TFS Financial CORP 10-K

Item 9A. Controls and Procedures Disclosure Controls and Procedures Under the supervision of and with the participation of the Company’s management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Changes in Internal Control Over Financial Reporting No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management’s Report Regarding Internal Control Over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such terms are defined in Rule 13a-15(f) of the Exchange Act of 1934. Our system of internal controls is designed to provide reasonable assurance that the financial statements that we provide to the public are fairly presented. Our internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets, (ii) provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Accordingly, absolute assurance cannot be provided that the effectiveness of the internal control systems may not become inadequate in future periods because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate. 69 Table of Contents Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022. In making this assessment, the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) was utilized. Management concluded that the Company's internal control over financial reporting was effective as of September 30, 2022, based on those criteria. The effectiveness of the Company's internal control over financial reporting as of September 30, 2022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears therein. The Sarbanes-Oxley Act Section 302 Certifications have been filed as Exhibit 31.1 and Exhibit 31.2 to this Annual Report on Form 10-K. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of TFS Financial Corporation Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of TFS Financial Corporation and subsidiaries (the “Company”) as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended September 30, 2022, of the Company and our report dated November 22, 2022, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report Regarding Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Cleveland, Ohio November 22, 2022 70 Table of Contents Item 9B. Other Information Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance Incorporated by reference from the Notice of Annual Meeting and Proxy Statement for the 2023 Annual Meeting of Shareholders (the “Proxy Statement”) sections entitled “Proposal One: Election of Directors,” “Executive Compensation,” “Delinquent Section 16(a) Reports” and “Corporate Governance.” Such information will be filed with the SEC no later than 120 days after the end of the fiscal year covered by this report. The table below sets forth information, as of September 30, 2022, regarding our executive officers other than Mr. Stefanski and Ms. Weil. Name Title Age Kathleen (Kitty) M. Danckers Chief Risk Officer 60 Russell C. Holmes Chief Retail Officer, the Association 59 Susanne N. Miller Chief Accounting Officer 57 Timothy W. Mulhern Chief Financial Officer 56 Andrew J. Rubino Chief Information Officer, the Association 47 Bradley T. Stefanski Chief Strategy Officer, the Association 34 Gavin B. Stefanski Chief Lending Officer, the Association 34 Cathy W. Zbanek Chief Synergy Officer, the Association 49 On March 28, 2022, Bradley T. Stefanski was appointed as Chief Strategy Officer of the Association and Gavin B. Stefanski was appointed Chief Lending Officer of the Association. Paul J. Huml retired from his position as Chief Financial Officer of the Company, effective January 14, 2022. In connection with his retirement, the Board of Directors appointed Mr. Timothy W. Mulhern, who was a manager of Finance for the Association, to the position of Chief Financial Officer of the Company. Ben S. Stefanski III resigned from the Board of Directors of the Association and the Company and from his position as Chief Marketing Officer of the Association in January 2022. The executive officers of the Company and the Association are elected annually and hold office until their respective successors are elected or until death, resignation, retirement or removal by the Board of Directors. The Business Background of Our Executive Officers The business experience for the past five years of each of our executive officers other than Mr. Stefanski and Ms. Weil is set forth below. Unless otherwise indicated, executive officers have held their positions for the past five years. Kathleen (Kitty) M. Danckers has been with the Association since 1997, and was named Chief Risk Officer in June 2020. During her time with the Association, Ms. Danckers has served in various management roles including as a Regional Manager of Retail Operations, Manager of Information Services and Operations Support, and continues to serve as the Chief Information Security Officer. Ms. Danckers holds a BA in Computer Science, Mathematics and German from St. Catherine University. Ms. Danckers is a Fulbright Scholar. Russell C. Holmes has been with the Association since 2013 in retail delivery management and was named Chief Retail Officer in 2020. He most recently served as Ohio regional manager, managing all branch and loan production offices in the state. With 35 years in the banking business, Mr. Holmes joined Third Federal from Key Bank where he served as SVP District Retail Leader for Eastern Ohio. He holds a BBA in Business Administration from the University of Akron, and received a Distinguished Business Alumni Award in 2009, and a Distinguished Alumni Award from the University’s multicultural department in 2013. Susanne N. Miller joined the Association in 1998 and was appointed Chief Accounting Officer in 2020. During her time with the Association, Ms. Miller has held various retail and accounting roles, and served on company-wide strategic project teams. Since 2007, she has worked as a manager in the Accounting Department, overseeing procedure implementation, corporate tax reporting and financial statement preparation. Ms. Miller holds a BS in Accounting from the University of Akron. 71 Table of Contents Timothy W. Mulhern was named the Chief Financial Officer in January 2022. Mr. Mulhern joined the Association in 2003 as a project manager where he led key strategic business initiatives including a state loan expansion project, and IT projects to replace the company’s front-end servicing application, and implementation of an updated loan origination system. Mr. Mulhern moved to IT management, then to operations where he managed various departments including Loan Servicing, Default Servicing and Deposit Operations. He was named the Chief Credit Officer in August 2018, and Director of Internal Audit in June 2019, where he earned his CIA credentials. Mr. Mulhern joined the Finance Department in February 2021. He holds a Bachelor’s Degree in Accounting from John Carroll University and an MBA from the Weatherhead School of Management at Case Western Reserve University. Prior to joining Third Federal, Mr. Mulhern was in public accounting with Coopers & Lybrand where he earned his CPA credentials (no longer active), and more than a decade as a small business owner. Andrew J. Rubino has been with the Association since 2000, joining the company as a business analyst. He was named Chief Marketing Officer in 2020 and served in that role until being named Chief Information Officer on September 30, 2021. Mr. Rubino has held a variety of leadership positions throughout the company, including manager of loan production, customer service, internet services, and operations support. Additionally, he served as Information Security Officer. Mr. Rubino joined the marketing department in 2016, presiding over strategic initiatives and continued expansion of service areas and product offerings. He holds both a BS in Management Information Systems and an MBA from the University of Akron. Bradley T. Stefanski has been with the Association since 2014, and was named Chief Strategy Officer in March 2022. He began his career at Third Federal in the Risk Management Department, working on the development of the company’s Market Risk Management Program, including modeling and testing; before moving to Loan Production and the branch system, where he spent four years in roles in Underwriting, retail management, and Operations Support project development. Mr. Stefanski then joined the Finance Department in 2021 to help drive strategic initiatives. He holds a BA in Sociology and Economics from Colgate University. Gavin B. Stefanski joined the Association in 2018 in the Management Training Program, supporting the company’s branch system in Southern and Northeast Ohio. Mr. Stefanski was named Underwriting Manager in 2019, became Loan Production Manager in 2021, and was named Chief Lending Officer in March 2022. Prior to Third Federal, he managed multi-billion dollar and strategic clients for ODW Logistics, a national supply chain solutions company in Hamilton, Ohio, where he was responsible for developing and maintaining customized total freight management solutions driving high revenue growth for ODW. Mr. Stefanski holds a BS in Business from the Farmer School of Business at Miami University. Cathy W. Zbanek joined the Association in 2001 and was named the Chief Marketing Officer in 2013 and the Chief Synergy Officer in 2020, and also serves as the Human Resources Officer for the Association. Prior to her current role, she directed several key strategic business projects as well as systems design and development. She also managed several departments, including Customer Service. Before joining the Association, Ms. Zbanek served as a senior consultant with Waterstone Consulting, working in their Management Consulting Group. Her experience also includes working with the consulting group, Price Waterhouse Coopers. The Company has adopted a policy statement entitled CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS that applies to our chief executive officer and our senior financial officers. A copy of the CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS is available on our website, www.thirdfederal.com. Item 11. Executive Compensation Incorporated by reference from the sections of the Proxy Statement entitled “Executive Compensation,” “Report of the Compensation Committee,” and “Director Compensation.” Such information will be filed with the SEC no later than 120 days after the end of the fiscal year covered by this report. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Incorporated by reference from the section of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management.” Such information will be filed with the SEC no later than 120 days after the end of the fiscal year covered by this report. The Company’s only equity compensation program that was not approved by shareholders is its employee stock ownership plan, which was established in conjunction with our initial stock offering completed in 2007. 72 Table of Contents The following table provides information as of September 30, 2022 regarding our Amended and Restated 2008 Equity Incentive Plan that was approved by shareholders on February 22, 2018. The original plan was approved by shareholders on May 29, 2008. Plan Category Number of Shares to be Issued Upon Exercise of Outstanding Options, Rights and Warrants Weighted-Average Exercise Price of Outstanding Options, Rights and Warrants Number of Shares Remaining Available for Future Issuance Under the Plan Equity Compensation Plans Approved by Stockholders 3,789 $ 9.43 (1) 7,418,782 Equity Compensation Plans Not Approved by Stockholders N/A N/A N/A Total 3,789 $ 9.43 (1) 7,418,782 ______________________ (1) Weighted-Average Exercise Price of Outstanding Options, Rights and Warrants is calculated using 1,257,898 shares of restricted stock awards at $0.00, 169,954 shares of performance share units at $0.00, and 2,361,175 shares of stock option awards at $15.14. Item 13. Certain Relationships and Related Transactions, and Director Independence Incorporated by reference from the sections of the Proxy Statement entitled “Certain Relationships and Related Transactions” and “Corporate Governance.” Such information will be filed with the SEC no later than 120 days after the end of the fiscal year covered by this report. Item 14. Principal Accounting Fees and Services Incorporated by reference from the section of the Proxy Statement entitled “Fees Paid to Deloitte & Touche LLP (PCAOB ID No. 34 ).” Such information will be filed with the SEC no later than 120 days after the end of the fiscal year covered by this report. PART IV Item 15. Exhibits and Financial Statement Schedules (a)(1) Financial Statements The following documents are filed as part of this Annual Report on Form 10-K: a. The consolidated financial statements of TFS Financial Corporation and subsidiaries contained in Part II, Item 8 of this Annual Report on Form 10-K: • Consolidated Statements of Condition as of September 30, 2022 and 2021; • Consolidated Statements of Income for the years ended September 30, 2022, 2021 and 2020; • Consolidated Statements of Comprehensive Income for the years ended September 30, 2022, 2021 and 2020; • Consolidated Statements of Shareholders' Equity for the years ended September 30, 2022, 2021 and 2020; • Consolidated Statements of Cash Flows for the years ended September 30, 2022, 2021 and 2020; and • Notes to the Consolidated Financial Statements b. The exhibits listed in the Exhibits Index beginning on Page 122 of this Annual Report on Form 10-K. Item 16. Form 10-K Summary Not applicable. 73 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of TFS Financial Corporation Opinion on the Financial Statements We have audited the accompanying consolidated statements of condition of TFS Financial Corporation and subsidiaries (the "Company") as of September 30, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), shareholders' equity, and cash flows, for each of the three years in the period ended September 30, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 22, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Change in Accounting Principle As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses in 2021 due to the adoption of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses – Refer to Notes 1 and 5 to the financial statements Critical Audit Matter Description The allowance for credit losses (“ACL”) is management’s estimate of expected credit losses in the loan portfolio, including off-balance sheet commitments. As of September 30, 2022, the Company’s loan portfolio totaled $14.3 billion, and the related ACL was $72.9 million. The Company’s off-balance sheet commitments totaled $4.7 billion, and the related ACL was $27.0 million. As described in Note 1 of the consolidated financial statements, as of October 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326) , which introduces a forward-looking expected loss model (the “Current Expected Credit Losses (CECL)” model) to estimate credit losses over the remaining expected life of the Company’s loan portfolio. As discussed in Notes 1 and 5 of the consolidated financial statements, the ACL is an amount which represents management’s best estimate of expected credit losses over the contractual life of the Company’s loan portfolio as of the balance sheet date. The ACL is established using relevant available information, relating to past events, current conditions and reasonable and supportable forecasts. The Company utilizes loan level regression models with forecasted economic data to derive the probability of default and loss given default factors. These factors are used to calculate the loan level credit loss over a 24-month reasonable and supportable period with an immediate reversion to historical mean loss rates 74 Table of Contents for the remaining life of the loans. Qualitative adjustments are then made to account for factors that management does not believe are captured in the CECL quantitative models. The determination of the appropriate level of the allowance for the loan portfolio inherently involves a high degree of subjectivity and requires significant estimates of current credit risks using both quantitative and qualitative analyses. Auditing certain aspects of the ACL, including the (1) model methodology, (2) model accuracy, (3) model assumptions, (4) selection of relevant risk characteristics, (5) interpretation of the results, and (6) use of qualitative adjustments, involves especially subjective and complex judgment. Given the significant judgment in determining the ACL estimate, performing audit procedures to evaluate the reasonableness of management’s estimate of the ACL requires a high degree of auditor judgment and an increased extent of effort, including the need to involve our credit specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Allowance for Credit Losses included the following, among others: • We tested the effectiveness of controls over the Company’s (1) model methodology, (2) model accuracy, (3) model assumptions, (4) selection of relevant risk characteristics, (5) interpretation of the results, and (6) use of qualitative adjustments. • With the assistance of our credit specialists, we evaluated the reasonableness of the (1) model methodology, (2) model accuracy, (3) model assumptions, (4) selection of relevant risk characteristics, and (5) interpretation of the results. • We evaluated trends in the total ACL for consistency with trends in loan portfolio growth and credit performance. • We tested the accuracy and completeness of key risk characteristics input into the model by agreeing to source information. • We assessed the Company's method for determining the qualitative factor adjustments and the effect of those factors on the ACL compared with relevant credit risk factors and credit trends. /s/ Deloitte & Touche LLP Cleveland, Ohio November 22, 2022 We have served as the Company's auditor since 2000. 75 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION As of September 30, 2022 and 2021 (In thousands, except share data) 2022 2021 ASSETS Cash and due from banks $ 18,961 $ 27,346 Other interest-earning cash equivalents 350,603 460,980 Cash and cash equivalents 369,564 488,326 Investment securities available for sale (amortized cost $ 501,597 and $ 420,542 , respectively) 457,908 421,783 Mortgage loans held for sale ($ 9,661 and $ 0 measured at fair value, respectively) 9,661 8,848 Loans held for investment, net: Mortgage loans 14,276,478 12,525,687 Other loans 3,263 2,778 Deferred loan expenses, net 50,221 44,859 Allowance for credit losses on loans ( 72,895 ) ( 64,289 ) Loans, net 14,257,067 12,509,035 Mortgage loan servicing assets, net 7,943 8,941 Federal Home Loan Bank stock, at cost 212,290 162,783 Real estate owned, net 1,191 289 Premises, equipment, and software, net 34,531 37,420 Accrued interest receivable 40,256 31,107 Bank owned life insurance contracts 304,040 297,332 Other assets 95,428 91,586 TOTAL ASSETS $ 15,789,879 $ 14,057,450 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits $ 8,921,017 $ 8,993,605 Borrowed funds 4,793,221 3,091,815 Borrowers’ advances for insurance and taxes 117,250 109,633 Principal, interest, and related escrow owed on loans serviced 29,913 41,476 Accrued expenses and other liabilities 84,139 88,641 Total liabilities 13,945,540 12,325,170 Commitments and contingent liabilities Preferred stock, $ 0.01 par value, 100,000,000 shares authorized, none issued and outstanding — — Common stock, $ 0.01 par value, 700,000,000 shares authorized; 332,318,750 shares issued; 280,582,741 and 280,761,299 outstanding at September 30, 2022 and September 30, 2021, respectively 3,323 3,323 Paid-in capital 1,751,223 1,746,887 Treasury stock, at cost; 51,736,009 and 51,557,451 shares at September 30, 2022 and September 30, 2021, respectively ( 771,986 ) ( 768,035 ) Unallocated ESOP shares ( 31,417 ) ( 35,751 ) Retained earnings—substantially restricted 870,047 853,657 Accumulated other comprehensive income (loss) 23,149 ( 67,801 ) Total shareholders’ equity 1,844,339 1,732,280 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 15,789,879 $ 14,057,450 See accompanying notes to consolidated financial statements. 