benefit pension plan covering substantially all employees in the
service of the Bank on June 30, 2008, the date the accrual of benefits and
participation were frozen.  It is the policy of the Bank to fund the
maximum amount that can be deducted for federal income tax purposes but in
amounts not less than the minimum amounts required by law.  The Bank
also provides a contributory defined contribution plan available to all eligible
employees.  On October 6, 2008, the Company established a leveraged
employee stock ownership plan covering substantially all
employees.  The Company accounts for the employee stock ownership plan
in accordance with ASC 718-40, Employee Stock Ownership
Plans.  Dividends declared on allocated shares are recorded as
a reduction of retained earnings and paid to the participants’
accounts.  As shares are committed to be released for allocation to
participants’ accounts, compensation expense is recognized based on the average
fair value of the shares and the shares become available for earnings per share
calculations.
  F-11
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (1 -
continued)
 
 Income
Taxes
 
 When
income tax returns are filed, it is highly certain that some positions taken
would be sustained upon examination by the taxing authorities, while other
positions are subject to some degree of uncertainty regarding the merits of the
position taken or the amount of the position that would be
sustained.  The Company recognizes the benefits of a tax position in
the consolidated financial statements of the period during which, based on all
available evidence, management believes it is more-likely-than-not (more than 50
percent probable) that the tax position would be sustained upon
examination.  Income tax positions that meet the more-likely-than-not
threshold are measured as the largest amount of income tax benefit that is more
than 50 percent likely of being realized upon settlement with the applicable
taxing authority.  The portion of the benefits associated with the
income tax positions claimed on income tax returns that exceeds the amount
measured as described above is reflected as a liability for unrecognized income
tax benefits in the consolidated balance sheet, along with any associated
interest and penalties that would be payable to the taxing authorities, if there
were an examination.  Interest and penalties associated with
unrecognized income tax benefits are classified as additional income taxes in
the statement of income.
 
 Income
taxes are provided for the tax effects of the transactions reported in the
financial statements and consist of taxes currently due plus deferred income
taxes.  Income tax reporting and financial statement reporting rules
differ in many respects.  As a result, there will often be a
difference between the carrying amount of an asset or liability as presented the
accompanying consolidated balance sheets and the amount that would be recognized
as the tax basis of the same asset or liability computed based on the effects of
tax positions recognized, as described in the preceding
paragraph.  These differences are referred to as temporary differences
because they are expected to reverse in future years. Deferred income tax assets
are recognized for temporary differences where their future reversal will result
in future tax benefits.  Deferred income tax assets are also
recognized for the future tax benefits expected to be realized from net
operating loss or tax credit carryforwards.   Deferred income tax
liabilities are recognized for temporary differences where their future reversal
will result in the payment of future income taxes.  Deferred income
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. Deferred tax assets and liabilities are
reflected at income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled.  As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
 
 Advertising
Costs
 
 Advertising
costs are charged to operations when incurred.
  F-12
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (1 -
continued)
 
 Recent
Accounting Pronouncements
 
 The
following are summaries of recently issued accounting pronouncements that impact
the accounting and reporting practices of the Company:
 
 In
December 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 160, Non-controlling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51, (ASC
Topic 810). This statement applies to all entities that prepare consolidated
financial statements, except not-for-profit organizations, but will affect only
those entities that have an outstanding non-controlling interest in one or more
subsidiaries or that deconsolidate a subsidiary. This statement amends ARB
No. 51 to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. This statement is effective for fiscal years beginning after
January 1, 2009.  This statement is not expected to have a
material effect on the Company's consolidated financial position or results of
operations.
 
 In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations
(Revised) (ASC Topic 805).  This statement retains the
fundamental requirements of SFAS No. 141 and requires the acquisition method of
accounting (previously referred to as the purchase method by SFAS No.
141).  The statement requires, among other things, the expensing of
direct transaction costs, certain contingent assets and liabilities to be
recognized at fair value and earn-out arrangements may be required to be
measured at fair value and recognized each period in earnings.  The
statement is effective for transactions occurring after the beginning of the
first annual reporting period beginning on or after December 15, 2008 with early
adoption not permitted.  The acquisition described in Note 2 was
accounted for in accordance with SFAS No. 141 as the Company was not permitted
to adopt the revised standard.  The adoption is the revised standard
is not expected to have a material effect on the Company’s financial position or
results of operations.
 
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an Amendment to SFAS No. 133, (ASC
Topic 815).   The statement applies to all derivative instruments
accounted for under SFAS No. 133 (ASC Topic 815) and requires entities to
provide greater transparency on how and why entities use derivative instruments,
how derivative instruments and related hedged items are accounted for under SFAS
No. 133, and the effect the derivative instruments and related hedged items may
have on financial position, the results of operations and cash
flows.  The statement is effective for fiscal years and interim
periods beginning after November 15, 2008.  As this statement impacts
disclosures, the adoption of this statement did not have a material impact on
the Company’s consolidated financial statements.
 
 On April
9, 2009, the FASB issued FASB Staff Position (FSP) FAS 115-2 and FAS 124-2,Recognition and Presentation of
Other-Than-Temporary Impairments, (ASC Topic 320).  This FSP amends
the other-than-temporary impairment guidance in U.S. generally accepted
accounting principles for debt securities.  Consistent with current
requirements for recording other-than-temporary impairments, this FSP states
that the amount of impairment loss recorded in earnings for a debt security will
be the entire difference between the security’s cost and its fair value if the
entity intends to sell the debt security prior to recovery or it is
more-likely-than not that the entity will have to sell the debt security prior
to recovery.  If, however, the entity does not intend to sell the debt
security or it concludes that it is more-likely-than-not that it will not have
to sell the debt security prior to recovery, this FSP requires an entity to
recognize the credit loss component of an other-than-temporary impairment of a
debt security in earnings and the remaining portion of the impairment loss in
other comprehensive income.  The credit loss component of an
other-than-temporary impairment must be determined based on an entity’s best
estimate of cash flows expected to be collected.  This FSP, which is
effective for interim and annual periods ending after June 15, 2009, allows
early adoption for periods ending after March 15, 2009, provided FSP FAS 157-4
(see below) is adopted at the same time.  The Company adopted this FSP
for the period ended June 30, 2009, and adoption did not have a material effect
on the Company’s consolidated financial position or results of
operations.
 
 F-13
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (1 -
continued)
 
 Recent
Accounting Pronouncements - continued
 
 Also on
April 9, 2009, the FASB issued FSP FAS 157-4,Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, (ASC Topic
820).  This
FSP provides additional guidance for estimating fair value when the volume and
level of activity for an asset or liability have significantly
decreased.  It also provides guidance on identifying circumstances
that indicate a transaction is not orderly.  Determination of whether
a transaction is orderly or not orderly in instances when there has been a
significant decrease in the volume and level of activity for an asset or
liability depends on an evaluation of facts and circumstances and requires the
use of significant judgment.  This FSP requires a company to disclose
the inputs and valuation techniques used to measure fair value and to discuss
changes in such inputs and valuation techniques, if any, that occurred during
the reporting period.  This FSP, which is effective for interim and
annual periods ending after June 15, 2009, requires early adoption for periods
ending after March 15, 2009 if an entity elects to adopt early FSP FAS 115-2 and
FAS 124-2 (see above).  The Company adopted this FSP for the period
ended June 30, 2009, and adoption did not have a material effect on the
Company’s consolidated financial position or results of operations.
 
 On April
9, 2009, the FASB issued FSP FAS 107-1 and APB 28-1, (ASC Topic 825).  This FSP
requires disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements.  This FSP, which is effective for interim reporting
periods ending after June 15, 2009, allows early adoption for periods ending
after March 15, 2009, only if an entity also elects to early adopt FSP FAS
157-4, FAS 115-2 and FAS 124-2.  The Company adopted this FSP for the
period ended June 30, 2009, and adoption did not have a material effect on the
Company’s consolidated financial position or results of operations.
 
 In May
2009, the FASB issued SFAS No. 165, Subsequent Events, (ASC Topic
855).  This
statement establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued.  Specifically, the statement
provides:  (a) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; (b)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and (c) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date.  This statement is effective
for interim or annual financial periods ending after June 15, 2009, and is
applied prospectively.  The adoption of this statement did not have a
material effect on the Company's consolidated financial position or results of
operations.
 
  F-14
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (1 -
continued)
 
 Recent
Accounting Pronouncements - continued
 
 In June
2009, the FASB issued two standards which change the way entities account for
securitizations and special-purpose entities:  SFAS No. 166, Accounting for Transfers of
Financial Assets, (ASC Topic 860)and SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), (ASC Topic 810).SFAS No. 166 is
a revision to SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, and
requires more information about transfers of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. This statement eliminates the
concept of a “qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets, and requires additional
disclosures.  SFAS No. 167 is a revision to FASB Interpretation No. 46
(Revised December 2003), Consolidation of Variable Interest
Entities, and changes how a reporting entity determines when an entity
that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated.  The determination of whether
a reporting entity is required to consolidate another entity is based on, among
other things, the other entity’s purpose and design and the reporting entity’s
ability to direct the activities of the other entity that most significantly
impact the other entity’s economic performance.  These new standards
require a number of new disclosures.  SFAS No. 167 requires a
reporting entity to provide additional disclosures about its involvement with
variable interest entities and any significant changes in risk exposure due to
that involvement.  A reporting entity will be required to disclose how
its involvement with a variable interest entity affects the reporting entity’s
financial statements.  SFAS No. 166 enhances information reported to
users of financial statements by providing greater transparency about transfers
of financial assets and an entity’s continuing involvement in transferred
financial assets.  These statements will be effective at the beginning
of a reporting entity’s first fiscal year beginning after November 15,
2009.  Early application is not permitted.  The adoption of
these statements is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
 
 In June
2009, the FASB issued Accounting Standards Update (ASU) No. 2009-01 (formerly
SFAS No. 168), Topic 105 – The
FASB Accounting Standards CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles. This statement establishes the FASB Accounting Standards
CodificationTM(Codification)
as the single source of authoritative U.S. generally accepted accounting
principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental
entities.  Rules and interpretive releases of the SEC under authority
of federal securities laws are also sources of authoritative U.S. GAAP for SEC
registrants.  This statement and the Codification are effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.  When effective, the Codification supersedes all
existing non-SEC accounting and reporting standards.  All other
nongrandfathered non-SEC accounting literature not included in the Codification
will become nonauthoritative.  Following this statement, the FASB will
not issue new standards in the form of statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts.  Instead, the FASB will issue
Accounting Standards Updates, which will serve only to: (a) update the Codification;
(b) provide background
information about the guidance; and (c) provide the bases for
conclusions on the change(s) in the Codification.  The adoption of
this statement did not have a material effect on the Company's consolidated
financial statements.
 
