What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-11-22 compared with 2021-11-24 · 127 added, 219 removed, 432 unchanged (44% of the section changed)

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We intend to continue to adhere to our primary values and to support our customers and the communities in which we operate, as we pursue our mission to help people achieve the dream of home ownership and financial security while creating value for our shareholders, our customers, our communities and our associates.

The following tables present select financial data of the Company for the five most recent fiscal years.

At September 30,

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The impact of the Rule was not material to the regulatory capital ratios.

COVID-19 Pandemic .

During the current and previous fiscal years, the COVID-19 pandemic had a significant impact on our customers, associates and communities, which collectively impacts our shareholders.

Our primary values and mission mentioned above have driven our responses related to COVID-19 and are summarized below.

• Branches are open and have returned to normal, operating business hours

• Through September 30, 2021, over 2,200 customers, representing over $250 million of loans, have been helped by COVID-19 related forbearance plans

• As a result of payoffs and customer resolutions, there were 149 customers, representing $21.8 million of loans, remaining in COVID-19 forbearance plans as of September 30, 2021

• Customer relief provided in the form of:

forbearance plans available with multiple repayment options;

waiving of late fees, overdraft fees and ATM fees

• Expanded technology platforms, including mobile banking features and mobile deposit limits, as well as enhanced functionality for online deposit management

• Plans currently in place for associate hybrid (work from office/home options)

• Safety precautions implemented as needed, including masks, germ shields and working distance requirements.

• Provided a one-time after tax bonus of $1,500 to each associate

• Medical benefit plan enhancements have been made to ensure COVID-19 coverage

• An additional 10 days provided to associates for COVID-19 related absences

• Over $100,000 added to Rhonda’s Kiss Associate Fund for family hardships

• Third Federal Foundation made a commitment to provide a $1.1 million lead gift to University Settlement to support a new $20 million development in the neighborhood near our headquarters that will provide 80 new units of affordable housing.

• Hosted MetroHealth drive-through vaccinations for public and associates.

• Leader in advocating for investment in Digital Equity by both investing to deploy devices and hot spots to Slavic Village families and participating on the Greater Cleveland Digital Equity Coalition.

• We are committed to paying an attractive dividend

• Continued serving and lending to our customers in a responsible way

• Strong credit quality and capital levels to support potential loan performance issues

• Staying true to the Third Federal Values that have guided us throughout history (love, trust, respect, commitment to excellence, and fun)

Beyond working through the challenges COVID-19 presents to the organization and society, management believes that the following matters are those most critical to our success:

Management believes that the following matters are those most critical to our success:

(1) controlling our interest rate risk exposure;

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When we hold longer-term, fixed-rate assets, funded by liabilities with shorter-term re-pricing characteristics, we are exposed to potentially adverse impacts from changing interest rates, and most notably rising interest rates.

Generally, and particularly over extended periods of time that encompass full economic cycles, interest rates associated with longer-term assets, like fixed-rate mortgages, have been higher than interest rates associated with shorter-term funding sources, like deposits.

Generally, and particularly over extended periods of time that encompass full economic cycles, interest rates associated with longer-term

assets, like fixed-rate mortgages, have been higher than interest rates associated with shorter-term funding sources, like deposits.

This difference has been an important component of our net interest income and is fundamental to our operations.

We manage the risk of holding longer-term, fixed-rate mortgage assets primarily by maintaining regulatory capital in excess of levels required to be well capitalized, by promoting adjustable-rate loans and shorter-term fixed-rate loans, by marketing home equity lines of credit, which carry an adjustable rate of interest indexed to the prime rate, by opportunistically extending the duration of our funding sources and selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market.

The decision to extend the duration of some of our funding sources through interest rate swap contracts over the past few years has also caused additional interest rate risk exposure, as the current low market interest rates are lower than the rates in effect when some of the swap contracts were executed.

This rate difference is reflected in the level of cash flow hedges included in accumulated other comprehensive loss.

Levels of Regulatory Capital

For most insured depositories, customer and community confidence are critical to their ability to maintain access to adequate liquidity and to conduct business in an orderly manner.

We believe that a well capitalized institution is one of the most important factors in nurturing customer and community confidence.

At September 30, 2022, the Company’s Tier 1 (leverage) capital totaled $1.82 billion, or 11.66% of net average assets and 20.59% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.61 billion, or 10.33% of net average assets and 18.25% of risk-weighted assets.

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2026 1,525,895

2027 1,770,027

Total $4,668,089

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Construction and Other loans 125,022 0.9 % 3.32 %

Total Loans Receivable, net $ 12,576,665 100.0 % 3.01 %

Total Loans Receivable $ 14,352,014 100.0 % 3.51 %

September 30, 2022

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Construction and Other loans 125,022 125,022 0.9 3.32 %

Total Loans Receivable, net $ 12,576,665 $ 5,821,452 100.0 % 3.01 %

Marketing Home Equity Lines of Credit

Total Loans Receivable $ 14,352,014 $ 7,200,783 100.0 % 3.51 %

Marketing of Home Equity Lines of Credit

We actively market home equity lines of credit, which carry an adjustable rate of interest indexed to the prime rate which provides interest rate sensitivity to that portion of our assets and is a meaningful strategy to manage our interest rate risk profile.

We plan to enhance our ability to grow the home equity line of credit portfolio by utilizing partners to attract more home equity line of credit customers.

At September 30, 2022, the principal balance of home equity lines of credit totaled $2.37 billion.

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As a complement to our strategies to shorten the duration of our interest earning assets, as described above, we also seek to lengthen the duration of our interest bearing funding sources.

These efforts include monitoring the relative costs of alternative funding sources such as retail deposits, brokered certificates of deposit, longer-term (e.g.

These efforts include monitoring the relative costs of alternative funding sources such as retail deposits, brokered deposits, longer-term (e.g.

four to six years) fixed rate advances from the FHLB of Cincinnati, and shorter-term (e.g.

three months) advances from the FHLB of Cincinnati, the durations of which are extended by correlated interest rate exchange contracts.

Each funding alternative is monitored and evaluated based on its effective interest payment rate, options exercisable by the creditor (early withdrawal, right to call, etc.), and collateral requirements.

Each funding alternative is monitored and evaluated based on

its effective interest payment rate, options exercisable by the creditor (early withdrawal, right to call, etc.), and collateral requirements.

The interest payment rate is a function of market influences that are specific to the nuances and market competitiveness/breadth of each funding source.

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but are required for our advances from the FHLB of Cincinnati as well as for our interest rate exchange contracts.

As a result of increased available cash from loan sales beginning in fiscal 2020, as discussed below, we have also effectively extended the duration of funding sources by reducing the levels of our short-term and total funding.

We will continue to evaluate the structure of our funding sources based on current needs.

During the year ended September 30, 2021, the balance of deposits decreased $231.9 million, which was comprised of a $170.0 million decrease in the balance of customer retail deposits and a $61.9 million decrease in the balance of brokered CDs (which is inclusive of acquisition costs and subsequent amortization).

During the year, we added $188.5 million of new brokered CDs with a weighted average interest rate of 0.37%, while brokered CDs of $250.4 million, with a weighted average interest rate of 1.98%, matured during the year.

Additionally, during the year ended September 30, 2021, we decreased the balance of our total advances from the FHLB of Cincinnati by $429.9 million.