76 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For each of the three years in the period ended September 30, 2022 (In thousands, except share and per share data) 2022 2021 2020 INTEREST AND DIVIDEND INCOME: Loans, including fees $ 395,691 $ 381,887 $ 440,697 Investment securities available for sale 5,501 3,822 9,707 Other interest and dividend earning assets 8,141 3,642 4,894 Total interest and dividend income 409,333 389,351 455,298 INTEREST EXPENSE: Deposits 76,943 97,319 140,242 Borrowed funds 64,994 60,402 72,788 Total interest expense 141,937 157,721 213,030 NET INTEREST INCOME 267,396 231,630 242,268 PROVISION (RELEASE) FOR CREDIT LOSSES 1,000 ( 9,000 ) 3,000 NET INTEREST INCOME AFTER PROVISION (RELEASE) FOR CREDIT LOSSES 266,396 240,630 239,268 NON-INTEREST INCOME: Fees and service charges, net of amortization 9,934 9,602 8,798 Net gain on the sale of loans 1,136 33,082 28,443 Increase in and death benefits from bank owned life insurance contracts 9,984 9,961 7,153 Other 2,750 2,654 8,857 Total non-interest income 23,804 55,299 53,251 NON-INTEREST EXPENSE: Salaries and employee benefits 109,339 108,867 104,008 Marketing services 21,263 19,174 16,512 Office property, equipment, and software 26,783 25,710 25,296 Federal insurance premium and assessments 9,361 9,085 10,625 State franchise tax 4,859 4,663 4,690 Other expenses 26,541 28,336 31,143 Total non-interest expense 198,146 195,835 192,274 INCOME BEFORE INCOME TAXES 92,054 100,094 100,245 INCOME TAX EXPENSE 17,489 19,087 16,928 NET INCOME $ 74,565 $ 81,007 $ 83,317 Earnings per share Basic $ 0.26 $ 0.29 $ 0.30 Diluted $ 0.26 $ 0.29 $ 0.29 Weighted average shares outstanding Basic 277,370,762 276,694,594 275,859,660 Diluted 278,686,365 278,576,254 277,803,058 See accompanying notes to consolidated financial statements. 77 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For each of the three years in the period ended September 30, 2022 (In thousands) 2022 2021 2020 Net income $ 74,565 $ 81,007 $ 83,317 Other comprehensive income (loss), net of tax: Net change in unrealized (losses) gains on securities available for sale ( 34,860 ) ( 3,733 ) 6,859 Net change in cash flow hedges 127,093 56,096 ( 69,391 ) Net change in defined benefit plan obligation ( 1,283 ) 11,801 ( 54 ) Total other comprehensive income (loss) 90,950 64,164 ( 62,586 ) Total comprehensive income $ 165,515 $ 145,171 $ 20,731 See accompanying notes to consolidated financial statements. 78 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For each of the three years in the period ended September 30, 2022 (In thousands, except share and per share data) Common stock Paid-in capital Treasury stock Unallocated common stock held by ESOP Retained earnings Accumulated other comprehensive income (loss) Total shareholders'equity Balance at September 30, 2019 $ 3,323 $ 1,734,154 $ ( 764,589 ) $ ( 44,417 ) $ 837,662 $ ( 69,379 ) $ 1,696,754 Comprehensive income Net income — — — — 83,317 — 83,317 Other comprehensive (loss), net of tax — — — — — ( 62,586 ) ( 62,586 ) ESOP shares allocated or committed to be released — 3,033 — 4,333 — — 7,366 Compensation costs for equity incentive plans — 4,751 — — — — 4,751 Purchase of treasury stock ( 20,500 shares) — — ( 377 ) — — — ( 377 ) Treasury stock allocated to (from) equity incentive plan — 776 ( 2,683 ) — — — ( 1,907 ) Dividends declared to common shareholders ($ 1.11 per common share) — — — — ( 55,465 ) — ( 55,465 ) Balance at September 30, 2020 3,323 1,742,714 ( 767,649 ) ( 40,084 ) 865,514 ( 131,965 ) 1,671,853 Comprehensive income Cumulative effect from changes in accounting principle, net of tax 1 — — — — ( 35,763 ) — ( 35,763 ) Net income — — — — 81,007 — 81,007 Other comprehensive income, net of tax — — — — — 64,164 64,164 ESOP shares allocated or committed to be released — 3,936 — 4,333 — — 8,269 Compensation costs for equity incentive plans — 5,442 — — — — 5,442 Treasury stock allocated to (from) equity incentive plan — ( 5,205 ) ( 386 ) — — — ( 5,591 ) Dividends declared to common shareholders ($ 1.1225 per common share) — — — — ( 57,101 ) — ( 57,101 ) Balance at September 30, 2021 3,323 1,746,887 ( 768,035 ) ( 35,751 ) 853,657 ( 67,801 ) 1,732,280 Comprehensive income Net income — — — — 74,565 — 74,565 Other comprehensive income, net of tax — — — — — 90,950 90,950 ESOP shares allocated or committed to be released — 2,729 — 4,334 — — 7,063 Compensation costs for equity incentive plans — 3,946 — — — — 3,946 Purchase of treasury stock ( 337,259 shares) — — ( 5,049 ) — — — ( 5,049 ) Treasury stock allocated to (from) equity incentive plan — ( 2,339 ) 1,098 — — — ( 1,241 ) Dividends declared to common shareholders ($ 1.13 per common share) — — — — ( 58,175 ) — ( 58,175 ) Balance at September 30, 2022 $ 3,323 $ 1,751,223 $ ( 771,986 ) $ ( 31,417 ) $ 870,047 $ 23,149 $ 1,844,339 1 Related to ASU 2016-13 adopted October 1, 2020. See accompanying notes to consolidated financial statements. 79 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For each of the three years in the period ended September 30, 2022 2022 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands) Net income $ 74,565 $ 81,007 $ 83,317 Adjustments to reconcile net income to net cash provided by operating activities: ESOP and stock-based compensation expense 11,009 13,711 12,117 Depreciation and amortization 27,035 32,568 32,820 Deferred income taxes ( 26,876 ) ( 14,249 ) 21,802 Provision (release) for credit losses 1,000 ( 9,000 ) 3,000 Net gain on the sale of loans ( 1,136 ) ( 33,082 ) ( 28,443 ) Net gain on sale of commercial property ( 181 ) — ( 4,665 ) Other net (gains) losses 810 689 ( 955 ) Proceeds from sales of loans held for sale 41,495 63,913 62,398 Loans originated and principal repayments on loans held for sale ( 66,162 ) ( 67,024 ) ( 60,256 ) Increase in bank owned life insurance contracts ( 8,432 ) ( 7,979 ) ( 6,289 ) Net (increase) decrease in interest receivable and other assets ( 13,043 ) 7,697 ( 17,970 ) Net (decrease) increase in accrued expenses and other liabilities ( 1,155 ) 14,904 24,922 Net cash provided by operating activities 38,929 83,155 121,798 CASH FLOWS FROM INVESTING ACTIVITIES: Loans originated ( 5,273,730 ) ( 4,874,761 ) ( 4,255,580 ) Principal repayments on loans 3,447,529 4,756,761 3,549,803 Proceeds from sales, principal repayments and maturities of: Securities available for sale 163,568 317,066 268,565 Proceeds from sale of: Loans 87,671 739,699 765,874 Real estate owned 429 206 3,679 Premises, equipment and other assets 389 — 23,920 Purchases of: Bank-owned life insurance — ( 70,000 ) — FHLB stock ( 49,507 ) ( 25,990 ) ( 34,935 ) Securities available for sale ( 250,022 ) ( 297,466 ) ( 171,464 ) Premises, equipment, and software, net ( 2,700 ) ( 1,337 ) ( 3,207 ) Other 1,278 3,178 921 Net cash (used in) provided by investing activities ( 1,875,095 ) 547,356 147,576 CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposits ( 72,511 ) ( 231,949 ) 459,170 Net increase (decrease) in borrowers' advances for insurance and taxes 7,617 ( 1,903 ) 8,208 Net (decrease) increase in principal and interest owed on loans serviced ( 11,563 ) ( 4,419 ) 12,986 Net increase (decrease) in short-term borrowed funds 875,000 ( 525,000 ) ( 281,126 ) Proceeds from Fed Funds purchased 225,000 — — Proceeds from long-term borrowed funds 600,000 100,000 250,000 Repayment of long-term borrowed funds ( 3,646 ) ( 4,689 ) ( 350,110 ) Cash collateral/settlements received from (provided to) derivative counterparties 162,094 89,970 ( 87,827 ) Acquisition of treasury shares ( 6,290 ) ( 5,591 ) ( 2,320 ) Dividends paid to common shareholders ( 58,297 ) ( 56,637 ) ( 55,465 ) Net cash provided by (used in) financing activities 1,717,404 ( 640,218 ) ( 46,484 ) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 118,762 ) ( 9,707 ) 222,890 CASH AND CASH EQUIVALENTS—Beginning of year 488,326 498,033 275,143 CASH AND CASH EQUIVALENTS—End of year $ 369,564 $ 488,326 $ 498,033 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest on deposits $ 76,558 $ 98,535 $ 140,887 Cash paid for interest on borrowed funds 37,120 16,043 53,676 Cash paid for interest on interest rate swaps 29,138 45,031 18,436 Cash paid for income taxes 39,602 25,772 1,673 SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Transfer of loans to real estate owned 1,283 330 1,751 Transfer of loans from held for investment to held for sale 86,077 698,917 778,059 Transfer of loans from held for sale to held for investment 22,741 — — Treasury stock issued for stock benefit plans 2,412 5,310 776 See accompanying notes to consolidated financial statements. 80 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of and for the years ended September 30, 2022, 2021, and 2020 (Dollars in thousands unless otherwise indicated) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business —TFS Financial Corporation, a federally chartered stock holding company, conducts its principal activities through its wholly owned subsidiaries. The principal line of business of the Company is retail consumer banking, including mortgage lending, deposit gathering, and other financial services. Third Federal Savings and Loan Association of Cleveland, MHC, its federally chartered mutual holding company parent, owned 80.95 % of the outstanding shares of common stock of the Company at September 30, 2022. The Company’s primary operating subsidiaries include the Association and Third Capital, Inc. The Association is a federal savings association, which provides retail loan and savings products to its customers in Ohio and Florida, through its 37 full-service branches, five loan production offices, customer service call center and internet site. The Association also provides savings products, purchase mortgages, first mortgage refinance loans, home equity lines of credit, and home equity loans in states outside of its branch footprint. The Association also acquires first mortgage loans through a correspondent lending partnership. Third Capital, Inc. was formed to hold non-thrift investments and subsidiaries, which included a limited liability company that acquires and manages commercial real estate. On October 31, 2019, the limited liability company sold the remaining two commercial office buildings it owned, for which the Company recorded pre-tax income of $ 4,665 in 2020, representing its share of the gain on sale. The accounting and reporting policies of TFS Financial Corporation and its subsidiaries conform to accounting principles generally accepted in the United States of America and to general practices within the thrift industry. No material subsequent events have occurred requiring recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements. The following is a description of the significant accounting and reporting policies, which the Company follows in preparing and presenting its consolidated financial statements. Basis of Consolidation and Reporting —The consolidated financial statements of the Company include the accounts of TFS Financial Corporation and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Estimates —The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and Cash Equivalents —Cash and cash equivalents consist of working cash on hand, and demand and interest bearing deposits at other financial institutions with maturities of three months or less. For purposes of reporting cash flows, cash and cash equivalents also includes federal funds sold, when applicable. The Company has acknowledged informal agreements with banks where it maintains deposits. Under these agreements, service fees charged to the Company are waived provided certain average compensating balances are maintained throughout each month. Investment Securities —Our fixed-maturity securities are accounted for on an available-for-sale basis. Securities held as available-for-sale are reported at fair value, with the corresponding unrealized gains and (losses), net of deferred income taxes, reported in accumulated other comprehensive income. Management determines the appropriate classification of investment securities based on its intent and ability to hold at the time of purchase. Purchases of securities are accounted for on a trade-date or settlement-date bases, depending on the settlement terms. Realized gains and (losses) on securities are computed on a specific identification basis. Realized gains and (losses) also include changes in fair value on derivatives not designated as hedging instruments. Sales of securities are accounted for on a trade-date or settlement-date basis, depending on the settlement terms. A decline in the fair value of any available for sale security, below cost, is evaluated for credit loss. Credit loss is recognized in earnings if management intends, or will more likely than not be required, to sell the security before the recovery of its amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, then a credit loss exists and an allowance would be recognized as a credit loss expense, limited to the difference 81 Table of Contents between fair value and amortized cost. Non-credit related loss is recognized in other comprehensive income, net of applicable deferred income taxes. To determine whether a credit loss exists, the Company considers, among other things, adverse conditions related to the security, industry, geographic area, the payment schedule of the debt security and likelihood that the issuer will be able to make payments that increase in the future, failure of the issuer to make scheduled payments and all available information relevant to the securities collectability, changes in ratings assigned by a rating agency, and other credit enhancements that affect the securities expected performance. Investment income consist of interest and accretion (net of amortization). Interest is recognized on an accrual basis using the level-yield method. Premiums and discounts are amortized using the level-yield method. Derivative Instruments —Derivative instruments are carried at fair value in the Company's financial statements. For derivative instruments that are designated and qualify as cash flow hedges, changes in the fair value of the derivative instrument are reported as a component of other comprehensive income, net of tax, and reclassified into earnings in the same period during which the hedged transaction affects earnings. The earnings effect of the hedging instrument will be presented in the same income statement line item as the earnings effect of the hedged item. Accumulated other comprehensive income will be adjusted to a balance that reflects the cumulative change in the fair value of the hedging instrument. At the inception of a hedge, the Company documents certain items, including the relationship between the hedging instrument and the hedged item, the risk management objective and the nature of the risk being hedged, a description of how effectiveness will be measured, an evaluation of hedge transaction effectiveness and the benchmark interest rate or contractually specified interest rate being hedged. Hedge accounting is discontinued prospectively when (1) a derivative is no longer highly effective in offsetting changes in the fair value or cash flow of a hedged item, (2) a derivative expires or is sold, (3) a derivative is de-designated as a hedge, because it is unlikely that a forecasted transaction will occur, or (4) it is determined that designation of a derivative as a hedge is no longer appropriate. When hedge accounting is discontinued, the Company would continue to carry the derivative on the statement of condition at its fair value; however, changes in its fair value would be recorded in earnings instead of through OCI. For derivative instruments not designated as hedging instruments, the Company recognizes gains and (losses) on the derivative instrument in current earnings during the period of change. Mortgage Banking Activity —Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Mortgage loans included in pending agency contracts to sell and securitize loans are carried at fair value. Fair value is based on quoted secondary market pricing for loan portfolios with similar characteristics and includes consideration of deferred fees (costs). Net unrealized gains or losses on loans carried at fair value, are recognized in a valuation allowance by charges to income. The Company retains servicing on loans that are sold and initially recognizes an asset for mortgage loan servicing rights based on the fair value of the servicing rights. Residential mortgage loans represent the single class of servicing rights and are measured at the lower of cost or fair value on a recurring basis. Mortgage loan servicing rights are reported net of accumulated amortization, which is recorded in proportion to, and over the period of, estimated net servicing revenues. The Company monitors prepayments and changes amortization of mortgage servicing rights accordingly. Fair values are estimated using discounted cash flows based on current interest rates and prepayment assumptions, and impairment is monitored each quarterly reporting period. The impairment analysis is based on predominant risk characteristics of the loans serviced, such as type, fixed- and adjustable-rate loans, original terms and interest rates. The amount of impairment recognized is the amount by which the mortgage loan servicing assets exceed their fair value. Servicing fee income net of amortization and other loan fees collected on loans serviced for others are included in Fees and service charges, net of amortization on the CONSOLIDATED STATEMENTS OF INCOME . Loans and Related Deferred Loan Expenses, net —Loans originated with the intent to hold into the foreseeable future are carried at unpaid principal balances adjusted for partial charge-offs, the allowance for credit losses and net deferred loan expenses. Interest on loans is accrued and credited to income as earned. Interest on loans is not recognized in income when collectability is uncertain. Loan fees and certain direct loan origination costs are deferred and recognized as an adjustment to interest income using the level-yield method over the contractual lives of related loans, if the loans are held for investment. If the loans are held for sale, net deferred fees (costs) are generally not amortized, but rather are recognized when the related loans are sold. 82 Table of Contents Loans are classified as TDRs when the original contractual terms are restructured to provide a concession to a borrower experiencing financial difficulty under terms that would not otherwise be available and the restructuring is the result of an agreement between the Company and the borrower or is imposed by a court or law. Concessions granted in TDRs may include a reduction of the stated interest rate, a reduction or forbearance of principal, an extension of the maturity date, a significant delay in payments, the removal of one or more borrowers from the obligation, or any combination of these. Allowance for Credit Losses —The allowance for credit losses represents the estimate of lifetime losses in our loan portfolio and off-balance sheet commitments. The allowance for credit losses is assessed on a quarterly basis and provisions (releases) for credit losses are made accordingly. The allowance is established using relevant available information, relating to past events, current conditions and supportable economic forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Qualitative adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency status or likely recovery of previous loan charge-offs. The allowance for credit losses is increased by recoveries and decreased by charge-offs. Also, qualitative adjustments were made to reflect expected recovery of loan amounts previously charged-off, beyond what the model is able to project. For further discussion on the allowance for credit losses, non-accrual, impairment, and TDRs, see Note 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES . Real Estate Owned, net —Real estate owned, net represents real estate acquired through foreclosure or deed in lieu of foreclosure and is initially recorded at fair value, less estimated costs to sell. Subsequent to acquisition, real estate owned is carried at the lower of cost or fair value, less estimated selling costs. Management performs periodic valuations and a valuation allowance is established by a charge to income for any excess of the carrying value over the fair value, less estimated costs to sell the property. Recoveries in fair value during the holding period are recognized until the valuation allowance is reduced to zero. Costs related to holding and maintaining the property are charged to expense. Premises, Equipment, and Software, net —Depreciation and amortization of premises, equipment and software is computed on a straight-line basis over the estimated useful lives of the related assets. Estimated lives are 31.5 years for office facilities and three to 10 years for equipment and software. Amortization of leasehold or building improvements is computed on a straight-line basis over the lesser of the economic useful life of the improvement or term of the lease, typically 10 years. Leases —At inception, all contracts are evaluated to determine if the arrangement contains a lease based on the terms and conditions. As a lessee, the Company recognizes leases with terms greater than one year on the CONSOLIDATED