TFS Financial CORP 10-Q

Item 1. Financial Statements TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION (unaudited) (In thousands, except share data) March 31, 2024 September 30, 2023 ASSETS Cash and due from banks $ 27,381 $ 29,134 Other interest-earning cash equivalents 566,953 437,612 Cash and cash equivalents 594,334 466,746 Investment securities available for sale (amortized cost $ 561,806 and $ 561,715 , respectively) 520,172 508,324 Mortgage loans held for sale ($ 9,698 and $ 3,260 measured at fair value, respectively) 9,698 3,260 Loans held for investment, net: Mortgage loans 15,152,032 15,177,844 Other loans 4,709 4,411 Deferred loan expenses, net 61,047 60,807 Allowance for credit losses on loans ( 68,169 ) ( 77,315 ) Loans, net 15,149,619 15,165,747 Mortgage loan servicing rights, net 7,547 7,400 Federal Home Loan Bank stock, at cost 240,365 247,098 Real estate owned, net 230 1,444 Premises, equipment, and software, net 33,885 34,708 Accrued interest receivable 56,887 53,910 Bank owned life insurance contracts 313,458 312,072 Other assets 90,955 117,270 TOTAL ASSETS $ 17,017,150 $ 16,917,979 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits $ 9,935,631 $ 9,449,820 Borrowed funds 4,955,438 5,273,637 Borrowers’ advances for insurance and taxes 99,492 124,417 Principal, interest, and related escrow owed on loans serviced 25,946 29,811 Accrued expenses and other liabilities 93,146 112,933 Total liabilities 15,109,653 14,990,618 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; 280,710,854 and 280,359,173 outstanding at March 31, 2024 and September 30, 2023, respectively 3,323 3,323 Paid-in capital 1,751,960 1,755,027 Treasury stock, at cost; 51,607,896 and 51,959,577 shares at March 31, 2024 and September 30, 2023, respectively ( 772,195 ) ( 776,101 ) Unallocated ESOP shares ( 24,917 ) ( 27,084 ) Retained earnings—substantially restricted 906,908 886,984 Accumulated other comprehensive income 42,418 85,212 Total shareholders’ equity 1,907,497 1,927,361 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 17,017,150 $ 16,917,979 See accompanying notes to unaudited interim consolidated financial statements. 4 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) (In thousands, except share and per share data) For the Three Months Ended For the Six Months Ended March 31, March 31, 2024 2023 2024 2023 INTEREST AND DIVIDEND INCOME: Loans, including fees $ 162,970 $ 136,835 $ 325,005 $ 266,500 Investment securities available for sale 4,476 3,455 8,871 6,517 Other interest and dividend earning assets 16,047 7,262 26,776 13,505 Total interest and dividend income 183,493 147,552 360,652 286,522 INTEREST EXPENSE: Deposits 72,685 39,876 137,011 69,731 Borrowed funds 39,430 38,408 83,171 72,366 Total interest expense 112,115 78,284 220,182 142,097 NET INTEREST INCOME 71,378 69,268 140,470 144,425 PROVISION (RELEASE) FOR CREDIT LOSSES ( 1,000 ) ( 1,000 ) ( 2,000 ) ( 2,000 ) NET INTEREST INCOME AFTER PROVISION (RELEASE) FOR CREDIT LOSSES 72,378 70,268 142,470 146,425 NON-INTEREST INCOME: Fees and service charges, net of amortization 1,845 1,924 3,593 3,860 Net gain on the sale of loans 442 579 923 596 Increase in and death benefits from bank owned life insurance contracts 2,193 2,123 5,384 4,361 Other 1,242 703 2,137 1,669 Total non-interest income 5,722 5,329 12,037 10,486 NON-INTEREST EXPENSE: Salaries and employee benefits 27,501 30,390 54,617 58,793 Marketing services 5,099 6,671 9,530 14,384 Office property, equipment and software 7,303 6,802 14,148 13,602 Federal insurance premium and assessments 4,013 3,488 7,791 6,249 State franchise tax 1,238 1,268 2,414 2,476 Other expenses 7,044 6,955 13,975 13,264 Total non-interest expense 52,198 55,574 102,475 108,768 INCOME BEFORE INCOME TAXES 25,902 20,023 52,032 48,143 INCOME TAX EXPENSE 5,189 4,115 10,612 10,042 NET INCOME $ 20,713 $ 15,908 $ 41,420 $ 38,101 Earnings per share—basic and diluted $ 0.07 $ 0.06 $ 0.15 $ 0.13 Weighted average shares outstanding Basic 278,183,041 277,361,293 278,011,351 277,340,877 Diluted 279,046,837 278,499,145 279,019,468 278,472,705 See accompanying notes to unaudited interim consolidated financial statements. 5 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) (In thousands) For the Three Months Ended For the Six Months Ended March 31, March 31, 2024 2023 2024 2023 Net income $ 20,713 $ 15,908 $ 41,420 $ 38,101 Other comprehensive income (loss), net of tax: Net change in unrealized gain (loss) on securities available for sale ( 2,589 ) 4,173 9,066 2,212 Net change in cash flow hedges 34,717 ( 22,688 ) ( 52,488 ) ( 21,052 ) Net change in defined benefit plan obligation 104 195 628 392 Total other comprehensive income (loss) 32,232 ( 18,320 ) ( 42,794 ) ( 18,448 ) Total comprehensive income (loss) $ 52,945 $ ( 2,412 ) $ ( 1,374 ) $ 19,653 See accompanying notes to unaudited interim consolidated financial statements. 6 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited) (In thousands, except share and per share data) For the Three Months Ended March 31, 2023 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 December 31, 2022 $ 3,323 $ 1,751,020 $ ( 775,154 ) $ ( 30,334 ) $ 877,713 $ 23,021 $ 1,849,589 Net income — — — — 15,908 — 15,908 Other comprehensive income (loss), net of tax — — — — — ( 18,320 ) ( 18,320 ) ESOP shares allocated or committed to be released — 435 — 1,084 — — 1,519 Compensation costs for equity incentive plans — 1,068 — — — — 1,068 Purchase of treasury stock ( 46,869 shares) — — ( 684 ) — — — ( 684 ) Treasury stock allocated to equity incentive plan — ( 15 ) ( 14 ) — — — ( 29 ) Dividends declared to common shareholders ($ 0.2825 per common share) — — — — ( 14,575 ) — ( 14,575 ) Balance at March 31, 2023 $ 3,323 $ 1,752,508 $ ( 775,852 ) $ ( 29,250 ) $ 879,046 $ 4,701 $ 1,834,476 For the Three Months Ended March 31, 2024 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 December 31, 2023 $ 3,323 $ 1,750,440 $ ( 772,195 ) $ ( 26,000 ) $ 900,973 $ 10,186 $ 1,866,727 Net income — — — — 20,713 — 20,713 Other comprehensive income, net of tax — — — — — 32,232 32,232 ESOP shares allocated or committed to be released — 349 — 1,083 — — 1,432 Compensation costs for equity incentive plans — 1,171 — — — — 1,171 Dividends declared to common shareholders ($ 0.2825 per common share) — — — — ( 14,778 ) — ( 14,778 ) Balance at March 31, 2024 $ 3,323 $ 1,751,960 $ ( 772,195 ) $ ( 24,917 ) $ 906,908 $ 42,418 $ 1,907,497 7 Table of Contents For the Six Months Ended March 31, 2023 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, 2022 $ 3,323 $ 1,751,223 $ ( 771,986 ) $ ( 31,417 ) $ 870,047 $ 23,149 $ 1,844,339 Net income — — — — 38,101 — 38,101 Other comprehensive income (loss), net of tax — — — — — ( 18,448 ) ( 18,448 ) ESOP shares allocated or committed to be released — 832 — 2,167 — — 2,999 Compensation costs for equity incentive plans — 2,219 — — — — 2,219 Purchase of treasury stock ( 361,869 shares) — — ( 5,000 ) — — — ( 5,000 ) Treasury stock allocated to equity incentive plan — ( 1,766 ) 1,134 — — — ( 632 ) Dividends declared to common shareholders ($ 0.5650 per common share) — — — — ( 29,102 ) — ( 29,102 ) Balance at March 31, 2023 $ 3,323 $ 1,752,508 $ ( 775,852 ) $ ( 29,250 ) $ 879,046 $ 4,701 $ 1,834,476 For the Six Months Ended March 31, 2024 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, 2023 $ 3,323 $ 1,755,027 $ ( 776,101 ) $ ( 27,084 ) $ 886,984 $ 85,212 $ 1,927,361 Cumulative effect from changes in accounting principle, net of tax 1 — — — — 7,898 — 7,898 Net income — — — — 41,420 — 41,420 Other comprehensive income (loss), net of tax — — — — — ( 42,794 ) ( 42,794 ) ESOP shares allocated or committed to be released — 671 — 2,167 — — 2,838 Compensation costs for equity incentive plans — 2,086 — — — — 2,086 Treasury stock allocated to equity incentive plan — ( 5,824 ) 3,906 — — — ( 1,918 ) Dividends declared to common shareholders ($ 0.5650 per common share) — — — — ( 29,394 ) — ( 29,394 ) Balance at March 31, 2024 $ 3,323 $ 1,751,960 $ ( 772,195 ) $ ( 24,917 ) $ 906,908 $ 42,418 $ 1,907,497 1 Related to ASU 2022-02 adopted October 1, 2023. See accompanying notes to unaudited interim consolidated financial statements. 