First Savings Financial Group, Inc. (FSFG): 5 FORCES Analysis [Nov-2025 Updated]

You're looking at how First Savings Financial Group, Inc. (FSFG) is actually holding its ground against market heat as we close out 2025, and frankly, that $23.2 million net income suggests they've built a solid defense. Still, a bank this size, with $2.40 billion in assets, faces intense pressure from customers who can easily shop rates and suppliers whose costs are market-driven, even with a decent 2.94% Net Interest Margin. I've spent years analyzing these moats, and to really see where FSFG is vulnerable or strong across rivalry, substitutes, and new entrants, you need to see the full breakdown below; it maps the near-term risks to clear actions.

First Savings Financial Group, Inc. (FSFG) - Porter's Five Forces: Bargaining power of suppliers

When you look at the funding side of First Savings Financial Group, Inc. (FSFG)'s balance sheet, you are essentially looking at their primary suppliers: depositors and wholesale funding providers. The power these suppliers hold directly impacts the bank's profitability, which we can see reflected in the Net Interest Margin (NIM).

Depositor power is a key lever here. For a community-focused institution like First Savings Financial Group, Inc., the cost of retaining core deposits is crucial. While switching costs for a standard savings account aren't zero-there's paperwork, direct deposit setup, and the hassle of changing automatic payments-they are generally low enough in the current competitive environment that depositors can move for better rates. This puts upward pressure on the cost of funds. We see evidence of this dynamic in the deposit structure; for instance, brokered deposits fell by a significant $229.1 million in the period leading up to the third fiscal quarter of 2025, suggesting a shift away from potentially more rate-sensitive, non-core funding sources, or a strategic reduction in that funding type. Still, customer deposits overall showed growth, increasing by $118.2 million since September 2024, reaching a total asset base of about $2.42 billion as of the third quarter of fiscal year 2025. You have to pay to keep those core customers happy.

Wholesale funding, like borrowings from the Federal Home Loan Bank (FHLB), represents another critical supplier relationship. This funding is a necessary input, especially when core deposits are volatile or not growing fast enough to support loan demand. The rates on these borrowings are market-driven, meaning First Savings Financial Group, Inc. has little control over the price they pay. We saw this reliance increase at times; for example, during the six months ending March 31, 2025, FHLB borrowings increased by $23.7 million, which helped offset a $91.7 million decrease in total deposits over that same six-month period. This shows that when core deposit supply tightens, the wholesale market steps in, but at market rates.

The resulting Net Interest Margin (NIM) gives us a snapshot of how effectively First Savings Financial Group, Inc. is managing these supplier costs relative to asset yields. The tax equivalent NIM for the full fiscal year ended September 30, 2025, stood at 2.94%. Compare that to the quarterly NIM for the three months ended September 30, 2025, which was 3.07%, showing some recent margin expansion. This 2.94% figure indicates effective management of funding costs, but it's not absolute control; the suppliers still dictate the floor for deposit rates and the cost of wholesale alternatives.

To put the funding mix into perspective, here is a look at some key balance sheet and funding metrics as of late 2025 reporting periods:

Finally, First Savings Financial Group, Inc.'s community focus, centered in areas like Jeffersonville, Indiana, inherently limits the geographic pool of potential depositors compared to a national bank with branches everywhere. This local focus can be a double-edged sword. On one hand, it fosters deep, sticky relationships that might keep deposit costs lower than a national competitor might pay for the same volume. On the other hand, if the local market tightens on deposit rates, the bank cannot easily pivot to a cheaper, distant funding source without potentially altering its community-centric business model. The supplier base for core deposits is geographically constrained, which means:

• Reliance on local economic conditions for deposit stability.
• Fewer large, national corporate depositors to draw from.
• Competition is primarily with other local and regional banks.
• The need to maintain competitive local deposit rates is high.

The power of these suppliers is managed by maintaining a strong balance sheet, as evidenced by the improved profitability metrics, but the fundamental structure means First Savings Financial Group, Inc. must always respect the pricing power of its funding sources.

Finance: review the sensitivity of the 2.94% NIM to a 50 basis point increase in average cost of funds by next Tuesday.