 In August
2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and
Disclosures,(Topic 820)– Measuring Liabilities at Fair
Value”.This ASU provides amendments for fair value measurements of
liabilities. It provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more techniques.
ASU 2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability. ASU 2009-05 is effective for the first reporting
period (including interim periods) beginning after issuance or fourth quarter
2009. The adoption of ASU 2009-05 is not expected to have a material effect on
the Company’s consolidated financial position or results of
operations.
  F-15
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (2)
              ACQUISITION OF COMMUNITY FIRST
      BANK
 
 On
September 30, 2009, the Company acquired 100 percent of the outstanding common
shares of Community First Bank, (Community First), a full service community bank
located in Corydon, Indiana, pursuant to an Agreement and Plan of Merger dated
April 28, 2009.  The acquisition expanded the Company’s presence into
Harrison, Crawford and Washington Counties, 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 Community
First.
 
 Pursuant
to the terms of the merger agreement, Community First stockholders received
$17.13 in cash for each share of Community First common stock for total cash
consideration of $20.5 million.  The Company also incurred $767,000 of
direct, acquisition-related costs, which were capitalized as part of the
purchase price. The transaction was accounted for using the purchase method of
accounting.  Since the transaction was effective the close of business
on September 30, 2009, the operating results for 2009 relate solely to the
operations of the Company and exclude the operations of Community
First.  Under the purchase 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.   The excess
of cost over the fair value of the acquired net assets of $5.9 million has been
recorded as goodwill.
 
 Following
is a condensed balance sheet showing the fair values of the assets acquired and
the liabilities assumed as of the date of acquisition:
 
 (In
      thousands)Cash
      and interest-bearing deposits with banks
                    
                    $
                    3,957Investment
      securities
                    
                    
                    48,908Loans,
      net
                    
                    
                    173,104Premises
      and equipment
                    
                    
                    5,797Goodwill
      arising in the acquisition
                    
                    
                    5,882Core
      deposit intangible
                    
                    
                    2,741Net
      deferred tax asset
                    
                    
                    2,576Other
      assets
                    
                    
                    6,867Total
      assets acquired
                    
                    
                    249,832Deposit
      accounts
                    
                    
                    179,460Federal
      funds purchased
                    
                    
                    1,180Repurchase
      agreements
                    
                    
                    17,239Borrowings
      from Federal Home Loan Bank
                    
                    
                    29,712Other
      liabilities
                    
                    
                    969Total
      liabilities assumed
                    
                    
                    228,560Net
      assets acquired
                    
                    $
                    21,272
 
 In
accounting for the acquisition, $2.7 million was assigned to a core deposit
intangible which is amortized over a weighted-average estimated economic life of
9.3 years.  It is not anticipated that the core deposit intangible
will have a significant residual value.  No amount of the goodwill
arising in the acquisition is deductible for income tax
purposes.
  F-16
 
 FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (2 –
continued)
 
 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 the contractually required
principal payments for all loans subject to ASC 310-30 was $4.0 million and the
estimated fair value of these loans was $3.0 million.  These loans
were valued based on the estimated current liquidation value of the underlying
collateral, because the expected cash flows are primarily based on the
liquidation of the underlying collateral.  ASC 310-30 prohibits a
carryover or creation of an allowance for loan losses upon initial recognition
of these loans and, therefore, no allowance for loan losses was reported in the
consolidated balance sheet for these loans at September 30, 2009.
 
 The
following unaudited pro forma combined results of operations assumes that the
acquisition was consummated on October 1, 2007:
 
 Year
      EndedSeptember
      30,2009
                    
                    
                    2008(In
      thousands, except per share data)Interest
      income
                    
                    $
                    27,952
                    
                    
                    $
                    29,603Interest
      expense
                    
                    
                    11,250
                    
                    
                    
                    15,818Net
      interest income
                    
                    
                    16,702
                    
                    
                    
                    13,785Provision
      for loan losses
                    
                    
                    1,360
                    
                    
                    
                    1,891Net
      interest income after provision for loan losses
                    
                    
                    15,342
                    
                    
                    
                    11,894Noninterest
      income
                    
                    
                    2,083
                    
                    
                    
                    (3,434
                    )Noninterest
      expenses
                    
                    
                    19,122
                    
                    
                    
                    13,527Loss
      before income taxes
                    
                    
                    (1,697
                    )
                    
                    
                    (5,067
                    )Income
      tax benefit
                    
                    
                    (693
                    )
                    
                    
                    (1,990
                    )Net
      loss
                    
                    $
                    (1,004
                    )
                    
                    $
                    (3,077
                    )Net
      loss per common share, basic
                    
                    $
                    (0.43
                    )
                    
                    
                    N/ANet
      loss per common share, diluted
                    
                    $
                    (0.43
                    )
                    
                    
                    N/A
 
 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 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
Community First acquisition actually been consummated on October 1, 2007, or
results that may occur in the future.
  F-17
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (3)
              INVESTMENT SECURITIES
 
 Investment
securities have been classified according to management’s intent.  The
amortized cost of securities and their approximate fair values are as
follows:
 
 Gross
                    
                    
                    GrossAmortized
                    
                    
                    Unrealized
                    
                    
                    Unrealized
                    
                    
                    Fair(In
      thousands)
                    
                    Cost
                    
                    
                    Gains
                    
                    
                    Losses
                    
                    
                    ValueSeptember
      30, 2009:Securities
      available for sale:Agency
      bonds and notes
                    
                    $
                    5,825
                    
                    
                    $
                    20
                    
                    
                    $
                    -
                    
                    
                    $
                    5,845Agency
      mortgage-backed
                    
                    
                    34,368
                    
                    
                    
                    115
                    
                    
                    
                    -
                    
                    
                    
                    34,483Agency
      CMO
                    
                    
                    3,343
                    
                    
                    
                    130
                    
                    
                    
                    -
                    
                    
                    
                    3,473Privately-issued
      CMO
                    
                    
                    11,139
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    11,139Privately-issued
      ABS
                    
                    
                    52
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    52Municipal
                    
                    
                    17,081
                    
                    
                    
                    431
                    
                    
                    
                    -
                    
                    
                    
                    17,512Subtotal
      – debt securities
                    
                    
                    71,808
                    
                    
                    
                    696
                    
                    
                    
                    -
                    
                    
                    
                    72,504Equity
      securities
                    
                    
                    -
                    
                    
                    
                    76
                    
                    
                    
                    -
                    
                    
                    
                    76Total
      securities available for sale
                    
                    $
                    71,808
                    
                    
                    $
                    772
                    
                    
                    $
                    -
                    
                    
                    $
                    72,580Securities
      held to maturity:Agency
      mortgage-backed
                    
                    
                    6,477
                    
                    
                    
                    269
                    
                    
                    
                    -
                    
                    
                    
                    6,746Municipal
                    
                    
                    305
                    
                    
                    
                    3
                    
                    
                    
                    -
                    
                    
                    
                    308Total
      securities held to maturity
                    
                    $
                    6,782
                    
                    
                    $
                    272
                    
                    
                    $
                    -
                    
                    
                    $
                    7,054September
      30, 2008:Securities
      available for sale:Agency
      bonds and notes
                    
                    $
                    4,008
                    
                    
                    $
                    51
                    
                    
                    $
                    -
                    
                    
                    $
                    4,059Agency
      CMO
                    
                    
                    1,891
                    
                    
                    
                    9
                    
                    
                    
                    -
                    
                    
                    
                    1,900Municipal
                    
                    
                    4,669
                    
                    
                    
                    -
                    
                    
                    
                    27
                    
                    
                    
                    4,642Subtotal
      – debt securities
                    
                    
                    10,568
                    
                    
                    
                    60
                    
                    
                    
                    27
                    
                    
                    
                    10,601Equity
      securities
                    
                    
                    -
                    
                    
                    
                    96
                    
                    
                    
                    -
                    
                    
                    
                    96Total
      securities available for sale
                    
                    $
                    10,568
                    
                    
                    $
                    156
                    
                    
                    $
                    27
                    
                    
                    $
                    10,697Securities
      held to maturity:Agency
      mortgage-backed
                    
                    $
                    8,149
                    
                    
                    $
                    48
                    
                    
                    $
                    16
                    
                    
                    $
                    8,181Municipal
                    
                    
                    307
                    
                    
                    
                    3
                    
                    
                    
                    -
                    
                    
                    
                    310Total
      securities held to maturity
                    
                    $
                    8,456
                    
                    
                    $
                    51
                    
                    
                    $
                    16
                    
                    
                    $
                    8,491
  F-18
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (3 –
continued)
 
 The
amortized cost and fair value of debt securities as of September 30, 2009 by
contractual maturity are shown below.  Expected maturities of
mortgage-backed securities may differ from contractual maturities because the
mortgages underlying the obligations may be prepaid without
penalty.
 