We added $100.0 million of new, four- to five-year advances from the FHLB of Cincinnati with a weighted average interest rate of 0.90%;

and we paid off at maturity, $525.0 million of advances with related interest rate swap contracts that had a weighted average interest rate of 1.19%.

Our funding sources are discussed in the Sources of Funds section of Item 1.

Business in Part I.

THIRD FEDERAL SAVINGS AND LOAN ASSOCIATION OF CLEVELAND .

Other Interest Rate Risk Management Tools

We also manage interest rate risk by selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market.

The sales of first mortgage loans have increased significantly during fiscal 2020 and fiscal 2021, due to an increase in the number of fixed-rate refinances.

At September 30, 2022, we serviced $2.05 billion of loans for others.

In deciding whether to sell loans to manage interest rate risk, we also consider the level of gains to be recognized in comparison to the impact to our net interest income.

We are planning on expanding our ability to sell certain fixed rate loans to Fannie Mae in fiscal 2022 and beyond, through the use of more traditional mortgage banking activities, including risk-based pricing and loan-level pricing adjustments.

This concept will be tested in markets outside of Ohio and Florida, and some additional startup and marketing costs will be incurred, but is not expected to significantly impact our financial results in fiscal 2022.

We began expanding our ability to sell certain fixed rate loans to Fannie Mae in fiscal 2022 and beyond, through the use of more traditional mortgage banking activities, including risk-based pricing and loan-level pricing adjustments.

This concept is being tested in markets outside of Ohio and Florida, and some additional startup and marketing costs have been incurred, but have not significantly impacted our financial results.

We can also manage interest rate risk by selling non-Fannie Mae compliant mortgage loans to private investors, although those transactions are dependent upon favorable market conditions, including motivated private investors, and involve more complicated negotiations and longer settlement timelines.

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In response to the evolving economic landscape, we continuously revise and update our quarterly analysis and evaluation procedures, as needed, for each category of our lending with the objective of identifying and recognizing all appropriate credit losses.

Continuous analysis and evaluation updates will be important as we monitor the impact to our borrowers as a result of the COVID-19 global pandemic.

At September 30, 2021, 89% of our assets consisted of residential real estate loans (both “held for sale” and “held for investment”) and home equity loans and lines of credit, which were originated predominantly to borrowers in Ohio and Florida.

At September 30, 2022, 90% of our assets consisted of residential real estate loans (both “held for sale” and “held for investment”) and home equity loans and lines of credit.

Our analytic procedures and evaluations include specific reviews of all home equity loans and lines of credit that become 90 or more days past due, as well as specific reviews of all first mortgage loans that become 180 or more days past due.

We transfer performing home equity lines of credit subordinate to first mortgages delinquent greater than 90 days to non-accrual status.

Per the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus, the COVID-19 related forbearance plans will not generally affect the delinquency status of the loan and therefore will not undergo a specific review unless extended greater than 12 months.

We also charge-off performing loans to collateral value and classify

those loans as non-accrual within 60 days of notification of all borrowers filing Chapter 7 bankruptcy, that have not reaffirmed or been dismissed, regardless of how long the loans have been performing.

Loans where at least one borrower has been discharged of their obligation in Chapter 7 bankruptcy are classified as TDRs.

At September 30, 2021, $14.7 million of loans in Chapter 7 bankruptcy status with no other modification to terms were included in total TDRs.

At September 30, 2021, the amortized cost in non-accrual status loans included $16.5 million of performing loans in Chapter 7 bankruptcy status, of which $16.1 million were also reported as TDRs.

In an effort to limit our credit risk exposure and improve the credit performance of new customers, since 2009, we have tightened our credit eligibility criteria in evaluating a borrower’s ability to successfully fulfill its repayment obligation, revised the design of many of our loan products to require higher borrower down-payments, limited the products available for condominiums and eliminated certain product features (such as interest-only and loans above certain LTV ratios).

We also charge-off performing loans to collateral value and classify those loans as non-accrual within 60 days of notification of all borrowers filing Chapter 7 bankruptcy, that have not reaffirmed or been dismissed, regardless of how long the loans have been performing.

In an effort to align our credit risk exposure with the low risk appetite approved by the Board of Directors, the credit eligibility criteria is evaluated to ensure a successful homeowner has the primary source of repayment, followed by a collateral position that allows for a secondary source of repayment, if needed.

Products that do not result in an effective mix of repayment ability are not offered.

We use stringent, conservative lending standards for underwriting to reduce our credit risk.

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In an effort to moderate the concentration of our credit risk exposure in individual states, particularly Ohio and Florida, we have utilized direct mail marketing, our internet site and our customer service call center to extend our lending activities to other attractive geographic locations.

Currently, in addition to Ohio and Florida, we are actively lending in 23 other states and the District of Columbia, and as a result of that activity, the concentration ratios of the combined total of our residential, Core and construction loans held for investment in Ohio and Florida have trended downward from their September 30, 2010 levels when the concentrations were 79.1% in Ohio and 19.0% in Florida.

30, 2010 levels when the concentrations were 79.1% in Ohio and 19.0% in Florida.

Of the total mortgage loan originations for the year ended September 30, 2022, 25.4% are secured by properties in states other than Ohio or Florida.

Our residential Home Today loans are another area of credit risk concern as the majority of these loans were originated under less stringent underwriting and credit standards than our Residential Core portfolio.

Although we no longer originate loans under this program and the principal balance in these loans had declined to $63.8 million at September 30, 2021, and constituted only 0.6% of our total “held for investment” loan portfolio balance, they comprised 13.2% and 16.1% of our 90 days or greater delinquencies and our total delinquencies, respectively, at that date.

At September 30, 2021, approximately 95.4% and 4.5% of our residential Home Today loans were secured by properties in Ohio and Florida, respectively.

At September 30, 2021, the percentages of those loans delinquent 30 days or more in Ohio and Florida were 6.3% and 6.1%, respectively.

We attempted to manage our Home Today credit risk by requiring private mortgage insurance for some loans.

At September 30, 2021, 10.5% of Home Today loans included private mortgage insurance coverage.

From a peak amortized cost of $306.6 million at December 31, 2007, the total amortized cost of the Home Today portfolio has declined to $63.4 million at September 30, 2021.

Since the vast majority of Home Today loans were originated prior to March 2009 and we are no longer originating loans under our Home Today program, the Home Today portfolio will continue to decline in balance, primarily due to contractual amortization.

As part of our adoption of CECL on October 1, 2020, which includes a lifetime view of expected losses, our allowance for credit losses for the Home Today portfolio is reduced by expected future recoveries of loan amounts previously charged off.

To supplant the Home Today product and to continue to meet the credit needs of our customers and the communities that we serve, we have offered Fannie Mae eligible, Home Ready loans since fiscal 2016.

These loans are originated in accordance with Fannie Mae's underwriting standards.

While we retain the servicing rights related to these loans, the loans, along with the credit risk associated therewith, are securitized and/or sold to Fannie Mae.

Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth.

For most insured depositories, customer and community confidence are critical to their ability to maintain access to adequate liquidity and to conduct business in an orderly manner.

We believe that a well capitalized institution is one of the most important factors in nurturing customer and community confidence.

Accordingly, we have managed the pace of our growth in a manner that reflects our emphasis on high capital levels.