First Savings Financial Group, Inc. (FSFG) - Porter's Five Forces: Bargaining power of customers

You're looking at First Savings Financial Group, Inc. (FSFG) through the lens of customer power, and honestly, the landscape suggests customers hold significant leverage right now. The market in 2025 is definitely more competitive, which forces banks to fight harder for every relationship.

Customers have high power given the proliferation of banking options.

The sheer number of choices available means that if you aren't delivering on price or service, clients can walk. For context, the average cost to acquire a new banking customer in the U.S. this year is pegged at around $390. That's a real cost to replace a customer who leaves over a minor rate difference. Still, community banks like First Savings Bank are seeing a retention rate of about 83.1% in 2025, which is decent, but it shows a measurable portion of the customer base is willing to switch. It's a constant balancing act between acquisition expense and retention effort.

Commercial borrowers can easily shop rates among regional and national lenders.

This is where the power shifts noticeably. First Savings Financial Group, Inc. actively participates in national lending programs, specifically single-tenant net lease commercial real estate and SBA lending, which puts them in direct competition with much larger entities. We see this trend reflected in small business financing applications between 2019 and 2023, where applications to large banks (those with over $10 billion in assets) increased by 9 percentage points, while applications to smaller institutions like First Savings Bank decreased by 5 percentage points. Commercial borrowers are clearly looking beyond local markets for the best terms.

Relationship-based lending for small businesses creates some customer stickiness.

To counter that shopping behavior, the strength of the relationship matters. Commercial banks, in general, report a stronger retention rate of 85.3% in 2025 compared to the retail bank average of 80.2%. That difference is largely attributed to the long-term nature of lending relationships. First Savings Bank, headquartered in Jeffersonville, Indiana, operates fifteen depository branches in Southern Indiana, which helps foster those local, personal connections that digital-only competitors can't easily replicate. These relationships are your moat, so to speak.

The $2.40 billion asset base is diversified across many individual customers.

While First Savings Financial Group, Inc. is a smaller regional player, its asset base is spread out, which mitigates risk from any single default, but it also means no single customer relationship is overwhelmingly critical. As of June 30, 2025, the company reported total assets of $2.4 billion and total deposits of $1.7 billion. Diversification is evident in the deposit structure, too. Deposits exceeding the FDIC insurance limit of $250,000 per account represented 35.0% of total deposits at that date. This suggests a substantial portion of the funding base comes from larger, more sophisticated depositors who are definitely rate-sensitive and have easy access to alternative funding sources.

Here's a quick look at the scale and deposit structure as of the end of the third fiscal quarter of 2025:

The power of these customers is also reflected in the need for strong deposit growth, which First Savings Financial Group, Inc. achieved, increasing deposits by $118.2 million since September 2024. Still, you can't ignore the fact that the competitive environment means customers expect more, especially when they can easily compare rates for commercial loans across the Midwest and nationally.

You should review the Q4 2025 deposit growth projections against the current cost of funds to see if the stickiness from relationship lending is offsetting the rate-shopping pressure on commercial products. Finance: draft 13-week cash view by Friday.

First Savings Financial Group, Inc. (FSFG) - Porter's Five Forces: Competitive rivalry

The competitive rivalry within First Savings Financial Group, Inc.'s (FSFG) primary operating area of southern Indiana is intense, characteristic of a fragmented regional banking landscape. You see this rivalry reflected in the sheer number of local and regional players vying for deposits and loans. For instance, in the pro forma scenario following the announced merger, the combined entity's Southern Indiana deposit market share is projected to be only 10.3%. This indicates that significant market share is held by other institutions. Competitors like German American Bancorp Inc. and New Independent Bcshs Inc. are active in the broader Indiana market, and generally, community banks report citing other community banks as their largest competitor across seven out of nine product and service lines.

However, First Savings Financial Group, Inc. has demonstrated an ability to compete effectively on profitability, at least recently. The company posted a net profit margin surging to 27.1% for the fiscal year ended September 30, 2025, a substantial leap from the prior year's 12.7%. This level of margin performance suggests outperformance relative to many regional peers and typical sector averages. To give you a sense of the baseline, U.S. banks with less than $10 billion in assets saw their average net interest margin (NIM) reach 3.52% by year-end 2024. While NIM is not the same as net profit margin, FSFG's tax equivalent NIM for FY 2025 was 2.94%, showing strong overall profitability management despite the competitive environment.

