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Item 7. Management’s Discussion and Analysis

2024-11-22 compared with 2023-11-21 · 208 added, 186 removed, 400 unchanged (50% of the section changed)

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Our business strategy is to operate as a well capitalized and profitable financial institution dedicated to providing exceptional personal service to our customers.

Since being organized in 1938, we grew to become, at the time of our initial public offering of stock in April 2007, the nation’s largest mutually-owned savings and loan association based on total assets.

Since being organized in 1938, we grew to become, at the time of our initial public offering of stock in 2007, the nation’s largest mutually-owned savings and loan association based on total assets.

We credit our success to our continued emphasis on our primary values:

“Love, Trust, Respect, and a Commitment to Excellence, along with Having Fun.” Our values are reflected in the design and pricing of our loan and deposit products, as described below.

Our values are further reflected in a long-term revitalization program encompassing the three-mile corridor of the Broadway-Slavic Village neighborhood in Cleveland, Ohio where our main office was established and continues to be located and where the educational programs we have established and/or support are located.

“Love, Trust, Respect, and a Commitment to Excellence, along with Having Fun".

Our values are reflected in the design and pricing of our loan and deposit products, as described below.

Our values are further reflected in a long-term revitalization program encompassing the three-mile corridor of the Broadway-Slavic Village neighborhood in Cleveland, Ohio where our main office was established and continues to be located and where we've been the developer of a community of 40 homes, intended to serve the low- to moderate income home owner.

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

The bank failures of three large domestic regional banks during the first half of 2023 negatively impacted consumer confidence and increased stress across the banking sector.

The unprecedented implications of 2022 and 2023 fiscal policy coupled with geopolitics impacting energy markets and supply-chain constraints from global shutdowns culminated into high levels of inflation.

The subsequent restrictive monetary policy approach has resulted in a heightened exposure of certain banking industry practices.

Taking all of this into consideration, we remain confident that our business model and strategic approach remain appropriate.

The unprecedented implications of the prolonged period of inversion in the yield curve, influenced by the FRS's restrictive monetary policy resulted in a heightened exposure of certain banking industry practices.

The yield curve is currently positive, normalizing in mid-September just prior to the FRS's 50 basis point rate cut, the first in four years.

Taking all of this into consideration, we remain committed to our mission, business model and strategic approach.

Specifically, (1) our capital ratios remain a primary source of financial strength;

(2) our core deposits remain stable and the majority of our deposit accounts fall within FDIC insurance limits;

(2) our deposits provide a stable source of funding and the majority of our deposit accounts fall within FDIC insurance limits;

(3) we maintain adequate access to contingent sources of liquidity;

and (4) our risk management practices around an array of financial disciplines are robust and commensurate to an institution of our size and complexity.

and (4) our risk management practices around an array of financial disciplines which are robust and commensurate to an institution of our size and complexity.

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

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2024 2023 2022 2021 2020

(In thousands)

Selected Financial Condition Data:

(In thousands)

Total assets $ 17,090,785 $ 16,917,979 $ 15,789,879 $ 14,057,450 $ 14,642,221

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Investment securities available for sale

Loans held for sale 3,260 9,661 8,848 36,871 3,666

Loans, net 15,165,747 14,257,067 12,509,035 13,103,062 13,195,745

Bank owned life insurance 312,072 304,040 297,332 222,919 217,481

Prepaid expenses and other assets 117,270 95,428 91,586 104,832 87,957

526,251 508,324 457,908 421,783 453,438

Mortgage loans held for sale

17,775 3,260 9,661 8,848 36,871

Loans held for investment, net

15,322,059 15,165,747 14,257,067 12,509,035 13,103,062

Bank owned life insurance contracts

317,977 312,072 304,040 297,332 222,919

114,125 117,270 95,428 91,586 104,832

Deposits 10,195,079 9,449,820 8,921,017 8,993,605 9,225,554

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2024 2023 2022 2021 2020

(In thousands, except per share amounts)

Selected Operating Data:

Interest income $ 611,919 $ 409,333 $ 389,351 $ 455,298 $ 482,087

(In thousands, except per share amounts)

Interest and dividend income

$ 734,074 $ 611,919 $ 409,333 $ 389,351 $ 455,298

Interest expense 455,616 328,352 141,937 157,721 213,030

Net interest income 278,458 283,567 267,396 231,630 242,268

Provision (release) for credit losses on loans (1,500) 1,000 (9,000) 3,000 (10,000)

Net interest income after provision (release) for credit losses on loans 285,067 266,396 240,630 239,268 275,421

Provision (release) for credit losses

(1,500) (1,500) 1,000 (9,000) 3,000

Net interest income after provision (release) for credit losses

279,958 285,067 266,396 240,630 239,268

Non-interest income 24,702 21,429 23,804 55,299 53,251

Non-interest expenses 204,347 213,129 198,146 195,835 192,274

Earnings before income tax 93,367 92,054 100,094 100,245 102,212

Income before income taxes

100,313 93,367 92,054 100,094 100,245

Income tax expense 20,725 18,117 17,489 19,087 16,928

Net earnings after income tax expense $ 75,250 $ 74,565 $ 81,007 $ 83,317 $ 80,237

$ 79,588 $ 75,250 $ 74,565 $ 81,007 $ 83,317

Earnings per share

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Performance Ratios:

Return on average assets 0.46 % 0.51 % 0.56 % 0.56 % 0.56 %

Return on average total assets

0.47 % 0.46 % 0.51 % 0.56 % 0.56 %

Return on average equity

4.12 % 4.00 % 4.14 % 4.77 % 4.88 %

Interest rate spread(1)

1.38 % 1.57 % 1.75 % 1.52 % 1.52 %

Net interest margin(2)

1.69 % 1.80 % 1.88 % 1.66 % 1.69 %

Efficiency ratio(3)

67.41 % 69.88 % 68.04 % 68.25 % 65.06 %

Non-interest expense to average total assets

Average interest-earning assets to average interest-bearing

liabilities 111.36 % 112.42 % 111.92 % 111.41 % 112.28 %

1.20 % 1.31 % 1.34 % 1.35 % 1.29 %

Average interest-earning assets to average interest-bearing liabilities

111.07 % 111.36 % 112.42 % 111.92 % 111.41 %

Asset Quality Ratios:

Non-performing assets as a percent of total assets

0.20 % 0.20 % 0.23 % 0.32 % 0.37 %

Non-accruing loans as a percent of total loans

Allowance for credit losses on loans as a percent of

non-accruing loans 242.26 % 204.73 % 145.96 % 87.95 % 54.60 %

0.22 % 0.21 % 0.25 % 0.35 % 0.41 %

Allowance for credit losses on loans as a percent of non-accruing loans

208.28 % 242.26 % 204.73 % 145.96 % 87.95 %

Allowance for credit losses on loans as a percent of total loans

0.45 % 0.51 % 0.51 % 0.51 % 0.36 %

Capital Ratios:

Total capital to risk-weighted assets

17.91 % 17.87 % 18.84 % 21.00 % 19.96 %

Tier 1 (leverage) capital to net average assets

10.11 % 9.82 % 10.33 % 11.15 % 10.39 %

Tier 1 capital to risk-weighted assets

17.17 % 17.15 % 18.25 % 20.43 % 19.37 %

Common equity tier 1 capital to risk-weighted assets

17.17 % 17.15 % 18.25 % 20.43 % 19.37 %

TFS Financial Corporation

Total capital to risk-weighted assets

19.24 % 19.85 % 21.18 % 23.75 % 22.71 %

Tier 1 (leverage) capital to net average assets

10.89 % 10.96 % 11.66 % 12.65 % 11.88 %

Tier 1 capital to risk-weighted assets

18.50 % 19.13 % 20.59 % 23.18 % 22.13 %

Common equity tier 1 capital to risk-weighted assets

18.50 % 19.13 % 20.59 % 23.18 % 22.13 %

Average equity to average total assets 11.33 % 11.58 % 12.23 % 11.72 % 11.50 %

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(3) The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.

(4) In April 2020, the Simplifications to the Capital Rule ("Rule") was adopted, which simplified certain aspects of the capital rule under Basel III.

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

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

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Controlling Our Interest Rate Risk Exposure.

Historically, our greatest risk has been our exposure to changes in interest rates.

Historically, our greatest risk has been our exposure to changes in market interest rates.

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

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

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

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

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

A challenge to our business model occurs when there is a rapid and substantial increase in short-term rates or there is an extended inverted yield curve, which have both occurred over recent periods.

This economic environment has resulted in a decrease in our net interest margin.

A challenge to our business model occurs when there is a rapid and substantial increase in short-term rates or there is an extended inverted yield curve where short-term rates exceed long-term rates, both of which occurred in the past two years.

Although the yield curve became positive in early September 2024, rapid and substantial decreases in short-term rates can also pose a challenge when interest rates on our home equity line of credit portfolio, indexed to the prime rate, reprice more quickly than interest rates on borrowings and certificate of deposit accounts which generally reprice at maturity.

These economic environments may result in decreases in our net interest income and our net interest margin.

To mitigate our interest rate risk in general and to address the current rate environment specifically, we utilize a variety of strategies that include:

• Maintaining regulatory capital in excess of levels required to be considered well capitalized;

• Promoting adjustable-rate loans and shorter-term fixed-rate loans;

• Maintaining adjustable-rate mortgage loan balances and shorter-term fixed-rate loans;

• Marketing home equity lines of credit, which carry an adjustable rate of interest, indexed to the prime rate;

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At September 30, 2024, the Company’s Tier 1 (leverage) capital totaled $1.86 billion, or 10.89%, of net average assets and 18.50% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.72 billion, or 10.11%, of net average assets and 17.17% of risk-weighted assets.

Each of these measures is in excess of the requirements currently in effect for the Association for designation as “well capitalized” under regulatory prompt corrective action provisions, which set minimum levels of 5.00% of net average assets and 8.00% of risk-weighted assets.

Beginning this fiscal year, the Company entered into the final three years of the five-year transitional period, as provided by a final rule, after CECL was adopted in fiscal year 2021.

Each of these measures is in excess of the requirements in effect for the Association at September 30, 2024 for designation as “well capitalized” under regulatory prompt corrective action provisions.

Beginning this fiscal year, the Company entered into the final two years of the five-year transitional period, as provided by a final rule, after CECL was adopted in fiscal year 2021.

Refer to the Liquidity and Capital Resources section of this Item 7 for additional discussion regarding regulatory capital requirements.

Promotion of Adjustable-Rate Loans and Shorter-Term, Fixed-Rate Loans

Adjustable-Rate Loans and Shorter-Term, Fixed-Rate Loans

We offer our "Smart Rate" adjustable-rate mortgage loan, which provides us with improved interest rate risk characteristics when compared to a 30-year, fixed-rate mortgage loan.

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Terms less than or equal to 10 years

5,981 0.7 34,710 1.9

Terms greater than 10 years

690,820 80.9 1,195,562 64.4

Total fixed-rate production

696,801 81.6 1,230,272 66.3

Total First Mortgage Loan Originations and Purchases:

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Terms less than or equal to 10 years

836,875 7.3 1,088,048 9.0

Terms greater than 10 years

6,210,073 54.4 6,275,775 51.8

Total fixed-rate loans

7,046,948 61.7 7,363,823 60.8

Total First Mortgage Loans Held For Investment:

$ 11,426,080 100.0 % $ 12,124,666 100.0 %

The following table sets forth the balances as of September 30, 2023 for all ARM loans segregated by the next scheduled interest rate reset date.

Current Balance of ARM Loans Scheduled for Interest Rate Reset

During the Fiscal Years Ending September 30, (in thousands)

The following table sets forth the balances and yields as of September 30, 2024, for all ARM loans segregated by the next scheduled interest rate reset date:

Current Balance of ARM Loans Scheduled for Interest Rate Reset Yield

During the Fiscal Years Ending September 30, (Dollars in thousands)

2025 $912,871 3.97 %

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2027 1,540,938 2.78 %

Total $4,760,843

At September 30, 2023 and September 30, 2022, mortgage loans held for sale, all of which were long-term, fixed-rate first mortgage loans and all of which were held for sale to Fannie Mae, totaled $3.3 million and $9.7 million, respectively.

2028 484,104 4.80 %

2029 125,531 6.46 %

2030 13,414 6.90 %

$4,379,132 3.39 %

Loan Portfolio Yield

The following tables set forth the principal balance and interest yield as of September 30, 2024, for the portfolio of loans held for investment, by type of loan, structure and geographic location.

Weighted average yields are based on principal balances as of September 30, 2024.