At September 30, 2021, the Association’s ratio of Tier 1 (leverage) capital to net average assets (a basic industry measure that deems 5.00% or above to represent a “well capitalized” status) was 11.15%.

The Association's Tier 1 (leverage) capital ratio is higher at September 30, 2021 than its ratio at September 30, 2020, which was 10.39%, due primarily to the combination of a reduction in total assets, plus net income at the Association offsetting the impact from a $55 million cash dividend payment that the Association made to the Company, its sole shareholder, in December 2020 that reduced the Association's Tier 1 (leverage) capital ratio by an estimated 36 basis points.

Because of its intercompany

nature, this dividend payment did not impact the Company's consolidated capital ratios which are reported in the Liquidity and Capital Resources section of this Item 7.

We expect to continue to remain a well capitalized institution.

In managing its level of liquidity, the Company monitors available funding sources, which include attracting new deposits (including brokered CDs), borrowing from others, the conversion of assets to cash and the generation of funds through profitable operations.

In managing its level of liquidity, the Company monitors available funding sources, which include attracting new deposits (including brokered deposits), borrowing from others, the conversion of assets to cash and the generation of funds through profitable operations.

The Company has traditionally relied on retail deposits as its primary means in meeting its funding needs.

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Effectively, this permits us to increase the rates that we offer on our deposit products thereby attracting more potential customers.

Second, we pledge available real estate mortgage loans and investment securities with the FHLB of Cincinnati and the FRB-Cleveland.

Second, we pledge available real estate mortgage loans with the FHLB of Cincinnati and the FRB-Cleveland.

At September 30, 2022, these collateral pledge support arrangements provided the Association with the ability to borrow a maximum of $8.47 billion from the FHLB of Cincinnati and $168.0 million from the FRB-Cleveland Discount Window.

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First mortgage loans (primarily fixed-rate, mortgage refinances with terms of 15 years or more and Home Ready) are originated under Fannie Mae procedures and are eligible for sale to Fannie Mae either as whole loans or within mortgage-backed securities.

Most of these agency-compliant loans are classified as held for investment because the Company has both the intent and ability to hold them in portfolio.

At September 30, 2022, the principal balance of these agency-compliant loans classified as held for investment was $123.0 million.

During fiscal 2022, we formed a mortgage banking division as part of our strategy to originate first mortgage loans for sale to Fannie Mae.

Loans originated through this division are Fannie Mae compliant and have interest rates that closely align with secondary market pricing.

At September 30, 2022, these loans are classified as held for sale totaling $9.7 million.

During the fiscal year ended September 30, 2022, $28.8 million of agency-compliant Home Ready loans and $99.3 million of long-term, fixed-rate, agency-compliant, non-Home Ready first mortgage loans were sold to Fannie Mae.

We expect that certain loan types (i.e.

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For loans that are not originated under Fannie Mae procedures, the Association’s ability to reduce interest rate risk via loan sales is limited to those loans that have established payment histories, strong borrower credit profiles and are supported by adequate collateral values that meet the requirements of the FHLB's Mortgage Purchase Program or of private third-party investors.

At September 30, 2021, $8.8 million of agency eligible, long-term, fixed-rate first mortgage loans were classified as “held for sale.” During the fiscal year ended September 30, 2021, $58.1 million of agency-compliant Home Ready loans and $704.2 million of long-term, fixed-rate, agency-compliant, non-Home Ready first mortgage loans were sold to Fannie Mae.

Overall, while customer and community confidence can never be assured, the Company believes that our liquidity is adequate and that we have adequate access to alternative funding sources.

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Our ratio of non-interest expense to average assets was 1.34% for the fiscal year ended September 30, 2022 and 1.35% for the fiscal year ended September 30, 2021.

The decrease in average assets during the current fiscal year contributed to the increase in the ratio.

The increase in average assets during the current fiscal year contributed to the decrease in the ratio.

As of September 30, 2022, our average assets per full-time associate and our average deposits per full-time associate were $15.4 million and $8.7 million, respectively.

We believe that each of these measures compares favorably with industry averages.

Our relatively high average deposits (exclusive of brokered CDs) held at our branch offices ($229.8 million per branch office as of September 30, 2021) contributes to our expense management efforts by limiting the overhead costs of serving our customers.

Our relatively high average deposits (exclusive of brokered accounts) held at our branch offices ($217.5 million per branch office as of September 30, 2022) contributes to our expense management efforts by limiting the overhead costs of serving our customers.

We will continue our efforts to control operating expenses as we grow our business.

Critical Accounting Policies

Critical accounting policies are defined as those that involve significant judgments and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions.

We believe that the most critical accounting policies upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are our policies with respect to our allowance for credit losses, income taxes and pension benefits.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are defined as those that involve significant judgments and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions.

We believe that the most

critical accounting policies and estimates upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, relate to the allowance for credit losses, income taxes and pension benefits.

Allowance for Credit Losses.

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Management performs a quarterly evaluation of the adequacy of the allowance for credit losses.

We consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, including the effects of the COVID-19 pandemic, delinquency statistics, geographic concentrations, economic forecasts and how they correlate to management's view of the future, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors.

We consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic concentrations, economic forecasts and how they correlate to management's view of the future, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors.

This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

The evaluation is comprised of a specific component and a general component.

The specific component relates to loans that are delinquent or otherwise identified as a problem loan through the application of our loan review process and our loan grading system.

All such loans are evaluated individually, with principal consideration given to the value of the collateral securing the loan or cash flow analysis.

The general component of the evaluation is determined by applying economic forecasts and historical averages to the remaining loans and off-balance sheet commitments analyzed by portfolio and risk characteristics.

Quantitative estimated losses are supplemented by more qualitative factors that impact potential losses.

Qualitative factors include economic forecasts, various market conditions, such as collateral values and unemployment rates and future recoveries not estimated in the models.

We analyze historical loss experience, delinquency trends, general economic conditions and geographic concentrations.

These analyses establish credit loss estimates to determine the amount of the general component of the allowance.

Refer to the Lending Activities section of Item 1.

Refer to Note 5.

LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and the Lending Activities section of Item 1.

Business in Part I.

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Income Taxes.

We consider accounting for income taxes a critical accounting policy due to the subjective nature of certain estimates that are involved in the calculation.

Accounting for income taxes involves critical accounting policies and estimates due to the subjective nature of certain estimates that are involved in the calculation.

We use the asset/liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.

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Comparison of Financial Condition at September 30, 2022 and September 30, 2021

Total assets decreased $584.8 million, or 4%, to $14.06 billion at September 30, 2021 from $14.64 billion at September 30, 2020.

This decrease was mainly due to the combination of loan sales and principal repayments on loans exceeding the total of new loan originations and the impact of adopting CECL, partially offset by an increase in bank owned life insurance contracts.

Total assets increased $1.73 billion, or 12.3%, to $15.79 billion at September 30, 2022 from $14.06 billion at September 30, 2021.

This increase was mainly due to new loan originations exceeding the total of loan sales and principal repayments.

Cash and cash equivalents decreased $118.7 million, or 24.3%, to $369.6 million at September 30, 2022 from $488.3 million at September 30, 2021.

This decrease was the result of cash flows from maturing investment securities and loan sales in the secondary market, which were used to retire maturing liabilities or reinvested in investment securities and/or loan products that

provide market yields.

This decrease was primarily attributable to the reinvestment of liquid assets into loan products.