STATEMENTS OF CONDITION as lease assets (a right-of-use asset) and lease liabilities (a liability to make lease payments), measured on a discounted basis. For further discussion on leases, see Note 8. LEASES . Bank Owned Life Insurance Contracts —Life insurance is provided under both whole and split dollar life insurance agreements. Policy premiums were prepaid and the Company will recover the premiums paid from the proceeds of the policies. The Company recognizes death benefits and growth in the cash surrender value of the policies in other non-interest income. Goodwill —The excess of purchase price over the fair value of net assets of acquired companies is classified as goodwill and reported in Other Assets. Goodwill was $ 9,732 at September 30, 2022 and 2021. Goodwill is reviewed for impairment on an annual basis as of September 30. No impairment was identified as of September 30, 2022 or 2021. Taxes on Income —Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Additional information about policies related to income taxes is included in Note 12. INCOME TAXES . Deposits —Interest on deposits is accrued and charged to expense monthly and is paid or credited in accordance with the terms of the accounts. Treasury Stock— Acquisitions of treasury stock through stock repurchases are recorded at cost using the cost method of accounting. Repurchases may be made through open market purchases, block trades and in negotiated private transactions, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. Repurchased shares will be available for general corporate purposes. Accumulated Other Comprehensive Income (Loss) —AOCI consists of changes in pension obligations, changes in unrealized gains (losses) on securities available for sale and cash flow hedges, each of which is net of the related income tax 83 Table of Contents effects. The Company's policy is to release income tax effects from AOCI only when the entire portfolio to which the underlying transactions relate to is liquidated, sold or extinguished. Revenue from Contracts with Customers — The core principle of the guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. Three of the Company's revenue streams within scope of Topic 606 are the sales of REO, interchange income and deposit account and other transaction-based service fee income. Those streams are immaterial and therefore quantitative information regarding these streams is not disclosed. Pension Benefits —The determination of our obligations and expense for pension benefits is dependent upon certain assumptions used in calculating such amounts. Key assumptions used in the actuarial valuations include the discount rate and expected long-term rate of return on plan assets. Actual results could differ from the assumptions and market driven rates may fluctuate. Significant differences in actual experience or significant changes in the assumptions could materially affect future pension obligations and expense. Share-Based Compensation —Compensation expense for awards of equity instruments is recognized on a straight-line basis over the requisite service period based on the grant date fair value estimated in accordance with the provisions of FASB ASC 718 “Compensation—Stock Compensation”. All vested equity instruments are settled in stock. Forfeitures are recognized as they occur. Share-based compensation expense is included in Salaries and employee benefits in the CONSOLIDATED STATEMENTS OF INCOME . Tax benefits or deficiencies recognized for the difference between realized deductions and cumulative book compensation cost on share-based compensation awards are included in operating cash flows on the CONSOLIDATED STATEMENTS OF CASH FLOW . The grant date fair value of stock options is estimated using the Black-Scholes option-pricing model using assumptions for the expected option term, expected stock price volatility, risk-free interest rate, and expected dividend yield. Due to limited historical data on exercise of share options, the simplified method is used to estimate expected option term. Marketing Costs —Marketing costs are expensed as incurred . Earnings per Share —Basic EPS is computed by dividing net income by the weighted-average number of shares of common stock outstanding. Outstanding shares include shares sold to subscribers, shares held by the Third Federal Foundation, shares of the Employee Stock Ownership Plan which have been allocated or committed to be released for allocation to participants, and shares held by Third Federal Savings, MHC. Unvested shares awarded in the Company's share-based compensation plan are treated as participating securities for purposes of the two-class method when they contain nonforfeitable rights to dividends, but are not included in the number of shares in the computation of basic EPS. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security. Diluted EPS is computed using the same method as basic EPS, but the weighted-average number of shares reflects the potential dilution, if any, of unexercised stock options, unvested shares of performance share units and unvested shares of restricted stock units that could occur if stock options were exercised and performance share units and restricted stock units were issued and converted into common stock. These potentially dilutive shares would then be included in the number of weighted-average shares outstanding for the period using the treasury stock method. At September 30, 2022, 2021 and 2020, potentially dilutive shares include stock options, restricted stock units and performance share units issued through share-based compensation plans. 2. STOCK TRANSACTIONS TFS Financial Corporation completed its initial public stock offering on April 20, 2007 and sold 100,199,618 shares, or 30.16 % of its post-offering outstanding common stock, to subscribers in the offering. Third Federal Savings, MHC, the Company’s mutual holding company parent, holds 227,119,132 shares of TFS Financial Corporation’s outstanding common stock. TFS Financial Corporation issued 5,000,000 shares of common stock, or 1.50 % of its post-offering outstanding common stock, to Third Federal Foundation. Pursuant to the eighth repurchase program for the repurchase of 10,000,000 shares authorized by the Board of Directors in October, 2016, 337,259 shares were repurchased during the year ended September 30, 2022, no shares were repurchased during the year ended September 30, 2021 and 20,500 shares were repurchased during the year ended September 30, 2020. At September 30, 2022, there were 5,553,820 shares remaining to be purchased under the eighth repurchase program. The Company previously repurchased 51,300,000 shares of the Company’s common stock as part of the previous seven Board of Directors-approved share repurchase programs. In total, the Company has repurchased 55,746,180 shares of the Company's common stock as of September 30, 2022. 84 Table of Contents 3. REGULATORY MATTERS The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of the Association. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios (set forth in table below) of common equity Tier 1, Tier 1, and Total capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 capital (as defined) to net average assets (as defined). The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet assets to broad risk categories. In 2019, a final rule adopted by the federal banking agencies provided banking organizations with the option to phase in, over a three-year period, the adverse day-one regulatory capital effects of the adoption of the CECL accounting standard. In 2020, as part of its response to the impact of COVID-19, U.S. federal banking regulatory agencies issued a final rule which provides banking organizations that implement CECL during the 2020 calendar year the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period, which the Association and Company have adopted. During the two-year delay, the Association and Company added back to common equity tier 1 capital (“CET1”) 100% of the initial adoption impact of CECL plus 25% of the cumulative quarterly changes in the allowance for credit losses. Subsequent to the two-year delay, the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of CET1 capital over the three-year period. At September 30, 2022, the Association exceeded all regulatory capital requirements and is considered “well capitalized” under regulatory guidelines. The Association operates under the capital requirements for the standardized approach of the Basel III capital framework for U.S. banking organizations (“Basel III Rules”), which limits capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" consisting of 2.5% in addition to the minimum capital requirements. At September 30, 2022, the Association exceeded the fully phased-in regulatory requirement for the "capital conservation buffer". The following table summarizes the actual capital amounts and ratios of the Association as of September 30, 2022 and 2021, compared to the minimum capital adequacy requirements and the requirements for classification as a well capitalized institution. Minimum Requirements Actual For Capital Adequacy Purposes To be “Well Capitalized” Under Prompt Corrective Action Provision Amount Ratio Amount Ratio Amount Ratio September 30, 2022 Total Capital to Risk-Weighted Assets $ 1,666,677 18.84 % $ 707,788 8.00 % $ 884,734 10.00 % Tier 1 (Leverage) Capital to Net Average Assets 1,614,615 10.33 % 625,020 4.00 % 781,275 5.00 % Tier 1 Capital to Risk-Weighted Assets 1,614,615 18.25 % 530,841 6.00 % 707,788 8.00 % Common Equity Tier 1 Capital to Risk-Weighted Assets 1,614,615 18.25 % 398,130 4.50 % 575,077 6.50 % September 30, 2021 Total Capital to Risk-Weighted Assets $ 1,629,192 21.00 % $ 620,637 8.00 % $ 775,796 10.00 % Tier 1 (Leverage) Capital to Net Average Assets 1,585,124 11.15 % 568,751 4.00 % 710,939 5.00 % Tier 1 Capital to Risk-Weighted Assets 1,585,124 20.43 % 465,478 6.00 % 620,637 8.00 % Common Equity Tier 1 Capital to Risk-Weighted Assets 1,585,124 20.43 % 349,108 4.50 % 504,268 6.50 % The Association paid dividends of $ 56,000 and $ 55,000 to the Company during the years ended September 30, 2022 and 2021, respectively. 85 Table of Contents As permitted under interim final rules issued by the FRS on August 12, 2011, a majority of Third Federal Savings, MHC's members eligible to vote approved Third Federal Savings, MHC waiving dividends aggregating up to $1.13 per share on the common stock of the Company for the 12 month following the special meeting of members held on July 12, 2022. Unless the FRS amends its interim rule, a member vote will be required for Third Federal Savings, MHC to waive its right to receive dividends beyond July 12, 2023. 4. INVESTMENT SECURITIES Available-for-sale securities are summarized in the tables below. Accrued interest in the periods presented is $ 1,122 and $ 852 as of September 30, 2022 and September 30, 2021, respectively, and is reported in accrued interest receivable on the CONSOLIDATED STATEMENTS OF CONDITION . September 30, 2022 Amortized Cost Gross Unrealized Fair Value Gains Losses REMICs $ 496,529 $ 1 $ ( 43,262 ) $ 453,268 Fannie Mae certificates 1,011 14 ( 4 ) 1,021 U.S. Government and agency obligations 4,057 — ( 438 ) 3,619 Total $ 501,597 $ 15 $ ( 43,704 ) $ 457,908 September 30, 2021 Amortized Cost Gross Unrealized Fair Value Gains Losses REMICs $ 415,149 $ 2,420 $ ( 1,328 ) $ 416,241 Fannie Mae certificates 5,393 149 — 5,542 Total $ 420,542 $ 2,569 $ ( 1,328 ) $ 421,783 The following is a summary of our securities portfolio by remaining period to contractual maturity and yield at September 30, 2022. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. There were no securities with a maturity of one year or less for either year presented. Weighted average yields are not presented on a tax-equivalent basis and are calculated by multiplying each carry value by its yield and dividing the sum of these results by the total carry values. We did not hold any tax-free securities. September 30, 2022 September 30, 2021 Amortized Cost Fair Value Weighted Average Yield Amortized Cost Fair Value Weighted Average Yield One to five years 15,476 14,775 2.06 % 18,373 18,680 1.83 % Five to ten years 38,927 37,204 2.30 % 34,904 35,364 1.22 % Ten years or greater 447,194 405,929 2.25 % 367,265 367,739 0.90 % Total $ 501,597 $ 457,908 2.25 % $ 420,542 $ 421,783 0.96 % 86 Table of Contents Gross unrealized losses on available- for- sale securities and the estimated fair value of the related securities, aggregated by the length of time the securities have been in a continuous loss position, at September 30, 2022 and 2021, were as follows: September 30, 2022 Less Than 12 Months 12 Months or More Total Estimated Fair Value Unrealized Loss Estimated Fair Value Unrealized Loss Estimated Fair Value Unrealized Loss Available for sale— REMICs $ 261,795 $ 17,260 $ 190,739 $ 26,002 $ 452,534 $ 43,262 Fannie Mae certificates 217 4 — — 217 4 U.S. Government and agency obligations 3,619 438 — — 3,619 438 Total $ 265,631 $ 17,702 $ 190,739 $ 26,002 $ 456,370 $ 43,704 September 30, 2021 Less Than 12 Months 12 Months or More Total Estimated Fair Value Unrealized Loss Estimated Fair Value Unrealized Loss Estimated Fair Value Unrealized Loss Available for sale— REMICs $ 201,279 $ 1,290 $ 6,261 $ 38 $ 207,540 $ 1,328 The unrealized losses on investment securities were primarily attributable to an increase in interest rates. The contractual cash flows of REMICs are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, and the U.S. Treasury Department established financing agreements in 2008 to ensure Fannie Mae and Freddie Mac meet their obligations to holders of mortgage-backed securities that they have issued or guaranteed. Since the decline in value is primarily attributable to an increase in interest rates, and the financing agreements established by the U.S. Treasury Department ensures contractual cash flows obligations will be met, we did not record an allowance for credit losses with respect to securities as of September 30, 2022. 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES LOAN PORTFOLIOS Loans held for investment consist of the following: September 30, September 30, 2022 2021 Real estate loans: Residential Core $ 11,539,859 $ 10,215,275 Residential Home Today 53,255 63,823 Home equity loans and lines of credit 2,633,878 2,214,252 Construction 121,759 80,537 Real estate loans 14,348,751 12,573,887 Other loans 3,263 2,778 Add (deduct): Deferred loan expenses, net 50,221 44,859 Loans-in-process ( 72,273 ) ( 48,200 ) Allowance for credit losses on loans ( 72,895 ) ( 64,289 ) Loans held for investment, net $ 14,257,067 $ 12,509,035 Loans are carried at amortized cost, which includes outstanding principal balance adjusted for any unamortized premiums or discounts, net of deferred fees and expenses. Accrued interest is $ 39,124 and $ 30,255 as of September 30, 2022 and September 30, 2021, respectively, and is reported in accrued interest receivable on the CONSOLIDATED STATEMENTS OF CONDITION. A large concentration of the Company’s lending is in Ohio and Florida. As of September 30, 2022 and September 30, 2021, the percentage of aggregate Residential Core, Home Today and Construction loans secured by properties in Ohio was 87 Table of Contents 56 % and 55 %, respectively, and the percentage of loans secured by properties in Florida was 18 % as of both dates. As of September 30, 2022 and September 30, 2021, home equity loans and lines of credit were concentrated in the states of Ohio ( 27 % and 29 %, respectively), Florida ( 20 % as of both dates), and California ( 16 % and 15 %, respectively). Residential Core mortgage loans represent the largest portion of the residential real estate portfolio. The Company believes overall credit risk is low based on the nature, composition, collateral, products, lien position and performance of the portfolio. The portfolio does not include loan types or structures that have experienced severe performance problems at other financial institutions (sub-prime, no documentation or pay-option adjustable-rate mortgages). The portfolio contains "Smart Rate" adjustable-rate mortgage loans whereby the interest rate is locked initially for three or five years then resets annually, subject to periodic rate adjustments caps and various re-lock options available to the borrower. Although the borrower is qualified for its loan at a higher rate than the initial rate offered, the adjustable-rate feature may impact a borrower's ability to afford the higher payments upon rate reset during periods of rising interest rates while this repayment risk may be reduced in a declining or low rate environment. With limited historical loss experience compared to other types of loans in the portfolio, judgment is required by management in assessing the allowance required on adjustable-rate mortgage loans. The principal amount of adjustable-rate mortgage loans included in the Residential Core portfolio was $ 4,668,089 and $ 4,646,760 at September 30, 2022 and September 30, 2021, respectively. Home Today was an affordable housing program targeted to benefit low- and moderate-income home buyers. Most loans under the program were originated prior to 2009. No new loans were originated under the Home Today program after September 30, 2016. Home Today loans have greater credit risk than traditional residential real estate mortgage loans. Home equity loans and lines of credit, which are comprised primarily of home equity lines of credit, represent a significant portion of the residential real estate portfolio and include monthly principal and interest payments throughout the entire term. Once the draw period on lines of credit has expired, the accounts are included in the home equity loan balance. The full credit exposure on home equity lines of credit is secured by the value of the collateral real estate at the time of origination. The Company originates construction loans to individuals for the construction of their personal single-family residence by a qualified builder (construction/permanent loans). The Company’s construction/permanent loans generally provide for disbursements to the builder or sub-contractors during the construction phase as work progresses. During the construction phase, the borrower only pays interest on the drawn balance. Upon completion of construction, the loan converts to a permanent amortizing loan without the expense of a second closing. Construction/permanent loans have a fixed or adjustable-rate and a current maximum loan-to-completed-appraised value ratio of 85 %. Other loans are comprised of loans secured by certificate of deposit accounts, which are fully recoverable in the event of non-payment, and forgivable down payment assistance loans, which are unsecured loans used as down payment assistance to borrowers qualified through partner housing agencies. The Company records a liability for the loans which are forgiven in equal increments over a pre-determined term, subject to residency requirements. Loans held for sale include loans originated within the parameters of programs established by Fannie Mae, for sale to Fannie Mae, and loans originated for the held for investment portfolio that are later identified for sale. During the years ended September 30, 2022 and September 30, 2021, reclassifications to the held for sale portfolio included loans that were sold during the period, including those in contracts pending settlement at the end of the period, and loans originated for the held for investment portfolio that were later identified for sale. At September 30, 2022 and September 30, 2021, respectively, mortgage loans held for sale totaled $ 9,661 and $ 8,848 . During the years ended September 30, 2022 and September 30, 2021, respectively, the principal balance of loans sold was $ 128,118 and $ 762,332 . During the year ended September 30, 2022, the amortized cost of loans originated as held for sale that were subsequently transferred to the held for investment portfolio was $ 22,741 . This transfer was due to changes in market pricing, affected by the rise in long-term interest rates, and managements' intent to hold the loans in portfolio until maturity or for the foreseeable future. During the years ended September 30, 2021 and September 30, 2020, there were no transfers to the held for investment portfolio. 88 Table of Contents DELINQUENCY and NON-ACCRUAL An aging analysis of the amortized cost in loan receivables that are past due at September 30, 2022 and September 30, 2021 is summarized in the following tables. When a loan is more than one month past due on its scheduled payments, the loan is considered 30 days or more past due, regardless of the number of days in each month. Balances are adjusted for deferred loan fees and expenses and any applicable loans-in-process. 