8 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands) For the Six Months Ended March 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 41,420 $ 38,101 Adjustments to reconcile net income to net cash provided by operating activities: ESOP and stock-based compensation expense 4,924 5,218 Depreciation and amortization 9,096 8,736 Deferred income taxes ( 118 ) ( 155 ) Provision (release) for credit losses ( 2,000 ) ( 2,000 ) Net gain on the sale of loans ( 923 ) ( 596 ) Other net (gains) losses 230 ( 242 ) Proceeds from sales of loans held for sale 17,326 16,854 Loans originated and principal repayments on loans for sale ( 22,791 ) ( 19,598 ) Increase in bank owned life insurance contracts ( 5,384 ) ( 4,361 ) Net decrease (increase) in interest receivable and other assets 2,614 ( 18,108 ) Net increase in accrued expenses and other liabilities 6,143 19,277 Net cash provided by operating activities 50,537 43,126 CASH FLOWS FROM INVESTING ACTIVITIES: Loans originated ( 1,351,348 ) ( 1,552,032 ) Principal repayments on loans 1,271,878 1,233,000 Proceeds from sales, principal repayments and maturities of: Securities available for sale 96,689 40,961 Proceeds from sale of: Loans 100,151 17,551 Real estate owned 983 253 FHLB stock 41,248 — Purchases of: FHLB stock ( 34,515 ) ( 20,565 ) Securities available for sale ( 96,733 ) ( 63,722 ) Premises and equipment ( 1,515 ) ( 2,463 ) Other 3,295 88 Net cash provided by (used in) investing activities 30,133 ( 346,929 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 475,297 78,161 Net decrease in borrowers' advances for insurance and taxes ( 24,925 ) ( 14,362 ) Net decrease in principal and interest owed on loans serviced ( 3,865 ) ( 2,747 ) Net increase in short-term borrowed funds ( 642,000 ) 275,000 Net increase (decrease) in Fed Funds purchased — ( 225,000 ) Proceeds from long-term borrowed funds 575,000 350,000 Repayment of long-term borrowed funds ( 251,328 ) ( 1,739 ) Cash collateral/settlements received from (provided to) derivative counterparties ( 49,844 ) ( 69,135 ) Acquisition of treasury shares ( 1,918 ) ( 5,632 ) Dividends paid to common shareholders ( 29,499 ) ( 29,179 ) Net cash provided by financing activities 46,918 355,367 NET INCREASE IN CASH AND CASH EQUIVALENTS 127,588 51,564 CASH AND CASH EQUIVALENTS—Beginning of period 466,746 369,564 CASH AND CASH EQUIVALENTS—End of period $ 594,334 $ 421,128 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest on deposits $ 134,833 $ 66,428 Cash paid for interest on borrowed funds 120,489 78,058 Cash paid (received) for interest on interest rate swaps ( 45,595 ) ( 14,237 ) Cash paid for income taxes 10,635 12,310 SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Transfer of loans to real estate owned — 295 Transfer of loans from held for investment to held for sale 100,594 17,466 Transfer of loans from held for sale to held for investment — 8,433 Treasury stock issued for stock benefit plans 5,824 1,765 See accompanying notes to unaudited interim consolidated financial statements. 9 Table of Contents TFS FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands unless otherwise indicated) 1. BASIS OF PRESENTATION 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, to a much lesser extent, other financial services. As of March 31, 2024, approximately 80.9 % of the Company’s outstanding shares were owned by the federally chartered mutual holding company, Third Federal Savings and Loan Association of Cleveland, MHC. The thrift subsidiary of TFS Financial Corporation is Third Federal Savings and Loan Association of Cleveland. The accounting and financial reporting policies followed by the Company conform in all material respects to U.S. GAAP and to general practices in the financial services industry. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for credit losses, the valuation of deferred tax assets, and the determination of pension obligations are particularly subject to change. The unaudited interim consolidated financial statements reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated financial condition of the Company at March 31, 2024, and its consolidated results of operations and cash flows for the periods presented. Such adjustments are the only adjustments reflected in the unaudited interim financial statements. In accordance with SEC Regulation S-X for interim financial information, these financial statements do not include certain information and footnote disclosures required for complete audited financial statements. The Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023, contains audited consolidated financial statements and related notes, which should be read in conjunction with the accompanying interim consolidated financial statements. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024, or for any other period. Effective October 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326 ), eliminating the accounting guidance for TDR by creditors in Subtopic 310-40. Refer to Note 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES and Note 14. RECENT ACCOUNTING PRONOUNCEMENTS for additional details related to the adoption. Per ASC 606, Revenue from Contracts with Customers , an entity is required 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 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 not material to the Company's consolidated financial statements and therefore quantitative information regarding these streams is not disclosed. 2. 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 March 31, 2024 and 2023, the ESOP held 2,491,701 and 2,925,041 shares, respectively, that were neither allocated to participants nor committed to be released to participants. 10 Table of Contents The following is a summary of the Company's earnings per share calculations. For the Three Months Ended March 31, 2024 2023 Income Shares Per share amount Income Shares Per share amount (Dollars in thousands, except per share data) Net income $ 20,713 $ 15,908 Less: income allocated to restricted stock units 342 385 Basic earnings per share: Income available to common shareholders 20,371 278,183,041 $ 0.07 15,523 277,361,293 $ 0.06 Diluted earnings per share: Effect of dilutive potential common shares 863,796 1,137,852 Income available to common shareholders $ 20,371 279,046,837 $ 0.07 $ 15,523 278,499,145 $ 0.06 For the Six Months Ended March 31, 2024 2023 Income Shares Per share amount Income Shares Per share amount (Dollars in thousands, except per share data) Net income $ 41,420 $ 38,101 Less: income allocated to restricted stock units 747 775 Basic earnings per share: Income available to common shareholders 40,673 278,011,351 $ 0.15 37,326 277,340,877 $ 0.13 Diluted earnings per share: Effect of dilutive potential common shares 1,008,117 1,131,828 Income available to common shareholders $ 40,673 279,019,468 $ 0.15 $ 37,326 278,472,705 $ 0.13 The following is a summary of outstanding stock options and restricted and performance share units that are excluded from the computation of diluted earnings per share because their inclusion would be anti-dilutive. For the Three Months Ended March 31, For the Six Months Ended March 31, 2024 2023 2024 2023 Options to purchase shares 2,231,475 2,043,575 2,231,475 2,043,944 Restricted and performance stock units 38,835 63,937 30,000 57,669 3. INVESTMENT SECURITIES Investments available for sale are summarized in the tables below. March 31, 2024 Amortized Cost Gross Unrealized Fair Value Gains Losses REMICs $ 487,452 $ 189 $ ( 41,491 ) $ 446,150 Fannie Mae certificates 860 15 ( 6 ) 869 Freddie Mac certificates 1,139 — ( 49 ) 1,090 U.S. government and agency obligations 72,355 15 ( 307 ) 72,063 Total $ 561,806 $ 219 $ ( 41,853 ) $ 520,172 11 Table of Contents September 30, 2023 Amortized Cost Gross Unrealized Fair Value Gains Losses REMICs $ 495,874 $ — $ ( 52,867 ) $ 443,007 Fannie Mae certificates 834 1 ( 21 ) 814 Freddie Mac certificates 1,141 — ( 97 ) 1,044 U.S. government and agency obligations 63,866 — ( 407 ) 63,459 Total $ 561,715 $ 1 $ ( 53,392 ) $ 508,324 At March 31, 2024 and September 30, 2023, investment securities included $ 68,335 and $ 59,813 , respectively, of U.S. government obligations pledged as collateral on our open swap positions to meet margin requirements established by the clearing organization. Accrued interest on investment securities is $ 2,355 and $ 1,907 at March 31, 2024 and September 30, 2023, respectively, and is reported in accrued interest receivable on the CONSOLIDATED STATEMENTS OF CONDITION . The following is a summary of our securities portfolio by the period remaining until contractual maturity and yield at March 31, 2024. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. 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-exempt securities at March 31, 2024 or September 30, 2023. March 31, 2024 September 30, 2023 Amortized Cost Fair Value Weighted Average Yield Amortized Cost Fair Value Weighted Average Yield Due in one year or less $ 68,556 $ 68,569 5.25 % $ 59,948 $ 59,936 5.13 % Due after one to five years 9,988 9,545 1.92 10,529 9,929 2.00 Due after five to ten years 30,197 28,917 2.99 31,372 29,381 2.42 Ten years or greater 453,065 413,141 3.03 459,866 409,078 2.82 Total $ 561,806 $ 520,172 3.28 % $ 561,715 $ 508,324 3.03 % 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 March 31, 2024 and September 30, 2023, were as follows: March 31, 2024 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 $ 64,786 $ 430 $ 362,410 $ 41,061 $ 427,196 $ 41,491 Fannie Mae certificates — — 104 6 104 6 Freddie Mac certificates — — 1,090 49 1,090 49 U.S. government and agency obligations — — 3,728 307 3,728 307 Total $ 64,786 $ 430 $ 367,332 $ 41,423 $ 432,118 $ 41,853 12 Table of Contents September 30, 2023 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 $ 80,452 $ 1,749 $ 362,555 $ 51,118 $ 443,007 $ 52,867 Fannie Mae certificates 578 21 — — 578 21 Freddie Mac certificates 1,045 97 — — 1,045 97 U.S. government and agency obligations 59,813 11 3,646 396 63,459 407 Total $ 141,888 $ 1,878 $ 366,201 $ 51,514 $ 508,089 $ 53,392 The unrealized losses on investment securities were attributable to an increase in market interest rates. The investment portfolio is comprised entirely of securities issued by U.S. government entities and agencies, which supports an expectation of no credit loss estimates since principal and interest payments due on these securities carry the full faith and credit guaranty of the U.S. government. In addition, 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 market interest rates and not credit quality deterioration and because the Company has neither the intent to sell the securities nor is it more likely than not the Company will be required to sell the securities prior to recovery of the amortized cost, the Company did not record an allowance for credit losses as of March 31, 2024 or September 30, 2023 . 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES LOAN PORTFOLIOS Loans held for investment consist of the following: March 31, 2024 September 30, 2023 Real estate loans: Residential Core $ 11,770,783 $ 12,078,158 Residential Home Today 43,654 46,508 Home equity loans and lines of credit 3,319,626 3,030,526 Construction 33,009 48,406 Real estate loans 15,167,072 15,203,598 Other loans 4,709 4,411 Add (deduct): Deferred loan expenses, net 61,047 60,807 Loans in process ( 15,040 ) ( 25,754 ) Allowance for credit losses on loans ( 68,169 ) ( 77,315 ) Loans held for investment, net $ 15,149,619 $ 15,165,747 Loans held for investment are carried at amortized cost, which includes outstanding principal balance adjusted for any unamortized premiums or discounts, net of deferred fees and expenses and any applicable loans-in-process. Accrued interest is $ 54,514 and $ 51,989 as of March 31, 2024 and September 30, 2023, 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 March 31, 2024 and September 30, 2023, the percentage of aggregate Residential Core, Home Today and Construction loans secured by properties in Ohio was 58 % and 57 %, respectively, and the percentage of loans secured by properties in Florida was 18 % as of both dates. As of March 31, 2024 and September 30, 2023, home equity loans and lines of credit were concentrated in Ohio ( 25 % and 26 %, respectively), Florida ( 23 % and 22 %, respectively), and California ( 17 % as of both dates). 13 Table of Contents 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 $ 4,621,146 and $ 4,760,843 at March 31, 2024 and September 30, 2023, 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 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. The Company offers construction/permanent loans with fixed or adjustable-rates, 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 down payment assistance loans which are forgiven in equal increments over a pre-determined term, subject to residency requirements. Loans held for sale include loans originated with the intent to sell which are generally priced in alignment with secondary market pricing and may be subject to loan level pricing adjustments. Additionally, loans originated or purchased for the held for investment portfolio may later be identified for sale and transferred to the held for sale portfolio, which may include loans originated or purchased within the parameters of programs established by Fannie Mae. During the three and six months ended March 31, 2024 and March 31, 2023, 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 March 31, 2024 and September 30, 2023, mortgage loans held for sale totaled $ 9,698 and $ 3,260 , respectively. During the three and six months ended March 31, 2024, the principal balance of loans sold was $ 33,477 and $ 121,320 (including loans in contracts pending settlement) compared to $ 15,381 and $ 34,563 (including contracts pending settlement) during the three and six months ended March 31, 2023. During the three and six months ended March 31, 2024, the amortized cost of loans originated as held for sale that were subsequently transferred to the held for investment portfolio was $ 0 , compared to $ 8,433 during the three and six months ended March 31, 2023. 14 Table of Contents DELINQUENCY and NON-ACCRUAL An aging analysis of the amortized cost in loan receivables that are past due at March 31, 2024 and September 30, 2023 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. 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total March 31, 2024 Real estate loans: Residential Core $ 5,691 $ 2,343 $ 8,808 $ 16,842 $ 11,777,582 $ 11,794,424 Residential Home Today 905 223 914 2,042 41,137 43,179 Home equity loans and lines of credit 3,676 1,278 4,520 9,474 3,348,238 3,357,712 Construction — — — — 17,764 17,764 Total real estate loans 10,272 3,844 14,242 28,358 15,184,721 15,213,079 Other loans — — — — 4,709 4,709 Total $ 10,272 $ 3,844 $ 14,242 $ 28,358 $ 15,189,430 $ 15,217,788 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total September 30, 2023 Real estate loans: Residential Core $ 3,680 $ 1,763 $ 8,268 $ 13,711 $ 12,089,228 $ 12,102,939 Residential Home Today 666 323 855 1,844 44,186 46,030 Home equity loans and lines of credit 3,271 690 3,876 7,837 3,059,444 3,067,281 Construction — — — — 22,401 22,401 Total real estate loans 7,617 2,776 12,999 23,392 15,215,259 15,238,651 Other loans — — — — 4,411 4,411 Total $ 7,617 $ 2,776 $ 12,999 $ 23,392 $ 15,219,670 $ 15,243,062 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 modified that were in non-accrual status prior to modification and loans with forbearance plans that were subsequently modified, are reported in non-accrual status for a minimum of six months after modification. Loans modified 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. 15 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 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 March 31, 2024 or September 30, 2023. March 31, 2024 September 30, 2023 Non-accrual with No ACL Total Non-accrual Non-accrual with No ACL Total Non-accrual Real estate loans: Residential Core $ 18,793 $ 22,545 $ 15,691 $ 19,414 Residential Home Today 3,851 4,141 4,511 4,623 Home equity loans and lines of credit 7,728 8,567 7,035 7,877 Total non-accrual loans $ 30,372 $ 35,253 $ 27,237 $ 31,914 At March 31, 2024 and September 30, 2023, respectively, the amortized cost in non-accrual loans includes $ 21,028 and $ 18,915 which are performing according to the terms of their agreement, of which $ 11,610 and $ 11,508 are loans in Chapter 7 bankruptcy status, primarily where all borrowers have filed, and have not reaffirmed or been dismissed. At March 31, 2024 and September 30, 2023, real estate loans include $ 10,483 and $ 9,144 , 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 $ 162 and $ 324 for the three and six months ended March 31, 2024, and $ 196 and $ 359 for the three and six months ended March 31, 2023. 