September 30, 2024

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Terms less than or equal to 10 years

$ 836,875 5.5 % 2.67 %

Terms greater than 10 years

Total Fixed-Rate loans 7,363,823 48.5 3.68 %

6,210,073 40.5 4.03 %

Total Fixed-Rate Residential Mortgage loans

7,046,948 46.0 3.87 %

ARMs 4,379,130 28.5 3.38 %

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September 30, 2024

Balance Fixed-Rate Balance

Percent Yield

(Dollars in thousands)

Residential Mortgage Loans

Balance Fixed-Rate Balance Percent Yield

Residential Mortgage Loans (Dollars in thousands)

Ohio $ 6,644,767 $ 5,151,382 77.5 % 3.85 %

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Total Residential Mortgage Loans

11,426,078 7,046,948 61.7 3.69 %

Home Equity Loans and Lines of Credit

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Total Home Equity Loans and Lines of Credit

3,885,307 447,952 11.5 7.03 %

Construction and Other loans 27,406 27,406 100.0 6.58 %

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We strive to grow the home equity line of credit portfolio through offering competitive rates, marketing efforts, and by utilizing partners to attract more home equity line of credit customers.

At September 30, 2023, the principal balance of home equity lines of credit totaled $2.63 billion.

At September 30, 2024, the principal balance of home equity lines of credit (including those in repayment) that are structured to reset with each prime rate adjustment totaled $3.32 billion.

Our home equity lending is discussed in the preceding Lending Activities section of Item 1.

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Extending the Duration of Funding Sources

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

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

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

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

three months) funding, the durations of which are extended by correlated interest rate exchange contracts ("swap").

three years or greater) fixed-rate advances from the FHLB of Cincinnati, and shorter-term (e.g.

one or three months) funding, the durations of

which are extended by correlated interest rate exchange contracts ("swap").

Funding sources are discussed in more detail within this Item 7 in the sections entitled Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth and Liquidity and Capital Resources .

All of our swaps are subject to collateral pledges and require specific structural features to qualify for hedge accounting treatment.

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The Association's intent is that any swap to which it may be a party will qualify for hedge accounting treatment.

The Association is a party to interest rate swap agreements.

The Association uses swaps to extend the duration of its funding sources.

Each of the Association's swap agreements is registered on the Chicago Mercantile Exchange and involves the exchange of interest payment amounts based on a notional principal balance.

No exchange of principal amounts occur and the notional principal amount does not appear on our balance sheet.

The Association uses swaps to extend the duration of its funding sources.

In each of the Association's agreements, interest paid is based on a fixed rate of interest throughout the term of each agreement while interest received is based on an interest rate that resets and compounds daily over a specified interval (generally three months) throughout the term of each agreement.

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Concurrent with the execution of each swap, the Association enters into a short-term borrowing in an amount equal to the notional amount of the swap and with interest rate resets aligned with the reset interval of the swap.

Each individual swap agreement has been designated as a cash flow hedge of interest rate risk associated with either the Company's variable rate borrowings from the FHLB of Cincinnati or brokered CD's.

In these challenging economic times with an extended inverted yield curve, the Association has found it financially beneficial to increase the use of swaps to lower our borrowing costs and extend the duration of our liabilities.

In challenging economic times, such as with an extended inverted yield curve, the Association has found it financially beneficial to use swaps with a relatively lower cost to extend the duration of our liabilities.

For more details, refer to Notes 10 .

BORROWED FUNDS and 17.

DERIVATIVE INSTRUMENTS to the unaudited consolidated financial statements.

DERIVATIVE INSTRUMENTS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .

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

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DEPOSITS and 10.

BORROWED FUNDS for additional details on balances.

BORROWED FUNDS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional details on balances.

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

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Additionally, collateral pledges are not provided with respect to our retail CDs or our brokered CDs, but are required for our advances from the FHLB of Cincinnati as well as for our interest rate exchange contracts.

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

Other Interest Rate Risk Management Tools

We will continue to evaluate the structure of our funding sources balancing the need to extend duration and manage cost.

Selling Fixed Rate Loans in the Secondary Market

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

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

First mortgage loans (primarily fixed-rate mortgages with terms of 15 years or more, Home Ready and certain loans purchased through our correspondent lending partner) are originated under Fannie Mae guidelines and are eligible for sale to Fannie Mae either as whole loans or within mortgage-backed securities.

Currently, certain types of loans (i.e.

our Smart Rate adjustable-rate loans, home purchase fixed-rate loans and 10-year fixed-rate loans) are originated under our legacy procedures, which are not eligible for sale to Fannie Mae.

our Smart Rate adjustable-rate loans, 10-year fixed-rate loans, and first mortgage loans secured by certain property types) are originated under our proprietary underwriting and closing process, not eligible for sale to Fannie Mae.

We can also manage interest rate risk by selling non-Fannie Mae compliant mortgage loans to private investors, although those transactions may be limited to loans that have established payment histories, strong borrower credit profiles and are supported by adequate collateral.

Additionally, sales to private investors are dependent upon favorable market conditions, including motivated buyers, and involve more complicated negotiations and longer settlement timelines.

Loan sales are discussed in more detail within the Liquidity and Capital Resources section of this Item 7.

During the fiscal year ended September 30, 2024, $247.4 million of agency-compliant, long-term (15 to 30 years), fixed-rate mortgage loans were sold, or committed to be sold, to Fannie Mae on a servicing retained basis.

Of these sold loans, $43.5 million were originated through Mortgage Passport, and $33.7 million were originated as other agency-compliant first mortgage loans.

At September 30, 2023, loans that are classified as held for sale total $3.3 million.

As of September 30, 2023, we serviced $1.93 billion of loans we originated and later sold to investors.

Of these sold or committed loans, $143.1 million were originated through our traditional lending programs as other agency-compliant first mortgage loans, $98.1 million were purchased through a correspondent lending partnership, and $6.2 million were originated through our mortgage banking brand, known as "Mortgage Passport".

At September 30, 2024, loans classified as held for sale totaled $17.8 million.

At September 30, 2024, we serviced $1.97 billion of loans we originated and later sold to investors.

We continue to consider liquidity and balance sheet management, as well as secondary market pricing, in evaluating the opportunity to sell loans.

Additionally, we are expanding our ability to sell certain fixed-rate loans to Fannie through the use of more traditional mortgage banking activities, including a proprietary approach to risk-based pricing and loan-level pricing adjustments.

This approach is concentrated in markets outside of Ohio and Florida.

Some additional startup and marketing costs have been incurred, but are not expected to significantly impact our financial results in fiscal year 2023.

Additionally, we are using a proprietary approach to loan-level price adjustments in markets outside of Ohio and Florida using our "Mortgage Passport" brand to expand our ability to sell certain fixed-rate loans to Fannie Mae.

Loan sales are discussed in more detail within the Liquidity and Capital Resources section of this Item 7.

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At September 30, 2024, 90% of our assets consisted of residential real estate loans (both “held for sale” and “held for investment”) and home equity loans and lines of credit.