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total September 30, 2022 Real estate loans: Residential Core $ 2,725 $ 1,491 $ 9,281 $ 13,497 $ 11,545,784 $ 11,559,281 Residential Home Today 1,341 770 861 2,972 49,836 52,808 Home equity loans and lines of credit 1,599 796 2,321 4,716 2,661,416 2,666,132 Construction — — — — 48,478 48,478 Total real estate loans 5,665 3,057 12,463 21,185 14,305,514 14,326,699 Other loans — — — — 3,263 3,263 Total $ 5,665 $ 3,057 $ 12,463 $ 21,185 $ 14,308,777 $ 14,329,962 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total September 30, 2021 Real estate loans: Residential Core $ 3,642 $ 2,263 $ 9,370 $ 15,275 $ 10,218,347 $ 10,233,622 Residential Home Today 948 961 2,068 3,977 59,432 63,409 Home equity loans and lines of credit 938 300 4,231 5,469 2,236,449 2,241,918 Construction — — — — 31,597 31,597 Total real estate loans 5,528 3,524 15,669 24,721 12,545,825 12,570,546 Other loans — — — — 2,778 2,778 Total $ 5,528 $ 3,524 $ 15,669 $ 24,721 $ 12,548,603 $ 12,573,324 Loans are placed in non-accrual status when they are contractually 90 days or more past due. The number of days past due is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment. Loans with a partial charge-off are placed in non-accrual and will remain in non-accrual status until, at a minimum, the loss is recovered. Loans restructured in TDRs that were in non-accrual status prior to the restructurings and loans with forbearance plans that were subsequently modified are reported in non-accrual status for a minimum of six months after restructuring. Loans restructured in TDRs with a high debt-to-income ratio at the time of modification are placed in non-accrual status for a minimum of 12 months. Additionally, home equity loans and lines of credit where the customer has a severely delinquent first mortgage loan and loans in Chapter 7 bankruptcy status where all borrowers have filed, and not reaffirmed or been dismissed, are placed in non-accrual status. 89 Table of Contents The amortized cost of loan receivables in non-accrual status is summarized in the following table. Non-accrual with no ACL describes non-accrual loans which have no quantitative or individual valuation allowance, primarily because they have already been collaterally reviewed and any required charge-offs have been taken, but may be included in consideration of qualitative allowance factors. Balances are adjusted for deferred loan fees and expenses. There are no loans 90 or more days past due and still accruing at September 30, 2022 or September 30, 2021. September 30, 2022 September 30, 2021 Non-accrual with No ACL Total Non-accrual Non-accrual with No ACL Total Non-accrual Real estate loans: Residential Core $ 20,995 $ 22,644 $ 23,748 $ 24,892 Residential Home Today 5,753 6,037 7,730 8,043 Home equity loans and lines of credit 6,668 6,925 9,992 11,110 Total non-accrual loans $ 33,416 $ 35,606 $ 41,470 $ 44,045 At September 30, 2022 and September 30, 2021, respectively, the amortized cost in non-accrual loans includes $ 23,159 and $ 28,385 which are performing according to the terms of their agreement, of which $ 13,526 and $ 16,495 are loans in Chapter 7 bankruptcy status, primarily where all borrowers have filed, and have not reaffirmed or been dismissed. At September 30, 2022 and September 30, 2021, real estate loans include $ 9,833 and $ 2,296 , respectively, of loans that were in the process of foreclosure. Interest on loans in accrual status is recognized in interest income as it accrues, on a daily basis. Accrued interest on loans in non-accrual status is reversed by a charge to interest income and income is subsequently recognized only to the extent cash payments are received. The Company has elected not to measure an allowance for credit losses on accrued interest receivable amounts since amounts are written off timely. Cash payments on loans in non-accrual status are applied to the oldest scheduled, unpaid payment first. The amount of interest income recognized on non-accrual loans was $ 740 , and $ 929 for the years ended September 30, 2022 and September 30, 2021, respectively. Cash payments on loans with a partial charge-off are applied fully to principal, then to recovery of the charged off amount prior to interest income being recognized, except cash payments may be applied to interest capitalized in a restructuring when collection of remaining amounts due is considered probable. A non-accrual loan is generally returned to accrual status when contractual payments are less than 90 days past due. However, a loan may remain in non-accrual status when collectability is uncertain, such as a TDR that has not met minimum payment requirements, a loan with a partial charge-off, a home equity loan or line of credit with a delinquent first mortgage greater than 90 days past due, or a loan in Chapter 7 bankruptcy status where all borrowers have filed, and have not reaffirmed or been dismissed. ALLOWANCE FOR CREDIT LOSSES For all classes of loans, a loan is considered collateral-dependent when, based on current information and events, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral or foreclosure is probable. Factors considered in determining that a loan is collateral-dependent may include the deteriorating financial condition of the borrower indicated by missed or delinquent payments, a pending legal action, such as bankruptcy or foreclosure, or the absence of adequate security for the loan. Charge-offs on residential mortgage loans, home equity loans and lines of credit, and construction loans are recognized when triggering events, such as foreclosure actions, short sales, or deeds accepted in lieu of repayment, result in less than full repayment of the amortized cost in the loans. Partial or full charge-offs are also recognized for the amount of credit losses on loans considered collateral-dependent when the borrower is experiencing financial difficulty as described by meeting the conditions below. • For residential mortgage loans, payments are greater than 180 days delinquent; • For home equity loans and lines of credit, and residential loans restructured in a TDR, payments are greater than 90 days delinquent; • For all classes of loans in a TDR COVID-19 forbearance plan, original contractual payments are greater than 150 days delinquent; • For all classes of loans restructured in a TDR with a high debt-to-income ratio at time of modification; • For all classes of loans, a sheriff sale is scheduled within 60 days to sell the collateral securing the loan; • For all classes of loans, all borrowers have been discharged of their obligation through a Chapter 7 bankruptcy; 90 Table of Contents • For all classes of loans, within 60 days of notification, all borrowers obligated on the loan have filed Chapter 7 bankruptcy and have not reaffirmed or been dismissed; • For all classes of loans, a borrower obligated on a loan has filed bankruptcy and the loan is greater than 30 days delinquent; • For all classes of loans, a COVID-19 forbearance plan has been extended greater than 12 months; • For all classes of loans in a COVID-19 repayment plan, modified contractual payments are greater than 90 days delinquent; and • For all classes of loans, it becomes evident that a loss is probable. Collateral-dependent residential mortgage loans and construction loans are charged-off to the extent the amortized cost in the loan, net of anticipated mortgage insurance claims, exceeds the fair value, less estimated costs to dispose of the underlying property. Management can determine if the loan is uncollectible for reasons such as foreclosures exceeding a reasonable time frame and recommend a full charge-off. Home equity loans or lines of credit are charged-off to the extent the amortized cost in the loan plus the balance of any senior liens exceeds the fair value, less estimated costs to dispose of the underlying property, or management determines the collateral is not sufficient to satisfy the loan. A loan in any portfolio identified as collateral-dependent will continue to be reported as such until it is no longer considered collateral-dependent, is less than 30 days past due and does not have a prior charge-off. A loan in any portfolio that has a partial charge-off will continue to be individually evaluated for credit loss until, at a minimum, the loss has been recovered. Residential mortgage loans, home equity loans and lines of credit and construction loans restructured in TDRs that are not evaluated based on collateral are separately evaluated for credit losses on a loan by loan basis at each reporting date for as long as they are reported as TDRs. The credit loss evaluation is based on the present value of expected future cash flows discounted at the effective interest rate of the original loan. Expected future cash flows include a discount factor representing a potential for default. Valuation allowances are recorded for the excess of the amortized costs over the result of the cash flow analysis. Loans discharged in Chapter 7 bankruptcy are reported as TDRs and also evaluated based on the present value of expected future cash flows unless evaluated based on collateral. These loans are evaluated using expected future cash flows because the borrower, not liquidation of the collateral, is expected to be the source of repayment for the loan. Other loans are not considered for restructuring. At September 30, 2022 and September 30, 2021, respectively, allowances on individually reviewed TDRs (IVAs), evaluated for credit losses based on the present value of cash flows were $ 10,284 and $ 12,073 . All other individually evaluated loans received a charge-off, if applicable. The allowance for credit losses represents the estimate of lifetime losses in the loan portfolio and unfunded loan commitments. An allowance is established using relevant available information relating to past events, current conditions and supportable forecasts. The Company utilizes loan level regression models with forecasted economic data to derive the probability of default and loss given default factors. These factors are used to calculate the loan level credit loss over a 24-month period with an immediate reversion to historical mean loss rates for the remaining life of the loans. Historical credit loss experience provides the basis for the estimation of expected credit losses. Qualitative adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency status or likely recovery of previous loan charge-offs. Qualitative adjustments for expected changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors, are recognized when forecasted economic data used in the model differs from management's view or contains significant unobservable changes within a short period, particularly when those changes are directionally positive. Identifiable model limitations may also lead to qualitative adjustments, such as those made to reflect the expected recovery of loan amounts previously charged-off, beyond what the model is able to project. The qualitative adjustments resulted in a negative ending balance on the allowance for credit losses for the Home Today portfolio, where recoveries are expected to exceed charge-offs over the remaining life of that portfolio.The net qualitative adjustment at September 30, 2022 was a net reduction of $ 7,085 . Adjustments are evaluated quarterly based on current facts and circumstances. 91 Table of Contents Activity in the allowance for credit losses by portfolio segment is summarized as follows. See Note 15. COMMITMENTS AND CONTINGENT LIABILITIES for further details on the allowance for unfunded commitments. For the Year Ended September 30, 2022 Beginning Balance Provisions (Releases) Charge-offs Recoveries Ending Balance Real estate loans: Residential Core $ 44,523 $ 6,298 $ ( 247 ) $ 2,932 $ 53,506 Residential Home Today 15 ( 3,411 ) ( 249 ) 2,648 ( 997 ) Home equity loans and lines of credit 19,454 ( 3,820 ) ( 954 ) 5,352 20,032 Construction 297 ( 118 ) — 175 354 Total real estate loans 64,289 ( 1,051 ) ( 1,450 ) 11,107 72,895 Total Unfunded Loan Commitments (1) 24,970 2,051 — — 27,021 Total Allowance for Credit Losses $ 89,259 $ 1,000 $ ( 1,450 ) $ 11,107 $ 99,916 For the Year Ended September 30, 2021 Beginning Balance Adoption of ASU 2016-13 Provisions (Releases) Charge-offs Recoveries Ending Balance Real estate loans: Residential Core $ 22,381 $ 23,927 $ ( 2,205 ) $ ( 1,965 ) $ 2,385 $ 44,523 Residential Home Today 5,654 ( 5,217 ) ( 2,232 ) ( 552 ) 2,362 15 Home equity loans and lines of credit 18,898 5,258 ( 7,627 ) ( 2,696 ) 5,621 19,454 Construction 4 127 146 — 20 297 Total real estate loans 46,937 24,095 ( 11,918 ) ( 5,213 ) 10,388 64,289 Total Unfunded Loan Commitments (1) $ — $ 22,052 $ 2,918 $ — $ — $ 24,970 Total Allowance for Credit Losses $ 46,937 $ 46,147 $ ( 9,000 ) $ ( 5,213 ) $ 10,388 $ 89,259 (1) Total allowance for unfunded loan commitments is recorded in other liabilities on the CONSOLIDATED STATEMENTS OF CONDITION and primarily relates to undrawn home equity lines of credit. 92 Table of Contents CLASSIFIED LOANS The following tables provide information about the credit quality of residential loan receivables by an internally assigned grade. Revolving loans reported at amortized cost include home equity lines of credit currently in their draw period. Revolving loans converted to term are home equity lines of credit that are in repayment. Equity loans and bridge loans are segregated by origination year. Loans, or the portions of loans, classified as loss are fully charged-off in the period in which they are determined to be uncollectible; therefore they are not included in the following table. No Home Today loans are classified Special Mention. All construction loans are classified Pass. Balances are adjusted for deferred loan fees and expenses and any applicable loans-in-process. Revolving Loans Revolving Loans By fiscal year of origination Amortized Converted 2022 2021 2020 2019 2018 Prior Cost Basis To Term Total September 30, 2022 Real estate loans: Residential Core Pass $ 3,349,200 $ 2,251,075 $ 1,488,763 $ 629,090 $ 665,116 $ 3,141,907 $ — $ — $ 11,525,151 Special Mention — 292 — 108 464 816 — — 1,680 Substandard — 1,195 3,188 1,142 1,883 25,042 — — 32,450 Total Residential Core 3,349,200 2,252,562 1,491,951 630,340 667,463 3,167,765 — — 11,559,281 Residential Home Today (1) Pass — — — — — 45,408 — — 45,408 Substandard — — — — — 7,400 — — 7,400 Total Residential Home Today — — — — — 52,808 — — 52,808 Home equity loans and lines of credit Pass 98,904 30,614 9,204 8,036 6,965 11,247 2,400,095 89,448 2,654,513 Special Mention — 191 — — — — 898 640 1,729 Substandard — — 54 20 19 127 2,996 6,674 9,890 Total Home equity loans and lines of credit 98,904 30,805 9,258 8,056 6,984 11,374 2,403,989 96,762 2,666,132 Total Construction 37,810 10,668 — — — — — — 48,478 Total real estate loans Pass 3,485,914 2,292,357 1,497,967 637,126 672,081 3,198,562 2,400,095 89,448 14,273,550 Special Mention — 483 — 108 464 816 898 640 3,409 Substandard — $ 1,195 $ 3,242 $ 1,162 $ 1,902 $ 32,569 $ 2,996 $ 6,674 $ 49,740 Total real estate loans $ 3,485,914 $ 2,294,035 $ 1,501,209 $ 638,396 $ 674,447 $ 3,231,947 $ 2,403,989 $ 96,762 $ 14,326,699 (1) No new originations of Home Today loans since fiscal 2016. 93 Table of Contents Revolving Loans Revolving Loans By fiscal year of origination Amortized Converted 2021 2020 2019 2018 2017 Prior Cost Basis To Term Total September 30, 2021 Real estate loans: Residential Core Pass $ 2,637,782 $ 1,807,652 $ 784,462 $ 860,150 $ 1,016,853 $ 3,042,398 $ — $ — $ 10,149,297 Special Mention 22,711 703 110 709 300 759 — — 25,292 Substandard — 4,029 4,470 4,860 4,813 40,861 — — 59,033 Total Residential Core 2,660,493 1,812,384 789,042 865,719 1,021,966 3,084,018 — — 10,233,622 Residential Home Today (1) Pass — — — — — 53,076 — — 53,076 Substandard — — — — — 10,333 — — 10,333 Total Residential Home Today — — — — — 63,409 — — 63,409 Home equity loans and lines of credit Pass 48,427 14,488 12,325 11,891 10,423 6,478 1,990,195 129,336 2,223,563 Special Mention — — 13 — — 10 1,182 292 1,497 Substandard — — 148 57 304 33 4,746 11,570 16,858 Total Home equity loans and lines of credit 48,427 14,488 12,486 11,948 10,727 6,521 1,996,123 141,198 2,241,918 Construction Pass 26,587 3,890 — — — — — — 30,477 Special Mention 1,120 — — — — — — — 1,120 Total Construction 27,707 3,890 — — — — — — 31,597 Total real estate loans Pass 2,712,796 1,826,030 796,787 872,041 1,027,276 3,101,952 1,990,195 129,336 12,456,413 Special Mention 23,831 703 123 709 300 769 1,182 292 27,909 Substandard — 4,029 4,618 4,917 5,117 51,227 4,746 11,570 86,224 Total real estate loans $ 2,736,627 $ 1,830,762 $ 801,528 $ 877,667 $ 1,032,693 $ 3,153,948 $ 1,996,123 $ 141,198 $ 12,570,546 (1) No new originations of Home Today loans since fiscal 2016. The home equity lines of credit converted from revolving to term loans during the years ended September 30, 2022 and September 30, 2021 totaled $ 436 and $ 6,088 . Residential loans are internally assigned a grade that complies with the guidelines outlined in the OCC’s Handbook for Rating Credit Risk. Pass loans are assets well protected by the current paying capacity of the borrower. Special Mention loans have a potential weakness, as evaluated based on delinquency status or nature of the product, that the Company deems to deserve management’s attention and may result in further deterioration in their repayment prospects and/or the Company’s credit position. Substandard loans are inadequately protected by the current payment capacity of the borrower or the collateral pledged with a defined weakness that jeopardizes the liquidation of the debt. Also included in Substandard are performing home equity loans and lines of credit where the customer has a severely delinquent first mortgage to which the performing home equity loan or line of credit is subordinate and all loans in Chapter 7 bankruptcy status where all borrowers have filed, and have not reaffirmed or been dismissed. Loss loans are considered uncollectible and are charged-off when identified. Loss loans are of such little value that their continuance as bankable assets is not warranted even though partial recovery may be affected in the future. At September 30, 2022 and September 30, 2021, respectively, $ 75,904 and $ 83,708 of TDRs individually evaluated for credit loss have adequately performed under the terms of the restructuring and are classified as Pass loans. At September 30, 2022 and September 30, 2021, respectively, $ 102 and $ 24,042 of loans classified as Special Mention are residential mortgage loans and home equity lines of credit identified, after origination, as being underwritten with altered income documentation, that have not yet demonstrated repayment performance over a minimum period. Substandard loans decreased between the periods presented primarily due to loans with forbearance plans extended greater than 12 months that are considered collateral dependent and classified substandard, for a minimum of one year, until a sustained period of repayment performance is satisfied. Loans classified substandard includes $ 5,381 and $ 28,029 of loans that had their forbearance term extended greater than 12 months regardless of forbearance plan status at September 30, 2022 and September 30, 2021, respectively . 