What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-11-22 compared with 2021-11-24 · 59 added, 53 removed, 234 unchanged (32% of the section changed)

The material risks and uncertainties that management believes affect us are described below.

You should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein, as well as in other documents we file with the SEC.

The risks and uncertainties described below are not the only ones facing us.

Additional risks and uncertainties that management is not aware of or focused on, or that management currently deems immaterial may also impair our business operations.

This report is qualified in its entirety by these risk factors.

See also, “Forward-Looking Statements.”

Risks Related to the COVID-19 Pandemic

The economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations.

The COVID-19 pandemic has caused significant economic disruption in the United States, resulting in an unprecedented slow-down in economic activity and a related increase in unemployment.

In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes have declined to historic lows.

Various state governments and federal agencies have required lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees).

The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.

Finally, the spread of COVID-19 has caused us to modify our business practices, including associate travel, associate work locations, and cancellation of physical participation in meetings, events and conferences.

We have many associates working hybrid schedules and may take further actions as may be required by government authorities or that we determine are in the best interests of our associates, customers and business partners.

The economic impact of the COVID-19 outbreak could continue to adversely affect our financial condition and results of operations.

Although U.S.

and global economies have begun to recover from the COVID-19 pandemic as many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time, including labor shortages and disruptions of global supply chains.

The growth in economic activity and demand for goods and services, alongside labor shortages and supply chain complications, has also contributed to rising inflationary pressures.

The extent to which the COVID-19 pandemic impacts our business, financial condition, liquidity, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.

We continue to have many associates working hybrid schedules and may take further actions as may be required by government authorities or that we determine are in the best interests of our associates, customers and business partners.

We did not participate in, or offer loans, as part of the Payroll Protection Program.

Given that we employ more than 100 associates, we are subject to the federal vaccination mandate that is currently proposed to be implemented January 4, 2022.

The mandate requires our associates to show proof they have been fully vaccinated or provide a COVID-19 test at least once a week.

It is difficult to predict the full impact this mandate, if implemented, on our business and operations.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business.

The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened to pre-pandemic levels.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

The length of the adverse consequences of the pandemic and the impact to the macroeconomic environment are unknown.

Until the consequences subside, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

• demand for our products and services may decline, making it difficult to grow assets and income;

• if the economy is unable to remain substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

• loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

• collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

1 unchanged sentence

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

• as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

• a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;

3 unchanged sentences

• Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs;

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years.

The unanticipated loss or unavailability of key associates due to the outbreak could harm our ability to operate our business or execute our business strategy.

We may not be successful in finding and integrating suitable successors in the event of key associates loss or unavailability.

• as a result of the temporary recession experienced by the U.S.

due to the pandemic, our business could be materially and adversely affected by another recession should the effects of the pandemic continue for a period of time or worsen.

Risks Related to Laws and Regulations

14 unchanged sentences

The Association received a “Needs to Improve” Community Reinvestment Act rating in its most recent federal examination that analyzed home mortgage lending data for the period January 1, 2015 through December 31, 2019.

A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as those related to branches, mergers, minority stock offerings or a second-step conversion, or in restrictions on its activities.

A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a

minimum, result in denial of certain corporate applications such as those related to branches, mergers, minority stock offerings or a second-step conversion, or in restrictions on its activities.

The FRS may require the Company to commit capital resources to support the Association, and we may not have sufficient access to such capital resources.

2 unchanged sentences

A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may be required to attempt to borrow the funds or raise capital.

Any loans by a holding company to its subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank.

In the event of a holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank.

Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the institution’s general unsecured creditors, including the holders of its note obligations.

Thus, any borrowing that must be done by the Company to make a required capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations.

Thus, any borrowing of funds needed to raise capital required to make a capital injection becomes more difficult and expensive, and could have an adverse effect on our business, financial condition and results of operations.

Moreover, it is possible that we will be unable to borrow funds when we need to do so.

25 unchanged sentences

Final regulations could restrict our ability to originate and sell loans.

The Consumer Financial Protection Bureau has issued a rule designed to clarify for lenders how they can avoid legal liability under the Dodd-Frank Act, which holds lenders accountable for ensuring a borrower’s ability to repay a mortgage.

Loans that meet this “qualified mortgage” definition will be presumed to have complied with the new ability-to-repay standard.

The Consumer Financial Protection Bureau issued a rule designed to clarify for lenders how they can avoid legal liability under the Dodd-Frank Act, which holds lenders accountable for ensuring a borrower’s ability to repay a mortgage.

Loans that meet this “qualified mortgage” definition will be presumed to have complied with the ability-to-repay standard.

A “qualified mortgage” must be made to a borrower whose total monthly debt-to-income ratio does not exceed 43%.

Lenders must also verify and document the income and financial resources relied upon to qualify the borrower on the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments.

Under the rule, a “qualified mortgage” loan must not contain certain specified features, including:

• not be higher-priced as defined by the FRB in 2008;

• excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points” for prime loans);

1 unchanged sentence

• negative amortization;

• balloon payments;

• terms of longer than 30 years;

Also, to qualify as a “qualified mortgage,” a loan must be made to a borrower whose total monthly debt-to-income ratio does not exceed 43%.