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 modification 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 modification 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 The allowance for credit losses represents the estimate of lifetime losses in the loan portfolio and unfunded loan commitments. The allowance is estimated at each reporting date 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 period with an immediate reversion to historical mean loss rates for the remaining life of the loans. The Company adopted ASU 2022-02 on October 1, 2023, which eliminated the accounting for TDRs. As such, at March 31, 2024, there was no allowance for individually reviewed TDRs (IVAs), based on the present value of cash flows, as compared to September 30, 2023, when there was $ 9,546 . Effective with this adoption, losses on loans with modifications to borrowers experiencing financial difficulties, previously identified as TDRs, will be estimated as described above, in the same manner as loans that have not been subject to such modifications. 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 March 31, 2024, was a reduction to the allowance for 16 Table of Contents credit losses of $ 6,598 , compared to a reduction of $ 13,425 at September 30, 2023. During the fiscal year, a portion of the loss estimate that had previously been measured qualitatively was reclassified to the model-driven quantitative estimate due to enhancements in the accessibility of certain data. Adjustments are evaluated quarterly based on current facts and circumstances. Partial or full charge-offs are recognized for the amount of credit losses on loans 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 modified residential loans, payments are greater than 90 days delinquent; • For all classes of loan modifications 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; • 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; and • For all classes of loans, it becomes evident that a loss is probable. Charge-offs on residential mortgage loans, home equity loans and lines of credit, and construction loans are also 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. 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. 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. Activity in the allowance for credit losses by portfolio segment is summarized as follows. See Note 11. LOAN COMMITMENTS AND CONTINGENT LIABILITIES for further details on the allowance for unfunded commitments. For the Three Months Ended March 31, 2024 Beginning Balance Provisions (Releases) Charge-offs Recoveries Ending Balance Real estate loans: Residential Core $ 49,389 $ ( 1,851 ) $ ( 37 ) $ 213 $ 47,714 Residential Home Today ( 2,814 ) ( 303 ) — 493 ( 2,624 ) Home equity loans and lines of credit 22,436 ( 20 ) ( 204 ) 786 22,998 Construction 73 8 — — 81 Total real estate loans $ 69,084 $ ( 2,166 ) $ ( 241 ) $ 1,492 $ 68,169 Total Unfunded Loan Commitments (1) $ 25,491 $ 1,166 $ — $ — $ 26,657 Total Allowance for Credit Losses $ 94,575 $ ( 1,000 ) $ ( 241 ) $ 1,492 $ 94,826 (1) For all periods presented, the 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. 17 Table of Contents For the Three Months Ended March 31, 2023 Beginning Balance Provisions (Releases) Charge-offs Recoveries Ending Balance Real estate loans: Residential Core $ 54,498 $ ( 924 ) $ ( 92 ) $ 290 $ 53,772 Residential Home Today ( 985 ) ( 738 ) ( 71 ) 582 ( 1,212 ) Home equity loans and lines of credit 20,583 154 ( 431 ) 926 21,232 Construction 381 ( 35 ) — — 346 Total real estate loans $ 74,477 $ ( 1,543 ) $ ( 594 ) $ 1,798 $ 74,138 Total Unfunded Loan Commitments (1) $ 26,110 $ 543 $ — $ — $ 26,653 Total Allowance for Credit Losses $ 100,587 $ ( 1,000 ) $ ( 594 ) $ 1,798 $ 100,791 (1) For all periods presented, the 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. For the Six Months Ended March 31, 2024 Beginning Balance Adoption of ASU 2022-02 Provisions (Releases) Charge-offs Recoveries Ending Balance Real estate loans: Residential Core $ 55,375 $ ( 5,896 ) $ ( 2,152 ) $ ( 187 ) $ 574 $ 47,714 Residential Home Today ( 1,236 ) ( 1,896 ) ( 441 ) ( 30 ) 979 ( 2,624 ) Home equity loans and lines of credit 23,047 ( 2,470 ) 1,499 ( 534 ) 1,456 22,998 Construction 129 — ( 48 ) — — 81 Total real estate loans $ 77,315 $ ( 10,262 ) $ ( 1,142 ) $ ( 751 ) $ 3,009 $ 68,169 Total Unfunded Loan Commitments (1) $ 27,515 $ — $ ( 858 ) $ — $ — $ 26,657 Total Allowance for Credit Losses $ 104,830 $ ( 10,262 ) $ ( 2,000 ) $ ( 751 ) $ 3,009 $ 94,826 (1) For all periods presented, the 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. For the Six Months Ended March 31, 2023 Beginning Balance Provisions (Releases) Charge-offs Recoveries Ending Balance Real estate loans: Residential Core $ 53,506 $ ( 132 ) $ ( 206 ) $ 604 $ 53,772 Residential Home Today ( 997 ) ( 1,244 ) ( 244 ) 1,273 ( 1,212 ) Home equity loans and lines of credit 20,032 ( 248 ) ( 558 ) 2,006 21,232 Construction 354 ( 8 ) — — 346 Total real estate loans $ 72,895 $ ( 1,632 ) $ ( 1,008 ) $ 3,883 $ 74,138 Total Unfunded Loan Commitments (1) $ 27,021 $ ( 368 ) $ — $ — $ 26,653 Total Allowance for Credit Losses $ 99,916 $ ( 2,000 ) $ ( 1,008 ) $ 3,883 $ 100,791 (1) For all periods presented, the 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. 18 Table of Contents CLASSIFIED LOANS The following tables provides the amortized cost and information about the credit quality of residential loan receivables by an internally assigned grade as of the dates presented. 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. Home 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 and all construction loans are classified Pass for both periods presented. Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term By fiscal year of origination 2024 2023 2022 2021 2020 Prior Total March 31, 2024 Real estate loans: Residential Core Pass $ 307,541 $ 1,544,893 $ 3,076,717 $ 1,962,444 $ 1,282,367 $ 3,591,444 $ — $ — $ 11,765,406 Special Mention — — — — — 990 — — 990 Substandard 193 1,377 2,850 958 1,896 20,754 — — 28,028 Total Residential Core 307,734 1,546,270 3,079,567 1,963,402 1,284,263 3,613,188 — — 11,794,424 Residential Home Today (1) Pass — — — — — 38,128 — — 38,128 Substandard — — — — — 5,051 — — 5,051 Total Residential Home Today — — — — — 43,179 — — 43,179 Home equity loans and lines of credit Pass 126,735 184,305 65,083 21,450 5,948 17,238 2,865,900 55,797 3,342,456 Special Mention — — 161 — — 51 3,704 374 4,290 Substandard — 177 212 161 48 175 5,525 4,668 10,966 Total Home equity loans and lines of credit 126,735 184,482 65,456 21,611 5,996 17,464 2,875,129 60,839 3,357,712 Total Construction 4,552 12,194 1,018 — — — — — 17,764 Total real estate loans Pass 438,828 1,741,392 3,142,818 1,983,894 1,288,315 3,646,810 2,865,900 55,797 15,163,754 Special Mention — — 161 — — 1,041 3,704 374 5,280 Substandard 193 1,554 3,062 1,119 1,944 25,980 5,525 4,668 44,045 Total real estate loans $ 439,021 $ 1,742,946 $ 3,146,041 $ 1,985,013 $ 1,290,259 $ 3,673,831 $ 2,875,129 $ 60,839 $ 15,213,079 (1) No new originations of Home Today loans since fiscal 2016. 19 Table of Contents Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term By fiscal year of origination 2023 2022 2021 2020 2019 Prior Total September 30, 2023 Real estate loans: Residential Core Pass $ 1,667,029 $ 3,169,609 $ 2,054,744 $ 1,342,854 $ 563,955 $ 3,275,978 $ — $ — $ 12,074,169 Special Mention — — 612 — 106 1,025 — — 1,743 Substandard 185 823 1,285 1,806 721 22,207 — — 27,027 Total Residential Core 1,667,214 3,170,432 2,056,641 1,344,660 564,782 3,299,210 — — 12,102,939 Residential Home Today (1) Pass — — — — — 40,335 — — 40,335 Substandard — — — — — 5,695 — — 5,695 Total Residential Home Today — — — — — 46,030 — — 46,030 Home equity loans and lines of credit Pass 210,131 72,229 23,989 6,965 6,192 13,704 2,657,028 63,399 3,053,637 Special Mention — 129 — 52 32 102 2,830 370 3,515 Substandard — — 140 96 — 120 4,849 4,924 10,129 Total Home equity loans and lines of credit 210,131 72,358 24,129 7,113 6,224 13,926 2,664,707 68,693 3,067,281 Total Construction 11,646 10,755 — — — — — — 22,401 Total real estate loans Pass 1,888,806 3,252,593 2,078,733 1,349,819 570,147 3,330,017 2,657,028 63,399 15,190,542 Special Mention — 129 612 52 138 1,127 2,830 370 5,258 Substandard 185 823 1,425 1,902 721 28,022 4,849 4,924 42,851 Total real estate loans $ 1,888,991 $ 3,253,545 $ 2,080,770 $ 1,351,773 $ 571,006 $ 3,359,166 $ 2,664,707 $ 68,693 $ 15,238,651 (1) No new originations of Home Today loans since fiscal 2016. The following table provides information on the gross charge-offs of residential loan receivables for the period presented. There were no gross charge-offs in the construction loan portfolio for the period presented. For the Six Months Ended March 31, 2024 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term By fiscal year of origination 2024 2023 2022 2021 2020 Prior Total Real estate loans: Residential Core $ — $ — $ 10 $ — $ — $ 177 $ — $ — $ 187 Residential Home Today (1) — — — — — 30 — — 30 Home equity loans and lines of credit — — 16 — — — 333 185 534 Total real estate loans $ — $ — $ 26 $ — $ — $ 207 $ 333 $ 185 $ 751 (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 three and six months ended March 31, 2024 totaled $ 1,208 and $ 2,294 and during the three and six months ended March 31, 2023, totaled $ 562 and $ 938 , respectively. The amount of conversions to term loans is expected to remain relatively low for several years since the length of the draw period on new originations changed from five to ten years in 2016. 