94 Table of Contents Other loans are internally assigned a grade of non-performing when they become 90 days or more past due. At September 30, 2022 and September 30, 2021, no other loans were graded as non-performing. TROUBLED DEBT RESTRUCTURINGS Initial concessions granted for loans restructured as TDRs may include reduction of interest rate, extension of amortization period, forbearance or other actions. Some TDRs have experienced a combination of concessions. TDRs also may occur as a result of bankruptcy proceedings. Loans discharged in Chapter 7 bankruptcy are classified as multiple restructurings if the loan's original terms had also been restructured by the Company. The amortized cost in TDRs by category as of September 30, 2022 and September 30, 2021 is shown in the tables below. September 30, 2022 Initial Restructuring Multiple Restructurings Bankruptcy Total Residential Core $ 30,071 $ 17,583 $ 10,896 $ 58,550 Residential Home Today 10,359 11,485 1,995 23,839 Home equity loans and lines of credit 22,636 2,743 1,268 26,647 Total $ 63,066 $ 31,811 $ 14,159 $ 109,036 September 30, 2021 Initial Restructuring Multiple Restructurings Bankruptcy Total Residential Core $ 33,394 $ 20,499 $ 12,962 $ 66,855 Residential Home Today 12,640 13,409 2,556 28,605 Home equity loans and lines of credit 26,550 3,424 1,675 31,649 Total $ 72,584 $ 37,332 $ 17,193 $ 127,109 TDRs may be restructured more than once. Among other requirements, a subsequent restructuring may be available for a borrower upon the expiration of temporary restructuring terms if the borrower is unable to resume contractually scheduled loan payments. If the borrower is experiencing an income curtailment that temporarily has reduced their capacity to repay, such as loss of employment, reduction of work hours, non-paid leave or short-term disability, a temporary restructuring is considered. If the borrower lacks the capacity to repay the loan at the current terms due to a permanent condition, a permanent restructuring is considered. In evaluating the need for a subsequent restructuring, the borrower’s ability to repay is generally assessed utilizing a debt to income and cash flow analysis. For all TDRs restructured during the years ended September 30, 2022 and September 30, 2021 (set forth in the tables below), the pre-restructured outstanding amortized cost was not materially different from the post-restructured outstanding amortized cost. New TDRs decreased during recent periods as forbearance plan resolutions and subsequent modifications due to COVID-19 have become insignificant. The following tables set forth the amortized cost in TDRs restructured during the periods presented. For the Year Ended September 30, 2022 Initial Restructuring Multiple Restructurings Bankruptcy Total Residential Core $ 3,823 $ 1,533 $ 1,142 $ 6,498 Residential Home Today 202 1,071 45 1,318 Home equity loans and lines of credit 510 175 163 848 Total $ 4,535 $ 2,779 $ 1,350 $ 8,664 For the Year Ended September 30, 2021 Initial Restructuring Multiple Restructurings Bankruptcy Total Residential Core $ 9,364 $ 1,981 $ 1,614 $ 12,959 Residential Home Today 362 1,432 103 1,897 Home equity loans and lines of credit 1,466 1,223 417 3,106 Total $ 11,192 $ 4,636 $ 2,134 $ 17,962 95 Table of Contents For the Year Ended September 30, 2020 Initial Restructuring Multiple Restructurings Bankruptcy Total Residential Core $ 4,334 $ 3,233 $ 1,831 $ 9,398 Residential Home Today 1,112 1,962 610 3,684 Home equity loans and lines of credit 1,984 815 454 3,253 Total $ 7,430 $ 6,010 $ 2,895 $ 16,335 The table below summarizes information about TDRs restructured within 12 months of the period presented for which there was a subsequent payment default, at least 30 days past due on one scheduled payment, during the periods presented. For the Year Ended September 30, 2022 For the Year Ended September 30, 2021 For the Year Ended September 30, 2020 TDRs That Subsequently Defaulted Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment Residential Core 5 $ 780 6 $ 948 9 $ 1,394 Residential Home Today 5 90 7 194 9 441 Home equity loans and lines of credit 2 108 1 42 4 282 Total 12 $ 978 14 $ 1,184 22 $ 2,117 6. MORTGAGE LOAN SERVICING RIGHTS The Company sells certain types of loans through whole loan sales and through securitizations. In each case, the Company retains a servicing interest in the loans or securitized loans. Certain assumptions and estimates are used to determine the fair value allocated to these retained interests at the date of transfer and at subsequent measurement dates. These assumptions and estimates include loan repayment rates and discount rates. Changes in interest rates can affect the average life of loans and mortgage-backed securities and the related servicing rights. A reduction in interest rates normally results in increased prepayments, as borrowers refinance their debt in order to reduce their borrowing costs. This creates reinvestment risk, which is the risk that the Company may not be able to reinvest the proceeds of loan and securities prepayments at rates that are comparable to the rates earned on the loans or securities prior to receipt of the repayment. During 2022, 2021 and 2020, $ 128,118 , $ 796,512 and $ 810,116 , respectively, of mortgage loans were securitized and/or sold including accrued interest thereon. In these transactions, the Company retained residual interests in the form of mortgage loan servicing rights. Primary economic assumptions used to measure the value of the Company’s retained interests at the date of sale resulting from the completed transactions were as follows (per annum): 2022 2021 Primary prepayment speed assumptions (weighted average annual rate) 11.9 % 13.9 % Weighted average life (years) 24.1 22.9 Amortized cost to service loans (weighted average) 0.12 % 0.12 % Weighted average discount rate 12 % 12 % 96 Table of Contents Key economic assumptions and the sensitivity of the current fair value of mortgage loan servicing rights to immediate 10% and 20% adverse changes in those assumptions are as presented in the following table. The three key economic assumptions that impact the valuation of the mortgage loan servicing rights are: (1) the prepayment speed, or how long the mortgage servicing right will be outstanding; (2) the estimate of servicing costs that will be incurred in fulfilling the mortgage servicing right responsibilities; and (3) the discount factor applied to future net cash flows to convert them to present value. The Company established these factors based on independent analysis of our portfolio and reviews these assumptions periodically to ensure that they reasonably reflect current market conditions and our loan portfolio experience. September 30, 2022 Fair value of mortgage loan servicing rights $ 15,288 Prepayment speed assumptions (weighted average annual rate) 15.0 % Impact on fair value of 10% adverse change $ ( 567 ) Impact on fair value of 20% adverse change $ ( 1,083 ) Estimated prospective annual cost to service loans (weighted average) 0.12 % Impact on fair value of 10% adverse change $ ( 1,320 ) Impact on fair value of 20% adverse change $ ( 2,640 ) Discount rate 12.0 % Impact on fair value of 10% adverse change $ ( 528 ) Impact on fair value of 20% adverse change $ ( 1,017 ) These sensitivities are hypothetical and should be used with caution. As indicated in the table above, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship in the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which could magnify or counteract the sensitivities. Servicing rights are evaluated periodically for impairment based on the fair value of those rights. Twenty-two risk tranches are used in evaluating servicing rights for impairment, segregated primarily by interest rate stratum within original term to maturity categories with additional strata for less uniform account types. Activity in mortgage servicing rights is summarized as follows: Year Ended September 30, 2022 2021 2020 Balance—beginning of year $ 8,941 $ 7,860 $ 8,080 Additions from loan securitizations/sales 657 3,836 1,613 Amortization (1) ( 1,655 ) ( 2,764 ) ( 1,824 ) Net change in valuation allowance — 9 ( 9 ) Balance—end of year $ 7,943 $ 8,941 $ 7,860 Fair value of capitalized amounts $ 15,288 $ 17,454 $ 12,487 (1) Year ended September 30, 2021 and 2020 amounts include $ 199 and $ 1,063 respectively, related to the repurchase of loans previously sold and serviced by the Company. The Company receives annual servicing fees ranging from 0.02 % to 0.98 % of the outstanding loan balances. Servicing income, net of amortization of capitalized servicing rights, included in non-interest income, amounted to $ 4,251 in 2022, $ 3,260 in 2021 and $ 3,365 in 2020. The unpaid principal balance of mortgage loans serviced for others was approximately $ 2,051,110 , $ 2,262,875 and $ 2,007,319 at September 30, 2022, 2021 and 2020, respectively. The ratio of capitalized servicing rights to the unpaid principal balance of mortgage loans serviced for others was 0.39 %, 0.40 %, and 0.39 % at September 30, 2022, 2021 and 2020, respectively. 97 Table of Contents 7. PREMISES, EQUIPMENT AND SOFTWARE, NET Premises, equipment and software at cost are summarized as follows: September 30, 2022 2021 Land $ 8,610 $ 8,688 Office buildings 61,312 60,661 Furniture, fixtures and equipment 39,899 39,266 Software 20,048 19,962 Leasehold improvements 11,071 10,768 140,940 139,345 Less: accumulated depreciation and amortization ( 106,409 ) ( 101,925 ) Total $ 34,531 $ 37,420 During the years ended September 30, 2022, 2021 and 2020, depreciation and amortization expense on premises, equipment, and software was $ 5,393 , $ 5,422 and $ 5,435 , respectively. The Company, as lessor, previously leased certain commercial office buildings. The office buildings and land were sold during the year ended September 30, 2020. The Company's share of the gain on the sale was $ 4,665 . During the year ended September 30, 2020, rental income was $ 5 , and appears in other non-interest income in the accompanying statements. Depreciation expense on the buildings during fiscal 2020 was $ 48 . There was no activity for 2022 and 2021. 8. LEASES As a lessee, the Company enters into operating leases of buildings and land. The Company occupies certain banking branches, loan production and customer service offices and a disaster recovery site through non-cancellable operating leases with remaining terms from less than one year to 14 years. Most of the leases have fixed payment terms with annual fixed-escalation clauses. Certain leases have annual rent escalations based on subsequent year-to-year changes in the consumer price index. These year-to-year changes in the consumer price index are excluded from the calculation of right-of-use assets and lease liabilities and recognized as expense in the period in which they are incurred. Additionally, all variable lease costs that are not based on an index or rate, such as "common area maintenance" costs, are expensed as incurred. Most of the Company's leases include options to extend for periods that range from three to 10 years. The leases do not have early-termination options. The Company has not included term extensions in the calculation of the lease term, as the Company does not consider it reasonably certain that the options will be exercised. As the interest rate implicit in all of the Company's lease contracts is not readily determinable, the Company utilized its incremental borrowing rate, which is the rate that would be incurred to borrow on a collateralized basis over a similar term on an amount equal to the total contractual lease payments in a similar economic environment. The incremental borrowing rate utilized for all the Company's leases is the FHLB Advance rate based on the lease term at commencement in determining the present value of lease payments. Operating lease expense for the years ended September 30, 2022 and 2021, totaled $ 5,576 and $ 5,351 , respectively. Variable lease expense for the years ended September 30, 2022 and 2021, totaled $ 1,479 and $ 1,374 , respectively. During the years ended September 30, 2022 and 2021, the Company paid $ 5,572 and $ 5,354 , respectively, in cash for amounts included in the measurement of lease liabilities. As of September 30, 2022 and 2021, the Company has not entered into any material leases that have not yet commenced. The following table summarizes information relating to the Company's operating leases: September 30, 2022 2021 Right-of-use assets (a) $ 30,189 $ 27,923 Lease liabilities (b) $ 15,775 $ 18,461 Weighted Average Remaining Lease Term 5.06 years 5.51 years Weighted Average Discount Rate 1.49 % 1.51 % (a) Included in Other assets in the CONSOLIDATED STATEMENTS OF CONDITION (b) Included in Accrued expenses and other liabilities in the CONSOLIDATED STATEMENTS OF CONDITION 98 Table of Contents The following table summarizes the maturities of lease liabilities at the periods presented: September 30, 2022 2021 Maturing in: 12 months or less $ 4,953 $ 5,128 13 to 24 months 3,903 4,334 25 to 36 months 3,044 3,400 37 to 48 months 1,810 2,570 49 to 60 months 591 1,321 over 60 months 2,230 2,640 Total minimum lease payments 16,531 19,393 Less imputed interest 756 932 Total lease liabilities $ 15,775 $ 18,461 9. DEPOSITS Deposit account balances are summarized by interest rate as follows: Stated Interest Rate September 30, 2022 2021 Amount Percent Amount Percent Checking accounts 0.00 – 1.00 % $ 1,210,035 13.6 % $ 1,132,910 12.6 % Savings accounts, excluding money market accounts 0.00 – 1.05 1,364,821 15.3 1,263,309 14.0 Money market accounts 0.00 – 1.05 481,650 5.4 563,931 6.3 Subtotal 3,056,506 34.3 2,960,150 32.9 Certificates of deposit 0.00 – 0.99 3,157,495 35.4 3,335,102 37.1 1.00 – 1.99 1,002,227 11.2 808,105 9.0 2.00 – 2.99 1,320,579 14.8 1,574,939 17.5 3.00 and above 381,973 4.3 313,457 3.5 5,862,274 65.7 6,031,603 67.1 Subtotal 8,918,780 100.0 8,991,753 100.0 Accrued interest 2,237 — 1,852 — Total deposits $ 8,921,017 100.0 % $ 8,993,605 100.0 % At September 30, 2022 and 2021, the weighted average interest rate was 0.81 % and 0.09 % on checking accounts; 0.79 % and 0.12 % on savings accounts; 0.95 % and 0.19 % on money market accounts; 1.37 % and 1.26 % on certificate of deposit, respectively; and 1.18 % and 0.89 % on total deposits, respectively. The aggregate amount of CD's in denominations of $250 or more was $ 733,301 and $ 693,375 at September 30, 2022 and 2021, respectively. In accordance with the DFA, the maximum amount of deposit insurance is $250 per depositor. Brokered CD's (exclusive of acquisition costs and subsequent amortization), which are used as an additional funding alternative, totaled $ 575,236 and $ 491,994 at September 30, 2022 and 2021, respectively. The FDIC places restrictions on banks with regard to issuing brokered deposits based on the bank's capital classification. As a well-capitalized institution at September 30, 2022 and September 30, 2021, the Association may accept brokered deposits without FDIC restrictions. 99 Table of Contents The scheduled maturity of certificates of deposit is as follows: September 30, 2022 Amount Percent Weighted Average Rate 12 months or less $ 3,015,505 51.5 % 1.02 % 13 to 24 months 1,015,842 17.3 % 1.51 % 25 to 36 months 814,248 13.9 % 1.49 % 37 to 48 months 476,759 8.1 % 1.50 % 49 to 60 months 510,856 8.7 % 2.81 % Over 60 months 29,064 0.5 % 1.32 % Total $ 5,862,274 100.0 % 1.36 % Interest expense on deposits is summarized as follows: Year Ended September 30, 2022 2021 2020 Certificates of deposit $ 68,204 $ 93,187 $ 130,990 Checking accounts 4,186 1,140 1,477 Savings and Money Market accounts 4,553 2,992 7,775 Total $ 76,943 $ 97,319 $ 140,242 100 Table of Contents 10. BORROWED FUNDS At September 30, 2022, the Association had a maximum borrowing capacity of $9,237,184, of which $4,793,221 was outstanding. Borrowings from the FHLB of Cincinnati are secured by the Association’s investment in the common stock of the FHLB of Cincinnati as well as by a blanket pledge of its mortgage portfolio not otherwise pledged. The Association also has the ability to purchase Fed Funds through arrangements with other institutions. Finally, the ability to borrow from the FRB-Cleveland Discount Window is available to the Association and is secured by a pledge of specific loans in the Association’s mortgage portfolio. Total borrowings at September 30, 2022 are summarized in the table below: Borrowing Capacity Borrowings Available Borrowings Outstanding FHLB $ 8,474,183 $ 3,912,447 $ 4,561,736 FRB Cleveland 168,001 168,001 — Fed Funds Purchased 595,000 370,000 225,000 Subtotal $ 9,237,184 $ 4,450,448 4,786,736 Accrued Interest 6,485 Total Borrowings $ 4,793,221 Maturities of borrowings at September 30, 2022 are summarized in the table below: Amount Weighted Average Rate Maturing in: 12 months or less $ 2,225,182 2.93 % 13 to 24 months 775,000 1.50 % 25 to 36 months 625,000 1.42 % 37 to 48 months 500,789 1.97 % 49 to 60 months 600,000 2.72 % over 60 months 60,765 2.93 % Total Advances $ 4,786,736 2.38 % Accrued interest 6,485 Total $ 4,793,221 All borrowings have fixed rates during their term ranging up to 240 months. Interest is payable monthly for long-term advances and at maturity for FHLB three-month advances and overnight advances. The table above reflects the effective maturities and fixed interest rates of the $1,550,000 of short-term FHLB advances that are tied to interest rate swaps discussed in Note 17. DERIVATIVE INSTRUMENTS. For the years ended September 30, 2022, 2021 and 2020, net interest expense related to short-term borrowings was $ 49,828 , $ 50,975 and $ 61,058 , respectively. In March 2021, the Association received a second consecutive “Needs to Improve” rating on its Community Reinvestment Act (CRA) examination covering the period ending December 31, 2019. The FHFA practice is to place member institutions in this situation on restriction. When this restriction is established, the Association will not have access to FHLB long-term advances (maturities greater than one year) until the rating improves. However, the Association has not received the notice of this restriction as of November 22, 2022. Existing advances and future advances with less than a one year term, including 90 day advances used to facilitate longer term interest rate swap agreements, will not be affected. The Association does not expect any impact to its ability to access funding. 101 Table of Contents 11. OTHER COMPREHENSIVE INCOME (LOSS) The change in AOCI by component is as follows: Unrealized Gains (Losses) on Securities Available for Sale Cash Flow Hedges Defined Benefit Plan Total Fiscal year 2020 activity Balance at September 30, 2019 $ ( 2,165 ) $ ( 44,915 ) $ ( 22,299 ) $ ( 69,379 ) Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $( 22,316 ) 6,859 ( 88,948 ) ( 1,862 ) ( 83,951 ) Amounts reclassified, net of tax expense (benefit) of $ 5,680 — 19,557 1,808 21,365 Other comprehensive income (loss) 6,859 ( 69,391 ) ( 54 ) ( 62,586 ) Balance at September 30, 2020 $ 4,694 $ ( 114,306 ) $ ( 22,353 ) $ ( 131,965 ) Fiscal year 2021 activity Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $ 8,656 ( 3,733 ) 20,914 9,937 27,118 Amounts reclassified, net of tax expense (benefit) of $ 9,907 — 35,182 1,864 37,046 Other comprehensive income (loss) ( 3,733 ) 56,096 11,801 64,164 Balance at September 30, 2021 $ 961 $ ( 58,210 ) $ ( 10,552 ) $ ( 67,801 ) Fiscal year 2022 activity Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $ 21,242 ( 34,860 ) 109,452 ( 1,665 ) 72,927 Amounts reclassified, net of tax expense (benefit) of $ 5,212 — 17,641 382 18,023 Other comprehensive income (loss) ( 34,860 ) 127,093 ( 1,283 ) 90,950 Balance at September 30, 2022 $ ( 33,899 ) $ 68,883 $ ( 11,835 ) $ 23,149 The following table presents the reclassification adjustment out of AOCI included in net income and the corresponding line item on the CONSOLIDATED STATEMENTS OF INCOME for the periods indicated: Details about AOCI Components For the Years Ended September 30, Line Item in the Statement of Income 2022 2021 2020 Cash flow hedges: Interest (income) expense $ 22,740 $ 44,534 $ 24,757 Interest expense Net income tax effect ( 5,099 ) ( 9,352 ) ( 5,200 ) Income tax expense Net of income tax expense (benefit) $ 17,641 $ 35,182 $ 19,557 Amortization of defined benefit plan: Actuarial loss $ 495 $ 2,419 $ 2,288 (a) Net income tax effect ( 113 ) ( 555 ) ( 480 ) Income tax expense Net of income tax expense 382 1,864 1,808 Total reclassifications for the period $ 18,023 $ 37,046 $ 21,365 (a) These items are included in the computation of net period pension cost. See Note 13. EMPLOYEE BENEFIT PLANS for additional disclosure . 102 Table of Contents 12. INCOME TAXES The components of the income tax provision are as follows: Year Ended September 30, 2022 2021 2020 Current tax expense (benefit): Federal $ 41,812 $ 31,043 $ ( 5,237 ) State 2,553 2,230 473 Deferred tax expense (benefit): Federal ( 24,691 ) ( 13,548 ) 20,487 State ( 2,185 ) ( 638 ) 1,205 Income tax provision $ 17,489 $ 19,087 $ 16,928 Reconciliation from tax at the federal statutory rate to the income tax provision is as follows: Year Ended September 30, 2022 2021 2020 Tax at statutory rate 21.0 % 21.0 % 21.0 % State tax, net 0.3 1.3 1.3 Non-taxable income from bank owned life insurance contracts ( 2.3 ) ( 2.1 ) ( 1.5 ) Non-deductible compensation 1.4 0.9 1.1 Equity based compensation ( 0.1 ) ( 1.3 ) ( 0.5 ) NOL carryback claim rate benefit under CARES Act — — ( 3.6 ) Other, net ( 1.3 ) ( 0.7 ) ( 0.9 ) Income tax provision 19.0 % 19.1 % 16.9 % Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that gave rise to significant portions of net deferred taxes relate to the following: September 30, 2022 2021 Deferred tax assets: Loan loss reserve $ 27,659 $ 25,728 Deferred compensation 4,198 4,159 Lease liability 3,599 4,227 Property, equipment and software basis difference 1,413 1,263 Other 2,220 2,259 Total deferred tax assets 39,089 37,636 Deferred tax liabilities: FHLB stock basis difference 5,017 5,036 Mortgage servicing rights 1,551 1,699 Pension 2,119 2,220 Goodwill 2,132 2,137 Lease ROU asset 3,514 4,142 Deferred loan costs, net of fees 13,371 11,606 Other 2,219 2,051 Total deferred tax liabilities 29,923 28,891 Net deferred tax asset $ 9,166 $ 8,745 In the accompanying CONSOLIDATED STATEMENTS OF CONDITION the net deferred tax asset is included in Other assets. 