 Available for Sale
                    
                    
                    Held to MaturityAmortized
                    
                    
                    Fair
                    
                    
                    Amortized
                    
                    
                    Fair(In
      thousands)
                    
                    Cost
                    
                    
                    Value
                    
                    
                    Cost
                    
                    
                    ValueDue
      within one year
                    
                    $
                    4,342
                    
                    
                    $
                    4,342
                    
                    
                    $
                    -
                    
                    
                    $
                    -Due
      after one year through five years
                    
                    
                    851
                    
                    
                    
                    858
                    
                    
                    
                    305
                    
                    
                    
                    308Due
      after five years through ten years
                    
                    
                    4,514
                    
                    
                    
                    4,617
                    
                    
                    
                    -
                    
                    
                    
                    -Due
      after ten years
                    
                    
                    13,199
                    
                    
                    
                    13,540
                    
                    
                    
                    -
                    
                    
                    
                    -22,906
                    
                    
                    
                    23,357
                    
                    
                    
                    305
                    
                    
                    
                    308Equity
      securities
                    
                    
                    -
                    
                    
                    
                    76
                    
                    
                    
                    -
                    
                    
                    
                    -Collateralized
      mortgage obligations
                    
                    
                    14,482
                    
                    
                    
                    14,612
                    
                    
                    
                    -
                    
                    
                    
                    -Mortgage-backed
      securities
                    
                    
                    34,368
                    
                    
                    
                    34,483
                    
                    
                    
                    6,477
                    
                    
                    
                    6,746Asset-backed
      securities
                    
                    
                    52
                    
                    
                    
                    52
                    
                    
                    
                    -
                    
                    
                    
                    -$
                    71,808
                    
                    
                    $
                    72,580
                    
                    
                    $
                    6,782
                    
                    
                    $
                    7,054
 
 Management
evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns 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 Bank to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.  The
Company had no securities with gross unrealized losses at September 30,
2009.
 
 At
September 30, 2009, available for sale debt securities with an amortized cost
and fair value of $3.8 million were pledged to secure federal funds
borrowings.  Certain other debt securities were pledged under
repurchase agreements and to secure Federal Home Loan Bank advances at September
30, 2009.  (See Notes 9 and 10)
 
 The
Company realized gross gains on sales of available for sale U.S. government
agency notes of $105,000 and gross losses on sales of available for sale U.S.
government agency notes of $5,000 for the year ended September 30,
2009.  The Company sold no securities during the year ended September
30, 2008.
 
 F-19
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (4)
              LOANS
 
 Loans at
September 30, 2009 and 2008 consisted of the following:
 
 (In
      thousands)
                    
                    2009
                    
                    
                    2008Real
      estate mortgage:1-4
      family residential
                    
                    $
                    185,800
                    
                    
                    $
                    113,518Multi-family
      residential
                    
                    
                    12,584
                    
                    
                    
                    3,282Commercial
                    
                    
                    48,090
                    
                    
                    
                    15,459Residential
      construction
                    
                    
                    14,555
                    
                    
                    
                    6,189Commercial
      construction
                    
                    
                    7,648
                    
                    
                    
                    1,991Land
      and land development
                    
                    
                    11,189
                    
                    
                    
                    4,748Commercial
      business loans
                    
                    
                    36,901
                    
                    
                    
                    14,411Consumer:Home
      equity loans
                    
                    
                    17,365
                    
                    
                    
                    9,970Auto
      loans
                    
                    
                    18,279
                    
                    
                    
                    1,950Boat
      loans
                    
                    
                    3,091
                    
                    
                    
                    3,257Other
      consumer loans
                    
                    
                    4,476
                    
                    
                    
                    2,033Gross
      loans
                    
                    
                    359,978
                    
                    
                    
                    176,808Deferred
      loan origination fees and costs, net
                    
                    
                    846
                    
                    
                    
                    795Undisbursed
      portion of loans in process
                    
                    
                    (3,306
                    )
                    
                    
                    (1,067
                    )Allowance
      for loan losses
                    
                    
                    (3,695
                    )
                    
                    
                    (1,729
                    )Loans,
      net
                    
                    $
                    353,823
                    
                    
                    $
                    174,807
 
 Mortgage
loans serviced for the benefit of others amounted to $668,000 and $810,000 at
September 30, 2009 and 2008, respectively.  The remaining balance of
mortgage service rights from prior years was amortized to expense during the
year ended September 30, 2007.  No mortgage servicing rights have been
capitalized since the year ended September 30, 1999.
 
 An
analysis of the allowance for loan losses is as follows:
 
 (In
      thousands)
                    
                    2009
                    
                    
                    2008Beginning
      balances
                    
                    $
                    1,729
                    
                    
                    $
                    1,297Recoveries
                    
                    
                    139
                    
                    
                    
                    131Loans
      charged-off
                    
                    
                    (828
                    )
                    
                    
                    (1,239
                    )Provision
      for loan losses
                    
                    
                    819
                    
                    
                    
                    1,540Increase
      due to acquisition of Community First
                    
                    
                    1,836
                    
                    
                    
                    -Ending
      balances
                    
                    $
                    3,695
                    
                    
                    $
                    1,729
 
 At
September 30, 2009, residential mortgage loans secured by one-to-four family
residential properties without private mortgage insurance or government guaranty
and with loan-to-value ratios exceeding 90% amounted to $3.9
million.
  F-20
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (4 –
continued)
 
 At
September 30, 2009 and 2008, the total recorded investment in nonaccrual loans
amounted to $4.7 million and $798,000 respectively.  The total
recorded investment in loans past due ninety days or more and still accruing
interest amounted to $542,000 and $853,000 at September 30, 2009 and 2008,
respectively.  Information about impaired loans and the related
allowance for loan losses is presented below.
 
 (In
      thousands)
                    
                    2009
                    
                    
                    2008At
      end of year:Impaired
      loans with related allowance
                    
                    $
                    607
                    
                    
                    $
                    617Impaired
      loans with no allowance
                    
                    
                    4,667
                    
                    
                    
                    1,034Total
                    
                    $
                    5,274
                    
                    
                    $
                    1,651Allowance
      related to impaired loans
                    
                    $
                    303
                    
                    
                    $
                    318Average
      balance of impaired loans during the year
                    
                    
                    2,461
                    
                    
                    
                    2,064Interest
      income recognized in the statements of income during the periods of
      impairment
                    
                    
                    18
                    
                    
                    
                    33Interest
      income received during the periods of impairment – cash
    method
                    
                    
                    28
                    
                    
                    
                    49
 
 Included
in impaired loans with no related allowance at September 30, 2009 are $3.0
million of impaired loans acquired in the acquisition of Community First. (See
Note 2)
 
 The Bank
has entered into loan transactions with certain directors, officers and their
affiliates (related parties).  In the opinion of management, such
indebtedness was incurred in the ordinary course of business on substantially
the same terms as those prevailing at the time for comparable transactions with
other persons and does not involve more than normal risk of collectibility or
present other unfavorable features.  The Bank had loans to related
parties of $9.5 million and $3.6 million at September 30, 2009 and 2008,
respectively.
 
 The following is a summary of
activity for related party loans:
 
 (In
      thousands)
                          
                          2009
                          
                          
                          2008Beginning
      balance
                          
                          $
                          3,585
                          
                          
                          $
                          3,270New
      loans and advances
                          
                          
                          1,191
                          
                          
                          
                          1,329Repayments
                          
                          
                          (724
                          )
                          
                          
                          (994
                          )Reclassifications
                          
                          
                          (308
                          )
                          
                          
                          (20
                          )Increase
      due to acquisition of Community First
                          
                          
                          5,755
                          
                          
                          
                          -Ending
      balance
                          
                          $
                          9,499
                          
                          
                          $
                          3,585
 
 (5)
              PREMISES AND
      EQUIPMENT
 
 Premises
and equipment consisted of the following:
 
 (In
      thousands)
                              
                              2009
                              
                              
                              2008Land
      and land improvements
                              
                              $
                              1,974
                              
                              
                              $
                              1,343Office
      buildings
                              
                              
                              8,581
                              
                              
                              
                              4,195Furniture,
      fixtures and equipment
                              
                              
                              2,977
                              
                              
                              
                              2,362Less
      accumulated depreciation
                              
                              
                              3,616
                              
                              
                              
                              3,658Totals
                              
                              $
                              9,916
                              
                              
                              $
                              4,242
  F-21
 FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (6)
              FORECLOSED REAL
      ESTATE
 
 At
September 30, 2009 and 2008, the Bank had foreclosed real estate held for sale
of $1.6 million and $390,000, respectively.  During the year ended
September 30, 2009 and 2008, foreclosure losses in the amount of $400,000 and
$1.1 million, respectively, were charged-off to the allowance for loan
losses.  There were no losses on subsequent writedowns of foreclosed
real estate during fiscal year 2009.  The losses on subsequent write
downs of foreclosed real estate amounted to $103,000 in fiscal year 2008 and is
aggregated with realized gains and losses from the sale of foreclosed real
estate and real estate taxes and other expenses of holding foreclosed real
estate.  Net realized gain (loss) from the sale of foreclosed real
estate amounted to $1,000 and $(175,000) for the years ended September 30, 2009
and 2008, respectively.  Real estate taxes and other expenses of
holding foreclosed real estate amounted to $88,000 and $96,000 for the years
ended September 30, 2009 and 2008, respectively.  The net loss is
reported in noninterest expense.  At September 30, 2009 and 2008,
deferred gains on the sale of foreclosed real estate financed by the Bank
amounted to $51,000 and $15,000, respectively.
 
 (7)
              GOODWILL AND OTHER
      INTANGIBLES
 
 Goodwill
acquired in the acquisition of Community First is evaluated for impairment at
least annually or more frequently upon the occurrence of an event or when
circumstances indicate that the carrying amount is greater than its fair
value.
 
 The
Company recognized no amortization expense related to intangibles during the
years ended September 30, 2009 or
2008.  Estimated amortization expense for the core deposit
intangible acquired in the acquisition of Community First for each of the
ensuing five years and in the aggregate is as follows:
 
 Years
      ending September 30:
                    
                    (In
      thousands)2010
                    
                    $
                    2942011
                    
                    
                    2942012
                    
                    
                    2942013
                    
                    
                    2942014
                    
                    
                    2942015
      and thereafter
                    
                    
                    1,271Total
                    
                    $
                    2,741
  F-22
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (8)
              DEPOSITS
 
 The
aggregate amount of time deposit accounts (certificates of deposit) with
balances of $100,000 or more was $57.5 million and $30.3 million at September
30, 2009 and 2008, respectively.
 
 At
September 30, 2009, scheduled maturities of certificates of deposit were as
follows:
 
 Years
      ending September 30:
                    
                    (In
      thousands)2010
                    
                    $
                    122,1712011
                    
                    
                    33,3012012
                    
                    
                    25,9072013
                    
                    
                    4,1372014
      and thereafter
                    
                    
                    12,667Total
                    
                    $
                    198,183
 
 The Bank
held deposits of $7.1 million and $4.8 million for related parties at
September 30, 2009 and 2008, respectively.
 