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

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

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

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

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

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

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

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For first mortgage loans originated or purchased during the current fiscal year, the average credit score was 778, and the average LTV was 70% at origination.

The delinquency level related to loan originations prior to 2009, compared to originations or purchases in 2009 and after, reflect the higher credit standards to which we have subjected all new originations.

As of September 30, 2023, loans originated prior to 2009 had a balance of $276.5 million, of which $5.5 million, or 2.0%, were delinquent, while loans originated or purchased in 2009 and after had a balance of $15.0 billion, of which $17.8 million, or 0.1%, were delinquent.

Our current delinquency levels reflect the higher credit standards to which we subject all new originations.

As of September 30, 2024, loans originated or purchased had a balance of $15.41 billion, of which $31.9 million, or 0.2%, were delinquent.

One aspect of our credit risk concern relates to high concentrations of our loans that are secured by residential real estate in specific states, particularly Ohio and Florida, where a large portion of our historical lending has occurred.

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

Accordingly, we plan to manage the pace of our growth in a manner that reflects our emphasis on high capital levels.

At September 30, 2024, the Association’s ratio of Tier 1 (leverage) capital to net average assets (a basic industry measure that deems 5.00% or above to represent a “well capitalized” status) was 10.11%.

The Association's Tier 1 (leverage) capital ratio at September 30, 2023 included the negative impact of a $40 million cash dividend payment that the Association made to the Company, its sole shareholder, in December 2022.

Because of its intercompany nature, this dividend payment did not impact the Company's consolidated capital ratios.

We expect to continue to remain a well capitalized institution.

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In evaluating funding sources, we consider many factors, including cost, collateral, duration and optionality, current availability, expected sustainability, impact on operations and capital levels.

We preserve the availability of alternative funding sources through various mechanisms.

First, by maintaining high capital levels, we retain the flexibility to increase our balance sheet size without jeopardizing our capital adequacy.

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

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

At September 30, 2023, the

Association had the ability to borrow a maximum of $6.63 billion from the FHLB of Cincinnati and $126.4 million from the FRB-Cleveland Discount Window.

As of September 30, 2023, our capacity for additional borrowing from FHLB of Cincinnati was $1.38 billion, Third, we have the ability to purchase overnight Fed Funds up to $585.0 million through various arrangements with other institutions.

Fourth, we invest in high quality marketable securities that exhibit limited market price variability and, to the extent that they are not needed as collateral for borrowings, can be sold in the institutional market and converted to cash.

While our retail deposit customers remain our preferred source of funding, we maintain many alternative funding sources.

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

At September 30, 2024, the Association had the ability to borrow a maximum of $6.86 billion from the FHLB of Cincinnati and $633.1 million from the FRB-Cleveland Discount Window.

As of September 30, 2024, our capacity for additional borrowing from FHLB of Cincinnati was $2.09 billion.

Second, we have the ability to purchase overnight Fed Funds up to $395.0 million through various arrangements with other institutions.

Third, we invest in high quality marketable securities that exhibit limited market price variability and, to the extent that they are not needed as collateral for borrowings, can be sold in the institutional market and converted to cash.

At September 30, 2024, our investment securities portfolio totaled $526.3 million.

Fourth, selling loans in the secondary market is a regular source of liquidity.

During the fiscal year ended September 30, 2024, we sold, or committed to sell $247.4 million in loans to Fannie Mae.

Finally, cash flows from operating activities have been a regular source of funds.

During the fiscal years ended September 30, 2023 and 2022, cash flows from operations totaled $90.7 million and $38.9 million, respectively.

During the fiscal years ended September 30, 2024 and 2023, cash flows from operations provided $88.6 million and $90.7 million, respectively.

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

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We continue to focus on managing operating expenses.

We have successfully been able to reduce our operating expenses to offset the pressure of margin compression resulting from the extended inverted yield curve.

Our ratio of non-interest expense to average assets was 1.20% for the fiscal year ended September 30, 2024, and 1.31% for the fiscal year ended September 30, 2023.

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

Our relatively high average deposits (exclusive of brokered accounts) held at our branch offices ($224.0 million per branch office as of September 30, 2023) contributes to our expense management efforts by limiting the overhead costs of serving our customers.

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

Critical Accounting Policies and Estimates

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

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

Our relatively high average deposits (exclusive of brokered CDs) held at our branch offices ($242.6 million per branch office as of September 30, 2024) contributes to our expense management efforts by limiting the overhead costs of serving our customers.

We will continue our efforts to control operating expenses to help safeguard against margin compression.

Critical Accounting Estimates

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

We believe that the most critical accounting estimates upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, relate to the allowance for credit losses.

Allowance for Credit Losses.

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Actual loan losses may be significantly more than the allowances we have established, which would have a materially adverse effect on our financial results.

Income Taxes.

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

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

and the tax basis of our assets and liabilities.

We must assess the realization of the deferred tax asset and, to the extent that we believe that recovery is not likely, a valuation allowance is established.

Adjustments to increase or decrease existing valuation allowances, if any, are charged or credited, respectively, to income tax expense.

At September 30, 2023, no valuation allowances were outstanding.

Even though we have determined a valuation allowance is not required for deferred tax assets at September 30, 2023, there is no guarantee that those assets will be recognizable in the future.

Pension Benefits.

The determination of our obligations and expense for pension benefits is dependent upon certain assumptions used in calculating such amounts.

Key assumptions used in the actuarial valuations include the discount rate and expected long-term rate of return on plan assets.

Actual results could differ from the assumptions and market driven rates may fluctuate.

Significant differences in actual experience or significant changes in the assumptions could materially affect future pension obligations and expense.

Comparison of Financial Condition at September 30, 2024 and September 30, 2023

Total assets increased $1.13 billion, or 7.1%, to $16.92 billion at September 30, 2023, from $15.79 billion at September 30, 2022.

Total assets increased $172.8 million, or 1.0%, to $17.09 billion at September 30, 2024, from $16.92 billion at September 30, 2023.

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

Cash and cash equivalents increased $97.1 million, or 26.3%, to $466.7 million at September 30, 2023, from $369.6 million at September 30, 2022.

Cash and cash equivalents decreased $3.0 million, or 0.6%, to $463.7 million at September 30, 2024, from $466.7 million at September 30, 2023.

Cash is managed to maintain the level of liquidity described later in the Liquidity and Capital Resources section of the Overview .

Investment securities, all of which are classified as available for sale, increased $18.0 million, or 3.5%, to $526.3 million at September 30, 2024, from $508.3 million at September 30, 2023.