The announced merger with First Merchants Corporation is a direct strategic response to this rivalry, aiming for consolidation and scale. This all-stock transaction, valued at approximately $241.3 million, will combine FSFG's 16 banking center locations in southern Indiana with First Merchants' footprint. The resulting entity is expected to have combined assets of about $21.0 billion and 127 branches across Indiana, Michigan, and Ohio, solidifying its position as the second-largest financial holding company headquartered in Indiana. The deal terms involve FSFG shareholders receiving 0.85 of a share of First Merchants common stock for each FSFG share, with an implied value of $33.60 per share based on the September 24, 2025, closing price of First Merchants stock. The transaction is projected to be accretive to earnings per share by approximately 11% in 2027.

Within First Savings Financial Group, Inc.'s operations, the core banking business remains highly competitive, but specialized niches offer differentiation. The Core Banking segment reported a GAAP net income of $6.37 million in the first fiscal quarter of 2025. Conversely, the SBA Lending unit provides a distinct advantage, having posted its third consecutive profitable quarter as of September 30, 2025. This niche has seen a significant turnaround; after origination volume dropped to $34.8 million in 2022, the unit is on pace to top $60 million in originations for 2025. While the SBA Lending segment recorded a loss of $0.14 million in Q1 FY2025, the overall trend and the $1.2 million increase in noninterest income from SBA loan sales for the full fiscal year 2025 show its growing importance as a diversified revenue stream.

Key Financial and Merger Metrics:

Segment Performance Highlights:

• Core Banking Segment Net Income (Q1 FY2025 GAAP): $6.37 million
• SBA Lending Segment Net Loss (Q1 FY2025): $0.14 million
• SBA Lending Segment Profitability: Third consecutive profitable quarter (as of Sept 30, 2025)
• FY 2025 Noninterest Income from SBA Loan Sales Increase: $1.2 million

First Savings Financial Group, Inc. (FSFG) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for First Savings Financial Group, Inc. (FSFG) is substantial, driven by technological innovation and structural advantages held by non-bank competitors. You see this pressure across both the lending and deposit-gathering sides of the business.

FinTech firms offer substitute services like digital lending and payment platforms.

FinTechs are not just a minor nuisance; they are capturing significant market share, especially in consumer credit. The U.S. digital lending market reached a size of $303.07 billion in 2025. To put that into perspective, digital lending platforms now account for approximately 63% of all personal loan originations in the U.S. as of 2025. Furthermore, marketing intensity is higher among these digital players; their marketing budgets average 8.5% of non-interest expense, which is much higher than the less than 3% spent by traditional banks. Globally, 60% of borrowers now prefer digital lending options over conventional bank loans, and in the U.S., over 90% of millennials reported interacting with a fintech platform in 2025. This signals a clear shift in customer preference toward speed and digital convenience.

Credit unions and non-bank lenders substitute for residential and consumer loans.

Non-bank financial cooperatives, specifically credit unions, are aggressively taking share in the loan market, often leveraging a structural cost advantage. As of August 31, 2025, credit unions held $639.1 billion in non-revolving consumer loans, marking an 11.6% year-over-year increase. Contrast this with banks, whose non-revolving consumer debt holdings actually decreased by 7.2% to $830.6 billion over the same period. This growth is partly fueled by their ability to price more aggressively; credit unions can typically offer loan rates about 0.5% lower than community banks because of their tax-exempt status. For FSFG, which operates in a similar community-focused space, this competitive pricing pressure is direct.

Here's a quick look at how key substitute segments are performing against traditional banking:

Investment products substitute for traditional deposit accounts, especially high-yield options.

Your core funding source-customer deposits-is under constant pressure from high-yield savings accounts (HYSAs) and money market accounts offered by online-only institutions. While the Federal Reserve has cut rates, leading to a projected federal funds target range of 3.75%-4.00% as of late 2025, the best HYSAs still offer compelling returns compared to standard bank savings. The national average savings rate, according to the FDIC, sits near 0.40% APY. In contrast, the top HYSA rates available in December 2025 reached 5.00% APY. Even a 'good' HYSA rate is currently cited around 4.20%. This gap means FSFG must pay more for deposits or risk deposit migration. For context, FSFG's own tax equivalent net interest margin for the year ended September 30, 2025, was 2.94%.