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 20 Table of Contents 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 effected in the future. Other loans are internally assigned a grade of non-performing when they become 90 days or more past due. At March 31, 2024 and September 30, 2023, no other loans were graded as non-performing. MODIFICATIONS TO BORROWERS EXPERIENCING FINANCIAL DIFFICULTY On October 1, 2023, the Company adopted ASU 2022-02, which eliminates the accounting guidance for TDRs by creditors and enhances the disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. For additional information on the adoption, refer to Note 14. RECENT ACCOUNTING PRONOUNCEMENTS . To mitigate losses, the Company works with borrowers who are experiencing financial difficulty to identify solutions the borrowers can afford by entering into agreements to modify their loans. These efforts often result in modifications to the payment terms of the loan, which vary by situation and may include interest rate reductions, term extensions (generally including capitalization of delinquent amounts), significant payment delays, other, or a combination thereof. The Company does not generally offer principal forgiveness as a type of modification. The Other category includes loans that were modified multiple times during the period with different concessions. If a 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 modification is considered. If a borrower lacks the capacity to repay the loan at the current terms due to a permanent condition, a permanent modification is considered. Loans may be modified more than once. Among other requirements, a subsequent modification may be available for a borrower upon the expiration of temporary modified terms if the borrower is unable to resume contractually scheduled loan payments. In evaluating the need for a subsequent modification, the borrower’s ability to repay is generally assessed utilizing a debt-to-income and cash flow analysis. The following table represents the amortized cost of modifications by type during the periods presented. For the three and six months ended March 31, 2024, there were no modifications made on construction loans. For the Three Months Ended March 31, 2024 Interest Rate Reduction Term Extension Significant Payment Delay Combination-Rate Reduction & Term Extension Other Total % of Total Class Residential Core $ — $ 235 $ 2,271 $ 704 $ 477 $ 3,687 0.03 % Residential Home Today — — 171 56 — 227 0.53 Home equity loans and lines of credit — 18 343 47 25 433 0.01 Total $ — $ 253 $ 2,785 $ 807 $ 502 $ 4,347 0.03 % For the Six Months Ended March 31, 2024 Interest Rate Reduction Term Extension Significant Payment Delay Combination-Rate Reduction & Term Extension Other Total % of Total Class Residential Core $ — $ 349 $ 2,390 $ 826 $ 477 $ 4,042 0.03 % Residential Home Today — 48 196 187 — 431 1.00 Home equity loans and lines of credit — 18 731 135 25 909 0.03 Total $ — $ 415 $ 3,317 $ 1,148 $ 502 $ 5,382 0.04 % 21 Table of Contents The following table presents the financial effects of the loan modifications presented above to borrowers experiencing financial difficulty for the three and six months ended March 31, 2024. For the Three Months Ended March 31, 2024 Interest Rate Reduction Term Extension Weighted-Average Contractual Interest Rate Weighted-Average Years Added to Life From To Residential Core 3.61 % 2.08 % 11.3 Residential Home Today 2.03 % 2.00 % 16.3 Home equity loans and lines of credit 7.49 % 2.00 % 3.8 For the Six Months Ended March 31, 2024 Interest Rate Reduction Term Extension Weighted-Average Contractual Interest Rate Weighted-Average Years Added to Life From To Residential Core 3.97 % 2.07 % 11.7 Residential Home Today 3.58 % 2.00 % 16.6 Home equity loans and lines of credit 5.36 % 2.95 % 11.7 The performance of loans made to borrowers experiencing financial difficulty in which modifications were made is closely monitored by the Company to understand the effectiveness of modification efforts. Modifications made to borrowers experiencing financial difficulty that become 90 days or more past due under the modified terms are considered subsequently defaulted. The table below summarizes information about modifications that had subsequently defaulted for the three and six months ending March 31, 2024. No Residential Core or Home Today loans modified since October 1, 2023, the date of which the Company adopted ASU 2022-02, have subsequently defaulted during the periods presented. For the Three Months Ended March 31, 2024 Interest Rate Reduction Term Extension Significant Payment Delay Other Capitalize and Extend Combination-Rate Reduction & Term Extension Total Home equity loans and lines of credit $ — $ — $ 208 $ — $ — $ — $ 208 Total $ — $ — $ 208 $ — $ — $ — $ 208 For the Six Months Ended March 31, 2024 Interest Rate Reduction Term Extension Significant Payment Delay Other Capitalize and Extend Combination-Rate Reduction & Term Extension Total Home equity loans and lines of credit $ — $ — $ 208 $ — $ — $ — $ 208 Total $ — $ — $ 208 $ — $ — $ — $ 208 The following table presents the performance by loan type for loans modified to borrowers experiencing financial difficulty, on or after October 1, 2023, the date of which the Company adopted ASU 2022-02, through March 31, 2024. The loans in delinquency status primarily consisted of significant payment delays, which are still reported delinquent even after modification. March 31, 2024 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Residential Core $ 75 $ 158 $ 785 $ 1,018 $ 3,024 $ 4,042 Residential Home Today — 1 185 186 245 431 Home equity loans and lines of credit — — 687 687 222 909 Total $ 75 $ 159 $ 1,657 $ 1,891 $ 3,491 $ 5,382 22 TROUBLED DEBT RESTRUCTURINGS PRIOR TO THE ADOPTION OF ASU 2022-02 Prior to the adoption of ASU 2022-02 on October 1, 2023, initial concessions granted for loans restructured as TDRs include reduction of interest rate, extension of amortization period, capitalization of delinquent amounts, forbearance or other actions. Some TDRs have experienced a combination of concessions. TDRs also could 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. At September 30, 2023, $ 73,172 of TDRs individually evaluated for credit loss have adequately performed under the terms of the restructuring and are classified as Pass loans. The amortized cost in TDRs by category as of September 30, 2023 is shown in the table below. September 30, 2023 Initial Restructuring Multiple Restructurings Bankruptcy Total Residential Core $ 28,546 $ 15,730 $ 9,577 $ 53,853 Residential Home Today 9,390 10,114 1,691 21,195 Home equity loans and lines of credit 21,063 2,460 879 24,402 Total $ 58,999 $ 28,304 $ 12,147 $ 99,450 The following table sets forth the amortized cost in TDRs restructured during the period presented. For all loans modified during the three and six months ended March 31, 2023, the pre-modified outstanding amortized cost was not materially different from the post-modified outstanding amortized cost. For the Three Months Ended March 31, 2023 Initial Restructuring Multiple Restructurings Bankruptcy Total Residential Core $ 593 $ 554 $ 264 $ 1,411 Residential Home Today 181 171 29 381 Home equity loans and lines of credit 72 74 — 146 Total $ 846 $ 799 $ 293 $ 1,938 For the Six Months Ended March 31, 2023 Initial