103 Table of Contents A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. There was no valuation allowance required at September 30, 2022 or 2021. Retained earnings at September 30, 2022 and 2021 included approximately $ 104,861 for which no provision for federal or state income tax has been made. This amount represents allocations of income during years prior to 1988 to bad debt deductions for tax purposes only. These qualifying and nonqualifying base year reserves and supplemental reserves will be recaptured into income in the event of certain distributions and redemptions. Such recapture would create income for tax purposes only, which would be subject to the then current corporate income tax rate. However, recapture would not occur upon the reorganization, merger, or acquisition of the Association, nor if the Association is merged or liquidated tax-free into a bank or undergoes a charter change. If the Association fails to qualify as a bank or merges into a nonbank entity, these reserves will be recaptured into income. The provisions of Accounting for Uncertainty in Income Taxes, codified within FASB ASC 740 “Income Taxes,” prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement for a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Tax positions must meet a more-likely-than-not recognition threshold in order for the related tax benefit to be recognized or continue to be recognized. As of September 30, 2022 and 2021, the Company had no unrecognized tax benefits. The Company does not anticipate the total amount of unrecognized tax benefits to significantly change within the next twelve months. The Company recognizes interest and penalties on income tax assessments or income tax refunds, where applicable, in the financial statements as a component of its provision for income taxes. The Company recognized $ 0 , $ 9 , and $ 0 interest expense or penalties on income tax assessments, and $ 34 , $ 116 , and $ 0 of interest on income tax refunds related to net operating loss carrybacks during the years ended September 30, 2022, 2021 and 2020, respectively. There was no interest related to income tax assessments accrued at September 30, 2022 or 2021. The Company’s effective income tax rate was 19.0 %, 19.1 % and 16.9 % for the years ended September 30, 2022, 2021 and 2020, respectively. The increase in the effective rate for the year ended September 30, 2021 compared to the same period during fiscal 2020 is primarily due to the impact of a CARES Act provision, which permitted a carry back of net tax operating losses to years taxed at higher rates, and resulted in a tax benefit of $ 3,607 during the year ended September 30, 2020. This is offset by an increase in permanent tax benefits from BOLI contracts. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and city jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations in its major jurisdictions for tax years prior to 2019. The Company makes certain investments in limited partnerships which invest in affordable housing projects that qualify for the Low Income Housing Tax Credit ("LIHTC"). The Company acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnership. The Company accounts for its interests in LIHTCs using the proportional amortization method. The impact of the Company's investments in tax credit entities on the provision for income taxes was not material for the years ended September 30, 2022, 2021 and 2020. 104 Table of Contents 13. EMPLOYEE BENEFIT PLANS Defined Benefit Plan — The Third Federal Savings Retirement Plan (the “Plan”) is a defined benefit pension plan. Effective December 31, 2002, the Plan was amended to limit participation to employees who met the Plan’s eligibility requirements on that date. Effective December 31, 2011, the Plan was amended to freeze future benefit accruals for participants in the Plan. After December 31, 2002, employees not participating in the Plan, upon meeting the applicable eligibility requirements, and those eligible participants who no longer receive service credits under the Plan, participate in a separate tier of the Company’s defined contribution 401(k) Savings Plan. Benefits under the Plan are based on years of service and the employee’s average annual compensation (as defined in the Plan) through December 31, 2011. The funding policy of the Plan is consistent with the funding requirements of U.S. federal and other governmental laws and regulations. During the fiscal years ending 2022 and 2021, a settlement adjustment was recognized as a result of lump sum payments exceeding the interest costs for the year. The following table sets forth the change in projected benefit obligation for the defined benefit plan: September 30, 2022 2021 Projected benefit obligation at beginning of year $ 88,276 $ 94,941 Interest cost 2,628 2,536 Actuarial (gain) loss and other ( 19,783 ) ( 2,273 ) Settlement ( 4,292 ) ( 5,112 ) Benefits paid ( 1,814 ) ( 1,816 ) Projected benefit obligation at end of year $ 65,015 $ 88,276 The following table reconciles the beginning and ending balances of the fair value of Plan assets and presents the funded status of the Plan recognized in the CONSOLIDATED STATEMENTS OF CONDITION at the September 30 measurement dates. There were no employer contributions in the years ending September 30, 2022 and 2021. September 30, 2022 2021 Fair value of plan assets at beginning of year $ 97,971 $ 89,275 Actual return on plan assets ( 17,823 ) 15,624 Benefits paid ( 1,814 ) ( 1,816 ) Settlement ( 4,292 ) ( 5,112 ) Fair value of plan assets at end of year $ 74,042 $ 97,971 Funded status of the plan—asset (liability) $ 9,027 $ 9,695 The components of net periodic cost recognized in other non-interest expense in the CONSOLIDATED STATEMENTS OF INCOME are as follows: Year Ended September 30, 2022 2021 2020 Interest Cost $ 2,628 $ 2,536 $ 2,797 Expected return on plan assets ( 4,987 ) ( 4,997 ) ( 4,652 ) Amortization of net loss and other 576 1,466 2,288 Recognized net loss due to settlement 882 792 1,174 Net periodic benefit (income) cost $ ( 901 ) $ ( 203 ) $ 1,607 There were no contributions, required minimum or voluntary, made during the fiscal year ended September 30, 2022. Plan assets consist of investments in mutual funds and pooled separate accounts that invest in fixed securities such as asset backed securities, commercial mortgage backed securities and corporate bonds, in addition to some short-term securities such as commercial paper. The Plan reallocated some of its investments to long duration fixed income mutual funds as a strategy to reduce risk in the portfolio as funded status remains elevated. As the mutual funds invested in are traded in active markets with readily available prices, these types of investments are included in level 1 of the fair value hierarchy. Pooled separate accounts 105 Table of Contents are valued at net asset value per share at the reporting date. The fair values of the underlying investments used to determine net asset value of the pooled separate accounts are primarily based on pricing from an independent third party pricing source. In accordance with Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical expedient are not classified in the fair value hierarchy described in Note 16. FAIR VALUE . During fiscal years ending 2022 and 2021, the fair value of mutual funds were valued at $ 30,271 and $ 0 , respectively, in level 1 of the fair value hierarchy. The following tables present the fair value of pooled separate account assets: September 30, 2022 2021 Fair Value (in thousands) Unfunded Commitments Redemption Frequency (if currently eligible) Redemption Notice Period Fair Value (in thousands) Unfunded Commitments Redemption Frequency (if currently eligible) Redemption Notice Period Pooled Separate Accounts $ 43,771 N/A Daily 7 days $ 97,971 N/A Daily 7 days There are no redemption restrictions on Plan assets at September 30, 2022. Redemptions may be deferred for a longer period if conditions do not permit an orderly transfer or for certain investments of an illiquid nature. The following additional information is provided with respect to the Plan: September 30, 2022 2021 2020 Assumptions and dates used to determine benefit obligations: Discount rate 5.35 % 2.85 % 2.65 % Rate of compensation increase n/a n/a n/a Assumptions used to determine net periodic benefit cost: Discount rate 4.60 % 2.80 % 3.20 % Long-term rate of return on plan assets 5.50 % 5.50 % 6.00 % Rate of compensation increase (graded scale) n/a n/a n/a The expected long-term return on plan assets assumption was developed as a weighted average rate based on the target asset allocation of the plan and the Long-Term Capital Market Assumptions for the corresponding fiscal year end. Management evaluates the historical performance of the various asset categories, as well as current expectations in determining the adequacy of the assumed rates of return in meeting Plan obligations. If warranted, the assumption is modified. The following table provides estimates of expected future benefit payments during each of the next five fiscal years, as well as in the aggregate for years six through ten. Additionally, the table includes the minimum employer contributions expected during the next fiscal year: Expected Benefit Payments During the Fiscal Years Ending September 30: 2023 $ 5,750 2024 4,530 2025 4,260 2026 4,300 2027 4,360 Aggregate expected benefit payments during the five fiscal year period beginning October 1, 2028, and ending September 30, 2032 23,540 Minimum employer contributions expected to be paid during the fiscal year ending September 30, 2023 — For the fiscal years ended September 30, 2022, 2021, and 2020, AOCI includes pretax net actuarial losses of $ 15,255 , $ 13,686 , and $ 28,843 , respectively, which have not been recognized as components of net periodic benefit costs as of the measurement date. The Company expects that $ 1,020 of net actuarial losses will be recognized as AOCI components of net periodic benefit cost during the fiscal year ended September 30, 2023. 401(k) Savings Plan — The Company maintains a 401(k) savings plan that is comprised of three tiers. The first tier allows eligible employees to contribute up to 75 % of their compensation to the plan, subject to limitations established by the Internal 106 Table of Contents Revenue Service, with the Company matching 100 % of up to 4 % on funds contributed. The second tier permits the Company to make a profit-sharing contribution at its discretion. The first and second tiers cover substantially all employees who have reached age 18 and have worked 1,000 hours in one year of service. The third tier permits the Company to make discretionary contributions allocable to eligible employees including those eligible employees who are participants, but no longer receiving service credits, under the Company’s defined benefit pension plan. Voluntary contributions made by employees are vested at all times whereas Company contributions and Company matching contributions are subject to various vesting periods which range from immediately vested to fully vesting upon five years of service. The total of the Company’s matching and discretionary contributions related to the 401(k) savings plan for the years ended September 30, 2022, 2021 and 2020 was $ 4,295 , $ 4,187 and $ 4,042 , respectively. Employee (Associate) Stock Ownership Plan — The Company established an ESOP for its employees effective January 1, 2006. The ESOP is a tax-qualified plan designed to invest primarily in the Company’s common stock and provides employees with an opportunity to receive a funded retirement benefit, based on the value of the Company’s common stock. The ESOP covers all eligible employees of the Company and its wholly-owned subsidiaries. Employees are eligible to participate in the ESOP after attainment of age 18 , completion of 1,000 hours of service, and employment on the last day of the plan’s calendar year. Company contributions to the plan are at the discretion of the Board of Directors. The ESOP is accounted for in accordance with the provisions for stock compensation in FASB ASC 718 . Compensation expense for the ESOP is based on the market price of the Company’s stock and is recognized as shares are committed to be released to participants. The total compensation expense related to this plan in the 2022, 2021 and 2020 fiscal years was $ 7,063 , $ 8,270 and $ 7,367 , respectively. The ESOP was authorized to purchase, and did purchase, 11,605,824 shares of the Company’s common stock at a price of $ 10 per share with a 2006 plan year cash contribution and the proceeds of a loan from the Company to the ESOP. The outstanding loan principal balance as of September 30, 2022 and 2021 was $ 41,927 and $ 46,454 , respectively. Shares of the Company’s common stock pledged as collateral for the loan are released from the pledge for allocation to participants as loan payments are made. At September 30, 2022, 8,139,108 shares have been allocated to participants and 325,005 shares were committed to be released. Shares that are committed to be released will be allocated to participants at the end of the plan year (December 31). ESOP shares that are unallocated or not yet committed to be released totaled 3,141,711 at September 30, 2022, and had a fair market value of $ 40,842 . Participants have the option to receive dividends on allocated shares in cash or leave the dividend in the ESOP. Dividends are reinvested in Company stock for those participants who choose to leave their dividends in the ESOP or who do not make an election. The purchase of Company stock for reinvestment of dividends is made in the open market on or about the date of the cash disbursement to the participants who opt to take dividends in cash. Dividends on unallocated shares held in the Employer Stock fund were paid to the trustee to be used to make payments on the outstanding loan obligation. 14. EQUITY INCENTIVE PLAN The TFS Financial Corporation Amended and Restated 2008 Equity Incentive Plan, approved by shareholders in February 2018 and the 2008 Equity Incentive Plan, approved by shareholders in May 2008, are collectively referred to as the "Equity Plan”. The amended and restated plan is substantially similar to the previous plan, except that the number of future shares eligible to be granted has been reduced to 8,450,000 shares, of which 7,418,782 shares remain available for future award, and the term to grant shares has been extended to February 21, 2028. The Company recorded excess tax benefits of $ 109 , $ 1,331 , and $ 485 related to share-based compensation awards for the years ended September 30, 2022, 2021 and 2020, respectively. The following table presents share-based compensation expense and the related tax benefit recognized during the periods presented: Year Ended September 30, 2022 2021 2020 Restricted stock units expense $ 3,206 $ 4,160 $ 3,303 Performance share units expense 739 1,214 917 Stock option expense — 68 531 Total stock-based compensation expense $ 3,945 $ 5,442 $ 4,751 Tax benefit related to share-based compensation expense $ 677 $ 999 $ 824 Restricted stock units vest over a one to 10 year service period. The product of the number of units granted and the grant date market price of the Company’s common stock determines the fair value of restricted stock units under the Equity Plan. The 107 Table of Contents Company recognizes compensation expense for the fair value of restricted stock units on a straight-line basis over the requisite service period. The following is a summary of the status of the Company’s restricted stock units as of September 30, 2022 and changes therein during the year then ended: Number of Shares Awarded Weighted Average Grant Date Fair Value Outstanding at September 30, 2021 1,281,910 $ 14.21 Granted 126,200 $ 17.80 Released ( 124,662 ) $ 17.53 Forfeited ( 25,550 ) $ 17.77 Outstanding at September 30, 2022 (1) 1,257,898 $ 14.17 (1) Includes 765,748 shares with a weighted average grant date fair value of $ 11.87 that have vested but will not be issued until the recipients are no longer employed by the Company. The weighted average grant date fair value of restricted stock units granted during the years ended September 30, 2022, 2021 and 2020 was $ 17.80 , $ 17.77 and $ 19.76 per share, respectively. The total fair value of restricted stock units vested during the years ended September 30, 2022, 2021 and 2020 was $ 2,058 , $ 6,981 , and $ 1,676 , respectively. Expected future compensation expense relating to the non-vested restricted stock units at September 30, 2022 is $ 3,598 over a weighted average period of 1.86 years. Performance share units vest in the form of Company common stock issued at the end of a three -year period, based on the pro-rata achievement of performance based metrics over a two -year period. The range of payout is zero to 150 % of the number of share units granted. For performance stock units, fair value is estimated as the product of the number of performance units granted, adjusted for the probability of achievement, and the grant date market price of the Company’s common stock. The Company recognizes compensation expense for the fair value of performance share units on a straight-line basis over the requisite service period, based on the performance condition that is probable of achievement. Probability of achievement is reassessed at each reporting period and the cumulative effect of a change in estimate, if any, is recognized in the period of change. Cash dividend equivalents are accrued and paid only if and when the underlying units become vested and payable. The following is a summary of the status of the Company’s performance share units as of September 30, 2022 and changes therein during the year then ended. No awards were forfeited during the year ended September 30, 2022. Number of Shares Awarded Weighted Average Grant Date Fair Value Outstanding at September 30, 2021 182,069 17.46 Granted 53,100 17.80 Released ( 71,692 ) 15.54 Performance adjustment 6,477 19.76 Outstanding at September 30, 2022 169,954 18.46 The weighted average grant date fair value of performance share units granted during the year ended September 30, 2022, 2021 and 2020 was $ 17.80 , $ 17.77 , and $ 19.76 , respectively. The total fair value of performance share units vested during the years ended September 30, 2022, 2021 and 2020, respectively, totaled $ 1,112 , $ 14 , and $ 0 . Expected future compensation expense relating to the non-vested performance share units at September 30, 2022 is $ 1,031 over a weighted average period of 1.83 years. Stock options have a contractual term of 10 years and vest over a one to seven year service period. The Company recognizes compensation expense for the fair values of these awards, which have installment vesting, on a straight-line basis over the requisite service period of the awards. 108 Table of Contents The following is a summary of the Company’s stock option activity and related information for the Equity Plan for the year ended September 30, 2022. There were no stock options granted during 2022, 2021 and 2020. Number of Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value Outstanding at September 30, 2021 2,463,300 $ 14.98 4.25 $ 10,095 Exercised ( 99,525 ) $ 11.16 $ 551 Forfeited ( 2,600 ) $ 15.82 $ — Outstanding at September 30, 2022 2,361,175 $ 15.14 3.32 $ 429 Vested and exercisable, at September 30, 2022 2,361,175 $ 15.14 3.32 $ 429 Vested or expected to vest, at September 30, 2022 2,361,175 $ 15.14 3.32 $ 429 The total intrinsic value of options exercised during the years ended September 30, 2022, 2021 and 2020 was $ 551 , $ 8,605 and $ 3,941 . There were no non-vested options outstanding as of September 30, 2022. Upon exercise of vested options, management expects to draw on treasury stock as the source of the shares. 15. COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of business, the Company enters into commitments with off-balance-sheet risk to meet the financing needs of its customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments to originate loans generally have fixed expiration dates of 60 to 360 days or other termination clauses and may require payment of a fee. Unfunded commitments related to home equity lines of credit generally expire from five to 10 years following the date that the line of credit was established, subject to various conditions including compliance with payment obligation, adequacy of collateral securing the line and maintenance of a satisfactory credit profile by the borrower. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Off-balance sheet commitments to extend credit involve elements of credit risk and interest rate risk in excess of the amount recognized in the CONSOLIDATED STATEMENTS OF CONDITION . The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitment is represented by the contractual amount of the commitment. The Company generally uses the same credit policies in making commitments as it does for on-balance-sheet instruments. The allowance for credit losses related to off-balance sheet commitments is recorded in other liabilities in the CONSOLIDATED STATEMENTS OF CONDITION . Refer to Note 5. LOANS AND ALLOWANCES FOR CREDIT LOSSES for discussion on credit loss methodology. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Company since the time the commitment was made. At September 30, 2022, the Company had commitments to originate loans and related allowances as follows: Commitment Allowance Fixed-rate mortgage loans $ 229,194 $ 930 Adjustable-rate mortgage loans 152,057 616 Equity loans and lines of credit 157,465 1,977 Total $ 538,716 $ 3,523 At September 30, 2022, the Company had unfunded commitments outstanding and related allowances as follows: Commitment Allowance Home equity lines of credit $ 4,084,843 $ 22,876 Construction loans 72,273 623 Total $ 4,157,116 $ 23,499 At September 30, 2022, the unfunded commitment on home equity lines of credit, including commitments for accounts suspended as a result of material default or a decline in equity, is $ 4,105,486 . 109 Table of Contents The above commitments are expected to be funded through normal operations. The Company is undergoing an escheat audit covering Ohio and Kentucky. Any potential loss that may result from this matter is not reasonably estimable at September 30, 2022. The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s consolidated financial condition, results of operation, or statements of cash flows. 16. FAIR VALUE Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date under current market conditions. A fair value framework is established whereby assets and liabilities measured at fair value are grouped into three levels of a fair value hierarchy, based on the transparency of inputs and the reliability of assumptions used to estimate fair value. The three levels of inputs are defined as follows: Level 1 – quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 – quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with few transactions, or model-based valuation techniques using assumptions that are observable in the market. Level 3 – a company’s own assumptions about how market participants would price an asset or liability. As permitted under the fair value guidance in U.S. GAAP, the Company elects to measure at fair value mortgage loans classified as held for sale that are subject to pending agency contracts to securitize and sell loans. This election is expected to reduce volatility in earnings related to market fluctuations between the contract trade and settlement dates. At September 30, 2022 and September 30, 2021, respectively, there were no pending agency contracts held for sale. For the years ended September 30, 2022, 2021, and 2020, net gain (loss) on the sale of loans includes $ 0 , $ 134 and $ 2,026 , respectively, related to unrealized gains or losses during the period due to changes in the fair value of loans held for sale subject to pending agency contracts. Presented below is a discussion of the methods and significant assumptions used by the Company to estimate fair value. Investment Securities Available for Sale — Investment securities available for sale are recorded at fair value on a recurring basis. At September 30, 2022 and 2021, respectively, this includes $ 457,908 and $ 421,783 of investments in U.S. government and agency obligations including U.S. Treasury notes and highly liquid collateralized mortgage obligations issued by Fannie Mae, Freddie Mac, and Ginnie Mae, both measured using the market approach. The fair values of investment securities represent unadjusted price estimates obtained from third party independent nationally recognized pricing services using pricing models or quoted prices of securities with similar characteristics and are included in Level 2 of the hierarchy. Third party pricing is reviewed on a monthly basis for reasonableness based on the market knowledge and experience of company personnel that interact daily with the markets for these types of securities. Mortgage Loans Held for Sale — The fair value of mortgage loans held for sale is estimated on an aggregate basis using a market approach based on quoted secondary market pricing for loan portfolios with similar characteristics. Loans held for sale are carried at the lower of cost or fair value except, as described above, the Company elects the fair value measurement option for mortgage loans held for sale subject to pending agency contracts to securitize and sell loans. Loans held for sale are included in Level 2 of the hierarchy. At September 30, 2022 and 2021, there were $ 9,661 and $ 0 , respectively, of loans held for sale measured at fair value and $ 0 and $ 8,848 , respectively, of loans held for sale carried at cost. Interest income on mortgage loans held for sale is recorded in interest income on loans. Collateral-dependent Loans — Collateral-dependent loans represent certain loans held for investment that are subject to a fair value measurement under U.S. GAAP because they are individually evaluated using a fair value measurement, such as the fair value of the underlying collateral. Credit loss is measured using a market approach based on the fair value of the collateral, less estimated costs to dispose, for loans the Company considers to be collateral-dependent due to a delinquency status or other adverse condition severe enough to indicate that the borrower can no longer be relied upon as the continued source of repayment. These conditions are described more fully in Note 5. LOANS AND ALLOWANCES FOR CREDIT LOSSES . To calculate the credit loss of collateral-dependent loans, the fair market values of the collateral, estimated using exterior appraisals in the majority of instances, are reduced by calculated estimated costs to dispose, derived from historical experience and recent market conditions. Any indicated credit loss is recognized by a charge to the allowance for credit losses. Subsequent increases in collateral values or principal pay downs on loans with recognized credit loss could result in a collateral-dependent loan being 110 Table of Contents carried below its fair value. When no credit loss is indicated, the carrying amount is considered to approximate the fair value of that loan to the Company because contractually that is the maximum repayment the Company can expect. The amortized cost of loans individually evaluated for credit loss based on the fair value of the collateral are included in Level 3 of the hierarchy with assets measured at fair value on a non-recurring basis. The range and weighted average impact of estimated costs to dispose on fair values is determined at the time of credit loss or when additional credit loss is recognized and is included in quantitative information about significant unobservable inputs later in this note. Loans held for investment that have been restructured in TDRs, are performing according to the restructured terms of the loan agreement and are not evaluated based on collateral, are individually evaluated for credit loss using the present value of future cash flows based on the loan’s effective interest rate, which is not a fair value measurement. At September 30, 2022 and 2021, respectively, this included $ 76,692 and $ 84,594 in amortized costs of TDRs with related allowances for loss of $ 10,284 and $ 12,073 . Real Estate Owned — Real estate owned includes real estate acquired as a result of foreclosure, or by deed in lieu of foreclosure, and is carried at the lower of the cost basis or fair value, less estimated costs to dispose. The carrying amounts of real estate owned at September 30, 2022 and September 30, 2021 were $ 1,191 and $ 289 , respectively. Fair value is estimated under the market approach using independent third party appraisals. As these properties are actively marketed, estimated fair values may be adjusted by management to reflect current economic and market conditions. At September 30, 2022 and 2021, these adjustments were not significant to reported fair values. At September 30, 2022 and 2021, respectively, $ 1,192 and $ 66 of real estate owned is included in Level 3 of the hierarchy with assets measured at fair value on a non-recurring basis where the cost basis equals or exceeds the estimate of fair values less costs to dispose of these properties. Real estate owned includes estimated costs to dispose of $ 156 and $ 9 related to properties measured at fair value and $ 155 and $ 231 of properties carried at their original or adjusted cost basis at September 30, 2022 and 2021, respectively. Derivatives — Derivative instruments include interest rate locks on commitments to originate loans for the held for sale portfolio, forward commitments on contracts to deliver mortgage loans, and interest rate swaps designated as cash flow hedges. Derivatives not designated as cash flow hedges are reported at fair value in Other assets or Other liabilities on the CONSOLIDATED STATEMENT OF CONDITION with changes in value recorded in current earnings. Derivatives qualifying as cash flow hedges are settled daily, bringing their fair value to $ 0 . Refer to Note 17. DERIVATIVE INSTRUMENTS for additional information on cash flow hedges. The fair value of interest rate lock commitments is adjusted by a closure rate based on the estimated percentage of commitments that will result in closed loans. The range and weighted average impact of the closure rate is included in quantitative information about significant unobservable inputs later in this note. A significant change in the closure rate may result in a significant change in the ending fair value measurement of these derivatives relative to their total fair value. Because the closure rate is a significantly unobservable assumption, interest rate lock commitments are included in Level 3 of the hierarchy. Forward commitments on contracts to deliver mortgage loans are included in Level 2 of the hierarchy. Assets and liabilities carried at fair value on a recurring basis in the CONSOLIDATED STATEMENTS OF CONDITION at September 30, 2022 and 2021 are summarized below. There are no liabilities carried at fair value at September 30, 2021. Recurring Fair Value Measurements at Reporting Date Using September 30, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Investment securities available for sale: REMIC’s $ 453,268 $ — $ 453,268 $ — Fannie Mae certificates 1,021 — 1,021 — U.S. government and agency obligations 3,619 $ — 3,619 — Total $ 457,908 $ — $ 457,908 $ — Liabilities Derivatives: Interest rate lock commitments 333 — — 333 Total $ 333 $ — $ — $ 333 111 Table of Contents Recurring Fair Value Measurements at Reporting Date Using September 30, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Investment securities available for sale: REMIC’s $ 416,241 $ — $ 416,241 $ — Fannie Mae certificates 5,542 — 5,542 — Derivatives: Interest rate lock commitments 525 — — 525 Total $ 422,308 $ — $ 421,783 $ 525 The table below presents a reconciliation of the beginning and ending balances and the location within the CONSOLIDATED STATEMENTS OF INCOME where gains (losses) due to changes in fair value are recognized on interest rate lock commitments which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3). Interest Rate Lock Commitments Year Ended September 30, 2022 2021 2020 Beginning balance $ 525 $ 1,194 $ 44 (Loss)/Gain during the period due to changes in fair value: Included in other non-interest income ( 858 ) ( 669 ) 1,150 Ending balance $ ( 333 ) $ 525 $ 1,194 Change in unrealized gains for the period included in earnings for assets held at end of the reporting date $ ( 333 ) $ 525 $ 1,194 Summarized in the tables below are those assets measured at fair value on a nonrecurring basis. Nonrecurring Fair Value Measurements at Reporting Date Using September 30, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Collateral-dependent loans, net of allowance $ 47,121 $ — $ — $ 47,121 Mortgage loans held for sale 9,661 — 9,661 — Real estate owned (1) 1,192 — — 1,192 Total $ 57,974 $ — $ 9,661 $ 48,313 ______________________ (1) Amounts represent fair value measurements of properties before deducting estimated costs to dispose. Nonrecurring Fair Value Measurements at Reporting Date Using September 30, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Collateral-dependent loans, net of allowance $ 83,854 $ — $ — $ 83,854 Real estate owned (1) 66 — — 66 Total $ 83,920 $ — $ — $ 83,920 ______________________ (1) Amounts represent fair value measurements of properties before deducting estimated costs to dispose. 112 Table of Contents The following provides quantitative information about significant unobservable inputs categorized within Level 3 of the Fair Value Hierarchy. The interest rate lock commitments can include commitments on both mortgage origination applications and preapprovals. Preapprovals generally have a much lower closure rate than origination applications which is reflected in the aggregate weighted average closure rates shown below when applicable. Fair Value September 30, 2022 Valuation Technique(s) Unobservable Input Range Weighted Average Collateral-dependent loans, net of allowance $ 47,121 Market comparables of collateral discounted to estimated net proceeds Discount appraised value to estimated net proceeds based on historical experience: • Residential Properties 0 - 28 % 4.7 % Interest rate lock commitments $( 333 ) Quoted Secondary Market pricing Closure rate 0 - 100 % 93.7 % Fair Value September 30, 2021 Valuation Technique(s) Unobservable Input Range Weighted Average Collateral-dependent loans, net of allowance $ 83,854 Market comparables of collateral discounted to estimated net proceeds Discount appraised value to estimated net proceeds based on historical experience: • Residential Properties 0 - 34 % 4.0 % Interest rate lock commitments $ 525 Quoted Secondary Market pricing Closure rate 0 - 100 % 66.1 % The following tables present the estimated fair value of the Company's financial instruments and their carrying amounts as reported in the CONSOLIDATED STATEMENTS OF CONDITION . September 30, 2022 Carrying Estimated Fair Value Amount Total Level 1 Level 2 Level 3 Assets: Cash and due from banks $ 18,961 $ 18,961 $ 18,961 $ — $ — Interest earning cash equivalents 350,603 350,603 350,603 — — Investment securities available for sale 457,908 457,908 — 457,908 — Mortgage loans held for sale 9,661 9,661 — 9,661 — Loans, net: Mortgage loans held for investment 14,253,804 13,106,346 — — 13,106,346 Other loans 3,263 3,263 — — 3,263 Federal Home Loan Bank stock 212,290 212,290 N/A — — Accrued interest receivable 40,256 40,256 — 40,256 — Cash collateral received from or held by counterparty 26,045 26,045 26,045 — — Liabilities: Checking and passbook accounts $ 3,056,506 $ 3,056,506 $ — $ 3,056,506 $ — Certificates of deposit 5,864,511 5,733,418 — 5,733,418 — Borrowed funds 4,793,221 4,734,377 — 4,734,377 — Borrowers’ advances for taxes and insurance 117,250 117,250 — 117,250 — Principal, interest and escrow owed on loans serviced 29,913 29,913 — 29,913 — Derivatives 333 333 — 333 113 Table of Contents September 30, 2021 Carrying Estimated Fair Value Amount Total Level 1 Level 2 Level 3 Assets: Cash and due from banks $ 27,346 $ 27,346 $ 27,346 $ — $ — Interest earning cash equivalents 460,980 460,980 460,980 — — Investment securities available for sale 421,783 421,783 — 421,783 — Mortgage loans held for sale 8,848 8,982 — 8,982 — Loans, net: Mortgage loans held for investment 12,506,257 12,777,375 — — 12,777,375 Other loans 2,778 2,778 — — 2,778 Federal Home Loan Bank stock 162,783 162,783 N/A — — Accrued interest receivable 31,107 31,107 — 31,107 — Cash collateral received from or held by counterparty 24,236 24,236 24,236 — — Derivatives 525 525 — — 525 Liabilities: Checking and passbook accounts $ 2,960,150 $ 2,960,150 $ — $ 2,960,150 $ — Certificates of deposit 6,033,455 6,118,018 — 6,118,018 — Borrowed funds 3,091,815 3,106,277 — 3,106,277 — Borrowers’ advances for taxes and insurance 109,633 109,633 — 109,633 — Principal, interest and escrow owed on loans serviced 41,476 41,476 — 41,476 — Presented below is a discussion of the valuation techniques and inputs used by the Company to estimate fair value. Cash and Due from Banks, Interest Earning Cash Equivalents, Cash Collateral Received from or Held by Counterparty — The carrying amount is a reasonable estimate of fair value. Investment Securities Available for Sale — Estimated fair value for investment and mortgage-backed securities is based on quoted market prices, when available. If quoted prices are not available, management will use as part of their estimation process fair values which are obtained from third party independent nationally recognized pricing services using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Mortgage Loans Held for Sale — Fair value of mortgage loans held for sale is based on quoted secondary market pricing for loan portfolios with similar characteristics. Loans — For mortgage loans held for investment and other loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term. The use of current rates to discount cash flows reflects current market expectations with respect to credit exposure. Collateral-dependent loans are measured at the lower of cost or fair value as described earlier in this footnote. Federal Home Loan Bank Stock — It is not practical to estimate the fair value of FHLB stock due to restrictions on its transferability. The fair value is estimated to be the carrying value, which is par. All transactions in capital stock of the FHLB Cincinnati are executed at par. Deposits — The fair value of demand deposit accounts is estimated as the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flows and rates currently offered for deposits of similar remaining maturities. Borrowed Funds — Fair value for borrowed funds is estimated using discounted cash flows and rates currently charged for borrowings of similar remaining maturities. Accrued Interest Receivable, Borrowers’ Advances for Insurance and Taxes, and Principal, Interest and Related Escrow Owed on Loans Serviced — The carrying amount is a reasonable estimate of fair value. 114 Table of Contents Derivatives — Fair value is estimated based on the valuation techniques and inputs described earlier in this footnote. 17. DERIVATIVE INSTRUMENTS The Company enters into interest rate swaps to add stability to interest expense and manage exposure to interest rate movements as part of an overall risk management strategy. For hedges of the Company's borrowing program, interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments. These derivatives are used to hedge the forecasted cash outflows associated with the Company's FHLB borrowings. At September 30, 2022 and 2021, the interest rate swaps used in the Company's asset/liability management strategy have weighted average terms o f 2.7 years and 2.5 years and weighted average fixed-rate interest payments of 1.88 % for both periods. Cash flow hedges are initially assessed for effectiveness using regression analysis. Changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in OCI and is subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Quarterly, a qualitative analysis is preformed to monitor the ongoing effectiveness of the hedging instrument. All derivative positions were initially and continue to be highly effective at September 30, 2022. The Company enters into forward commitments for the sale of mortgage loans principally to protect against the risk of lost revenue from adverse interest rate movements on net income. The Company recognizes the fair value of such contracts when the characteristics of those contracts meet the definition of a derivative. These derivatives are not designated in a hedging relationship; therefore, gains and losses are recognized immediately in the CONSOLIDATED STATEMENTS OF INCOME . In addition, the Company is party to derivative instruments when it enters into interest rate lock commitments to originate a portion of its loans, which when funded, are classified as held for sale. Such commitments are not designated in a hedging relationship; therefore, gains and losses are recognized immediately in the CONSOLIDATED STATEMENTS OF INCOME . The following tables provide the locations within the CONSOLIDATED STATEMENTS OF CONDITION , notional values and fair values, at the reporting dates, for all derivative instruments. September 30, 2022 September 30, 2021 Notional Value Fair Value Notional Value Fair Value Derivatives designated as hedging instruments Cash flow hedges: Interest rate swaps Other Assets $ 1,550,000 $ — $ 250,000 $ — Other Liabilities — — 2,200,000 — Total cash flow hedges: Interest rate swaps $ 1,550,000 $ — $ 2,450,000 $ — Derivatives not designated as hedging instruments Interest rate lock commitments Other Assets $ — $ — $ 24,826 $ 525 Other Liabilities 9,170 ( 333 ) — — Total derivatives not designated as hedging instruments $ 9,170 $ ( 333 ) $ 24,826 $ 525 115 Table of Contents The following tables present the net gains and losses recorded within the CONSOLIDATED STATEMENTS OF INCOME and the CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME relating to derivative instruments. Location of Gain or (Loss) Recognized in Income Year Ended September 30, 2022 2021 2020 Cash flow hedges Amount of gain/(loss) recognized Other comprehensive income $ 141,163 $ 27,848 $ ( 115,396 ) Amount of gain/(loss) reclassified from AOCI Interest expense: Borrowed funds ( 22,740 ) ( 44,534 ) (16,982) Amount of gain/(loss) reclassified from AOCI-Due to discontinuance of cash flow hedge Interest expense: Borrowed funds — — ( 7,775 ) Derivatives not designated as hedging instruments Interest rate lock commitments Other non-interest income $ ( 858 ) $ ( 669 ) $ 1,150 Forward commitments for the sale of mortgage loans Net gain/(loss) on the sale of loans — 134 ( 134 ) The Company estimates that $ 35,882 of the amounts reported in AOCI will be reclassified as a credit to interest expense during the fiscal year ending September 30, 2023. The economic lockdowns precipitated by the COVID-19 pandemic of 2020 caused unprecedented economic conditions resulting in extended low rates across the entire maturity spectrum, in which the Company decided to take advantage of this market condition. In the 2020 fiscal year the Company terminated four high cost interest rate swaps prior to their maturity. For the early termination of these swaps, the Company incurred $ 7,775 in additional interest rate expense and $ 48 in prepayment penalties. This additional interest rate expense is loss reclassified from AOCI during the year ended September 30, 2020 as a result of the discontinuance of the cash flow hedges because it was probable that the original forecasted transactions would not occur. These selected swaps were deemed beneficial to terminate as the Company would lower interest rate expense for future periods. Derivatives contain an element of credit risk which arises from the possibility that the Company will incur a loss because a counterparty fails to meet its contractual obligations. The Company's exposure is limited to the replacement value of the contracts rather than the notional or principal amounts. Credit risk is minimized through counterparty margin payments, transaction limits and monitoring procedures. All of the Company's swap transactions are cleared through a registered clearing broker to a central clearing organization. The clearing organization establishes daily cash and upfront cash or securities margin requirements to cover potential exposure in the event of default. This process shifts the risk away from the counterparty, since the clearing organization acts as the middleman on each cleared transaction. At September 30, 2022 and 2021, there was $ 26,045 and $ 24,236 , respectively, included in other assets related to initial margin requirements held by the central clearing organization. For derivative transactions cleared through certain clearing parties, variation margin payments are recognized as settlements on a daily basis. The fair value of derivative instruments are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements. 116 Table of Contents 18. PARENT COMPANY ONLY FINANCIAL STATEMENTS The following condensed financial statements for TFS Financial Corporation (parent company only) reflect the investments in, and transactions with, its wholly-owned subsidiaries. Intercompany activity is eliminated in the consolidated financial statements. September 30, 2022 2021 Statements of Condition Assets: Cash and due from banks $ 1,341 $ 5,357 Investment securities - available for sale 3,619 — Other loans: Demand loan due from Third Federal Savings and Loan 184,772 185,076 ESOP loan receivable 41,927 46,454 Investments in: Third Federal Savings and Loan 1,605,306 1,487,284 Non-thrift subsidiaries 8,104 6,381 Prepaid federal and state taxes — 655 Deferred income taxes 296 285 Accrued receivables and other assets 9,158 9,397 Total assets $ 1,854,523 $ 1,740,889 Liabilities and shareholders’ equity: Line of credit due non-thrift subsidiary $ 7,485 $ 5,836 Accrued expenses and other liabilities 2,532 2,773 Accrued federal and state income taxes 167 — Total liabilities 10,184 8,609 Preferred stock, $ 0.01 par value, 100,000,000 shares authorized, none issued and outstanding — — Common stock, 0.01 par value, 700,000,000 shares authorized; 332,318,750 shares issued; 280,582,741 and 280,761,299 outstanding at September 30, 2022 and September 30, 2021, respectively 3,323 3,323 Paid-in capital 1,751,223 1,746,887 Treasury stock, at cost; 51,736,009 and 51,557,451 shares at September 30, 2022 and September 30, 2021, respectively ( 771,986 ) ( 768,035 ) Unallocated ESOP shares ( 31,417 ) ( 35,751 ) Retained earnings—substantially restricted 870,047 853,657 Accumulated other comprehensive income (loss) 23,149 ( 67,801 ) Total shareholders’ equity 1,844,339 1,732,280 Total liabilities and shareholders’ equity $ 1,854,523 $ 1,740,889 117 Table of Contents Years Ended September 30, 2022 2021 2020 Statements of Comprehensive Income (Loss) Interest income: Demand loan due from Third Federal Savings and Loan $ 1,600 $ 164 $ 1,412 ESOP loan 1,400 1,732 2,548 Other interest income 6 1 43 Investment securities available for sale 43 — — Total interest income 3,049 1,897 4,003 Interest expense: Borrowed funds from non-thrift subsidiaries 97 7 291 Total interest expense 97 7 291 Net interest income 2,952 1,890 3,712 Non-interest income: Intercompany service charges 30 85 77 Dividend from Third Federal Savings and Loan 56,000 55,000 57,000 Dividend from non-thrift subsidiary — — 16,000 Total other income 56,030 55,085 73,077 Non-interest expenses: Salaries and employee benefits 4,534 4,917 5,012 Professional services 1,456 1,566 1,323 Office property and equipment 13 3 10 Other operating expenses 223 176 254 Total non-interest expenses 6,226 6,662 6,599 Income before income tax benefit 52,756 50,313 70,190 Income tax benefit ( 2,826 ) ( 3,848 ) ( 4,404 ) Income before undistributed earnings of subsidiaries 55,582 54,161 74,594 Equity in undistributed earnings of subsidiaries (dividend in excess of earnings): Third Federal Savings and Loan 17,260 24,738 19,418 Non-thrift subsidiaries 1,723 2,108 ( 10,695 ) Net income 74,565 81,007 83,317 Change in net unrealized gain (loss) on securities available for sale ( 34,860 ) ( 3,733 ) 6,859 Change in cash flow hedges 127,093 56,096 ( 69,391 ) Change in pension obligation ( 1,283 ) 11,801 ( 54 ) Total other comprehensive income (loss) 90,950 64,164 ( 62,586 ) Total comprehensive income $ 165,515 $ 145,171 $ 20,731 118 Table of Contents Years Ended September 30, 2022 2021 2020 Statements of Cash Flows Cash flows from operating activities: Net income $ 74,565 $ 81,007 $ 83,317 Adjustments to reconcile net income to net cash provided by operating activities: (Equity in undistributed earnings of subsidiaries) dividend in excess of earnings: Third Federal Savings and Loan ( 17,260 ) ( 24,738 ) ( 19,418 ) Non-thrift subsidiaries ( 1,723 ) ( 2,108 ) 10,695 Deferred income taxes 81 204 2,114 ESOP and stock-based compensation expense 1,543 1,843 1,893 Net decrease (increase) in interest receivable and other assets 908 12,593 ( 3,337 ) Net increase (decrease) in accrued expenses and other liabilities 48 ( 200 ) 241 Net cash provided by operating activities 58,162 68,601 75,505 Cash flows from investing activities: Purchase of securities available for sale ( 4,071 ) — — Increase in balances lent to Third Federal Savings and Loan 304 ( 12,222 ) ( 31,899 ) Repayment of capital contributions from non-thrift subsidiaries — — 69,000 Net cash provided by (used in) investing activities ( 3,767 ) ( 12,222 ) 37,101 Cash flows from financing activities: Principal reduction of ESOP loan 4,527 4,063 3,719 Purchase of treasury shares ( 5,049 ) — ( 413 ) Dividends paid to common shareholders ( 58,297 ) ( 56,637 ) ( 55,465 ) Acquisition of treasury shares through net settlement ( 1,241 ) ( 5,591 ) ( 1,907 ) Net increase (decrease) in borrowings from non-thrift subsidiaries 1,649 1,787 ( 58,497 ) Net cash used in financing activities ( 58,411 ) ( 56,378 ) ( 112,563 ) Net increase (decrease) in cash and cash equivalents ( 4,016 ) 1 43 Cash and cash equivalents—beginning of year 5,357 5,356 5,313 Cash and cash equivalents—end of year $ 1,341 $ 5,357 $ 5,356 19. EARNINGS PER SHARE Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. For purposes of computing earnings per share amounts, outstanding shares include shares held by the public, shares held by the ESOP that have been allocated to participants or committed to be released for allocation to participants and the 227,119,132 shares held by Third Federal Savings, MHC. For purposes of computing dilutive earnings per share, stock options and restricted and performance share units with a dilutive impact are added to the outstanding shares used in the basic earnings per share calculation. Unvested shares awarded pursuant to the Company's restricted stock plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security. Performance share units, determined to be contingently issuable and not participating securities, are excluded from the calculation of basic EPS. At September 30, 2022 and 2021, respectively, the ESOP held 3,141,711 and 3,575,051 shares, respectively that were neither allocated to participants nor committed to be released to participants. 119 Table of Contents The following is a summary of the Company’s EPS calculations. For the Year Ended September 30, 2022 Income Shares Per share amount (Dollars in thousands, except per share data) Net income $ 74,565 Less: income allocated to restricted stock units 1,510 Basic earnings per share: Income available to common shareholders 73,055 277,370,762 $ 0.26 Diluted earnings per share: Effect of dilutive potential common shares 1,315,603 Income available to common shareholders $ 73,055 278,686,365 $ 0.26 For the Year Ended September 30, 2021 Income Shares Per share amount (Dollars in thousands, except per share data) Net income $ 81,007 Less: income allocated to restricted stock units 1,555 Basic earnings per share: Income available to common shareholders 79,452 276,694,594 $ 0.29 Diluted earnings per share: Effect of dilutive potential common shares 1,881,660 Income available to common shareholders $ 79,452 278,576,254 $ 0.29 For the Year Ended September 30, 2020 Income Shares Per share amount (Dollars in thousands, except per share data) Net income $ 83,317 Less: income allocated to restricted stock units 1,579 Basic earnings per share: Income available to common shareholders 81,738 275,859,660 $ 0.30 Diluted earnings per share: Effect of dilutive potential common shares 1,943,398 Income available to common shareholders $ 81,738 277,803,058 $ 0.29 The following is a summary of outstanding stock options and restricted and performance share units that are excluded from the computation of diluted EPS because their inclusion would be anti-dilutive. For the Year Ended September 30, 2022 2021 2020 Options to purchase shares 407,100 133,800 573,500 Restricted and performance share units 50,000 — 44,030 120 Table of Contents 20. RECENT ACCOUNTING PRONOUNCEMENTS Adopted in fiscal year ended September 30, 2022 In March of 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815), Fair Value Hedging - Portfolio Layer Method. The amendments in this Update amend the guidance in ASU 2017-12 relating to the "last-of-layer" method and rename the method as the "portfolio layer" method. It expands the scope of existing guidance so that entities can apply the portfolio layer method to portfolios of all financial assets, including both prepayable and nonprepayable financial assets. Additionally, the standards expands the current model to explicitly allow entities to designate multiple layers in a single portfolio as individual hedged items. This allows a larger portion of the interest rate risk associated with such a portfolio to be hedged. The Update is effective for fiscal years beginning after December 15, 2022, with early adoption permitted in any interim period after its issuance. The Company early adopted this Update effective April 1, 2022. This Update did not have a material impact on the Company's consolidated financial condition or results of operations. Issued but not yet adopted as of September 30, 2022 In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326). The amendments in this Update eliminate the accounting guidance for TDR by creditors in Subtopic 310-40, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when the borrower is experiencing financial difficulty. This will be done by applying the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, this amendment requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20. This update is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact that this accounting guidance may have on its consolidated financial condition or results of operations. The Company plans to adopt this guidance as of October 1, 2023. The Company has determined that all other recently issued accounting pronouncements will not have a material impact on the Company's consolidated financial statements or do not apply to its operations. 21. RELATED PARTY TRANSACTIONS The Company has made loans and extensions of credit, in the ordinary course of business, to certain directors and executive officers. These loans were originated with normal credit terms, including interest rate and collateralization, and do not represent more than the normal risk of collection. The aggregate amount of loans to such related parties at September 30, 2022 and 2021 was $ 0 and $ 64 , respectively . 121 Table of Contents FORM 10-K EXHIBIT INDEX Exhibit Number Description of Exhibit If Incorporated by Reference, Documents with Which Exhibit was Previous Filed with SEC 3.1 Amended and Restated Charter of TFS Financial Corporation, dated January 16, 2007 Amendment No. 2 to Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on February 9, 2006; Exhibit 3.2 therein) 3.2 Amended and Restated Bylaws of TFS Financial Corporation Current Report on Form 8-K No. 001-33390 (filed with the SEC on April 28, 2008; Exhibit 3.2 therein) 3.3 Amendment to Bylaws of TFS Financial Corporation Current Report on Form 8-K No. 001-33390 (filed with the SEC on October 29, 2018; Exhibit 3 therein) 3.4 Amendment to Bylaws of TFS Financial Corporation Current Report on Form 8-K No. 001-33390 (filed with the SEC on July 1, 2022; Exhibit 3 therein) 4.1 Form of Common Stock Certificate of TFS Financial Corporation Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 4 therein) 4.2 Description of Registrant's Securities Annual Report on Form 10-K No. 001-33390 (filed with the SEC on November 24, 2020; Exhibit 4.2 therein) 10.1 [Intentionally omitted] 10.2 Financial, Retirement & Estate Planning Program as amended and restated January 1, 2006 Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.2 therein) 10.3 Resolution Regarding Executive Physical Program, dated May 16, 2002 Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.3 therein) 10.4 Company Car Program, dated February 24, 1995 Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.4 therein) 10.5 Executive Retirement Benefit Plan I, dated January 1, 2006 Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.5 therein) 10.6 Benefit Equalization Plan, dated January 1, 2005 Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.6 therein) 10.7 Split Dollar Agreement, dated January 29, 2002 Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.7 therein) 10.8 Resolution Regarding Supplemental Split Dollar Life Insurance Plan, dated August 22, 2002 Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 10.8 therein) 10.9 [Intentionally omitted] 10.10 TFS Financial Corporation Amended and Restated 2008 Equity Incentive Plan (incorporated by reference to Appendix B to the definitive proxy statement for the 2018 Annual Meeting of Stockholders) Proxy Statement on Schedule 14A, No. 001-33390 (filed with the SEC on January 9, 2018) 10.11 TFS Financial Corporation Management Incentive Compensation Plan (incorporated by reference to Appendix A to the definitive proxy statement for the 2018 Annual Meeting of Stockholders) Proxy Statement on Schedule 14A, No. 001-33390 (filed with the SEC on January 9, 2018) 122 Table of Contents Exhibit Number Description of Exhibit If Incorporated by Reference, Documents with Which Exhibit was Previous Filed with SEC 10.12 First Amendment to the Restricted Stock Unit Award Agreement (August 11, 2008 award), dated August 9, 2012 Current Report on Form 8-K No. 001-33390 (filed with the SEC on August 9, 2012; Exhibit 10.1 therein) 10.13 First Amendment to the Restricted Stock Unit Award Agreement (May 12, 2009 award), dated August 9, 2012 Current Report on Form 8K No. 001-33390 (filed with the SEC on August 9, 2012; Exhibit 10.2 therein) 10.14 First Amendment to the Restricted Stock Unit Award Agreement (May 14, 2010 award), dated August 9, 2012 Current Report on Form 8K No. 001-33390 (filed with the SEC on August 9, 2012; Exhibit 10.3 therein) 14 Code of Ethics Available on our website, www.thirdfederal.com 21.1 Subsidiaries of Registrant Registration Statement on Form S-1 No. 333-139295 (filed with the SEC on December 13, 2006; Exhibit 21 therein) 23.1 Consent of Independent Registered Public Accounting Firm Filed herewith 31.1 Certification of chief executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 Filed herewith 31.2 Certification of chief financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 Filed herewith 32 Certification of chief executive officer and chief financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 Filed herewith 100 XBRL related documents The following financial statements from TFS Financial Corporation’s Annual Report on Form 10-K for the year ended September 30, 2022 filed on November 22, 2022 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) Consolidated Statements of Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Shareholders' Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements. 101.INS Interactive datafile XBRL Instance Document 101.SCH Interactive datafile XBRL Taxonomy Extension Schema Document 101.CAL Interactive datafile XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Interactive datafile XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Interactive datafile XBRL Taxonomy Extension Label Linkbase Document 101.PRE Interactive datafile XBRL Taxonomy Extension Presentation Linkbase Document 104 Interactive datafile Cover Page Interactive Datafile (embedded within the Inline XBRL document and included in Exhibit 101) 123 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TFS Financial Corporation Dated: November 22, 2022 /S/ MARC A. STEFANSKI Marc A. Stefanski Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: November 22, 2022 /S/ MARC A. STEFANSKI Marc A. Stefanski Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Dated: November 22, 2022 /S/ TIMOTHY W. MULHERN Timothy W. Mulhern Chief Financial Officer (Principal Financial Officer) Dated: November 22, 2022 /S/ SUSANNE N. MILLER Susanne N. Miller Chief Accounting Officer (Principal Accounting Officer) Dated: November 22, 2022 /S/ BARBARA J. ANDERSON Barbara J. Anderson, Director Dated: November 22, 2022 /S/ ANTHONY J. ASHER Anthony J. Asher, Director Dated: November 22, 2022 /S/ MARTIN J. COHEN Martin J. Cohen, Director Dated: November 22, 2022 /S/ ROBERT A. FIALA Robert A. Fiala, Director Dated: November 22, 2022 /S/ WILLIAM C. MULLIGAN William C. Mulligan, Director Dated: November 22, 2022 /S/ TERRENCE R. OZAN Terrence R. Ozan, Director Dated: November 22, 2022 /S/ JOHN P. RINGENBACH John P. Ringenbach, Director Dated: November 22, 2022 /S/ MEREDITH S. WEIL Meredith S. Weil, Director Dated: November 22, 2022 /S/ DANIEL F. WEIR Daniel F. Weir, Director Dated: November 22, 2022 /S/ ASHLEY H. WILLIAMS Ashley H. Williams, Director 124