 (9)
              REPURCHASE
      AGREEMENTS
 
 The Company acquired
repurchase agreements in the acquisition of Community
First.Repurchase agreements include retail repurchase
agreements representing overnight borrowings from deposit customers and
long-term repurchase agreements with broker-dealers.  The repurchase
agreements held by the Company were acquired
 
 Repurchase
agreements are summarized as follows:
 2009WeightedAverageRate
                    
                    
                    Amount(In
      thousands)Retail
      repurchase agreements
                    
                    
                    0.63
                    %
                    
                    $
                    1,304Broker-dealer
      repurchase agreements:Long-term
      agreements:Maturing
      November 2011
                    
                    
                    1.60
                    %
                    
                    
                    10,635Maturing
      December 2011
                    
                    
                    1.65
                    %
                    
                    
                    5,300Total
      repurchase agreements
                    
                    
                    
                    
                    
                    $
                    17,239
 
 The debt
securities underlying the retail repurchase agreements were under the control of
the Bank at September 30, 2009.  The securities underlying the
broker-dealer repurchase agreements were delivered to the broker-dealer who
arranged the transactions.  At September 30, 2009, available for sale
debt securities with an amortized cost and fair value of $1.3 million and $16.1
million were pledged to secure retail repurchase agreements and repurchase
agreements with broker-dealers, respectively.
  F-23
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (10)
              BORROWINGS FROM FEDERAL HOME
      LOAN BANK
 
 At
September 30, 2009 and 2008, borrowings from the Federal Home Loan Bank were as
follows:
 
 2009
                            
                            
                            2008Weighted
                            
                            
                            
                            
                            
                            WeightedAverage
                            
                            
                            
                            
                            
                            Average(In
      thousands)
                            
                            Rate
                            
                            
                            Amount
                            
                            
                            Rate
                            
                            
                            AmountAdvances
      maturing in:2010
                            
                            
                            0.57
                            %
                            
                            $
                            36,650
                            
                            
                            
                            -
                            
                            
                            $
                            -2011
                            
                            
                            0.98
                            %
                            
                            
                            5,175
                            
                            
                            
                            -
                            
                            
                            
                            -2013
                            
                            
                            3.04
                            %
                            
                            
                            13,287
                            
                            
                            
                            3.36
                            %
                            
                            
                            8,000Total
      advances
                            
                            
                            
                            
                            
                            
                            55,112
                            
                            
                            
                            
                            
                            
                            
                            8,000Line
      of credit balance
                            
                            
                            0.47
                            %
                            
                            
                            661
                            
                            
                            
                            -
                            
                            
                            
                            -Total
      borrowings from Federal Home Loan Bank
                            
                            
                            
                            
                            
                            $
                            55,773
                            
                            
                            
                            
                            
                            
                            $
                            8,000
 
 The Bank
entered into an Advances and Security Agreement with the Federal Home Loan Bank
of Indianapolis (“FHLB”), allowing the Bank to initiate advances from the
FHLB.  The advances are secured under a blanket collateral
agreement.  At September 30, 2009 and 2008, the eligible blanket
collateral included residential mortgage loans with carrying values of $173.0
million and $70.5 million, respectively.  Also, the Bank has
specifically pledged certain available for sale debt securities with an
amortized cost and fair value of $8.2 million as collateral under the agreement
as of September 30, 2009.  No securities were specifically pledged at
September 30, 2008.
 
 On
November 6, 2008, the Bank entered into an Overdraft Line of Credit Agreement
with the Federal Home Loan Bank of Indianapolis which established a line of
credit not to exceed $1.0 million and was secured under the blanket collateral
agreement.  This agreement was subsequently modified to increase the
line of credit to $2.0 million.  This agreement was set to expire on
November 6, 2009 but the line of credit agreement was extended for an additional
year and the line of credit was increased to $5 million.  At September
30, 2009, borrowings of $661,000 were outstanding under this agreement at a
weighted average rate of 0.47%.
  F-24
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (11)
              DEFERRED COMPENSATION
      PLANS
 
 The Bank
has deferred compensation agreements with former officers who are receiving
benefits under these agreements.  The agreements provide for the
payment of specific benefits following retirement.  Deferred
compensation expense was $27,000 and $28,000 for the years ended September 30,
2009 and 2008, respectively.
 
 The
Company has a directors’ deferred compensation plan whereby a director, at his
election, defers a portion of his monthly director fees into an account with the
Company.  The Company accrues interest on the deferred obligation at
an annual rate equal to the prime rate for the immediately preceding calendar
quarter plus 2%, but in no event at a rate in excess of 8%.  The
deferral period extends to the director’s normal retirement age of
70.  The benefits under the plan are payable for a period of fifteen
years following normal retirement, however, the agreements provide for payment
of benefits in the event of disability, early retirement, termination of service
or death.  Deferred compensation expense for this plan was $66,000 and
$50,000 for the years ended September 30, 2009 and 2008,
respectively.
 
 (12)
              BENEFIT
      PLANS
 
 Defined Benefit Plan:
 
 The Bank sponsors a defined benefit
pension plan covering substantially all employees.  Contributions are
intended to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future.  The Bank’s funding
policy is to contribute the larger of the amount required to fully fund the
plan’s current liability or the amount necessary to meet the funding
requirements as defined by the Internal Revenue Code.  Effective June
30, 2008, the board of directors elected to freeze the accrual of benefits and,
as a result, each active participant’s pension benefit will be determined based
on the participant’s compensation and duration of employment as of June 30,
2008, and compensation and employment after that date will not be taken into
account in determining pension benefits under the plan.  The Bank
filed an application with the Internal Revenue Service in October 2008 in order
to obtain approval to terminate the Plan. The Bank has determined to provide the
over-funded balance of the Plan’s assets, if any, to its active participants
upon full termination of the Plan which is expected to occur in the first
calendar quarter of 2010.
  F-25
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (12 –
continued)
 
 The
following table sets forth the reconciliations of the benefit obligation, the
fair value of plan assets, and the funded status of the Bank’s plan as of and
for the years ended September 30, 2009 and 2008:
 
 (In
      thousands)
                      
                      2009
                      
                      
                      2008Change
      in projected benefit obligation:Balance
      at beginning of year
                      
                      $
                      5,051
                      
                      
                      $
                      4,958Service
      cost
                      
                      
                      -
                      
                      
                      
                      197Interest
      cost
                      
                      
                      376
                      
                      
                      
                      302Actuarial
      loss (gain)
                      
                      
                      (354
                      )
                      
                      
                      766Curtailment
                      
                      
                      -
                      
                      
                      
                      (1,054
                      )Benefits
      paid
                      
                      
                      (150
                      )
                      
                      
                      (118
                      )Balance
      at end of year
                      
                      $
                      4,923
                      
                      
                      $
                      5,051Change
      in plan assets:Fair
      value of plan assets at beginning of year
                      
                      $
                      6,198
                      
                      
                      $
                      5,635Actual
      return on plan assets
                      
                      
                      361
                      
                      
                      
                      504Employer
      contributions
                      
                      
                      -
                      
                      
                      
                      177Benefits
      paid
                      
                      
                      (147
                      )
                      
                      
                      (118
                      )Fair
      value of plan assets at end of year
                      
                      $
                      6,412
                      
                      
                      $
                      6,198Funded
      status
                      
                      $
                      1,489
                      
                      
                      $
                      1,147Amounts
      recognized in the balance sheets consist of:Excess
      pension asset recognized in other assets
                      
                      $
                      1,489
                      
                      
                      $
                      1,147Accumulated
      other comprehensive income
                      
                      $
                      428
                      
                      
                      $
                      222Amounts
      recognized in accumulated other comprehensive income consist of the
      following:Net
      gain at end of fiscal year
                      
                      $
                      709
                      
                      
                      $
                      367Deferred
      income tax expense
                      
                      
                      (281
                      )
                      
                      
                      (145
                      )Net
      amount recognized
                      
                      $
                      428
                      
                      
                      $
                      222
  F-26
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (12 –
continued)
 
 Components
of net periodic benefit expense and other amounts recognized in other
accumulated comprehensive income are as follows:
 
 (In
      thousands)
                          
                          2009
                          
                          
                          2008Net
      periodic benefit expense:Service
      cost
                          
                          $
                          -
                          
                          
                          $
                          197Interest
      cost on projected benefit obligation
                          
                          
                          376
                          
                          
                          
                          302Expected
      return on plan assets
                          
                          
                          (376
                          )
                          
                          
                          (370
                          )Amortization
      of transition asset
                          
                          
                          -
                          
                          
                          
                          (5
                          )Amortization
      of prior service cost
                          
                          
                          -
                          
                          
                          
                          5Net
      periodic benefit expense
                          
                          $
                          -
                          
                          
                          $
                          129Other
      changes in plan assets and benefit obligations recognized in other
      comprehensive income:Amortization
      of transition asset
                          
                          
                          -
                          
                          
                          
                          5Amortization
      of prior service cost
                          
                          
                          -
                          
                          
                          
                          (5
                          )Total
      recognized in other comprehensive income
                          
                          
                          -
                          
                          
                          
                          -Total
      recognized in net periodic pension benefit expense and other comprehensive
      income
                          
                          $
                          -
                          
                          
                          $
                          129
 
 The
unamortized estimated prior service cost and net transition asset existing at
the date of adoption of SFAS No. 87 (ASC 715-30) remaining at the effective date
of the curtailment of benefits was included in the determination of the net
curtailment gain deferred as of September 30, 2008.
 