Restructuring Multiple Restructurings Bankruptcy Total Residential Core $ 2,030 $ 981 $ 626 $ 3,637 Residential Home Today 182 365 29 576 Home equity loans and lines of credit 406 74 — 480 Total $ 2,618 $ 1,420 $ 655 $ 4,693 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 period presented. For the Three Months Ended March 31, 2023 TDRs That Subsequently Defaulted Number of Contracts Amortized Cost Residential Core 2 $ 214 Residential Home Today 3 73 Home equity loans and lines of credit 1 58 Total 6 $ 345 For the Six Months Ended March 31, 2023 TDRs That Subsequently Defaulted Number of Contracts Amortized Cost Residential Core 2 $ 214 Residential Home Today 4 100 Home equity loans and lines of credit 1 58 Total 7 $ 372 23 Table of Contents 5. DEPOSITS Deposit account balances are summarized as follows: March 31, 2024 September 30, 2023 Checking accounts $ 891,085 $ 983,396 Savings accounts, excluding money market accounts 1,266,388 1,460,601 Money market accounts 239,886 346,479 Certificates of deposit 7,517,395 6,648,982 9,914,754 9,439,458 Accrued interest 20,877 10,362 Total deposits $ 9,935,631 $ 9,449,820 The aggregate amount of CDs in denominations of more than $250 was $ 1,106,203 and $ 845,375 at March 31, 2024 and September 30, 2023, respectively. In accordance with the DFA, the maximum amount of federal deposit insurance is $250 per depositor for each account ownership category. Brokered CDs (exclusive of acquisition costs and subsequent amortization), which are used as a cost effective funding alternative, totaled $ 1,261,663 and $ 1,162,601 at March 31, 2024 and September 30, 2023, respectively, of which $725,000 and $665,000 were aligned with interest rate swaps discussed in Note 13. DERIVATIVE INSTRUMENTS . 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 March 31, 2024 and September 30, 2023, the Association may accept brokered deposits without FDIC restrictions. 6. BORROWED FUNDS At March 31, 2024, the Association had a maximum borrowing capacity of $8,085,306, of which $4,955,438 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. Additionally, 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 March 31, 2024, are summarized in the table below: Borrowing Capacity Borrowings Available Borrowings Outstanding FHLB $ 6,817,151 $ 1,884,619 $ 4,932,532 FRB Cleveland 693,155 693,155 — Fed Funds Purchased 575,000 575,000 — Subtotal $ 8,085,306 $ 3,152,774 4,932,532 Accrued Interest 22,906 Total Borrowings $ 4,955,438 24 Table of Contents Maturities of borrowings at March 31, 2024, are summarized in the table below: Amount Weighted Average Rate Maturing in: 12 months or less $ 900,000 2.15 % 13 to 24 months 875,000 2.74 25 to 36 months 975,445 3.14 37 to 48 months 801,880 3.73 49 to 60 months 376,273 3.54 Over 60 months 1,003,934 3.41 Total Advances 4,932,532 3.07 % Accrued interest 22,906 Total $ 4,955,438 All borrowings have fixed rates during their term ranging up to 240 months. The table above reflects the effective maturities and fixed interest rates of the $3,100,000 of short-term FHLB advances that are tied to interest rate swaps discussed in Note 13. DERIVATIVE INSTRUMENTS. Interest is payable monthly for long-term advances and at maturity for FHLB swap based three-month and overnight advances. For the three and six months ended March 31, 2024 and March 31, 2023, net interest expense related to short-term borrowings was $ 23,067 and $ 56,040 , and $ 28,677 and $ 53,275 , respectively. 7. OTHER COMPREHENSIVE INCOME (LOSS) The change in accumulated other comprehensive income (loss) by component is as follows: For the Three Months Ended For the Three Months Ended March 31, 2024 March 31, 2023 Unrealized Gains (Losses) on Securities Available for Sale Cash Flow Hedges Defined Benefit Plan Total Unrealized Gains (Losses) on Securities Available for Sale Cash Flow Hedges Defined Benefit Plan Total Balance at beginning of period $ ( 29,518 ) $ 48,327 $ ( 8,623 ) $ 10,186 $ ( 35,860 ) $ 70,519 $ ( 11,638 ) $ 23,021 Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $ 14,907 and $( 2,594 ) ( 2,589 ) 52,786 — 50,197 4,173 ( 12,992 ) — ( 8,819 ) Amounts reclassified, net of tax expense (benefit) of $( 5,333 ) and $( 2,795 ) — ( 18,069 ) 104 ( 17,965 ) — ( 9,696 ) 195 ( 9,501 ) Other comprehensive income (loss) ( 2,589 ) 34,717 104 32,232 4,173 ( 22,688 ) 195 ( 18,320 ) Balance at end of period $ ( 32,107 ) $ 83,044 $ ( 8,519 ) $ 42,418 $ ( 31,687 ) $ 47,831 $ ( 11,443 ) $ 4,701 25 Table of Contents For the Six Months Ended For the Six Months Ended March 31, 2024 March 31, 2023 Unrealized Gains (Losses) on Securities Available for Sale Cash Flow Hedges Defined Benefit Plan Total Unrealized Gains (Losses) on Securities Available for Sale Cash Flow Hedges Defined Benefit Plan Total Balance at beginning of period $ ( 41,173 ) $ 135,532 $ ( 9,147 ) $ 85,212 $ ( 33,899 ) $ 68,883 $ ( 11,835 ) $ 23,149 Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $( 2,286 ) and $( 1,020 ) 9,066 ( 17,188 ) 418 ( 7,704 ) 2,212 ( 6,217 ) — ( 4,005 ) Amounts reclassified, net of tax expense (benefit) of $( 10,419 ) and $( 4,222 ) — ( 35,300 ) 210 ( 35,090 ) — ( 14,835 ) 392 ( 14,443 ) Other comprehensive income (loss) 9,066 ( 52,488 ) 628 ( 42,794 ) 2,212 ( 21,052 ) 392 ( 18,448 ) Balance at end of period $ ( 32,107 ) $ 83,044 $ ( 8,519 ) $ 42,418 $ ( 31,687 ) $ 47,831 $ ( 11,443 ) $ 4,701 The following table presents the reclassification adjustments out of accumulated other comprehensive income (loss) included in net income and the corresponding line item on the CONSOLIDATED STATEMENTS OF INCOME for the periods indicated: Amounts Reclassified from Accumulated Other Comprehensive Income Amounts Reclassified from Accumulated Other Comprehensive Income Details about Accumulated Other Comprehensive Income Components For the Three Months Ended March 31, For the Six Months Ended March 31, Line Item in the Consolidated Statements of Income 2024 2023 2024 2023 Cash flow hedges: Interest (income) expense $ ( 23,435 ) $ ( 12,551 ) $ ( 45,783 ) $ ( 19,175 ) Interest expense Net income tax effect 5,366 2,855 10,483 4,340 Income tax expense Net of income tax expense ( 18,069 ) ( 9,696 ) ( 35,300 ) ( 14,835 ) Amortization of defined benefit plan: Actuarial loss 137 255 274 510 (a) Net income tax effect ( 33 ) ( 60 ) ( 64 ) ( 118 ) Income tax expense Net of income tax expense 104 195 210 392 Total reclassifications for the period $ ( 17,965 ) $ ( 9,501 ) $ ( 35,090 ) $ ( 14,443 ) (a) This item is included in the computation of net periodic pension cost. See Note 9. DEFINED BENEFIT PLAN for additional disclosure. 8. INCOME TAXES The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in various state and city jurisdictions. The Company’s combined federal and state effective income tax rate was 20.4 % and 20.9 % for the six months ended March 31, 2024 and March 31, 2023, respectively. The Company is no longer subject to income tax examinations in its major jurisdictions for tax years ended prior to 2020. The Company recognizes interest and penalties on income tax assessments or income tax refunds, where applicable, in the consolidated financial statements as a component of its provision for income taxes. The Company makes certain investments in limited partnerships, which invest in affordable housing projects that qualify for the Low Income Housing Tax Credit. The Company acts as a limited partner in these investments and does not exert control 26 Table of Contents 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 during the six months ended March 31, 2024 and March 31, 2023. 9. 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. The components of net periodic cost recognized in other non-interest expense in the CONSOLIDATED STATEMENTS OF INCOME are as follows: For the Three Months Ended For the Six Months Ended March 31, March 31, 2024 2023 2024 2023 Interest cost $ 826 $ 831 $ 1,653 $ 1,662 Expected return on plan assets ( 995 ) ( 968 ) ( 1,991 ) ( 1,936 ) Amortization of net loss 137 255 274 510 Net periodic (benefit) cost $ ( 32 ) $ 118 $ ( 64 ) $ 236 There were no required minimum employer contributions during the six months ended March 31, 2024. There are no required minimum employer contributions expected during the remainder of the fiscal year ending September 30, 2024. 