We manage cash to maintain the level of liquidity described later in the Liquidity and Capital Resources section of the Overview .

Investment securities, all of which are classified as available for sale, decreased $31.6 million, or 7%, to $421.8 million at September 30, 2021 from $453.4 million at September 30, 2020.

Investment securities decreased as the combined effect of $317.1 million in principal paydowns and $7.2 million of net acquisition premium amortization that occurred in the mortgage-backed securities portfolio exceeded the combined effect of $297.5 million in purchases and an $4.8 million reduction of unrealized losses during the year ended September 30, 2021.

Investment securities, all of which are classified as available for sale, increased $36.1 million, or 8.6%, to $457.9 million at September 30, 2022 from $421.8 million at September 30, 2021.

Investment securities increased as $250.0 million in

purchases exceeded the combined effect of $163.6 million in principal repayments, a $44.9 million increase in unrealized losses and $5.4 million of premium amortization that occurred during the year ended September 30, 2022.

There were no sales of investment securities during the year ended September 30, 2022.

Loans held for investment, net, decreased $594.0 million, or 5%, to $12.51 billion at September 30, 2021 from $13.10 billion at September 30, 2020.

Residential mortgage loans decreased $570.9 million, or 5%, to $10.28 billion at September 30, 2021.

In addition, there was an $18.0 million decrease in the balance of home equity loans and lines of credit during the year ended September 30, 2021, as repayments exceeded new originations and additional draws on existing accounts.

Also contributing to the contraction in loans held for investment during the fiscal year ended September 30, 2021 were profitable loan sales of $762.3 million, which effectively reduced asset growth during the fiscal year.

During the year ended September 30, 2021, $1.09 billion of three- and five-year “SmartRate” loans were originated while $2.54 billion of 10-, 15-, and 30-year fixed-rate first mortgage loans were originated.

Between September 30, 2020 and September 30, 2021, the total fixed-rate portion of the first mortgage loan portfolio decreased $95.4 million, or 2%, and was comprised of a decrease of $120.2 million in the balance of fixed-rate loans with original terms greater than 10 years, partially offset by an increase of $24.8 million in the balance of fixed-rate loans with original terms of 10 years or less.

Of the total $3.63 billion in first mortgage loan originations for the fiscal year ended September 30, 2021, 73% were refinance transactions and 27% were purchases, 30% were adjustable-rate mortgages and 70% were fixed-rate mortgages.

Fixed rate mortgages with terms of 10 years or less accounted for 15% of total first mortgage loan originations.

During the year ended September 30, 2021, we completed $762.3 million in loan sales, which included $58.1 million of agency-compliant Home Ready loans and $704.2 million of other long-term, fixed-rate, agency-compliant, first mortgage loans that were sold to Fannie Mae.

Also, during the year ended September 30, 2021, we purchased long-term, fixed-rate first mortgage loans that had a remaining balance of $43.0 million at September 30, 2021.

Loans held for investment, net, increased $1.75 billion, or 14.0%, to $14.26 billion at September 30, 2022 from $12.51 billion at September 30, 2021.

Residential mortgage loans increased $1.31 billion, or 12.8%, to $11.59 billion at September 30, 2022.

In addition, there was a $419.6 million increase in the balance of home equity loans and lines of credit during the year ended September 30, 2022, as new originations and additional draws on existing accounts exceeded repayments.

During the fiscal year ended September 30, 2022, $1.03 billion of three- and five-year “SmartRate” loans were originated while $2.62 billion of 10-, 15-, and 30-year fixed-rate first mortgage loans were originated.

Of the total $3.65 billion in first mortgage loan originations for the fiscal year ended September 30, 2022, 50% were refinance transactions and 50% were purchases, while 28% were adjustable-rate mortgages and 72% were fixed-rate mortgages.

Fixed rate loans with terms of 10 years or less accounted for 13% of total first mortgage loan originations.

During the fiscal year ended September 30, 2022, we completed $128.1 million in loan sales, which included $28.8 million of agency-compliant Home Ready loans and $99.3 million of other long-term, fixed-rate, agency-compliant, first mortgage loans that were sold to Fannie Mae.

Commitments originated for home equity lines of credit and equity and bridge loans were $2.16 billion for the year ended September 30, 2022 compared to $1.74 billion for the year ended September 30, 2021.

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Refer to the Controlling Our Interest Rate Risk Exposure section of the Overview for additional information.

The total allowance for credit losses was $89.3 million, or 0.71% of total loans receivable, at September 30, 2021, and included a $25.0 million liability for unfunded commitments.

At September 30, 2020, the allowance for credit losses was $46.9 million, or 0.36% of total loans receivable and there was no liability for unfunded commitments.

On October 1, 2020, the Company adopted the Current Expected Credit Loss methodology and recognized a $46.2 million increase to the allowance for credit losses and a related $35.8 million reduction to retained earnings, net of tax.

During the fiscal year ended September 30, 2021, a $9.0 million release of provision from the allowance for credit losses was recognized compared to a provision of $3.0 million for the prior fiscal year.

Releases from the allowance for credit losses during the recent fiscal year were primarily due to recoveries exceeding charge-offs and improvements in the economic trends and forecasts used to estimate credit losses for the reasonable and supportable period under CECL.

The allowance for credit losses was $99.9 million, or 0.70% of total loans receivable, at September 30, 2022, and included a $27.0 million liability for unfunded commitments.

At September 30, 2021, the allowance for credit losses was $89.3 million, or 0.71% of total loans receivable and included a $25.0 million liability for unfunded commitments.

During the fiscal year ended September 30, 2022, a $1.0 million provision to the allowance for credit losses was recognized compared to a $9.0 million release of provision from the allowance for the prior fiscal year.

As a result of loan recoveries exceeding charge-offs, the Company recorded $9.7 million of net loan recoveries for the fiscal year ended September 30, 2022, compared to $5.2 million of net loan recoveries for the fiscal year ended September 30, 2021.

While actual loan charge-offs and delinquencies remained low at September 30, 2021, some borrowers have experienced unemployment or reduced income as a result of the COVID-19 pandemic.

We continue to monitor the performance of forbearance plans offered to our customer as a result of the pandemic;

however, most borrowers have since exited their plan or reached a resolution.

Through September 30, 2021, there were 2,204 customers, representing over $250 million of loans, who were helped by a COVID-19 forbearance plan.

As a result of payoffs and customer resolutions, there were 149 customers, representing $21.8 million of loans, or 0.17 % of total loans, remaining in COVID-19 forbearance plans as of September 30, 2021.

Actual loan charge-offs and delinquencies remained low at September 30, 2022.

Refer to Note 5.

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FHLB stock ownership requirements dictate the amount of stock owned at any given time.

Total bank owned life insurance contracts increased $74.4 million, to $297.3 million at September 30, 2021, from $222.9 million at September 30, 2020, primarily due to $70 million of additional premiums placed during the current fiscal year.

Total bank owned life insurance contracts increased $6.7 million, to $304.0 million at September 30, 2022, from $297.3 million at September 30, 2021, primarily due to changes in cash surrender value.

Deposits decreased $72.6 million, or 0.8%, to $8.92 billion at September 30, 2022 from $8.99 billion at September 30, 2021.