 The
following are weighted average assumptions used to determine benefit obligations
at June 30, 2009 and 2008 and net periodic benefit cost for the years then
ended:
 
 Discount
      rate
                      
                      
                      6.00
                      %
                      
                      
                      6.17
                      %Rate
      of compensation increase
                      
                      
                      3.50
                      %
                      
                      
                      3.50
                      %Expected
      long-term return on plan assets
                      
                      
                      6.50
                      %
                      
                      
                      6.50
                      %
 
 The
expected long-term return on plan assets assumption is based on a periodic
review and modeling of the plan’s asset allocation and liability structure over
a long-term horizon.  Expectations of returns on each asset class are
the most important of the assumptions used in the review and modeling and are
based on reviews of historical data.  The expected long-term rate of
return on assets was selected from within the reasonable range of rates
determined by (a) historical real returns, net of inflation, for the asset
classes covered by the investment policy, and (b) projections of inflation over
the long-term period during which benefits are payable to plan
participants.
  F-27
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (12 -
continued)
 
 The
plan’s weighted-average asset allocations at June 30, 2009 and 2008 by asset
category are as follows:
 
 2009
                        
                        
                        2008Bank
      time deposits
                        
                        
                        99.3
                        %
                        
                        
                        99.4
                        %Bank
      demand deposits
                        
                        
                        0.7
                        
                        
                        
                        0.6Total
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
 
 The
plan’s target asset allocation for 2009 is 100% investment in bank
deposits.  Bank deposits include time and demand deposit liabilities
of the Bank.
 
 The
plan’s investment policy includes guidelines and procedures designed to ensure
assets are invested in a manner necessary to meet expected future benefits
earned by participants. The investment guidelines consider a broad range of
economic conditions.  The objective is to maintain investment
portfolios that limit risk through prudent asset allocation parameters, achieve
asset returns that meet or exceed the plan’s actuarial assumptions, and achieve
asset returns that are competitive with like institutions employing similar
investment strategies. The Bank periodically reviews the investment
policy.  The policy is established and administered in a manner so as
to comply at all times with applicable government regulations.
 
 The Bank
contributed $177 to the Plan for the fiscal year ended September 30, 2008 and
made no contribution for the fiscal year ended September 30, 2009. The Bank does
not anticipate a contribution to the Plan for the fiscal year ending September
30, 2010.
 
 The
following estimated pension benefit payments, which reflect expected future
service, as appropriate, are expected to be paid for years ending September
30:
 
 (In
      thousands)2010
                    
                    $
                    1232011
                    
                    
                    1282012
                    
                    
                    2242013
                    
                    
                    2972014
                    
                    
                    335Years
      2015-2019
                    
                    
                    1,898
 
 Defined
Contribution Plan:
 
 The Bank
has a qualified contributory defined contribution plan available to all eligible
employees.  The plan allows participating employees to make
tax-deferred contributions under Internal Revenue Code Section
401(k).  Company contributions to the plan amounted to $123,000 and
$104,000 for the years ended September 30, 2009 and 2008,
respectively.
  F-28
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 Employee
Stock Ownership Plan:
 
 On
October 6, 2008, the Company established a leveraged employee stock ownership
plan (“ESOP”) covering substantially all employees.  The ESOP trust
acquired 203,363 shares of Company common stock at a cost of $10.00 per share
financed by a term loan with the Company.  The employer loan and the
related interest income are not recognized in the consolidated financial
statements as the debt is serviced from Company
contributions.  Dividends payable on allocated shares are charged to
retained earnings and are satisfied by the allocation of cash dividends to
participant accounts.  Dividends payable on unallocated shares are not
considered dividends for financial reporting purposes.  Shares held by
the ESOP trust are allocated to participant accounts based on the ratio of the
current year principal and interest payments to the total of the current year
and future year’s principal and interest to be paid on the employer
loan.  Compensation expense is recognized based on the average fair
value of shares released for allocation to participant accounts during the year
with a corresponding credit to stockholders’ equity.  Compensation
expense recognized for the year ended September 30, 2009 amounted to
$227,000.  The fair value of unearned ESOP shares was $1.9 million at
September 30, 2009.  Company common stock held by the ESOP trust at
September 30, 2009 was as follows:
 
 Allocated
      shares
                    
                    
                    23,726Unearned
      shares
                    
                    
                    179,637Total
      ESOP shares
                    
                    
                    203,363
 
 (13)
              INCOME
    TAXES
 
 The
Company and its subsidiaries file consolidated income tax
returns.  The components of the consolidated income tax expense
(benefit) were as follows:
 
 (In
      thousands)
                      
                      2009
                      
                      
                      2008Current
                      
                      $
                      285
                      
                      
                      $
                      (171
                      )Deferred
                      
                      
                      (537
                      )
                      
                      
                      (129
                      )$
                      (252
                      )
                      
                      $
                      (300
                      )
 
 The
reconciliation of income tax expense (benefit) with the amount which would have
been provided at the federal statutory rate of 34 percent follows:
 
 (In
      thousands)
                    
                    2009
                    
                    
                    2008Provision
      at federal statutory rate
                    
                    $
                    (74
                    )
                    
                    $
                    (167
                    )State
      income tax-net of federal tax benefit
                    
                    
                    (51
                    )
                    
                    
                    (43
                    )Tax-exempt
      interest income
                    
                    
                    (66
                    )
                    
                    
                    (35
                    )Increase
      in cash value of life insurance
                    
                    
                    (57
                    )
                    
                    
                    (51
                    )Other
                    
                    
                    (4
                    )
                    
                    
                    (4
                    )Net
      benefit for income taxes
                    
                    $
                    (252
                    )
                    
                    $
                    (300
                    )
  F-29
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (13 -
continued)
 
 Significant
components of the Bank’s deferred tax assets and liabilities as of September 30,
2009 and 2008 are as follows:
 
 (In
      thousands)
                    
                    2009
                    
                    
                    2008Deferred
      tax assets (liabilities):Allowance
      for loan losses
                    
                    $
                    1,266
                    
                    
                    $
                    676Acquisition
      purchase accounting adjustments
                    
                    
                    1,805
                    
                    
                    
                    -Charitable
      contributions carryover
                    
                    
                    403
                    
                    
                    
                    14Deferred
      compensation plans
                    
                    
                    214
                    
                    
                    
                    199Other-than-temporary
      impairment loss on available for sale securities
                    
                    
                    149
                    
                    
                    
                    -State
      net operating loss and credit carryforwards
                    
                    
                    72
                    
                    
                    
                    -Unrealized
      (gain) loss on securities available for sale
                    
                    
                    175
                    
                    
                    
                    (51
                    )Accumulated
      depreciation
                    
                    
                    (649
                    )
                    
                    
                    (358
                    )Deferred
      loan fees and costs, net
                    
                    
                    (458
                    )
                    
                    
                    (479
                    )Prepaid
      pension asset
                    
                    
                    (584
                    )
                    
                    
                    (429
                    )Federal
      Home Loan Bank stock dividends
                    
                    
                    (137
                    )
                    
                    
                    (52
                    )Interest
      rate cap contract
                    
                    
                    (40
                    )
                    
                    
                    -Other
                    
                    
                    60
                    
                    
                    
                    (6
                    )Net
      deferred tax asset
                    
                    $
                    2,276
                    
                    
                    $
                    486
 
 The
Company has charitable contributions carryovers of $1.2 million available to
reduce federal taxable income in subsequent years.  The charitable
contribution carryovers expire for the years ending September 30, 2013 and
2014.  The Company has Indiana net operating loss carryovers of
$309,000 available to reduce Indiana taxable income in subsequent
years.   The Company also has Indiana enterprise zone tax credits
of $46,000 available to reduce the Indiana tax liability in subsequent
years.  The net operating loss carryovers expire for the years ending
September 30, 2023 and 2024.  The enterprise zone tax credit
carryovers expire for the years ending September 30, 2018 and 2019.
 
 At
September 30, 2009 and 2008, the Company had no liability for unrecognized
income tax benefits and does not anticipate any increase in the liability for
unrecognized tax benefits during the next twelve months.   The
Company believes that its income tax positions would be sustained upon
examination and does not anticipate any adjustments that would result in a
material change to its financial position or results of
operations.  The Company files U.S. federal income tax returns and
Indiana state income tax returns.  Returns filed in these
jurisdictions for tax years ended on or after September 30, 2006 are subject to
examination by the relevant taxing authorities.
 
 Prior to
October 1, 1996, the Bank was permitted by the Internal Revenue Code to deduct
from taxable income an annual addition to a statutory bad debt reserve subject
to certain limitations.  Retained earnings at September 30, 2009 and
2008 include $4.6 million of cumulative deductions for which no deferred federal
income tax liability has been recorded.  Reduction of these reserves
for purposes other than tax bad debt losses or adjustments arising from
carryback of net operating losses would create income for tax purposes subject
to the then current corporate income tax rate.  The unrecorded
deferred liability on these amounts was $1.5 million at September 30, 2009 and
2008.
 
 Federal
legislation enacted in 1996 repealed the use of the qualified thrift reserve
method of accounting for bad debts for tax years beginning after December 31,
1995.  As a result, the Bank discontinued the calculation of the
annual addition to the statutory bad debt reserve using the
percentage-of-taxable-income method and adopted the experience reserve method
for banks.  Under this method, the Bank computes its federal tax bad
debt deduction based on actual loss experience over a period of
years.
 
 The
legislation also provided that the Bank will not be required to recapture its
pre-1988 statutory bad debt reserves if it ceases to meet the qualifying thrift
definitional tests and if the Bank continues to qualify as a “bank” under
existing provisions of the Internal Revenue Code.
  F-30
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (14)
              COMMITMENTS AND CONTINGENT
      LIABILITIES
 
 In the
normal course of business, there are outstanding various commitments and
contingent liabilities, such as commitments to extend credit and legal claims,
which are not reflected in the accompanying consolidated financial
statements.
 
 Commitments
under outstanding standby letters of credit totaled $539,000 at September 30,
2009.
 
 The
following is a summary of the commitments to extend credit at September 30, 2009
and 2008:
 
 (In
      thousands)
                    
                    2009
                    
                    
                    2008Loan
      commitments:Fixed
      rate
                    
                    $
                    3,117
                    
                    
                    $
                    594Adjustable
      rate
                    
                    
                    2,202
                    
                    
                    
                    210Unused
      lines of credit on credit cards
                    
                    
                    2,437
                    
                    
                    
                    1,894Undisbursed
      portion of home equity lines of credit
                    
                    
                    34,598
                    
                    
                    
                    24,399Undisbursed
      portion of commercial and personal lines of credit
                    
                    
                    19,194
                    
                    
                    
                    8,190Undisbursed
      portion of construction loans in process
                    
                    
                    3,306
                    
                    
                    
                    1,067Total
      commitments to extend credit
                    
                    $
                    64,854
                    
                    
                    $
                    36,354
 
 (15)
              FINANCIAL INSTRUMENTS WITH
      OFF-BALANCE-SHEET RISK
 
 The Bank
is a party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its
customers.  These financial instruments include commitments to extend
credit and standby letters of credit.  These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the balance sheet.
 