The competition for your funding dollars looks like this:

• Top HYSA APY (December 2025): 5.00%
• Good HYSA APY (Late 2025 benchmark): 4.20%
• FDIC National Average Savings Rate: 0.40%
• FSFG Tax Equivalent NIM (FY 2025): 2.94%
• FSFG Deposit Growth (Since Sep 2024): $118.2 million increase

The threat is moderated by FSFG's community-based, full-service model.

Still, the threat isn't absolute. FSFG's model provides a buffer, especially against purely digital substitutes. You maintain relationships built on local presence and comprehensive service offerings, which digital-only players struggle to replicate. The fact that FSFG managed to increase customer deposits by $118.2 million since September 2024 shows that the community focus is retaining core funding, even with high-yield competition present. Furthermore, FSFG's total assets stood at $2.42 billion as of June 30, 2025, indicating a significant, established asset base that provides stability. Your focus on select loan growth and asset quality preservation, as noted in your Q3 2025 commentary, helps defend against the riskier segments where some non-bank lenders operate.

First Savings Financial Group, Inc. (FSFG) - Porter's Five Forces: Threat of new entrants

You're looking at the barriers for a brand-new bank to set up shop and compete directly with First Savings Financial Group, Inc. Honestly, the hurdles are substantial, primarily because of the regulatory moat protecting established players like First Savings Financial Group, Inc.

Regulatory and capital requirements are a significant barrier to entry for new banks. Starting a new chartered institution requires navigating a labyrinth of federal and state compliance before you even book your first loan. While regulators recently proposed easing some burdens for existing community banks, this doesn't mean the door is wide open for newcomers. For instance, federal agencies proposed lowering the Community Bank Leverage Ratio (CBLR) threshold from 9 percent to 8 percent for institutions opting into the simplified framework. This change, while helpful for incumbents, still sets a high baseline expectation for capital adequacy that any new entrant must meet from day one.

New entrants need substantial capital; First Savings Financial Group, Inc.'s $2.42 billion asset size is a hurdle. A new bank must raise enough capital to support initial operations, build out necessary technology infrastructure, and meet minimum regulatory thresholds without the benefit of established deposit bases or retained earnings. Competing against an institution that already manages over $2.42 billion in assets requires a massive initial capital raise just to achieve comparable scale in the market.

FinTech entrants bypass traditional branch costs but face high customer acquisition costs. Digital-first competitors don't have the overhead of physical locations, but they must spend heavily to earn trust and secure deposits in a crowded digital space. The cost to acquire a single new customer in the broader fintech space averages around $1,450. For banking-focused fintechs, the benchmark CAC is closer to $1,468 for consumer/SMB segments. This high spend is necessary to overcome the trust deficit that new financial brands face, especially when First Savings Financial Group, Inc. benefits from decades of local recognition.

The merger activity in the sector shows established players are consolidating, not fragmenting. Instead of seeing an influx of new, small competitors, the trend is toward fewer, larger entities. In the third quarter of 2025 alone, 52 US bank deals were announced, representing an aggregate value of $16.63 billion. This consolidation suggests that the path to scale is through acquisition, not organic entry. To put the industry fragmentation into perspective, while the number of US banks has dropped 75% over 40 years, there were still 4,487 banks at the end of 2024, with many small players becoming acquisition targets. Furthermore, thirty-seven percent of bank executives reported that another financial institution expressed interest in acquiring their bank in 2024 or 2025.

Here's a quick look at the cost dynamics for new entrants versus the regulatory environment for existing community banks:

The regulatory environment is actively shaping the competitive landscape, which impacts how new players must approach the market. Consider these specific regulatory shifts:

• Proposed CBLR reduction to 8 percent for smaller institutions.
• Extension of grace period for CBLR non-compliance to four quarters.
• Average consumer fintech CAC is benchmarked at $1,450.
• The banking segment's ideal LTV:CAC ratio target is 4.4:1.

If you're planning a market entry, you defintely need to model for that $1,450 customer cost right out of the gate.

Finance: draft the pro-forma capital stack for a de novo bank targeting $250 million in assets within three years by Friday.