The decrease in deposits resulted primarily from a $567.5 million decrease in CDs, partially offset by a $196.7 million increase in our savings accounts (consisting of a $43.5 million increase in money market accounts in the state of Florida and a $157.1 million increase in our higher yield savings accounts), and a $136.2 million increase in our interest-bearing checking accounts.

While the current interest rate environment is extremely low, we believe that our savings and checking accounts provide a stable source of funds.

The decrease in deposits resulted primarily from a $169.3 million decrease in CDs, partially offset by an $18.6 million increase in savings accounts (consisting of a $82.3 million decrease in money market accounts in the state of Florida and a $101.5 million increase in our higher yield savings accounts), and a $77.1 million increase in interest-bearing checking accounts.With our competitive rates, we believe that our savings and checking accounts provide a stable source of funds.

In addition, our savings accounts are expected to reprice in a manner similar to our home equity lending products, and, therefore, assist us in managing interest rate risk.

The balance of brokered CDs at September 30, 2021 was $492.0 million, a decrease of $61.9 million, from the balance of $553.9 million at September 30, 2020.

Borrowed funds, all from the FHLB of Cincinnati, decreased $429.9 million, or 12%, to $3.09 billion at September 30, 2021 from $3.52 billion at September 30, 2020.

Included in the decrease were $525.0 million of 90 day advances that were utilized for longer term interest rate swap contracts that matured during the year and were paid off from available cash, partially offset by a $95.1 million net increase in long term advances.

There were no overnight or other short-term advances at September 30, 2021 or at September 30, 2020.

The total balance of borrowed funds of $3.09 billion at September 30, 2021 consisted of long-term advances of $640.4 million with a remaining weighted average maturity of approximately 3.0 years and short-term advances of $2.45 billion aligned with interest rate swap contracts with a remaining weighted average effective maturity of 2.1 years.

Interest rate swaps have been used to extend the duration of short-term borrowings to approximately four to seven years at inception, by paying a fixed rate of interest and receiving the variable rate.

The balance of brokered CDs at September 30, 2022 was $575.2 million, which is an increase of $83.2 million from the balance of $492.0 million at September 30, 2021.

Borrowed funds increased $1.70 billion, or 55.0%, to $4.79 billion at September 30, 2022 from $3.09 billion at September 30, 2021.

The increase was primarily used to fund loan growth.

The total balance of borrowed funds at September 30, 2022, mainly from the FHLB, included $1.78 billion of overnight advances, $1.24 billion of term advances with a weighted average maturity of approximately 2.9 years, $1.55 billion of short-term advances, aligned with interest rate swap contracts, with a remaining weighted average effective maturity of approximately 2.7 years, and $225.0 million in fed fund purchases.

Refer to the Extending the Duration of Funding Sources section of the Overview and Part II , Item 7A.

Quantitative and Qualitative Disclosures About Market Risk for additional discussion regarding short-term borrowings and interest-rate swaps.

Accrued expenses and other liabilities increased $23.0 million to $88.6 million at September 30, 2021, from $65.6 million at September 30, 2020.

The increase is primarily due to a $25.0 million liability for unfunded commitments, created as a result of the implementation of CECL during the current year.

Borrowers' advances for insurance and taxes increased by $7.6 million, or 7%, to $117.2 million at September 30, 2022

from $109.6 million at September 30, 2021.

This change primarily reflects the cyclical nature of real estate tax payments that

have been collected from borrowers and are in the process of being remitted to various taxing agencies.

Total shareholders’ equity increased $112.1 million, or 6.5%, to $1.84 billion at September 30, 2022 from $1.73 billion at September 30, 2021.

Activity reflects the positive impacts from $81.0 million of net income, a $64.2 million decrease in accumulated other comprehensive loss and $8.1 million of positive adjustments related to our stock compensation and employee stock ownership plans, reduced by $57.1 million of quarterly dividend payments and a $35.8 million, net of tax reduction related to the increase to the allowance for credit losses with the adoption of CECL.

The decrease in accumulated other comprehensive loss is primarily a result of changes in market interest rates related to our interest rate swap contracts, and from actuarial improvements related to our defined benefit plan.

No shares of our common stock were repurchased during the fiscal year ended September 30, 2021.

As a result of the July 13, 2021 and July 14, 2020 mutual member votes, Third Federal Savings, MHC, the mutual holding company that owns approximately 81% of the outstanding stock of the Company, was able to waive receipt of its share of each dividend paid.

Activity reflects $74.6 million of net income, a $91.0 million positive change in accumulated other

comprehensive income and $9.7 million of positive adjustments related to our stock compensation and employee stock ownership plans, reduced by $58.2 million of quarterly dividends and $5.0 million in repurchases of common stock.

The change in accumulated other comprehensive income is primarily due to a net positive change in unrealized gains and losses on swap contracts.

During the fiscal year ended September 30, 2022, a total of 337,259 shares of our common stock were repurchased at an average cost of $14.97 per share.

The Company's eighth stock repurchase program allows for a total of 10,000,000 shares to be repurchased, with 5,553,820 shares remaining to be repurchased at September 30, 2022.

As a result of a mutual member vote, Third Federal Savings and Loan Association of Cleveland, MHC ("the MHC"), the mutual holding company that owns approximately 81% of the outstanding stock of the Company, was able to waive receipt of its share of each dividend paid.

Refer to Item 5.

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The following table sets forth average balances, average yields and costs, and certain other information at and for the fiscal years indicated.

No tax-equivalent yield adjustments were made, as the effect thereof were not material.

No tax-equivalent yield adjustments were made, as the effects thereof were not material.

Average balances are derived from daily average balances.

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Comparison of Operating Results for the Fiscal Years Ended September 30, 2022 and 2021

Net income decreased $2.3 million to $81.0 million for the year ended September 30, 2021 compared to $83.3 million for the year ended September 30, 2020.

A decline in net interest income and an increase in non-interest expense for the current fiscal year offset the benefit of an increase in non-interest income and releases from the credit loss provision.

Net income of $74.6 million for the year ended September 30, 2022 decreased $6.4 million compared to $81.0 million for the year ended September 30, 2021.

The decrease was primarily due to a larger credit loss provision required on the growing loan portfolio and a decrease in net gain on sale of loans.

Interest and Dividend Income.

Interest and dividend income decreased $65.9 million, or 14%, to $389.4 million during the year ended September 30, 2021 compared to $455.3 million during the prior year.

The decrease in interest and dividend income resulted primarily from a decrease in interest income from loans, and to a lesser extent, interest income on mortgage-backed securities and interest earning cash equivalents.

Lower market interest rates impacted each category, as well as lower average balances for loans and mortgage backed securities.

Interest income on loans decreased $58.8 million, or 13%, to $381.9 million for the year ended September 30, 2021 compared to $440.7 million for the year ended September 30, 2020.

This decrease was attributed to a 32 basis point decrease in the average yield on loans to 2.98% for the year ended September 30, 2021 from 3.30% for the prior year.

Also contributing to the decline in average yield was a $565.9 million decrease in the average balance of loans to $12.80 billion for the current year compared to $13.37 billion during the prior year.

The decrease in interest income between fiscal periods is due to lower yields on loans as many borrowers refinanced to take advantage of the lower rate environment and a decrease in the average balance of loans due to loan sales and payoffs.

Interest income on mortgage-backed securities decreased $5.9 million, or 61%, to $3.8 million during the current year compared to $9.7 million during the year ended September 30, 2020.