 The
Bank’s exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments (see Note 14).  The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet
instruments.
 
 Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.  The Bank evaluates
each customer’s creditworthiness on a case-by-case basis.  The amount
and type of collateral obtained, if deemed necessary by the Bank upon extension
of credit, varies and is based on management’s credit evaluation of the
counterparty.
 
 Standby
letters of credit are conditional lending commitments issued by the Bank to
guarantee the performance of a customer to a third party.  Standby
letters of credit generally have fixed expiration dates or other termination
clauses and may require payment of a fee.  The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers.  The Bank’s policy for obtaining
collateral, and the nature of such collateral, is essentially the same as that
involved in making commitments to extend credit.
 
 The Bank
has not been obligated to perform on any financial guarantees and has incurred
no losses on its commitments in 2009 or 2008.
  F-31
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (16)
              DISCLOSURES ABOUT FAIR VALUE OF
      FINANCIAL INSTRUMENTS
 
 The
following table summarizes the carrying value and estimated fair value financial
instruments at September 30, 2009 and 2008.
 2009
                      
                      
                      2008Carrying
                      
                      
                      Fair
                      
                      
                      Carrying
                      
                      
                      FairAmount
                      
                      
                      Value
                      
                      
                      Amount
                      
                      
                      Value(In
      thousands)Financial
      assets:Cash
      and due from banks
                      
                      $
                      8,359
                      
                      
                      $
                      8,359
                      
                      
                      $
                      5,378
                      
                      
                      $
                      5,378Interest-bearing
      deposits in banks
                      
                      
                      2,045
                      
                      
                      
                      2,045
                      
                      
                      
                      16,001
                      
                      
                      
                      16,001Securities
      available for sale
                      
                      
                      72,580
                      
                      
                      
                      72,580
                      
                      
                      
                      10,697
                      
                      
                      
                      10,697Securities
      held to maturity
                      
                      
                      6,782
                      
                      
                      
                      7,054
                      
                      
                      
                      8,456
                      
                      
                      
                      8,491Loans,
      net
                      
                      
                      353,823
                      
                      
                      
                      360,157
                      
                      
                      
                      174,807
                      
                      
                      
                      174,437Mortgage
      loans held for sales
                      
                      
                      317
                      
                      
                      
                      317
                      
                      
                      
                      -
                      
                      
                      
                      -Federal
      Home Loan Bank stock
                      
                      
                      4,170
                      
                      
                      
                      4,170
                      
                      
                      
                      1,336
                      
                      
                      
                      1,336Accrued
      interest receivable
                      
                      
                      2,100
                      
                      
                      
                      2,100
                      
                      
                      
                      930
                      
                      
                      
                      930Financial
      liabilities:Deposits
                      
                      
                      350,816
                      
                      
                      
                      354,194
                      
                      
                      
                      189,209
                      
                      
                      
                      191,590Federal
      funds purchased
                      
                      
                      1,180
                      
                      
                      
                      1,180
                      
                      
                      
                      -
                      
                      
                      
                      -Short-term
      repurchase agreements
                      
                      
                      1,304
                      
                      
                      
                      1,304
                      
                      
                      
                      -
                      
                      
                      
                      -Long-term
      repurchase agreements
                      
                      
                      15,935
                      
                      
                      
                      15,935
                      
                      
                      
                      -
                      
                      
                      
                      -Borrowings
      from Federal Home Loan Bank
                      
                      
                      55,773
                      
                      
                      
                      56,184
                      
                      
                      
                      8,000
                      
                      
                      
                      7,825Accrued
      interest payable
                      
                      
                      516
                      
                      
                      
                      516
                      
                      
                      
                      143
                      
                      
                      
                      143Advance
      payments by borrowers for taxes and insurance
                      
                      
                      341
                      
                      
                      
                      348
                      
                      
                      
                      398
                      
                      
                      
                      404Derivative
      financial instruments included in other assets:Interest
      rate cap
                      
                      
                      202
                      
                      
                      
                      202
                      
                      
                      
                      -
                      
                      
                      
                      -Off-balance-sheet
      financial instruments:Asset
      (liability) related to commitments to extend credit
                      
                      
                      -
                      
                      
                      
                      39
                      
                      
                      
                      -
                      
                      
                      
                      10
 
 The
carrying amounts in the preceding table are included in the consolidated
balances sheets under the applicable captions.  The contract or
notional amounts of the Bank’s financial instruments with off-balance-sheet risk
are disclosed in Note 15.
 
 The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to
estimate:
 
 Cash
and Cash Equivalents
 
 For cash
and short-term instruments, including cash and due from banks and
interest-bearing deposits with banks, the carrying amount is a reasonable
estimate of fair value.
 
 Debt
and Equity Securities
 
 For
marketable equity securities, the fair values are based on quoted market
prices.  For debt securities, the Company obtains fair value
measurements from an independent pricing service and the fair value measurements
consider observable data that may include dealer quotes, market spreads, cash
flows, U.S. government and agency yield curves, live trading levels, trade
execution data, market consensus prepayment speeds, credit information, and the
security’s terms and conditions, among other factors.  For Federal
Home Loan Bank stock, a restricted equity security, the carrying amount is a
reasonable estimate of fair value because it is not marketable.
  F-32
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (16 -
continued)
 
 Loans
 
 The fair
value of loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and terms.  The carrying amount of accrued interest
receivable approximates its fair value.
 
 Deposits
 
 The fair
value of demand and savings deposits and other transaction accounts is the
amount payable on demand at the balance sheet date.  The fair value of
fixed-maturity time deposits is estimated by discounting the future cash flows
using the rates currently offered for deposits with similar remaining
maturities.  The carrying amount of accrued interest payable
approximates its fair value.
 
 Borrowed
Funds
 
 Borrowed
funds include repurchase agreements and borrowings from the
FHLB.  Fair value for advances is estimated by discounting the future
cash flows at current interest rates for advances of similar
maturities.  For federal funds purchased, repurchase agreements and
FHLB line of credit borrowings, the carrying value is a reasonable estimate of
fair value.
 
 Derivative
Financial Instruments
 
 For
derivative financial instruments, the fair values generally represent an
estimate of the amount the Company would receive or pay upon termination of the
agreement at the reporting date, taking into account the current interest rates,
and exclusive of any accrued interest.
 
 Off-Balance-Sheet
Financial Instruments
 
 Commitments
to extend credit were evaluated and fair value was estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties.  For fixed-rate loan commitments, the fair value
estimate considers the difference between current interest rates and the
committed rates.
 
 (17)
              FAIR VALUE
      MEASUREMENTS
 
 Effective
October 1, 2008, the Company adopted the provisions of ASC Topic 820 (formerly
SFAS No. 157), “Fair Value
Measurements,” for financial assets and financial
liabilities.  This statement is definitional and disclosure oriented
and addresses how companies should approach measuring fair value when required
by GAAP; it does not create or modify any current GAAP requirements to apply
fair value accounting.  ASC Topic 820 prescribes various disclosures
about financial statement categories and amounts which are measured at fair
value, if such disclosures are not already specified elsewhere in GAAP. 
The adoption of the standard did not have a material effect on the Company's
consolidated financial statements.
  F-33
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (17 -
continued)
 
 Fair
value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.  The standard establishes a fair value hierarchy
that prioritizes the use of inputs used in valuation methodologies into the
following three levels:
 
 Level
      1:
              Inputs
      to the valuation methodology are quoted prices, unadjusted, for identical
      assets or liabilities in active markets.  A quoted market price
      in an active market provides the most reliable evidence of fair value and
      shall be used to measure fair value whenever
  available.
 
 Level
      2:
              Inputs
      to the valuation methodology include quoted market prices for similar
      assets or liabilities in active markets; inputs to the valuation
      methodology include quoted market prices for identical or similar assets
      or liabilities in markets that are not active; or inputs to the valuation
      methodology that are derived principally from or can be corroborated by
      observable market data by correlation or other
  means.
 
 Level
      3:
              Inputs
      to the valuation methodology are unobservable and significant to the fair
      value measurement.  Level 3 assets and liabilities include
      financial instruments whose value is determined using discounted cash flow
      methodologies, as well as instruments for which the determination of fair
      value requires significant management judgment or
    estimation.
 
 A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below.  These valuation
methodologies were applied to all of the Company’s financial assets carried at
fair value or the lower of cost or fair value.  The table below
presents the balances of financial assets measured at fair value on a recurring
and nonrecurring basis as of September 30, 2009.  The Company had no
liabilities measured at fair value as of September 30, 2009.
 
 Carrying ValueLevel 1
                    
                    
                    Level 2
                    
                    
                    Level 3
                    
                    
                    Total(In thousands)Assets
      Measured - Recurring BasisSecurities
      available for sale
                    
                    $
                    76
                    
                    
                    $
                    72,504
                    
                    
                    $
                    -
                    
                    
                    $
                    72,580Interest
      rate cap
                    
                    
                    -
                    
                    
                    
                    202
                    
                    
                    
                    -
                    
                    
                    
                    202Assets
      Measured - Nonrecurring BasisImpaired
      loans
                    
                    
                    -
                    
                    
                    
                    4,971
                    
                    
                    
                    -
                    
                    
                    
                    4,971Loans
      held for sale
                    
                    
                    -
                    
                    
                    
                    317
                    
                    
                    
                    -
                    
                    
                    
                    317Foreclosed
      real estate
                    
                    
                    -
                    
                    
                    
                    1,589
                    
                    
                    
                    -
                    
                    
                    
                    1,589
 
 In
general, fair value is based upon quoted market prices, where
available.  If quoted market prices are not available, fair value is
based on internally developed models or obtained from third parties that
primarily use, as inputs, observable market-based parameters or a matrix pricing
model that employs the Bond Market Association’s standard calculations for cash
flow and price/yield analysis and observable market-based
parameters.  Valuation adjustments may be made to ensure that
financial instruments are recorded at fair value, or the lower of cost or fair
value.  These adjustments may include unobservable
parameters.  Any such valuation adjustments have been applied
consistently over time.  The Company’s valuation methodologies may
produce a fair value calculation that may not be indicative of net realizable
value or reflective of future fair values.  While management believes
the Company’s valuation methodologies are appropriate and consistent with other
market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a
different estimate of fair value at the reporting date.
  F-34
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (17 -
continued)
 
 Securities
Available for Sale.Securities classified
as available for sale are reported at fair value on a recurring
basis.  These securities are classified as Level 1 of the valuation
hierarchy where quoted market prices from reputable third-party brokers are
available in an active market.  If quoted market prices are not
available, the Company obtains fair value measurements from an independent
pricing service.  These securities are reported using Level 2 inputs
and the fair value measurements consider observable data that may include dealer
quotes, market spreads, cash flows, U.S. government and agency yield curves,
live trading levels, trade execution data, market consensus prepayment speeds,
credit information, and the security’s terms and conditions, among other
factors.  Changes in fair value of securities available for sale are
recorded in other comprehensive income, net of income tax effect.
 