Investment securities increased as $144.7 million in purchases exceeded the combined effect of $83.6 million in principal repayments, a $9.7 million increase in unrealized losses and $1.0 million of premium amortization that occurred during the year ended September 30, 2023.

Investment securities increased as $141.7 million in principal repayments were exceeded by the combined effect of $133.5 million in purchases and a $26.1 million decrease in net losses that occurred during the year ended September 30, 2024.

There were no sales of investment securities during the year ended September 30, 2024.

Loans held for sale increased $14.5 million, or 439.4%, to $17.8 million at September 30, 2024 from $3.3 million at September 30, 2023 due to an increase in both loans committed to forward sales and loans identified for future sale.

Loans held for investment, net of deferred loan fees and allowance for credit losses, increased $156.3 million, or 1.0%, to $15.32 billion at September 30, 2024, from $15.17 billion at September 30, 2023, as new originations and additional draws on existing accounts exceeded loan sales and repayments.

Residential mortgage loans increased $531.6 million, or 4.6%, to $12.12 billion at September 30, 2023.

In addition, there was a $396.6 million increase in the balance of home equity loans and lines of credit during the year ended September 30, 2023.

During the fiscal year ended September 30, 2023, $624.8 million of three- and five-year “Smart Rate” loans were originated while $1.23 billion of 10-, 15-, and 30-year fixed-rate first mortgage loans were originated or purchased.

Of the total $1.86 billion in first mortgage loans originated and purchased for the fiscal year ended September 30, 2023, 11% were refinance transactions and 89% were purchases, while 34% were adjustable-rate mortgages and 66% were fixed-rate mortgages.

There was an $854.8 million increase in the balance of home equity loans and lines of credit during the year ended September 30, 2024, while residential mortgage loans decreased $698.6 million, or 5.8%, to $11.43 billion at September 30, 2024.

During the fiscal year ended September 30, 2024, $157.4 million of three- and five-year “Smart Rate” loans were originated, and $696.8 million of 10-, 15-, and 30-year fixed-rate first mortgage loans were originated or purchased.

Of the total $854.2 million in first mortgage loans originated and purchased for the fiscal year ended September 30, 2024, 7% were refinance transactions and 93% were purchases, while 18% were adjustable-rate mortgages and 82% were fixed-rate mortgages.

Fixed-rate loans with terms of 10 years or less accounted for 1% of total first mortgage loan originations and purchases.

During the fiscal year ended September 30, 2023, we completed $77.2 million in loan sales to Fannie Mae, which included $43.5 million of loans originated through our Mortgage Passport program and $33.7 million of agency-compliant first mortgage loans originated through our traditional lending programs.

Commitments originated for home equity lines of credit and equity and bridge loans were $2.28 billion for the year ended September 30, 2024, compared to $1.70 billion for the year ended September 30, 2023.

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LOANS AND ALLOWANCE FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional discussion.

The amount of FHLB stock owned increased $34.8 million, or 16.4%, to $247.1 million at September 30, 2023, from $212.3 million at September 30, 2022.

The amount of FHLB stock owned decreased $18.6 million, or 7.5%, to $228.5 million at September 30, 2024, from $247.1 million at September 30, 2023.

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

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Deposits increased $745.3 million, or 7.9%, to $10.20 billion at September 30, 2024, from $9.45 billion at September 30, 2023.

The increase in deposits resulted primarily from a $786.7 million increase in CDs, partially offset by a $22.9 million

decrease in savings accounts (consisting of an $135.2 million decrease in money market accounts in the state of Florida and a $95.8 million increase in our high yield savings accounts) and a $226.6 million decrease in interest-bearing checking accounts.

The balance of brokered CDs at September 30, 2023 was $1.16 billion, which is an increase of $587.4 million from the balance of $575.2 million at September 30, 2022.

The increase in deposits resulted primarily from a $1.37 billion increase in CDs, partially offset by a $469.9 million decrease in savings accounts (consisting of an $153.4 million decrease in money market accounts in the state of Florida and a $332.8 million decrease in our high yield savings accounts) and a $153.5 million decrease in interest-bearing checking accounts.

The balance of brokered CDs at September 30, 2024, was $1.22 billion, which is an increase of $54.7 million from the balance of $1.16 billion at September 30, 2023.

Based on FDIC insurance limits by ownership structure, the total uninsured deposits were $349.3 million and $322.5 million at September 30, 2024 and September 30, 2023, respectively.

Borrowed funds increased $480.4 million, or 10.0%, to $5.27 billion at September 30, 2023, from $4.79 billion at September 30, 2022.

The increase was primarily used to fund loan growth.

Borrowed funds decreased $480.8 million, or 9.1%, to $4.79 billion at September 30, 2024, from $5.27 billion at September 30, 2023.

The decrease was primarily due to borrowings paid off at maturity.

The total balance of borrowed funds at September 30, 2024, all from the FHLB, included $40.0 million of overnight advances, $1.81 billion of term advances with a weighted average maturity of approximately 2.0 years, and $2.93 billion of short-term advances aligned with interest rate swap contracts.

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

Borrowers' advances for insurance and taxes increased by $7.2 million, or 6%, to $124.4 million at September 30, 2023,

Borrowers' advances for insurance and taxes decreased by $10.8 million, or 9%, to $113.6 million at September 30, 2024,

from $124.4 million at September 30, 2023.

This change is consistent with increases in our residential mortgage loan portfolio.

Accrued expenses and other liabilities increased by $28.8 million to $112.9 million at September 30, 2023 from $84.1 million at September 30, 2022.

The increase is primarily due to a $13.2 million deferred tax increase, a $9.3 million increase on interest rate swap accruals, a $3.1 million increase in real estate tax payments remitted on behalf of borrowers, and a $4.0 million increase related to margin requirements on interest rate swaps.

Total shareholders’ equity increased $83.0 million, or 4.5%, to $1.93 billion at September 30, 2023, from $1.84 billion at September 30, 2022.

Activity reflects $75.3 million of net income in the current year, reduced by dividends of $58.3 million and $5.0 million of repurchases of outstanding common stock.

Other changes include a $62.1 million net positive change in accumulated other comprehensive income, primarily related to changes in market values due to fluctuations in market interest rates and maturities of swap contracts, and $9.0 million of positive change related to activity in the Company's stock compensation and employee stock ownership plans.

During the fiscal year ended September 30, 2023, a total of 361,869 shares of our common stock were repurchased at an average cost of $13.82 per share.

This change is consistent with decreases in our residential mortgage loan portfolio.