This decrease was attributed to a 95 basis point decrease in the average yield on mortgage-backed securities, combined with a $98.6 million decrease in the average balance of mortgage-backed securities to $428.6 million for the current year compared to $527.2 million during the prior year due to prepayments.

During the fiscal year ended September 30, 2021 prepayment speeds of mortgage-backed securities were elevated due to the low interest rate environment, which reduced the principal balance of loans included in some of the mortgage-backed securities pools and hence the interest income generated from those bonds.

Generally low interest rates also contributed to the

challenging investment environment as bond purchases during the fiscal year had lower coupon yields compared to the bonds that matured during the fiscal year ended September 30, 2021.

Interest and dividend income increased $19.9 million, or 5%, to $409.3 million during the year ended September 30, 2022 compared to $389.4 million during the prior year.

Interest income on loans increased $13.8 million, or 4%, to $395.7 million for the year ended September 30, 2022 compared to $381.9 million for the year ended September 30, 2021.

This increase was primarily attributed to a $458.0 million increase in the average balance of loans to $13.26 billion for the current year compared to $12.80 billion during the prior year.

Interest income on mortgage-backed securities increased $1.7 million, or 45%, to $5.5 million during the current year compared to $3.8 million during the year ended September 30, 2021.

This increase was attributed to a 35 basis point increase in the average yield on mortgage-backed securities, combined with a $10.7 million increase in the average balance of mortgage-backed securities to $439.3 million for the current year compared to $428.6 million during the prior year.

During the fiscal year ended September 30, 2022, prepayment speeds of mortgage-backed securities were slowed due to the higher interest rate environment, which increased the principal balance of loans included in some of the mortgage-backed securities pools and hence the interest income generated from those bonds.

Interest Expense.

Interest expense decreased $15.8 million, or 10%, to $141.9 million during the current year compared to $157.7 million during the year ended September 30, 2021.

The decrease resulted from decreases in interest expense on both deposits and borrowed funds.

Lower market interest rates impacted each category, as well as lower average balances for total interest-bearing liabilities.

The decrease primarily resulted from a decrease in interest expense on certificates of deposits (CDs).

Interest expense on CDs decreased $25.0 million, or 27%, to $68.2 million during the year ended September 30, 2022 compared to $93.2 million during the year ended September 30, 2021.

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Additionally, there was a $513.1 million, or 8%, decrease in the average balance of CDs to $5.83 billion from $6.34 billion during the prior year.

Interest expense on savings and checking accounts decreased $4.8 million and $0.4 million, respectively, to $3.0 million and $1.1 million during the year ended September 30, 2021, compared to the prior year due to a decrease in the average rates we paid on the deposits.

Interest expense on savings and checking accounts increased $1.6 million and $3.1 million, respectively, to $4.6 million and $4.2 million during the year ended September 30, 2022, compared to the prior year due to an increase in the average rates we paid on the deposits.

Rates were adjusted on deposits in response to changes in general market rates, as well as to changes in the rates paid by our competition.

Interest expense on borrowed funds, all from the FHLB of Cincinnati, as impacted by related interest rate swap contracts, decreased $12.4 million, or 17%, to $60.4 million during the year ended September 30, 2021 from $72.8 million during the year ended September 30, 2020.

The decrease was attributed to a combination of a $481.1 million, or 13%, decrease in the average balance of borrowed funds to $3.30 billion during the current year from $3.78 billion during the prior year, as well as a nine basis point decrease in the average rate paid for these funds to 1.83% during the year ended September 30, 2021 from 1.92% for the year ended September 30, 2020.

The balance decrease during the year resulted from available cash used to pay-off advances related to longer term interest rate swap contracts that matured during the year.

Also impacting the prior year comparison was $7.8 million of additional interest expense that was recognized during the year ended September 30, 2020, as a result of the early termination in September 2020 of $100 million of interest rate swap contracts related to the prepayment of FHLB of Cincinnati advances.

Interest expense on borrowed funds increased $4.6 million, or 8%, to $65.0 million during the year ended September 30, 2022 from $60.4 million during the year ended September 30, 2021.

The increase was attributed to a combination of a $367.4 million, or 11%, increase in the average balance of borrowed funds to $3.67 billion during the current year from $3.30 billion during the prior year, partially offset by a six basis point decrease in the average rate paid for these funds to 1.77% during the year ended September 30, 2022 from 1.83% for the year ended September 30, 2021.

Refer to the Extending the Duration of Funding Sources section of the Overview and Comparison of Financial Condition for further discussion.

Net Interest Income .

Net interest income decreased $10.7 million, or 4%, to $231.6 million during the year ended September 30, 2021 from $242.3 million during the year ended September 30, 2020.

The decrease between fiscal years was primarily due to the lower average interest-earning asset balances, as while our percentage yield declined, our interest rate spread remained the same between the two years.

We experienced lower yields on loans as many borrowers refinanced to take advantage of the lower rate environment and a decrease in the average balances of loans due to loan sales and payoffs.

In addition, the increase in lower yielding cash equivalent investments was a detriment to the overall yield on assets.

Funding costs also declined, partially offsetting the decrease in interest income, but slower repricing of longer term CDs and interest rate swap contracts, slowed the decline.

Funding cost decreased through a reduction in the average balance of borrowed funds, including maturities and prior year terminations of FHLB advances and their related swap contracts;

the repricing of certificates of deposit as they mature, to market rates of interest;

and a heightened migration to lower-priced non-maturity deposit accounts from certificates of deposit due to historically low yield differentials.

Average interest-earning assets decreased during the current year by $370.1 million, or 3%, when compared to the year ended September 30, 2020.

The decrease in average interest-earning assets was attributed primarily due to the reduction in the average balance of our loan portfolio and to a lesser extent the mortgage back securities portfolio.

Average interest-bearing liabilities decreased by $389.7 million.

The average yield on interest earning assets decreased 39 basis points to 2.79% from 3.18%, compared to a 39 basis point decrease in the average rate paid on interest-bearing liabilities to 1.27% in the current period from 1.66% in the prior period.

The interest rate spread was 1.52% for both the fiscal years ended September 30, 2021 and September 30, 2020.

Net interest income increased $35.8 million, or 15%, to $267.4 million during the year ended September 30, 2022 from $231.6 million during the year ended September 30, 2021.

The increase consisted of a $19.9 million increase in interest income and a $15.8 million reduction in interest expense.

Average interest-earning assets increased during the current year by $308.4 million, or 2%, when compared to the year ended September 30, 2021.

Average interest-bearing liabilities increased by $219.4 million.

The average yield on interest earning assets increased eight basis points to 2.87% from 2.79%, compared to a 15 basis point decrease in the average rate paid on interest-bearing liabilities to 1.12% in the current year from 1.27% in the prior year.

The interest rate spread was 1.75% for the fiscal year ended September 30, 2022 compared to 1.52% at September 30, 2021.

The net interest margin was 1.88% for the fiscal year ended September 30, 2022 and 1.66% for the fiscal year ended September 30, 2021.

Provision (Release) for Credit Losses .

We recorded a release from the allowance for credit losses of $9.0 million during the year ended September 30, 2021 and a $3.0 million provision for loan losses during the year ended September 30, 2020.

We recorded a provision to the allowance for credit losses of $1.0 million during the year ended September 30, 2022 compared to a $9.0 million release of provision from the allowance during the year ended September 30, 2021.