 Derivative
Financial Instruments.Derivative
financial instruments consist of an interest rate cap contract.  As
such, significant fair value inputs can generally be verified by counterparties
and do not typically involve significant management judgements (Level 2
inputs).
 
 Impaired
Loans.  Impaired loans are carried at the present value of
estimated future cash flows using the loan's existing rate or the fair value of
collateral if the loan is collateral dependent.  Impaired loans are
evaluated and valued at the time the loan is identified as impaired at the lower
of cost or market value.  For collateral dependent impaired loans,
market value is measured based on the value of the collateral securing these
loans and is classified as Level 2 in the fair value
hierarchy.  Collateral may be real estate and/or business assets,
including equipment, inventory and/or accounts receivable, and its fair value is
generally determined based on real estate appraisals or other independent
evaluations by qualified professionals.  Impaired loans are reviewed
and evaluated on at least a quarterly basis for additional impairment and
adjusted accordingly, based on the same factors identified above.
 
 Loans Held for
Sale.  Loans held for sale are carried at the lower of cost or
market value.  The portfolio comprised of residential real estate
loans and fair value is based on specific prices of underlying contracts for
sales to investors.  These measurements are carried at Level
2.
 
 Foreclosed Real
Estate Held for Sale.  Foreclosed real estate held for sale is
reported at the lower of cost or fair value less estimated costs to dispose of
the property using Level 2 inputs.  The fair values are determined by
real estate appraisals using valuation techniques consistent with the market
approach using recent sales of comparable properties.  In cases where
such inputs are unobservable, the balance is reflected within the Level 3
hierarchy.
 
 There
were no transfers in or out of Level 3 financial assets or liabilities for the
year ended September 30, 2009.
  F-35
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (18)
              DERIVATIVE
      INSTRUMENTS
 
 The Company acquiredan interest rate cap contract in the acquisition of
Community First thatis not designated as a hedge.  Realized
and unrealized gains and losses on derivatives not designated for hedge
accounting are recognized in noninterest income.  The following is a
summary of the terms of the interest rate cap contract reported in the
consolidated balance sheet in other assets at September 30, 2009:
 
 Strike
                          
                          Remaining
                          
                          Notional
                          
                          
                          Purchase
                          
                          
                          Unrealized
                          
                          
                          FairRate
                          
                          Term
                          
                          Amount
                          
                          
                          Premium
                          
                          
                          Gain
                          
                          
                          Value(Dollars
      in thousands)7.50%
                          
                          7.8
      years
                          
                          
                          $10,000
                          
                          
                          
                          $150
                          
                          
                          
                          $52
                          
                          
                          
                          $202
 
 The
notional amounts of derivatives do not represent amounts exchanged by the
parties, but provide the basis for calculating payments.  For interest
rate caps, the notional amounts are not a measure of exposure to credit or
market risk.  Counterparties to financial instruments expose the
Company to credit-related losses in the event of nonperformance, but the Company
does not expect any counterparties to fail to meet their
obligations.  The Company deals only with highly rated
counterparties.  The current credit exposure of derivatives is
represented by the fair value of contracts at the reporting date. (Also see Note
16)
 
 (19)
              STOCKHOLDERS’
      EQUITY
 
 Conversion and Offering
 
 As part
of the conversion completed on October 6, 2008, the Bank became a wholly owned
subsidiary of the Company which offered common stock to certain current and
former deposit customers of the Bank in a subscription offering.  The
Company issued an aggregate of 2,432,042 shares of common stock as a result of
the offering.  In connection with the conversion, the Company
contributed 110,000 common shares and $100,000 in cash to the First Saving
Charitable Foundation.  Expenses of the offering amounted to $1.1
million and were charged against the gross proceeds of the
conversion.
 
 Liquidation
Account
 
 Upon
completion of its conversion from mutual to stock form, the Bank established a
liquidation account in an amount equal to its retained earnings at March 31,
2008 totaling $29.3 million.  The liquidation account will be
maintained for the benefit of depositors as of the March 31, 2007 eligibility
record date (or the June 30, 2008 supplemental eligibility record date) who
maintain their deposits in the Bank after conversion.
 
 In the
event of complete liquidation, and only in such an event, each eligible
depositor will be entitled to receive a liquidation distribution from the
liquidation account in the proportionate amount of the then current adjusted
balance for deposits held, before any liquidation distribution may be made with
respect to the stockholders.  Except for the repurchase of stock and
payment of dividends by the Bank, the existence of the liquidation account does
not restrict the use or application of retained earnings of the
Bank.
  F-36
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (20)
              DIVIDEND
      RESTRICTION
 
 As an
Indiana corporation, the Company is subject to Indiana law with respect to the
payment of dividends.  Under Indiana law, the Company may pay
dividends so long as it is able to pay its debts as they become due in the usual
course of business and its assets exceed the sum of its total liabilities, plus
the amount that would be needed, if the Company were to be dissolved at the time
of the dividend, to satisfy any rights that are preferential to the rights of
the persons receiving the dividend.  The ability of the Company to pay
dividends depends primarily on the ability of the Bank to pay dividends to the
Company.
 
 The
payment of dividends by the Bank is subject to regulation by the Office of
Thrift Supervision (OTS).  The Bank may not declare or pay a cash
dividend or repurchase any of its capital stock if the effect thereof would
cause the regulatory capital of the Bank to be reduced below regulatory capital
requirements imposed by the OTS or below the amount of the liquidation account
established upon completion of the conversion.
 
 (21)
              REGULATORY
      MATTERS
 
 The Bank
is subject to various regulatory capital requirements administered by its
primary federal regulator, the OTS.  Failure to meet minimum capital
requirements can initiate certain mandatory–and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank’s financial statements.  Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank’s assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices.  The Bank’s
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other
factors.
 
 Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios (set forth in the table below) of
tangible capital to adjusted total assets (as defined), Tier I (core) capital
(as defined) to adjusted total assets, Tier I capital to risk-weighted assets
(as defined), and of total risk-based capital (as defined) to risk-weighted
assets.  Management believes, as of September 30, 2009, that the Bank
meets all capital adequacy requirements to which it is subject.
  F-37
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (21 -
continued)
 
 As of
September 30, 2009, the most recent notification from the OTS categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action.  To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table below.  There are no conditions or events since
that notification that management believes have changed the institution’s
category.
 
 The
Bank’s actual capital amounts and ratios are also presented in the
table.  No amount was deducted from capital for interest-rate risk in
either year.
 Actual
                        
                        
                        Minimum
                          For
      Capital
                          Adequacy
      Purposes:
                        
                        
                        Minimum
                          To
      Be Well
                          Capitalized
      Under
                          Prompt
      Corrective
                          Action
      Provisions:(Dollars
      in thousands)
                        
                        Amount
                        
                        
                        Ratio
                        
                        
                        Amount
                        
                        
                        Ratio
                        
                        
                        Amount
                        
                        
                        RatioAs
      of September 30, 2009:Total
      capital (to risk weighted assets)
                        
                        $
                        38,876
                        
                        
                        
                        12.32%
                        
                        
                        $
                        25,236
                        
                        
                        
                        8.00%
                        
                        
                        $
                        31,545
                        
                        
                        
                        10.00%Tier
      I capital (to risk weighted assets)
                        
                        $
                        35,501
                        
                        
                        
                        11.25%
                        
                        
                        
                        N/A
                        
                        
                        
                        
                        
                        
                        $
                        18,927
                        
                        
                        
                        6.00%Tier
      I capital (to adjusted total assets)
                        
                        $
                        35,501
                        
                        
                        
                        7.55%
                        
                        
                        $
                        18,816
                        
                        
                        
                        4.00%
                        
                        
                        $
                        23,520
                        
                        
                        
                        5.00%Tangible
      capital (to adjusted total assets)
                        
                        $
                        35,501
                        
                        
                        
                        7.55%
                        
                        
                        $
                        7,056
                        
                        
                        
                        1.50%
                        
                        
                        
                        N/AAs
      of September 30, 2008:Total
      capital (to risk weighted assets)
                        
                        $
                        30,827
                        
                        
                        
                        22.09%
                        
                        
                        $
                        11,165
                        
                        
                        
                        8.00%
                        
                        
                        $
                        13,956
                        
                        
                        
                        10.00%Tier
      I capital (to risk weighted assets)
                        
                        $
                        29,420
                        
                        
                        
                        21.08%
                        
                        
                        
                        N/A
                        
                        
                        
                        
                        
                        
                        $
                        8,374
                        
                        
                        
                        6.00%Tier
      I capital (to adjusted total assets)
                        
                        $
                        29,420
                        
                        
                        
                        12.87%
                        
                        
                        $
                        6,858
                        
                        
                        
                        4.00%
                        
                        
                        $
                        11,429
                        
                        
                        
                        5.00%Tangible
      capital (to adjusted total assets)
                        
                        $
                        29,420
                        
                        
                        
                        12.87%
                        
                        
                        $
                        3,429
                        
                        
                        
                        1.50%
                        
                        
                        
                        N/A
  F-38
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (22)
              SUPPLEMENTAL DISCLOSURE FOR
      EARNINGS PER SHARE
 
 When
presented, basic earnings per share are computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period.  Diluted earnings per share reflect the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.  The
Company had no dilutive potential common shares for the year ended September 30,
2009.  Earnings per share information is presented below for the year
ended September 30, 2009  Because the mutual to stock conversion was
not completed until October 6, 2008, per share earnings data is not
applicable for the year ended September 30, 2008.
 