Accrued expenses and other liabilities decreased by $15.1 million to $97.8 million at September 30, 2024 from $112.9 million at September 30, 2023.

The decrease is primarily due to a $13.2 million deferred tax decrease.

Total shareholders’ equity decreased $64.7 million, or 3.4%, to $1.86 billion at September 30, 2024, from $1.93 billion at September 30, 2023.

Activity reflects $79.6 million of net income in the current year, reduced by dividends of $59.0 million and a positive $7.9 million change related to a change in accounting principle.

Other changes include a $100.8 million net negative change in accumulated other comprehensive income, primarily related to changes in market values due to fluctuations in market interest rates and maturities of swap contracts, and $7.6 million of positive change related to activity in the Company's stock compensation and employee stock ownership plans.

During the fiscal year ended September 30, 2024, no shares were repurchased.

The Company's eighth stock repurchase program allows for a total of 10,000,000 shares to be repurchased, with 5,191,951 shares remaining to be repurchased at September 30, 2024.

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

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

Refer to Item 5.

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Average balances are derived from daily average balances.

Non-accrual loans are included in the computation of average balances, but only cash payments received on those loans during the period presented are reflected in the yield.

Non-accrual loans are included in the computation of loan average balances, but only cash payments received on those loans during the period presented are reflected in the yield.

The yields set forth below include the effect of deferred fees, deferred expenses, discounts and premiums that are amortized or accreted to interest income or interest expense.

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Expense Yield/

(Dollars in thousands)

Interest-earning assets:

(Dollars in thousands)

Interest-earning cash equivalents

$ 549,598 $ 29,676 5.40% $ 356,450 $ 16,826 4.72 % $ 384,947 $ 3,178 0.83 %

Investment securities

70,364 3,581 5.09% 23,636 1,123 4.75 % 3,643 43 1.18 %

Mortgage-backed securities

Loans (1) 14,657,265 565,610 3.86% 13,258,517 395,691 2.98 % 12,800,542 381,887 2.98 %

447,942 14,647 3.27% 464,919 13,247 2.85 % 439,269 5,458 1.24 %

15,207,429 663,685 4.36% 14,657,265 565,610 3.86 % 13,258,517 395,691 2.98 %

Federal Home Loan Bank stock

245,298 22,485 9.17% 233,013 15,113 6.49 % 173,506 4,963 2.86 %

Total interest-earning assets 16,520,631 734,074 4.44% 15,735,283 611,919 3.89 % 14,259,882 409,333 2.87 %

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Checking accounts

Savings accounts 1,798,663 24,686 1.37% 1,859,990 4,553 0.24 % 1,742,042 2,992 0.17 %

$ 880,893 401 0.05% $ 1,093,036 6,081 0.56 % $ 1,326,882 4,186 0.32 %

Savings and money market accounts

1,518,453 22,165 1.46% 1,798,663 24,686 1.37 % 1,859,990 4,553 0.24 %

Certificates of deposit

7,489,887 270,162 3.61% 6,123,979 143,434 2.34 % 5,826,286 68,204 1.17 %

Borrowed funds

4,985,484 162,888 3.27% 5,114,045 154,151 3.01 % 3,671,323 64,994 1.77 %

Total interest-bearing liabilities 14,874,717 455,616 3.06% 14,129,723 328,352 2.32 % 12,684,481 141,937 1.12 %

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shareholders’ equity

$ 17,049,941 $ 16,250,406 $ 14,742,383

Net interest income $ 278,458 $ 283,567 $ 267,396

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Net interest margin (4) 1.69 % 1.80 % 1.88 %

Average interest-earning assets to

average interest-bearing liabilities 111.36 % 112.42 % 111.92 %

Average interest-earning assets to average interest-bearing liabilities

111.07 % 111.36 % 112.42 %

(1) Loans include both mortgage loans held for sale and loans held for investment.

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Volume Rate Net Volume Rate Net

(In thousands)

Interest-earning assets:

(In thousands)

Interest-earning cash equivalents

$ 10,154 $ 2,696 $ 12,850 $ (218) $ 13,866 $ 13,648

Investment securities

2,373 85 2,458 696 384 1,080

Mortgage-backed securities

Loans 44,983 124,936 169,919 13,668 136 13,804

(460) 1,860 1,400 337 7,452 7,789

21,850 76,225 98,075 44,983 124,936 169,919

Federal Home Loan Bank stock

834 6,538 7,372 2,162 7,988 10,150

Total interest-earning assets 34,751 87,404 122,155 47,960 154,626 202,586

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Checking accounts

Savings accounts (145) 20,278 20,133 214 1,346 1,560

(991) (4,689) (5,680) (569) 2,464 1,895

Savings and money market accounts

(4,259) 1,738 (2,521) (145) 20,278 20,133

Certificates of deposit

37,042 89,686 126,728 3,654 71,576 75,230

Borrowed funds

(3,736) 12,473 8,737 31,978 57,179 89,157

Total interest-bearing liabilities 28,056 99,208 127,264 34,918 151,497 186,415

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Net income of $79.6 million for the year ended September 30, 2024, increased $4.3 million, compared to $75.3 million for the year ended September 30, 2023.

The increase was primarily due to an increase in net interest income, offset by the combined effect of higher non-interest expenses and lower earnings on non-interest income items.

The change was primarily due to lower non-interest expenses and an increase in non-interest income, offset by a decrease in net interest income.

Interest and Dividend Income.

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Interest income on loans increased $98.1 million, or 17%, to $663.7 million for the year ended September 30, 2024, compared to $565.6 million for the year ended September 30, 2023.

This increase was primarily attributed to an 88 basis point increase in yield on loans and a $1.40 billion increase in the average balance of loans to $14.66 billion for the current year compared to $13.26 billion during the prior year.

Interest income on investment securities increased $8.8 million to $14.3 million during the year.

The increase was largely due to mortgage-backed securities, which increased $7.7 million, or 140%, to $13.2 million during the current year compared to $5.5 million during the year ended September 30, 2022.

This increase was attributed to a 161 basis point increase in the average yield on mortgage-backed securities, combined with a $25.6 million increase in the average balance of mortgage-backed securities to $464.9 million for the current year compared to $439.3 million during the prior year.

This increase was primarily attributed to a 50 basis point increase in yield on loans and a $550.2 million increase in the average balance of loans to $15.21 billion for the current year compared to $14.66 billion during the prior year.

Interest income on interest bearing cash equivalents increased $12.9 million, or 77% to $29.7 million during the current year compared to $16.8 million during the prior year.