As delinquencies in the portfolio are resolved through pay-off, short sale or foreclosure, or management determines the collateral is not sufficient to satisfy the loan, uncollected balances have been charged against the allowance for credit losses previously provided.

When amounts previously charged off are subsequently collected, the recoveries are added to the allowance.

Future recoveries may continue if housing market conditions stay strong and payment performance on previously charged-off loans continues.

Future recoveries may continue if housing market conditions stay favorable and payment performance on previously charged-off loans continues.

For the fiscal year ended September 30, 2022, we recorded net recoveries of $9.7 million, as compared to net recoveries of $5.2 million for the year ended September 30, 2021.

The allowance for credit losses, including a $25.0 million liability for unfunded commitments under

CECL, was $89.3 million, or 0.71% of the total amortized cost in loans receivable, at September 30, 2021.

At September 30, 2020, the allowance was $46.9 million, or 0.36% of the total amortized cost in loans receivable and there was no liability for unfunded commitments.

The allowance for credit losses, including a $27.0 million liability for unfunded commitments under CECL, was $99.9 million, or 0.70% of the total amortized cost in loans receivable, at September 30, 2022.

At September 30, 2021, the allowance, including a $25.0 million liability for unfunded commitments was $89.3 million, or 0.71% of the total amortized cost in loans receivable.

Balances of amortized costs are net of deferred fees, expenses and any applicable loans-in-process.

At September 30, 2021 and 2020, we believe we had recorded an allowance for credit losses that provides for all losses that are both probable and reasonable to estimate at September 30, 2021 and 2020, respectively;

this includes consideration for the difference in methodology to record provisions for credit losses for each of the respective time periods.

During and for the fiscal year ended September 30, 2021 the CECL methodology was followed to determine the appropriate balance for the allowance for credit losses while the incurred loss methodology was followed in the prior and previous fiscal years.

Refer to the Lending Activities section of the Overview and Note 5.

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Non-Interest Income.

Non-interest income increased $2.0 million, or 4%, to $55.3 million during the year ended September 30, 2021 compared to $53.3 million during the year ended September 30, 2020.

The increase in non-interest income was primarily due to an increase in the net gain on sale of loans, which was $33.1 million during the year ended September 30, 2021, compared to $28.4 million during the year ended September 30, 2020.

There were loan sales, including commitments to sell, of $762.3 million during the year ended September 30, 2021, compared to loan sales of $844.3 million during the year ended September 30, 2020.

In addition to the increase in the net gain on the sale of loans, there was also an increase in the cash surrender value and death benefits on bank owned life insurance contracts.

For the fiscal year ended September 30, 2021, bank owned life insurance contracts increased by $74.4 million to $297.3 million, primarily due to $70 million of additional premiums placed during the fiscal year.

These increases were offset by a decrease in other non-interest income which, in the previous fiscal year, included $4.7 million of net gain on the sale of commercial property.

Non-interest income decreased $31.5 million, or 57%, to $23.8 million during the year ended September 30, 2022 compared to $55.3 million during the year ended September 30, 2021.

The decrease in non-interest income was primarily due to a decrease in the net gain on sale of loans, which was $1.1 million during the year ended September 30, 2022, compared to $33.1 million during the year ended September 30, 2021.

Loans sold during the fiscal year ended September 30, 2022 were $128.1 million compared to loan sales of $762.3 million during the year ended September 30, 2021.

The decrease in loan sales was primarily due to the higher interest rate environment in 2022.

Non-Interest Expense.

Non-interest expense increased $3.5 million, or 2%, to $195.8 million during the year ended September 30, 2021 compared to $192.3 million during the year ended September 30, 2020.

Non-interest expense increased $2.3 million, or 1%, to $198.1 million during the fiscal year ended September 30, 2022 compared to $195.8 million during the fiscal year ended September 30, 2021.

This increase resulted primarily from increases in salary and employee benefits as well as marketing expenses, partially offset by a decrease in other expenses.

The increase in salary and employee benefits was spread between associate compensation, group health insurance, stock benefit plan expense, and a one-time $1,500 after-tax bonus paid to each associate during the first quarter of fiscal year 2021 in recognition of special efforts made during the pandemic crisis.

The increase in marketing expense was timing related, as some marketing efforts were delayed during the previous fiscal year, in response to COVID-19.

Other expenses decreased as a result of the non recurrence of $1.1 million of early termination fees incurred last year related to the prepayment of FHLB of Cincinnati advances and a $1.8 million reduction in pension related expenses this year due to actuarial valuation improvements.

The increase in salary and employee benefits was spread between associate compensation, group health insurance, and stock benefit plan expense.

Income Tax Expense.

The provision for income taxes was $17.5 million during the year ended September 30, 2022 compared to $19.1 million during the year ended September 30, 2021.

The change was a result of a lower prior year provision, which included a carry back of net tax operating losses to years taxed at higher rates, resulting in a prior fiscal year tax benefit of $3.6 million.

The change was a result of a higher deferred tax benefit compared to prior year.

The provision for the current year included $17.1 million of federal income tax provision and $0.4 million of state income tax provision.

The provision for the year ended September 30, 2020 included $15.2 million of federal income tax provision and $1.7 million of state income tax provision.

Our effective federal tax rate was 17.8% during the year ended September 30, 2021 and 15.5% during the year ended September 30, 2020.

The provision for the year ended September 30, 2021 included $17.5 million of federal

income tax provision and $1.6 million of state income tax provision.

Our combined effective tax rate was 19.0% during the year ended September 30, 2022 and 19.1% during the year ended September 30, 2021.

For a comparison of operating results for the fiscal years ended September 30, 2021 and 2020, see the Company's Form 10-K for the fiscal year ended September 30, 2021.

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While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by interest rates, economic conditions and competition.

The Association’s Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to

ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies.

The Association’s Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies.

We generally seek to maintain a minimum liquidity ratio of 5% (which we compute as the sum of cash and cash equivalents plus unencumbered investment securities for which ready markets exist, divided by total assets).

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During the year ended September 30, 2022, loan sales, including commitments to sell, totaled $128.1 million, which included sales to Fannie Mae consisting of $99.3 million of long-term, fixed-rate, agency-compliant, non-Home Ready first mortgage loans and $28.8 million of loans that qualified under Fannie Mae's Home Ready initiative.

Loans originated under Home Ready initiatives are classified as “held for sale” at origination.

Loans originated under non-Home Ready, Fannie Mae compliant procedures are classified as “held for investment” until they are specifically identified for sale.

At September 30, 2021, $8.8 million of long-term, fixed-rate residential first mortgage loans were classified as “held for sale,” under Fannie Mae's Home Ready initiative.

At September 30, 2022, $9.7 million of long-term, fixed-rate residential first mortgage loans were classified as held for sale.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our CONSOLIDATED STATEMENTS OF CASH FLOWS included in the CONSOLIDATED FINANCIAL STATEMENTS .

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During the year ended September 30, 2022, we originated $3.65 billion of residential mortgage loans, and $2.16 billion of commitments for home equity loans and lines of credit, while during the year ended September 30, 2021, we originated $3.63 billion of residential mortgage loans and $1.74 billion of commitments for home equity loans and lines of credit.

We purchased $297.5 million of securities during the year ended September 30, 2021, and $171.5 million during the year ended September 30, 2020.