10. EQUITY INCENTIVE PLAN During the quarter ended March 31, 2024, 231,750 restricted stock units, 61,000 performance share units, and 247,200 stock options were granted to directors, officers and certain managers of the Company. During the six months ended March 31, 2024, performance share units granted in December 2021 were reduced by 2,655 units, according to the targeted performance formula. The awards were made pursuant to the Amended and Restated 2008 Equity Incentive Plan, which was approved at the annual meeting of shareholders held on February 22, 2018. The following table presents share-based compensation expense recognized during the periods presented: For the Three Months Ended For the Six Months Ended March 31, March 31, 2024 2023 2024 2023 Stock option expense $ 23 $ — $ 23 $ — Restricted stock units expense 963 807 1,632 1,748 Performance share units expense 185 261 431 471 Total stock-based compensation expense $ 1,171 $ 1,068 $ 2,086 $ 2,219 At March 31, 2024, 2,231,475 shares were subject to options, with a weighted average exercise price of $ 15.39 per share and a weighted average grant date fair value of $ 2.29 per share. Expected future expense, relating to the 247,200 non-vested options outstanding as of March 31, 2024, is $ 279 over a weighted average period of 2.6 years. At March 31, 2024, 374,491 restricted stock units and 213,445 performance share units with a weighted average grant date fair value of $ 13.78 and $ 14.45 per unit, respectively, are unvested. Expected future compensation expense, relating to the 1,140,239 restricted stock units and 213,445 performance share units, outstanding as of March 31, 2024, is $ 3,979 over a weighted average period of 2.3 years and $ 1,455 over a weighted average period of 2.0 years, respectively. Each unit is equivalent to one share of common stock. 27 Table of Contents 11. 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 or purchase 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 10 years following the date that the line of credit was established, subject to various conditions, including compliance with payment obligations, 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 assets on 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 related to off-balance sheet commitments is recorded in other liabilities in the CONSOLIDATED STATEMENTS OF CONDITION. Refer to Note 4. 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 move unfavorably from the position of the Company since the time the commitment was made. At March 31, 2024, the Company had commitments to originate or purchase loans and related allowances as follows: Commitment Allowance Fixed-rate mortgage loans $ 56,175 $ 291 Adjustable-rate mortgage loans 13,382 68 Home equity loans and lines of credit 208,168 2,745 Total $ 277,725 $ 3,104 At March 31, 2024, the Company had unfunded commitments outstanding and related allowances as follows: Commitment Allowance Home equity lines of credit $ 4,913,653 $ 23,470 Construction loans 15,040 83 Total $ 4,928,693 $ 23,553 At March 31, 2024, 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, was $ 4,944,702 . At March 31, 2024 and September 30, 2023, the Company had $ 49,352 and $ 2,094 , respectively, in commitments to sell mortgage loans. At March 31, 2024 and September 30, 2023, the Company had $ 10,183 and $ 51,275 , respectively, in commitments to purchase mortgage loans, which are included in mortgage loan commitments above. The above commitments are expected to be funded through normal operations. The Company is undergoing an escheat audit covering the states of Ohio, Kentucky and Florida. Any potential loss, or range of loss, that may result from this matter is not reasonably estimable at March 31, 2024. 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. 28 Table of Contents 12. 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. 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 March 31, 2024 and September 30, 2023, there were $ 6,038 and $ 0 loans held for sale, respectively, with unpaid principal balances of $ 5,917 and $ 0 , in pending agency contracts for which the fair value was elected. Changes in fair value on loans held for sale subject to pending agency contracts are included in the net gain on sale of loans, which included a net gain of $ 68 and $ 0 for both three and six months ended March 31, 2024 and March 31, 2023. 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 March 31, 2024 and September 30, 2023, this includes $ 520,172 and $ 508,324 , respectively, of investments in U.S. government and agency obligations including U.S. Treasury notes and investments in highly liquid collateralized mortgage obligations, that can include items issued by Fannie Mae, Freddie Mac and Ginnie Mae, measured using the market approach. The fair values of investment securities represent unadjusted price estimates obtained from independent third-party 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 March 31, 2024 and September 30, 2023, there were $ 9,698 and $ 3,260 , respectively, of loans held for sale measured at fair value. At March 31, 2024 and September 30, 2023, there were $ 0 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 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES . To calculate the credit loss of collateral-dependent loans, the fair market values of the collateral, estimated using third-party 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 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 recovery 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. 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 March 31, 2024 and September 30, 2023, were $ 230 and $ 1,444 , 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 March 31, 2024 and September 30, 2023, these adjustments were not significant to reported fair values. At March 31, 2024 and September 30, 2023, $ 250 and $ 1,413 , respectively, 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 estimated fair values, less estimated costs to dispose, of $ 20 and 29 Table of Contents $ 163 , respectively. Real estate owned includes $ 0 and $ 194 of properties carried at their original or adjusted cost basis at March 31, 2024 and September 30, 2023, respectively. Derivatives— Derivative instruments include interest rate locks on commitments to originate or purchase 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 STATEMENTS OF CONDITION with changes in value recorded in current earnings. Derivatives qualifying as cash flow hedges are settled daily , bringing the fair value to $ 0 . Refer to Note 13. DERIVATIVE INSTRUMENTS for additional information on cash flow hedges and other derivative instruments. 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 March 31, 2024 and September 30, 2023, are summarized below. Recurring Fair Value Measurements at Reporting Date Using March 31, 2024 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (Level 1) (Level 2) (Level 3) Assets Investment securities available for sale: REMICs $ 446,150 $ — $ 446,150 $ — Fannie Mae certificates 869 — 869 — Freddie Mac securities 1,090 — 1,090 — U.S. government and agency obligations 72,063 — 72,063 — Mortgage loans held for sale 6,038 — 6,038 — Derivatives: Interest rate lock commitments 358 — — 358 Total $ 526,568 $ — $ 526,210 $ 358 Liabilities Derivatives: Forward commitments for the sale of mortgage loans 140 — 140 — Total $ 140 $ — $ 140 $ — 30 Table of Contents Recurring Fair Value Measurements at Reporting Date Using September 30, 2023 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (Level 1) (Level 2) (Level 3) Assets Investment securities available for sale: REMICs $ 443,007 $ — $ 443,007 $ — Fannie Mae certificates 814 — 814 — Freddie Mac certificates 1,044 — 1,044 — U.S. government and agency obligations 63,459 — 63,459 — Derivatives: Forward commitments for the sale of mortgage loans 11 — 11 — Total $ 508,335 $ — $ 508,335 $ — Liabilities Derivatives: Interest rate lock commitments 1 — — 1 Total $ 1 $ — $ — $ 1 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). Three Months Ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 Beginning balance $ 55 $ ( 29 ) $ ( 1 ) $ ( 333 ) Gain during the period due to changes in fair value: Included in other non-interest income 303 6 359 310 Ending balance $ 358 $ ( 23 ) $ 358 $ ( 23 ) Change in unrealized gains for the period included in earnings for assets held at end of the reporting date $ 358 $ ( 23 ) $ 358 $ ( 23 ) Summarized in the tables