The increase was attributed to a 68 basis point increase in the average yield, and a $193.1 million increase in the average balance of the interest-bearing cash equivalents to $549.6 million for the current year compared to $356.5 million during the prior year.

Additionally, dividend income from FHLB Stock increased $7.4 million, or 49% to $22.5 million in the current year from $15.1 million during the prior year.

The increase was attributed mainly to a 268 basis point increase in the average yield on FHLB stock.

Interest Expense.

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The increase was attributed primarily to a 127 basis point increase in the average rate paid on CDs to 3.61% during the current year, from 2.34% during the prior year.

Additionally, there was a $297.7 million, or 5%, increase in the average balance of CDs to $6.12 billion from $5.83 billion during the prior year.

Interest expense on savings and checking accounts increased $20.1 million and $1.9 million, respectively, to $24.7 million and $6.1 million during the year ended September 30, 2023, compared to the prior year due to an increase in the average rates we

paid on the deposits.

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

Additionally, there was a $1.37 billion, or 22%, increase in the average balance of CDs to $7.49 billion from $6.12 billion during the prior

year as customers sought higher rate products during a period of elevated interest rates.

Interest expense on savings and checking accounts decreased $2.5 million and $5.7 million, respectively, to $22.2 million and $0.4 million during the year ended September 30, 2024, compared to the prior year largely due to a decrease in the average balance of savings and checking accounts and a net decrease in the average rates paid on checking accounts.

Interest expense on borrowed funds increased $8.7 million, or 6%, to $162.9 million during the year ended September 30, 2024, from $154.2 million during the year ended September 30, 2023.

The increase was attributed to a combination of a $1.44 billion, or 39%, increase in the average balance of borrowed funds to $5.11 billion during the current year from $3.67 billion during the prior year, and a 124 basis point increase in the average rate paid for these funds to 3.01% during the year ended September 30, 2023 from 1.77% for the year ended September 30, 2022.

The increase was attributed to a combination of a $128.6 million, or 3%, decrease in the average balance of borrowed funds to $4.99 billion during the current year, from $5.11 billion during the prior year, and a 26 basis point increase in the average rate paid for these funds to 3.27% during the year ended September 30, 2024, from 3.01% for the year ended September 30, 2023.

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

Net Interest Income .

Net interest income increased $16.2 million, or 6%, to $283.6 million during the year ended September 30, 2023 from $267.4 million during the year ended September 30, 2022.

The increase consisted of a $202.6 million increase in interest income, offset by a $186.5 million increase in interest expense.

Average interest-earning assets increased during the current year by $1.48 billion, or 10%, when compared to the year ended September 30, 2022.

Average interest-bearing liabilities increased by $1.45 billion.

The average yield on interest earning assets increased 102 basis points to 3.89% from 2.87%, compared to a 120 basis point increased in the average rate paid on interest-bearing liabilities to 2.32% in the current year from 1.12% in the prior year.

Net interest income decreased $5.1 million, or 2%, to $278.5 million during the year ended September 30, 2024, from $283.6 million during the year ended September 30, 2023.

The decrease consisted of a $127.2 million increase in interest expense, offset by a $122.2 million increase in interest income.

Average interest-earning assets increased during the current year by $785.3 million, or 5%, when compared to the year ended September 30, 2023.

Average interest-bearing liabilities increased by $745.0 million.

The average yield on interest earning assets increased 55 basis points to 4.44% from 3.89%, compared to a 74 basis point increase in the average rate paid on interest-bearing liabilities to 3.06% in the current year from 2.32% in the prior year.

The interest rate spread was 1.38% for the fiscal year ended September 30, 2024, compared to 1.57% at September 30, 2023.

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Provision (Release) for Credit Losses .

We recorded a release to the allowance for credit losses of $1.5 million during the year ended September 30, 2023 compared to a $1.0 million provision for the allowance during the year ended September 30, 2022.

We recorded a release of the allowance for credit losses of $1.5 million during each of the years ended September 30, 2024 and September 30, 2023.

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

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Non-Interest Income.

Non-interest income decreased $2.4 million, or 10%, to $21.4 million during the year ended September 30, 2023 compared to $23.8 million during the year ended September 30, 2022.

The decrease in non-interest income was partly due to a decrease in loan fees and net gain on sale of loans of $2.1 million and $0.5 million, respectively during the year ended September 30, 2023, offset by a $1.2 million net positive change in the fair value of commitments to originate held for sale loans.

Loans sold during the fiscal year ended September 30, 2023 were $77.2 million compared to loan sales of $128.1 million during the year ended September 30, 2022.

The decrease in loan sales during the year was primarily due to the significant increase in interest rates in a relatively short period of time.

Non-interest income increased $3.3 million, or 15%, to $24.7 million during the year ended September 30, 2024, compared to $21.4 million during the year ended September 30, 2023.

The increase in non-interest income was primarily due to increases in net gain on sale of loans of $2.2 million during the year ended September 30, 2024.

Loans sold, or committed to be sold, during the fiscal year ended September 30, 2024, were $247.4 million compared to loan sales of $77.2 million during the year ended September 30, 2023.

Non-Interest Expense.

Non-interest expense increased $15.0 million, or 8%, to $213.1 million during the fiscal year ended September 30, 2023 compared to $198.1 million during the fiscal year ended September 30, 2022.

This increase resulted primarily from increases in salary and employee benefits, marketing expenses and federal insurance premium and assessments.

Non-interest expense decreased $8.8 million, or 4%, to $204.3 million during the fiscal year ended September 30, 2024, compared to $213.1 million during the fiscal year ended September 30, 2023.

This decrease resulted primarily from a $5.0 million and $5.6 million decrease in salary and employee benefits and marketing expenses, respectively, due to cost containment measures implemented as a result of the challenging interest rate environment.

Income Tax Expense.

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The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period.

At September 30, 2023, cash and cash equivalents totaled $466.7 million, which represented an increase of 26% from September 30, 2022.

At September 30, 2024, cash and cash equivalents totaled $463.7 million, which represented a decrease of 0.64% from September 30, 2023.

Investment securities classified as available for sale, which provide additional sources of liquidity, totaled $526.3 million at September 30, 2024.

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

At September 30, 2023, we had $349.4 million in outstanding commitments to originate or purchase loans.

At September 30, 2024, we had $248.0 million in outstanding commitments to originate loans.

In addition to commitments to originate loans, we had $5.22 billion in unfunded home equity lines of credit to borrowers.

CDs due within one year of September 30, 2024, totaled $4.95 billion, or 48.6% of total deposits.

If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, sales of investment securities, other deposit products, including new CDs, brokered CDs, FHLB advances, borrowings from the FRB-Cleveland Discount Window or other collateralized borrowings.