In addition, the Dodd-Frank Act requires the regulatory agencies to issue regulations that require securitizers of loans to retain “not less than 5% of the credit risk for any asset that is not a qualified residential mortgage.” The regulatory agencies have issued a final rule to implement this requirement.

The final rule provides that the definition of “qualified residential mortgage” includes loans that meet the definition of qualified mortgage issued by the Consumer Financial Protection Bureau.

The final rule could have a significant effect on the secondary market for loans and the types of loans we originate, and restrict our ability to make loans.

Similarly, the Consumer Financial Protection Bureau’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, which could limit our growth or profitability.

• cannot be a 'no doc' loan where the creditor does not verify income or assets.

In addition to the above exclusions, a newly defined "qualified mortgage" APR must be within a certain tolerance of APOR in order to qualify as a "qualified mortgage" loan under the final rule.

These tolerances have the ability to impact certain products, but does not preclude TFS from originating non-qualified mortgage loans.

TFS has been delivering fixed-rate loans to government sponsored entities over the past year, which required implementation of the Final "Qualified Mortgage" General Rule that went into effect on October 1, 2022.

In September of 2022, internal systems were updated at TFS in order to calculate "qualified mortgage" status for all closed end products (i.e.

Fixed, ARM, HELOANs).

The regulatory agencies have issued a rule in response to requirements within the Dodd-Frank Act that requires securitizers of loans to retain not less than 5% of the credit risk for any asset that is not a qualified residential mortgage.

The final rule also provides that the definition of “qualified residential mortgage” includes loans that meet the definition of qualified mortgage issued by the Consumer Financial Protection Bureau.

The General Qualified Mortgage Final Rule could have a significant effect on the secondary market for loans.

The Consumer Financial Protection Bureau's rule on qualified mortgages could limit our desire to make certain types of loans or loan to certain borrowers, which could limit our growth or profitability.

The foreclosure process may adversely impact our recoveries on non-performing loans

The judicial foreclosure process is protracted, which delays our ability to resolve non-performing loans through the sale of the underlying collateral.

The longer timelines have been the result of the economic crisis, additional consumer protection initiatives related to the foreclosure process, increased documentary requirements and judicial scrutiny, and both voluntary and mandatory programs under which lenders may consider loan modifications or other alternatives to foreclosure.

These reasons, as well as the legal and regulatory responses, have impacted the foreclosure process and completion time of foreclosures for residential mortgage lenders.

This may result in a material adverse effect on collateral values and our ability to minimize its losses.

Risks Related to Competitive Matters

4 unchanged sentences

In addition, larger competitors may be able to price loans and deposits more aggressively than we do.

Troubled financial institutions may significantly increase the interest rates paid to depositors in pursuit of retail deposits when wholesale funding sources are not available to them.

Competitive factors driven by consumer sentiment or otherwise can also reduce our ability to generate fee income, such as through overdraft fees.

Troubled financial institutions may not significantly increase the interest rates paid to depositors in pursuit of retail deposits when wholesale funding sources are not available to them.

Furthermore, the wide acceptance of Internet-based commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles.

Customers can now maintain funds in prepaid debit cards or digital currencies, and pay bills and transfer funds directly without the direct assistance of banks.

Customers can now maintain funds in prepaid debit cards or digital currencies, and pay bills and

transfer funds directly without the direct assistance of banks.

Our profitability depends upon our continued ability to successfully compete in our market areas.

47 unchanged sentences

Federal savings associations may pay dividends without the approval of its primary federal regulator only if they meet applicable regulatory capital requirements before and after the payment of the dividends and total dividends do not exceed net income to date over the calendar year plus its retained net income over the preceding two years.

If in the future, the Company utilizes its available cash and the Bank is unable to pay dividends to the Company, the Company may not have sufficient funds to pay dividends or fund stock repurchases.

If in the future, the Company utilizes its available cash and the Association is unable to pay dividends to the Company, the Company may not have sufficient funds to pay dividends or fund stock repurchases.

Restrictions on our ability to pay dividends to stockholders could adversely affect the value of our common stock.

The value of the Company’s common stock is significantly affected by our ability to pay dividends to our public stockholders.

The Company’s ability to pay dividends to our stockholders is subject to the availability of cash at the holding company and, in the event earnings are not sufficient to fund the dividends, eventually, the ability of the Association to make capital distributions to the Company.

The Company’s ability to pay dividends to our stockholders is subject to the availability of cash at the Company which is dependent on the Association having sufficient earnings to make capital distributions to the Company.

Moreover, our ability to pay dividends and the amount of such dividends is affected by the ability of Third Federal Savings, MHC, our mutual holding company, to waive the receipt of dividends declared by the Company.

3 unchanged sentences

As part of its rulemaking process, the FRS is reviewing comments on the interim final rule and there can be no assurance that the final rule will not require such a member vote.