 (In
thousands, except for share and per share data)
 
 Basic:Earnings:Net
      income
                        
                        $
                        33Shares:Weighted
      average common shares outstanding
                        
                        
                        2,315,498Net
      income per common share, basic
                        
                        $
                        0.01
 
 Unearned
ESOP shares are not considered as outstanding for purposes of computing weighted
average common shares outstanding.
 
 (23)
              PARENT COMPANY CONDENSED
      FINANCIAL INFORMATION
 
 Condensed
financial information for First Savings Financial Group, Inc. (parent company
only) as of and for the period from October 8, 2008, the date of conversion, to
September 30, 2009 follows:
 
 Balance
Sheets
 (In
thousands)
 
 Assets:Cash
      and interest bearing deposits
                      
                      $
                      6,988Other
      assets
                      
                      
                      866Investment
      in subsidiaries
                      
                      
                      45,056$
                      52,910Liabilities
      and Equity:Accrued
      expenses
                      
                      $
                      33Stockholders'
      equity
                      
                      
                      52,877$
                      52,910
 
  F-39
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (23 -
continued)
 
 Statements
of Income
 (In
thousands)
 
 Other
      operating expenses
                      
                      $
                      (1,675
                      )Loss
      before income taxes and equity in undistributed net income of
      subsidiaries
                      
                      
                      (1,675
                      )Income
      tax benefit
                      
                      
                      602Loss
      before equity in undistributed net income of subsidiaries
                      
                      
                      (1,073
                      )Equity
      in undistributed net income of subsidiaries
                      
                      
                      1,106Net
      income
                      
                      $
                      33
 
 Statements
of Cash Flows
 (In
thousands)
 
 Operating
      Activities:Net
      income
                          
                          $
                          33Adjustments
      to reconcile net income to cash used in operating
    activities:Equity
      in undistributed net income of subsidiaries
                          
                          
                          (1,106
                          )Employee
      stock ownership plan expense
                          
                          
                          227Contribution
      of common stock to charitable foundation
                          
                          
                          1,100Net
      change in other assets and liabilities
                          
                          
                          (829
                          )Net
      cash used in operating activities
                          
                          
                          (575
                          )Financing
      Activities:Proceeds
      from issuance of common stock
                          
                          
                          21,160Investment
      in Bank
                          
                          
                          (13,597
                          )Net
      cash provided by financing activities
                          
                          
                          7,563Net
      increase in cash and interest bearing deposits
                          
                          
                          6,988Cash
      and interest bearing deposits at beginning of year
                          
                          
                          -Cash
      and interest bearing deposits at end of year
                          
                          $
                          6,988
 
  F-40
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (24)
              CONCENTRATION OF CREDIT
      RISK
 
 At
September 30, 2009, demand deposits due from correspondent banks were fully
insured under the Federal Deposit Insurance Corporation’s Temporary Transaction
Account Guarantee Program.  At September 30, 2008, the Bank had a
concentration of credit risk with a correspondent bank in excess of the federal
deposit insurance limit of $3.8 million.
 
 (25)
              SUPPLEMENTAL DISCLOSURE OF CASH
      FLOW INFORMATION
 
 (In
      thousands)
                    
                    2009
                    
                    
                    2008Cash
      payments for:Interest
                    
                    $
                    4,472
                    
                    
                    $
                    6,005Taxes
                    
                    
                    243
                    
                    
                    
                    262Non-cash
      investing activities:Transfers
      from loans to foreclosed real estate
                    
                    
                    1,327
                    
                    
                    
                    1,295Proceeds
      from sales of foreclosed real estate financed through
loans
                    
                    
                    241
                    
                    
                    
                    1,361
 
 (26)
              SUBSEQUENT
      EVENTS
 
 The
Company has evaluated whether any subsequent events that require recognition or
disclosure in the accompanying consolidated financial statements and related
notes thereto have taken place through December 30, 2009, the date these
consolidated financial statements were issued.  The Company has
determined that there are no such subsequent events.
  F-41
  FIRST
SAVINGS FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 AND 2008
 
 (27)
              SELECTED QUARTERLY FINANCIAL
      INFORMATION (UNAUDITED)
 
 First
                        
                        
                        Second
                        
                        
                        Third
                        
                        
                        Fourth(In
      thousands)
                        
                        Quarter
                        
                        
                        Quarter
                        
                        
                        Quarter
                        
                        
                        QuarterSeptember 30, 2009:Interest
      income
                        
                        $
                        3,206
                        
                        
                        $
                        3,098
                        
                        
                        $
                        3,272
                        
                        
                        $
                        3,432Interest
      expense
                        
                        
                        1,289
                        
                        
                        
                        1,076
                        
                        
                        
                        1,060
                        
                        
                        
                        1,015Net
      interest income
                        
                        
                        1,917
                        
                        
                        
                        2,022
                        
                        
                        
                        2,212
                        
                        
                        
                        2,417Provision
      for loan losses
                        
                        
                        59
                        
                        
                        
                        69
                        
                        
                        
                        272
                        
                        
                        
                        419Net
      interest income after provision for loan losses
                        
                        
                        1,858
                        
                        
                        
                        1,953
                        
                        
                        
                        1,940
                        
                        
                        
                        1,998Noninterest
      income
                        
                        
                        282
                        
                        
                        
                        253
                        
                        
                        
                        291
                        
                        
                        
                        437Noninterest
      expenses
                        
                        
                        3,189
                        
                        
                        
                        1,862
                        
                        
                        
                        2,080
                        
                        
                        
                        2,100Income
      (loss) before income taxes
                        
                        
                        (1,049
                        )
                        
                        
                        344
                        
                        
                        
                        151
                        
                        
                        
                        335Income
      tax expense (benefit)
                        
                        
                        (409
                        )
                        
                        
                        69
                        
                        
                        
                        (2
                        )
                        
                        
                        90Net
      income (loss)
                        
                        $
                        (640
                        )
                        
                        $
                        275
                        
                        
                        $
                        153
                        
                        
                        $
                        245Net
      income (loss) per common share, basic
                        
                        $
                        (0.29
                        )
                        
                        $
                        0.12
                        
                        
                        $
                        0.06
                        
                        
                        $
                        0.10Net
      income (loss) per common share, diluted
                        
                        $
                        (0.29
                        )
                        
                        $
                        0.12
                        
                        
                        $
                        0.06
                        
                        
                        $
                        0.10September 30, 2008:Interest
      income
                        
                        $
                        3,207
                        
                        
                        $
                        3,094
                        
                        
                        $
                        3,143
                        
                        
                        $
                        3,079Interest
      expense
                        
                        
                        1,540
                        
                        
                        
                        1,556
                        
                        
                        
                        1,470
                        
                        
                        
                        1,406Net
      interest income
                        
                        
                        1,667
                        
                        
                        
                        1,538
                        
                        
                        
                        1,673
                        
                        
                        
                        1,673Provision
      for loan losses
                        
                        
                        94
                        
                        
                        
                        1,109
                        
                        
                        
                        333
                        
                        
                        
                        4Net
      interest income after provision for loan losses
                        
                        
                        1,573
                        
                        
                        
                        429
                        
                        
                        
                        1,340
                        
                        
                        
                        1,669Noninterest
      income
                        
                        
                        224
                        
                        
                        
                        275
                        
                        
                        
                        252
                        
                        
                        
                        303Noninterest
      expenses
                        
                        
                        1,521
                        
                        
                        
                        1,627
                        
                        
                        
                        1,561
                        
                        
                        
                        1,846Income
      (loss) before income taxes
                        
                        
                        276
                        
                        
                        
                        (923
                        )
                        
                        
                        31
                        
                        
                        
                        126Income
      tax expense (benefit)
                        
                        
                        92
                        
                        
                        
                        (391
                        )
                        
                        
                        (10
                        )
                        
                        
                        9Net
      income (loss)
                        
                        $
                        184
                        
                        
                        $
                        (532
                        )
                        
                        $
                        41
                        
                        
                        $
                        117
  F-42




SIGNATURES





Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





FIRST
      SAVINGS FINANCIAL GROUP, INC.Date:
      January 11, 2010
                      
                      By:
                      /s/ Larry W. MyersLarry
      W. MyersPresident,
      Chief Executive Officer and
Director





Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





Name
                            
                            Title
                            
                            Date/s/ Larry W. Myers
                            
                            President,
      Chief Executive Officer
                            
                            January
      11, 2010Larry
      W. Myers
                            
                            and
      Director(principal
      executive officer)/s/ Anthony A. Schoen
                            
                            Chief
      Financial Officer
                            
                            January
      11, 2010Anthony
      A. Schoen
                            
                            (principal
      accounting and financial officer)/s/ John P. Lawson, Jr.
                            
                            Chief
      Operations Officer and Director
                            
                            January
      11, 2010John
      P. Lawson, Jr./s/ Charles E. Becht, Jr.
                            
                            Director
                            
                            January
      11, 2010Charles
      E. Becht, Jr./s/ Cecile A. Blau
                            
                            Director
                            
                            January
      11, 2010Cecile
      A. Blau/s/ Gerald Wayne Clapp, Jr.
                            
                            Director
                            
                            January
      11, 2010Gerald
      Wayne Clapp, Jr./s/ Robert E. Libs
                            
                            Director
                            
                            January
      11, 2010Robert
      E. Libs/s/ Michael F. Ludden
                            
                            Director
                            
                            January
      11, 2010Michael
      F. Ludden/s/ Douglas A. York
                            
                            Director
                            
                            January
      11, 2010Douglas
      A. York








/s/ Samuel E. Eckart
                  
                  Director
                  
                  January
      11, 2010Samuel
      E. Eckart/s/ Vaughn K. Timberlake
                  
                  Director
                  
                  January
      11, 2010Vaughn
      K. Timberlake/s/ Frank N. Czeschin
                  
                  Director
                  
                  January
      11, 2010Frank
      N. Czeschin