We purchased $250.0 million of securities during the year ended September 30, 2022, and $297.5 million during the year

ended September 30, 2021.

Also, during the year ended September 30, 2022, we purchased long-term, fixed-rate first mortgage loans that had a remaining balance of $24.3 million at September 30, 2022.

Financing activities consist primarily of changes in deposit accounts, changes in the balances of principal and interest owed on loans serviced for others, FHLB advances, including any collateral requirements related to interest rate swap agreements and borrowings from the FRB-Cleveland Discount Window.

We experienced a net decrease in total deposits of $231.9 million during the year ended September 30, 2021, which reflected the active management of the offered rates on maturing CDs compared to a net increase of $459.2 million during the year ended September 30, 2020.

We experienced a net decrease in total deposits of $72.6 million during the year ended September 30, 2022, which reflected the active management of the offered rates on maturing CDs compared to a net decrease of $231.9 million during the year ended September 30, 2021.

Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors.

During the year ended September 30, 2021, there was a $61.9 million decrease in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of $492.0 million at September 30, 2021.

During the year ended September 30, 2022, there was a $83.2 million increase in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of $575.2 million at September 30, 2022.

At September 30, 2021, the balance of brokered CDs was $492.0 million.

Principal and interest owed on loans serviced for others experienced a net decrease of $4.4 million to $41.5 million during the year ended September 30, 2021 compared to a net increase of $13.0 million to $45.9 million during the year ended September 30, 2020.

During the year ended September 30, 2021 we decreased our advances from the FHLB of Cincinnati by $429.9 million to utilize proceeds from loans sales, while managing future interest costs and the funding of new loan originations and our capital initiatives, and actively manage our

liquidity ratio.

During the year ended September 30, 2020, our advances from the FHLB of Cincinnati decreased by $381.2 million.

In March 2021, we received a second consecutive “Needs to Improve” rating on our Community Reinvestment Act (CRA) examination covering the period ending December 31, 2019.

Principal and interest received on loans serviced for others and owed to investors experienced a net decrease of $11.6 million to $29.9 million during the year ended September 30, 2022 compared to a net decrease of $4.4 million to $41.5 million during the year ended September 30, 2021.

During the year ended September 30, 2022, we increased our borrowed funds by $1.7 billion to manage future interest costs, to fund new loan originations, and to actively manage our liquidity ratio.

In March 2021, we received a second consecutive “Needs to Improve” rating on our Community Reinvestment Act (CRA) examination covering the period ended December 31, 2019.

The FHFA practice is to place member institutions in this situation on restriction.

When this restriction is established, we will not have access to FHLB long-term advances (maturities greater than one year) until our rating improves.

If this restriction is established, we will not have access to FHLB long-term advances (maturities greater than one year) until our rating improves.

However, we have not received notice of this restriction as of November 22, 2022.

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Liquidity management is both a daily and long-term function of business management.

If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Cincinnati and the FRB-Cleveland Discount Window, each of which provides an additional source of funds.

Also, in evaluating funding alternatives, we may participate in the brokered CD market.

At September 30, 2021 we had $3.09 billion of FHLB of Cincinnati advances and no outstanding borrowings from the FRB-Cleveland Discount Window.

If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Cincinnati, the FRB-Cleveland Discount Window, and arrangements with other institutions to purchase overnight Fed Funds, each of which provides an additional source of funds.

Also, in evaluating funding alternatives, we may participate in the brokered deposit market.

At September 30, 2022, we had $4.56 billion of FHLB of Cincinnati advances, no outstanding borrowings from the FRB-Cleveland Discount Window and $225 million in Fed Funds.

Additionally, at September 30, 2022, we had $575.2 million of brokered CDs.

During the year ended September 30, 2021, we had average outstanding advances from the FHLB of Cincinnati of $3.30 billion as compared to average outstanding advances of $3.79 billion during the year ended September 30, 2020.

During the year ended September 30, 2022, we had average outstanding borrowed funds of $3.67 billion as compared to $3.30 billion during the year ended September 30, 2021.

Refer to the Extending the Duration of Funding Sources section of the Overview and the General section of Item 7A.

Quantitative and Qualitative Disclosures About Market Risk for further discussion.

At September 30, 2021, we had the ability to borrow a maximum of $7.43 billion from the FHLB of Cincinnati and $245.7 million from the FRB-Cleveland Discount Window.

From the perspective of collateral value securing FHLB of Cincinnati advances, our capacity limit for additional borrowings beyond the outstanding balance at September 30, 2021 was $4.34 billion, subject to satisfaction of the FHLB of Cincinnati common stock ownership requirement.

The Association and the Company are subject to various regulatory capital requirements, including a risk-based capital measure.

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As of September 30, 2022, the Association exceeded all regulatory capital requirements to be considered "Well Capitalized".

In addition to the operational liquidity considerations described above, which are primarily those of the Association, the Company, as a separate legal entity, also monitors and manages its own, parent company-only liquidity, which provides the source of funds necessary to support all of the parent company's stand-alone operations, including its capital distribution strategies which encompass its share repurchase and dividend payment programs.

strategies which encompass its share repurchase and dividend payment programs.

The Company's primary source of liquidity is dividends received from the Association.

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There were 4,133,921 shares repurchased under that program between its start date and September 30, 2022.

During the year ended September 30, 2021, the Company did not repurchase any of its common stock.

The share repurchase plan had been suspended as part of the response to COVID-19, but was reinstated in February 2021.

However, the Company continues to place more emphasis on dividends in its evaluation of capital deployment.

On July 13, 2021, Third Federal Savings, MHC received the approval of its members with respect to the waiver of dividends, and subsequently received the non-objection of the FRB-Cleveland, to waive receipt of dividends on the Company’s common stock the MHC owns up to a total of $1.13 per share, to be declared on the Company’s common stock during the 12 months subsequent to the members’ approval ( i.e ., through July 13, 2022).

The members approved the waiver by casting 60% of the eligible votes, with 97% of the votes cast, or 59% of the total eligible votes, voting in favor of the waiver.

Third Federal Savings, MHC is the 81% majority shareholder of the Company and waived its right to receive a $0.2825 per share dividend payment on September 21, 2021.

On July 14, 2020, Third Federal Savings, MHC received the approval of its members with respect to the waiver of dividends, and subsequently received the non-objection of the FRB-Cleveland, to waive receipt of dividends on the Company’s common stock the MHC owns up to a total of $1.12 per share, to be declared on the Company’s common stock during the 12 months subsequent to the members’ approval ( i.e ., through July 14, 2021).

The members approved the waiver by casting 63% of the eligible votes, with 97% of the votes cast, or 61% of the total eligible votes, voting in favor of the waiver.

Third Federal Savings, MHC waived its right to receive a $0.28 per share dividend payment on September 23, 2020, December 15, 2020, March 23, 2021 and June 22, 2021.

During the year ended September 30, 2022, the Company repurchased $5.0 million of its common stock.

The payment of dividends, support of asset growth and strategic stock repurchases are planned to continue in the future as the focus for future capital deployment activities.

Third Federal Savings, MHC has the approval of its members to waive dividends aggregating up to $1.13 per share on the common stock of the Company for the 12 months following the special meeting of members held on July 12, 2022.

Impact of Inflation and Changing Prices

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What changed 10-K

Item 7. Management’s Discussion and Analysis