below are those assets measured at fair value on a nonrecurring basis. Nonrecurring Fair Value Measurements at Reporting Date Using March 31, 2024 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (Level 1) (Level 2) (Level 3) Collateral-dependent loans, net of allowance $ 39,109 $ — $ — $ 39,109 Mortgage loans held for sale 3,661 — 3,661 — Real estate owned (1) 250 — — 250 Total $ 43,020 $ — $ 3,661 $ 39,359 31 Table of Contents Nonrecurring Fair Value Measurements at Reporting Date Using September 30, 2023 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (Level 1) (Level 2) (Level 3) Collateral-dependent loans, net of allowance $ 38,289 $ — $ — $ 38,289 Mortgage loans held for sale 3,260 — 3,260 — Real estate owned (1) 1,413 — — 1,413 Total $ 42,962 $ — $ 3,260 $ 39,702 (1) Amounts represent fair value measurements of properties before deducting estimated costs to dispose. The following provides quantitative information about significant unobservable inputs categorized within Level 3 of the Fair Value Hierarchy. The interest rate lock commitments include mortgage origination applications. Fair Value March 31, 2024 Valuation Technique(s) Unobservable Input Range Weighted Average Collateral-dependent loans, net of allowance $ 39,109 Market comparables of collateral discounted to estimated net proceeds Discount appraised value to estimated net proceeds based on historical experience: • Residential Properties 0 - 28 % 4.6 % Interest rate lock commitments $ 358 Quoted Secondary Market pricing Closure rate 0 - 100 % 91.7 % Fair Value September 30, 2023 Valuation Technique(s) Unobservable Input Range Weighted Average Collateral-dependent loans, net of allowance $ 38,289 Market comparables of collateral discounted to estimated net proceeds Discount appraised value to estimated net proceeds based on historical experience: • Residential Properties 0 - 30 % 4.8 % Interest rate lock commitments $( 1 ) Quoted Secondary Market pricing Closure rate 0 - 100 % 99.5 % 32 Table of Contents 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 . March 31, 2024 Carrying Fair Level 1 Level 2 Level 3 Amount Value Assets: Cash and due from banks $ 27,381 $ 27,381 $ 27,381 $ — $ — Interest-earning cash equivalents 566,953 566,953 566,953 — — Investment securities available for sale 520,172 520,172 — 520,172 — Mortgage loans held for sale 9,698 9,698 — 9,698 — Loans, net: Mortgage loans held for investment 15,144,910 13,819,240 — — 13,819,240 Other loans 4,709 4,709 — — 4,709 Federal Home Loan Bank stock 240,365 240,365 N/A — — Accrued interest receivable 56,887 56,887 — 56,887 — Cash collateral received from or held by counterparty 6,656 6,656 6,656 — — Derivatives 358 358 — — 358 Liabilities: Checking and passbook accounts $ 2,397,359 $ 2,397,359 $ — $ 2,397,359 $ — Certificates of deposit 7,538,272 7,434,048 — 7,434,048 — Borrowed funds 4,955,438 4,959,926 — 4,959,926 — Borrowers’ advances for insurance and taxes 99,492 99,492 — 99,492 — Principal, interest and escrow owed on loans serviced 25,946 25,946 — 25,946 — Derivatives 140 140 — 140 — 33 Table of Contents September 30, 2023 Carrying Fair Level 1 Level 2 Level 3 Amount Value Assets: Cash and due from banks $ 29,134 $ 29,134 $ 29,134 $ — $ — Interest-earning cash equivalents 437,612 437,612 437,612 — — Investment securities available for sale 508,324 508,324 — 508,324 — Mortgage loans held for sale 3,260 3,260 — 3,260 — Loans, net: Mortgage loans held for investment 15,161,336 13,262,711 — — 13,262,711 Other loans 4,411 4,411 — — 4,411 Federal Home Loan Bank stock 247,098 247,098 N/A — — Accrued interest receivable 53,910 53,910 — 53,910 — Cash collateral received from or held by counterparty 24,887 24,887 24,887 — — Derivatives 11 11 — 11 — Liabilities: Checking and passbook accounts $ 2,790,476 $ 2,790,476 $ — $ 2,790,476 $ — Certificates of deposit 6,659,344 6,571,674 — 6,571,674 — Borrowed funds 5,273,637 5,256,278 — 5,256,278 — Borrowers’ advances for insurance and taxes 124,417 124,417 — 124,417 — Principal, interest and escrow owed on loans serviced 29,811 29,811 — 29,811 — Derivatives 1 1 — — 1 13. 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 and deposits 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 and brokered certificates of deposit. 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 are recorded in OCI and are subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Quarterly, a quantitative analysis is performed to monitor the ongoing effectiveness of the hedging instrument. All derivative positions were initially, and continue to be, highly effective at March 31, 2024. The Company enters into forward commitments for the sale of mortgage loans primarily 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 or purchase 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. 34 Table of Contents 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. March 31, 2024 Weighted Average Notional Value Fair Value Term (years) Fixed-Rate Payments Derivatives designated as hedging instruments Cash flow hedges: Interest rate swaps Other Assets $ 3,690,000 $ — 3.3 2.94 % Other Liabilities 135,000 — 3.1 4.44 Total cash flow hedges: Interest rate swaps $ 3,825,000 $ — 3.3 2.99 % September 30, 2023 Weighted Average Notional Value Fair Value Term (years) Fixed-Rate Payments Cash flow hedges: Interest rate swaps Other Assets $ 3,815,000 $ — 3.7 2.91 % Total cash flow hedges: Interest rate swaps $ 3,815,000 $ — 3.7 2.91 % March 31, 2024 September 30, 2023 Notional Value Fair Value Notional Value Fair Value Derivatives not designated as hedging instruments Interest rate lock commitments Other Assets $ 33,341 $ 358 $ — $ — Other Liabilities — — 1,830 ( 1 ) Forward Commitments for the sale of mortgage loans Other Assets — — 2,094 11 Other Liabilities 49,352 ( 140 ) — — Total derivatives not designated as hedging instruments $ 82,693 $ 218 $ 3,924 $ 10 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. Three Months Ended Six Months Ended Location of Gain or (Loss) March 31, March 31, Recognized in Income 2024 2023 2024 2023 Cash flow hedges Amount of gain/(loss) recognized Other comprehensive income $ 68,462 $ ( 16,814 ) $ ( 22,291 ) $ ( 7,710 ) Amount of gain/(loss) reclassified from AOCI Interest expense: Borrowed funds and Deposits 23,435 12,551 45,783 19,175 Derivatives not designated as hedging instruments Interest rate lock commitments Other non-interest income $ 303 $ 6 $ 359 $ 310 Forward commitments for the sale of mortgage loans Net gain/(loss) on the sale of loans ( 25 ) ( 76 ) ( 151 ) ( 76 ) The Company estimates that $ 66,586 of the amounts reported in AOCI will be reclassified as a reduction to interest expense during the twelve months ending March 31, 2025. 35 Table of Contents 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 an intermediary on each cleared transaction. At March 31, 2024 and September 30, 2023, there was $ 6,656 and $ 24,887 , respectively, of cash collateral included in other assets, and $ 68,335 and $ 59,813 , respectively, included in investment securities related to initial margin requirements that are 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. 14. RECENT ACCOUNTING PRONOUNCEMENTS Adopted as of March 31, 2024 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 modifications by creditors when the borrower is experiencing financial difficulty. 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. This update is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted this guidance as of October 1, 2023, and applied the modified retrospective transition method that evaluates loans previously identified as TDRs for credit loss under the Company’s current ACL policy. Upon adoption, we recognized an increase in retained earnings of $7,898, net of income taxes, resulting from a pretax decrease to the allowance for credit losses on loans and unfunded commitments of $10,262. The enhanced disclosure requirements provided for by the ASU have been adopted on a prospective basis. The required disclosures are included in Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES . Issued but not yet adopted as of March 31, 2024 The Company has determined that the accounting pronouncements issued since the last filing for the quarter ended December 31, 2023, will not have a material impact on the Company's consolidated financial statements or do not apply to its operations. 36 Table of Contents