Third Federal Savings, MHC has received the approval of its members in eight separate meetings (held in either July or August of each year from 2014 through 2021) to waive the receipt of dividends for a twelve-month period, and the FRS has “non-objected” to Third Federal Savings, MHC’s waiver each time.

Third Federal Savings, MHC has received the approval of its members in nine separate meetings (held in either July or August of each year from 2014 through 2022) to waive the receipt of dividends for a twelve-month period, and the FRS has “non-objected” to Third Federal Savings, MHC’s waiver each time.

However, future approvals of members and non-objections from the FRS are not assured and if not obtained, the discontinuance of dividend payments would adversely affect the value of our common stock.

20 unchanged sentences

Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.

The vast majority of our assets and liabilities are financial in nature, and as a result, changes in market and competitive interest rates can impact our customers’ actions as well as the types and amount of business opportunities that are available to us.

In general, when changes occur in interest rates that prompt our existing customers to pursue strategies that are beneficial to them, the results are generally unfavorable for us.

Generally, in a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities because, like many savings institutions, our liabilities generally have shorter contractual maturities than our assets.

7 unchanged sentences

Each of these alternatives can have an unfavorable impact on us.

As another example of changes in interest rates that can have an unfavorable impact on our net interest income, if mortgage interest rates decline, our customers may seek to refinance, without penalty, their mortgage loans with us or repay

their mortgage loans with us and borrow from another lender.

When that happens, either the yield that we earn on the customer’s loan is reduced (if the customer refinances with us) or the mortgage is paid off and we are faced with the challenge of reinvesting the cash received to repay the mortgage in a lower interest rate environment.

22 unchanged sentences

At September 30, 2022, in the event of an immediate 200 basis point increase in all interest rates, our model projects that we would experience a $397.3 million, or 29.92%, decrease in EVE.

Our calculations further project that, at September 30, 2021, in the event that market interest rates used in the simulation were adjusted in equal monthly amounts (termed a "ramped" format) during the twelve month measurement period to an aggregate increase in 200 basis points, we would expect our projected net interest income for the twelve months ended September 30, 2022 to increase by 3.47%.

Our calculations further project that, at September 30, 2022, in the event that market interest rates used in the simulation were adjusted in equal monthly amounts (termed a "ramped" format) during the twelve month measurement period to an aggregate increase in 200 basis points, we would expect our projected net interest income for the twelve months ended September 30, 2023 to decrease by 0.29%.

Quantitative and Qualitative Disclosures about Market Risk .

6 unchanged sentences

Declines in the U.S.

housing market, falling home prices and increasing foreclosures, as well as unemployment and under-

employment, all negatively impact the credit performance of mortgage loans and can result in significant write-downs of asset values by financial institutions.

housing market, falling home prices and increasing foreclosures, as well as unemployment and under-employment, all negatively impact the credit performance of mortgage loans and can result in significant write-downs of asset values by financial institutions.

In response to a significant decline in general economic conditions, many lenders and institutional investors may reduce or cease providing funding to borrowers, including other financial institutions.

This market turmoil and tightening of credit could lead to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of general business activity.

The resulting economic pressure on consumers and lack of confidence in the financial markets could adversely affect our business, financial condition and results of operations.

The resulting economic pressure on consumers and lack of

confidence in the financial markets could adversely affect our business, financial condition and results of operations.

In response, we would expect to face the following risks in connection with these events:

20 unchanged sentences

The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.

We may be required to transition from the use of the LIBOR interest rate index in the future.

We are required to transition from the use of the LIBOR interest rate index in the future.

We have certain interest rate swap contracts indexed to LIBOR to calculate the interest rate.

The continued availability of the LIBOR index is not guaranteed after 2021 and therefore we are strongly encouraged to not enter any new transactions referencing LIBOR after 2021.

We cannot predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted.

At this time, a general consensus exists that in the U.S.

the Secured Overnight Financing Rate (SOFR) index will be an acceptable alternative to LIBOR.

The language in our LIBOR-based contracts and financial instruments has been developed by the Chicago Mercantile Exchange and may have various events that trigger when a successor rate to the designated rate would be selected.

The LIBOR index will be discontinued for U.S.

Dollar settings effective June 30, 2023.

The language in our LIBOR-based contracts and financial instruments has developed over time and may have various events that trigger when a successor rate to the designated rate would be selected.

If a trigger is satisfied, contracts and financial instruments may give the calculation agent discretion over the substitute index or indices for the calculation of interest rates to be selected.

The implementation of a substitute index or indices for the calculation of interest rates under our swap contracts may result in our incurring significant expenses in effecting the transition and may result in disputes or litigation over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations.

Our LIBOR exposure on existing swaps is expected to continue through the permanent LIBOR cessation date anticipated on June 30, 2023.

Additionally, since alternative rates are calculated differently, the transition may change our market risk profile, requiring changes to risk and pricing models.

Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers.

6 unchanged sentences

In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans.

Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

Our efforts to take these risks into account in making lending and other decisions, including increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our performance.

10 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors