What changed in this filing

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Item 1A. Risk Factors

2023-11-21 compared with 2022-11-22 · 137 added, 132 removed, 161 unchanged (63% of the section changed)

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See also, “Forward-Looking Statements.”

Risks Related to the COVID-19 Pandemic

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

Although U.S.

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

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

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

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

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

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

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

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

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

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

• our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

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

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

• our cyber security risks are increased as the result of an increase in the number of associates working remotely;

• the unanticipated loss or unavailability of key associates due to the outbreak, which could harm our ability to operate our business or execute our business strategy, especially as we may not be successful in finding and integrating suitable successors;

• we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us;

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

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

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

Risks Related to Economic Conditions

Our financial condition, results of operation, and stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions.

Further, if we are unable to adequately manage our liquidity, deposits, capital levels, and interest rate risk, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations.

On March 8, 2023, Silvergate Bank, La Jolla, CA, announced its decision to voluntarily liquidate its assets and wind down operations.

On March 10, 2023, Silicon Valley Bank, Santa Clara, CA, was closed by the California Department of Financial Protection and Innovation, and on March 12, 2023, Signature Bank, New York, NY, was closed by the New York State Department of Financial Services.

Additionally, on May 1, 2023, First Republic Bank, San Francisco, CA, was closed by the FDIC and sold to JP Morgan Chase & Co.

These events led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

Notably, the liquidation of Silvergate Bank and the failures of Silicon Valley Bank and Signature Bank were not generally related to the credit quality of their assets, but to poor liquidity management, mismatched funding of long-term assets with short-term funds, and unique business models.

The financial distress these banks experienced appears to have been caused in large part by high exposure to certain industries, including cryptocurrency and venture capital and start-up companies operating in the technology space, which have experienced significant volatility and fluctuations in cash flows over the past several years.

These banks also had high levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits.

Silicon Valley Bank in particular appears to have experienced a severe lack of liquidity, forcing it to sell long-term investment securities at significant losses.

Ultimately, it was unable to meet its financial commitments and satisfy the cash requirements of its customers.

These bank failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions, which in turn led to a greater focus by institutions, investors, and regulators on the on-balance sheet liquidity of and funding sources for financial institutions and the composition of its deposits.

Notwithstanding, our efforts to promote deposit insurance coverage with our customers and otherwise effectively manage our liquidity, deposit portfolio retention, and other related matters, our financial condition, results of operation, and stock price may be adversely affected by future negative events within the banking sector and adverse customer or investor responses to such events.

Inflation can have an adverse impact on our business and on our customers.

Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.

Recently, there has been a rise in inflation and the Federal Reserve Board has raised certain benchmark interest rates in an effort to combat inflation.

As inflation increases, the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments.

In addition, inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expense.

Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.

The reversal of the historically low interest rate environment may further adversely affect our net interest income and profitability.

The Federal Reserve Board decreased benchmark interest rates significantly, to near zero, in response to the COVID-19 pandemic.

The Federal Reserve Board is reversing its policy of near zero interest rates given its concerns over inflation.

Market interest rates have risen in response to the Federal Reserve Board's recent rate increases.

The increase in market interest rates has had and, as discussed below, is expected to continue to have an adverse effect on our net interest income and profitability.

Future changes in interest rates could reduce our net income.

Our net income largely depends on our net interest income, which could be negatively affected by changes in interest rates.

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

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

An example of this occurs when interest rates paid on certificates of deposit experience a significant increase.

In this circumstance, a CD customer may determine that it is in his/her best interest to incur the existing penalty for early withdrawal, tender the certificate for cash and either reinvest the proceeds in a new CD with us, or withdraw the funds and leave us.

As a result, we either establish a new, higher rate certificate (if the customer stays with us), or we must fund the customer’s withdrawal by:

(1) reducing our cash reserves;

(2) selling assets to generate cash to fund the withdrawal;

(3) attracting deposits from another customer at the then-higher interest rate;

or (4) borrowing from a wholesale lender like the FHLB of Cincinnati, again at the then-higher interest rate.

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

Changes in interest rates can also have an unfavorable impact on our net interest income if mortgage interest rates decline.

Our customers may seek to refinance, without penalty, their mortgage loans with us or repay their mortgage loans with us and borrow from another lender.

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

This is frequently referred to as reinvestment risk, which is the risk that we may not be able to reinvest the proceeds of loan prepayments at rates that are comparable to the rates we earned on the loans prior to receipt of the repayment.

Reinvestment risk also exists with the securities in our investment portfolio that are backed by mortgage loans.

Our net interest income can also be negatively impacted when assets and funding sources with seemingly similar, but not identical re-pricing characteristics, react differently to changing interest rates.

An example is our home equity lines of credit loan portfolio and our interest-bearing checking and savings deposit products.

Interest rates charged on our home equity lines of credit loans are linked to the prime rate of interest, which generally adjusts in a direct relationship to changes in the FRS’s Federal Funds target rate.

Similarly, our interest-bearing checking and savings deposit products are generally expected to adjust when changes are made to the Federal Funds target rate.

However, to the extent that increases or decreases are made to the Federal Funds target rate, and those increases or decreases translate into increases or decreases of the prime rate and the rate charged on our home equity lines of credit loans, but do not extend to equivalent adjustments to our interest-bearing checking and savings deposit products, we can experience a reduction in our net interest income.

At September 30, 2023, we held $2.70 billion of home equity lines of credit loans and $2.61 billion of interest-bearing checking and savings deposits.

Our net income can also be reduced by the impact that changes in interest rates can have on the value of our capitalized mortgage servicing rights.

As of September 30, 2023, we serviced $1.93 billion of loans sold to third parties, and the mortgage servicing rights associated with such loans had an amortized cost of $7.4 million and an estimated fair value, at that date, of $15.9 million.

Because the estimated life and estimated income to be derived from servicing the underlying mortgage loans generally increase with rising interest rates and decrease with falling interest rates, the value of mortgage servicing rights generally increases as interest rates rise and decreases as interest rates fall.

If interest rates fall and the value of our capitalized servicing rights decrease, we may be required to recognize an additional impairment charge against income for the amount by which amortized cost exceeds estimated fair market value.

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing AOCI and/or earnings.

Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand.

Changes in interest rates can also have an adverse effect on our financial condition, as our available for sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates.

We increase or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available for sale securities, net of taxes.

The declines in market value could result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

In general, changes in market and competitive interest rates result from events that we do not control and over which we generally have little or no influence.

As a result, mitigation of the adverse effects of changing interest rates is generally limited to controlling the composition of the assets and liabilities that we hold.

To monitor our positions, we maintain an interest rate risk modeling system which is designed to measure our interest rate risk sensitivity.

Using customized modeling software, the Association prepares periodic estimates of the amounts by which the net present value of its cash flows from assets, liabilities and off balance sheet items (the institution’s EVE) would change in the event of a range of assumed changes in market interest rates.

The simulation model uses a discounted cash flow analysis and an option-based pricing approach in measuring the interest rate sensitivity of EVE.

At September 30, 2023, in the event of an immediate 200 basis point increase in all interest rates, our model projects that we would experience a $324.7 million, or 31.45%, decrease in EVE.

Our calculations further

project that, at September 30, 2023, in the event that market interest rates used in the simulation were adjusted in equal monthly amounts (termed a "ramped" format) during the twelve month measurement period to an aggregate increase in 200 basis points, we would expect our projected net interest income for the twelve months ended September 30, 2024 to decrease by 2.71%.

Quantitative and Qualitative Disclosures about Market Risk .

A worsening of economic conditions could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could have an adverse effect on our results of operations.

Our performance is significantly impacted by the general economic conditions in our primary markets in Ohio and Florida, and surrounding areas.

We also originate loans in other states which will be impacted by national or regional economic conditions.

A deterioration in economic conditions is likely to result in high levels of unemployment, which would weaken local economies and could result in additional defaults of mortgage loans.

Most of the loans in our loan portfolio are secured by real estate located in our primary market areas.

Negative conditions, such as layoffs, in the markets where collateral for a mortgage loan is located could adversely affect a borrower’s ability to repay the loan and the value of the collateral securing the loan.

Declines in the U.S.

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

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

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

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

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

• Increased regulation of our industry, heightened supervisory scrutiny related to the USA PATRIOT Act, Bank Secrecy Act, Fair Lending and other laws and regulations, along with enhanced monitoring of compliance with such regulation.

Each aspect of amplified supervision and regulation will in all likelihood increase our costs, may be accompanied by the risk of unexpected fines, sanctions, penalties, litigation and corresponding management diversion and may limit our ability to pursue business opportunities and return capital to our shareholders.

• Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite our customers become less predictive of future behaviors.

• The processes we use to estimate losses inherent in our credit exposure require difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans, which may no longer be capable of viable estimation and which may, in turn, impact the reliability of our evaluation processes, the comfort of our regulators with respect to the adequacy of our allowance for credit losses and who may require adjustments thereto, and ultimately could result in increased provisions for loan losses and reduced levels of earnings and capital.

• Our ability to engage in sales of mortgage loans to third parties (including mortgage loan securitization transactions with governmental entities) on favorable terms or at all could be adversely affected by further disruptions in the capital markets or other events, including deteriorating investor expectations.

• Competition in our industry could intensify as a result of increasing consolidation of financial services companies in connection with current market conditions.

Risks Related to Laws and Regulations

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Moreover, bank regulatory agencies have been active in responding to concerns and trends identified in examinations, and have issued many formal enforcement orders requiring capital ratios in excess of regulatory requirements.

Bank regulatory agencies, such as the FRS, the OCC, the CFPB and the FDIC, govern the activities in which we may engage, primarily for the protection of depositors, and not for the protection or benefit of potential investors.

Bank regulatory agencies, such as the FRS, the OCC, the CFPB and the FDIC, govern the activities in

which we may engage, primarily for the protection of depositors, and not for the protection or benefit of potential investors.

In addition, new laws and regulations may increase our costs of regulatory compliance and of doing business, and otherwise affect our operations.

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

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

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

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

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

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If we are required to repurchase mortgage loans or provide indemnification or other recourse, this could significantly increase our costs and thereby affect our future earnings.

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

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

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

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

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

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

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

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

• interest-only payments;

• negative amortization;

• balloon payments;

• terms of longer than 30 years;

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

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

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

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

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

Fixed, ARM, HELOANs).

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

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

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

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

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

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

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

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

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

If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings could decrease.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.

In determining the amount of the allowance for credit losses, we review our loans, our loss and delinquency experience, and evaluate economic conditions.

If our assumptions or the results of our analyses are incorrect, our allowance for credit losses may not be sufficient to cover future losses, resulting in additions to our allowance.

Material additions to our allowance would materially decrease our net income.

LOANS AND ALLOWANCES FOR CREDIT LOSSES for additional information on the CECL methodology.

In addition, bank regulators periodically review our allowance for credit losses and, as a result of such reviews, we may decide to increase our provision for loans losses or recognize further loan charge-offs.

Any increase in our allowance for credit losses or loan charge-offs as a result of such review or otherwise, may have a material adverse effect on our financial condition and results of operation.

Risks Related to Competitive Matters

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

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

transfer funds directly without the direct assistance of banks.

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

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

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In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf.

A number of our associates work at remote locations, increasing the number of surfaces that require protection.

Information security risks have generally increased in recent years because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial and other transactions and the increased sophistication and activities of perpetrators of cyber-attacks and mobile phishing.

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Customer or associate fraud subjects us to additional operational risks.

Associate errors and associate and customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation.

Our loans to individuals and our deposit relationships and related transactions are also subject to exposure to the risk of loss due to fraud and other financial crimes.

Associate errors, as well as associate and customer misconduct, could subject us to financial losses or regulatory sanctions and seriously harm our reputation.

Our loans to individuals, our deposit relationships and related transactions are also subject to exposure to the risk of loss due to fraud and other financial crimes.

Misconduct by our associates could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information.

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Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing stockholder value.

We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including credit, liquidity, operational, regulatory compliance and reputational.

However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified.

We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject to, including credit, liquidity, operational, regulatory compliance and reputational.

However, as with any risk management framework, there are inherent limitations to our risk management strategies as risks may exist, or develop in the future, that we have not appropriately anticipated or identified.

If our risk management framework proves ineffective, we could suffer unexpected losses and our business and results of operations could be materially adversely affected.

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We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations.

Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements.

Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the

contracted arrangements under service level agreements.

The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements because of changes in the vendor's organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which in turn could have a material negative impact on our financial condition and results of operations.

We also could be adversely affected to the extent such an agreement is not renewed by the third-party vendor or is renewed on terms less favorable to us.

We also could be adversely affected to the extent that such an agreement is not renewed by the third-party vendor, or is renewed on terms less favorable to us.

Our Vendor Management program helps mitigate risks and is structured to minimize the cost and time required to replace a vendor in the event of a failure or the vendor's inability to meet service level agreements.

Our board of directors relies to a large degree on management and outside consultants in overseeing cybersecurity risk management.

The Association has a standing Technology Steering Committee, consisting of several senior managers (CFO, CIO, CSO, CXO, and CRO/ISO).

The Committee meets quarterly, or more frequently if needed, and reports to the Board of Directors after each meeting through Committee minutes.

The Association also engages outside consultants to support its cybersecurity efforts.

The directors of the Association do not have significant experience in cybersecurity risk management in other business entities comparable to the Association and rely on the Information Security Officer (ISO) and Chief Information Officer (CIO) for cybersecurity guidance.

Our funding sources may prove insufficient to replace deposits at maturity and support our future growth.

A lack of liquidity could adversely affect our financial condition and results of operations and result in regulatory limits being placed on us.

We must maintain funds to respond to the needs of depositors and borrowers.

As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments.

These sources may include FHLB advances, federal funds purchased, and brokered certificates of deposits.

While we emphasize the generation of low-cost core deposits as a source of funding, there is strong competition for such deposits in our market area.

Additionally, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return trade-off.

Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources.

Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates.

Further, if we are required to rely more heavily on more expensive funding sources to support liquidity and future growth, our revenues may not increase proportionately to cover our increased costs.

In this case, our operating margins and profitability would be adversely affected.

Alternatively, we may need to sell a portion or our investment and/or loan portfolio in order to raise funds, which, depending upon market conditions, could result in us realizing a loss on the sale of such assets.

A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed on us by regulators.

Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, certain additional regulatory restrictions and prohibitions may apply, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on the acceptance of brokered deposits.

Risk Related to Our Corporate Structure

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

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

The Company’s ability to pay dividends to our stockholders is subject to the availability of cash at the Company,

which is dependent on the Association having sufficient earnings to make capital distributions to the Company.

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

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However, the interim final rule added a requirement that a majority of the mutual holding company’s members eligible to vote must approve a dividend waiver by a mutual holding company within twelve months prior to the declaration of the dividend being waived.

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

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

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

Third Federal Savings, MHC, has received the approval of its members in 10 separate meetings (held in either July or August of each year from 2014 through 2023) to waive the receipt of dividends for a twelve-month period, and the FRS has “non-objected” to Third Federal Savings, MHC’s waiver each time.

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

Public stockholders own a minority of the outstanding shares of our common stock and will not be able to exercise voting control over most matters put to a vote of stockholders.

Public stockholders own a minority of the outstanding shares of our common stock and are not able to exercise voting control over most matters put to a vote of stockholders.

Third Federal Savings, MHC, as our majority shareholder, is able to control the outcome of virtually all matters presented to our shareholders for their approval, including any proposal to acquire us.

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In some cases, we could be required to apply new or revised guidance retroactively.

Risks Related to Economic Conditions

Future changes in interest rates could reduce our net income.

Our net income largely depends on our net interest income, which could be negatively affected by changes in interest rates.

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

An example of this occurs when, interest rates paid on certificates of deposit experience a significant increase.

As a result, we either establish a new, higher rate certificate (if the customer stays with us) or we must fund the customer’s withdrawal by:

(1) reducing our cash reserves;

(2) selling assets to generate cash to fund the withdrawal;

(3) attracting deposits from another customer at the then-higher interest rate;

or (4) borrowing from a wholesale lender like the FHLB of Cincinnati, again at the then-higher interest rate.

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

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

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

Reinvestment risk also exists with the securities in our investment portfolio that are backed by mortgage loans.

Our net interest income can also be negatively impacted when assets and funding sources with seemingly similar, but not identical re-pricing characteristics react differently to changing interest rates.

An example is our home equity lines of credit loan portfolio and our interest-bearing checking and savings deposit products.

Similarly, our interest-bearing checking and savings deposit products are generally expected to adjust when changes are made to the Federal Funds target rate.

At September 30, 2022, we held $2.47 billion of home equity lines of credit loans and $2.85 billion of interest-bearing checking and savings deposits.

Our net income can also be reduced by the impact that changes in interest rates can have on the value of our capitalized mortgage servicing rights.

As of September 30, 2022, we serviced $2.05 billion of loans sold to third parties, and the mortgage servicing rights associated with such loans had an amortized cost of $7.9 million and an estimated fair value, at that date, of $15.3 million.

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings.

Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand.

We increase or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available for sale securities, net of taxes.

In general, changes in market and competitive interest rates result from events that we do not control and over which we generally have little or no influence.

As a result, mitigation of the adverse affects of changing interest rates is generally limited to controlling the composition of the assets and liabilities that we hold.

To monitor our positions, we maintain an interest rate risk modeling system which is designed to measure our interest rate risk sensitivity.

Using customized modeling software, the Association prepares periodic estimates of the amounts by which the net present value of its cash flows from assets, liabilities and off balance sheet items (the institution’s economic value of equity) would change in the event of a range of assumed changes in market interest rates.

The simulation model uses a discounted cash flow analysis and an option-based pricing approach in measuring the interest rate sensitivity of EVE.

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

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

Quantitative and Qualitative Disclosures about Market Risk .

Our performance is significantly impacted by the general economic conditions in our primary markets in Ohio and Florida, and surrounding areas.

We also originate loans in other states which will be impacted by national or regional economic conditions.

A deterioration in economic conditions is likely to result in high levels of unemployment, which would weaken local economies and could result in additional defaults of mortgage loans.

Most of the loans in our loan portfolio are secured by real estate located in our primary market areas.

Declines in the U.S.

The resulting economic pressure on consumers and lack of

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

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

• Competition in our industry could intensify as a result of increasing consolidation of financial services companies in connection with current market conditions.

Other Risks Related to Our Business

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Such weather events can disrupt our operations, result in damage to our branch office locations and negatively affect the local economy in which we operate.

We cannot predict whether or to what extent damage caused by future hurricanes or tropical storms will affect our operations or the economy in our market area, but such weather events could result in fewer loan originations and greater delinquencies, foreclosures or loan losses.

We cannot predict whether or to what extent damage caused by future hurricanes or tropical storms will affect our operations or the economy in our market area, but such

weather events could result in fewer loan originations and greater delinquencies, foreclosures or loan losses.

These, and other negative effects of future hurricanes or tropical storms may adversely affect our business or results of operations.

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

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

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

The LIBOR index will be discontinued for U.S.

Dollar settings effective June 30, 2023.

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

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

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

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

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Adverse developments with respect to the financial services industry may also, by association, negatively impact the Company's reputation or result in greater regulatory or legislative scrutiny or litigation against the Company.

Furthermore, shareholders, customers and other stakeholders have begun to consider how corporations are addressing environmental, social and governance (“ESG”) issues.

Furthermore, shareholders, customers and other stakeholders have begun to consider how corporations are addressing ESG issues.

Governments, investors, customers and the general public are increasingly focused on ESG practices and disclosures, and views about ESG are diverse and rapidly changing.

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If the Company, or our relationships with certain customers, vendors or suppliers, became the subject of negative publicity, our ability to attract and retain customers and employees, and our financial condition and results of operations, could be adversely impacted.

A protracted government shutdown may result in reduced loan originations and related gains on sales and could negatively affect our financial condition and results of operations.

During any protracted federal government shutdown, we may not be able to close certain loans and we may not be able to recognize non-interest income on the sale of loans.

Some of the loans we originate are sold directly to government agencies, and some of these sales may be unable to be consummated during a shutdown.

In addition, we believe that some borrowers may decide not to proceed with their home purchase and not close on their loans, which would result in a permanent loss of the related non-interest income.

A federal government shutdown could also result in reduced income for government employees or

employees of companies that engage in business with the federal government, which could result in greater loan delinquencies, increased in our non-performing, criticized, and classified assets, and a decline in demand for our products and services.

Unresolved Staff Comments

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

What changed 10-K

Item 1A. Risk Factors