If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, sales of investment securities, other deposit products, including new CDs and brokered CDs, FHLB advances, borrowings from the FRB-Cleveland Discount Window or other collateralized borrowings.

Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the CDs due on or before September 30, 2025.

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Our primary investing activities are originating residential mortgage loans, home equity loans and lines of credit and purchasing investments.

During the year ended September 30, 2023, we originated or purchased $1.86 billion of residential mortgage loans, and $1.70 billion of commitments for home equity loans and lines of credit, while during the year ended September 30, 2022, we originated $3.65 billion of residential mortgage loans and $2.16 billion of commitments for home equity loans and lines of credit.

During the year ended September 30, 2024, we originated $854.2 million of residential mortgage loans, and $2.28 billion of commitments for home equity loans and lines of credit, while during the year ended September 30, 2023, we originated $1.86 billion of residential mortgage loans and $1.70 billion of commitments for home equity loans and lines of credit.

We purchased $133.5 million of securities during the year ended September 30, 2024, and $144.7 million during the year ended September 30, 2023.

Also, during the year ended September 30, 2023, we purchased $279.2 million of long-term, fixed-rate first mortgage loans.

Also, during the years ended September 30, 2024 and September 30, 2023, we purchased $308.9 million and $279.2 million of long-term, fixed-rate first mortgage loans.

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

We experienced a net increase in total deposits of $528.8 million during the year ended September 30, 2023 compared to a net decrease of $72.5 million during the year ended September 30, 2022.

We experienced a net increase in total deposits of $745.3 million during the year ended September 30, 2024 compared to a net increase of $520.0 million during the year ended September 30, 2023.

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

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increase in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of $1.22 billion at September 30, 2024.

At September 30, 2022, the balance of brokered CDs was $575.2 million.

At September 30, 2023, the balance of brokered CDs was $1.16 billion.

Principal and interest received on loans serviced for others and owed to investors experienced a net decrease of $1.0 million to $28.8 million during the year ended September 30, 2024, compared to a net decrease of $0.1 million to $29.8 million during the year ended September 30, 2023.

During the year ended September 30, 2023, we increased our borrowed funds by $480.4 million to manage future interest costs, to fund new loan originations, and to actively manage our liquidity ratio.

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

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

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

However, we have not received notice of this restriction as of November 21, 2023.

Existing advances and future advances with less than a one year term, including 90 day advances used to facilitate longer term interest rate swap agreements, will not be affected.

We expect no impact to our ability to access funding.

During the year ended September 30, 2024, we decreased our borrowed funds by $480.8 million to manage future interest costs and to actively manage our liquidity ratio.

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

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

On September 28, 2023, the FHLB of Cincinnati approved a revision to their Credit Policy Manual to decrease the allowable borrowing limit from 50% to 40% of total assets, therefore decreasing the maximum borrowing capacity for the Company.

In order to ensure adequate borrowing capacity with the FHLB, the Company has started replacing 90-day FHLB advances with like-term brokered deposits.

In March 2023, the Federal Reserve created the BTFP as an additional source of liquidity.

The program offers loans up to one year in length against pledges of high-quality securities, such as U.S.

Treasuries, agency debt and mortgage-backed securities, owned as of March 21, 2023.

The BTFP is scheduled to end on March 11, 2024.

On December 19, 2023, the FHLB of Cincinnati, subsequent to revising their Credit Policy Manual in September 2023 to decrease the allowable borrowing limit from 50% to 40% of total assets, approved an exception to increase the Association's allowable borrowing limit to 45% of total assets.

The exception requires the Association to maintain compliance with certain credit and regulatory criteria.

In an effort to manage our available borrowing capacity with the FHLB, the Company has replaced a portion of its 90-day FHLB advances with like-term brokered deposits.

On July 8, 2024, the Association received a rating of "Satisfactory" on its CRA exam covering the period ended December 31, 2022.

As a result, on July 22, 2024, the Association was notified that it is now compliant with the FHFA's Community Support Regulation, has regained access to long-term advances (advances with a term greater than one year) from the FHLB of Cincinnati and is eligible for participation in the FHLB's Affordable Housing Program or other Community Investment Cash Advance programs.

At September 30, 2024, we had $4.77 billion of FHLB of Cincinnati advances, no outstanding borrowings from the FRB-Cleveland Discount Window and no outstanding borrowings in the form of Fed Funds.

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banking organizations ("Basel III Rules") includes both a revised definition of capital and guidelines for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories.

In 2020, the Association adopted the Simplifications to the Capital Rule ("Rule") which simplified certain aspects of the capital rule under Basel III.

The impact of the Rule was not material to the Association's regulatory ratios.

In 2019, a final rule adopted by the federal banking agencies provided banking organizations with the option to phase in, over a three-year period, the adverse day-one regulatory capital effects of the adoption of the CECL accounting standard.

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During the two-year delay, the Association and Company added back to CET1, 100% of the initial adoption impact of CECL plus 25% of the cumulative quarterly changes in the allowance for credit losses.

After two years the quarterly transitional amounts along with the initial adoption impact of CECL is fixed and will be phased out of CET1 capital over the three-year period.

Beginning fiscal year 2023, the cumulative transitional amounts became fixed and are being phased out of CET1 capital ratably over three years.

The Association is subject to the "capital conservation buffer" requirement level of 2.5%.

The requirement limits capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" in addition to the minimum capital requirements.

At September 30, 2023, the Association exceeded the regulatory requirement for the "capital conservation buffer".

As of September 30, 2023, the Association exceeded all regulatory capital requirements to be considered "Well Capitalized".

At September 30, 2024, the Association exceeded the regulatory requirement for the "capital conservation buffer" and all regulatory capital requirements to be considered "Well Capitalized".

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

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

exceed net income for the current calendar year-to-date period plus retained net income (as defined) for the preceding two calendar years, reduced by prior dividend payments made during those periods.

In December 2022, the Company received a $40.0 million cash dividend from the Association.

Because of its intercompany nature, this dividend payment had no impact on the Company's capital ratios or its consolidated statement of condition but reduced the Association's reported capital ratios.

The amount of dividends that the Association may declare and pay to the Company in any calendar year, without the receipt of prior approval from the OCC but with prior notice to the FRB-Cleveland, cannot exceed net income for the current calendar year-to-date period plus retained net income (as defined) for the preceding two calendar years, reduced by prior dividend payments made during those periods.

The Company did not receive a cash dividend from the Association in December 2023.

Because of its intercompany nature, this dividend payment would not have had an impact on the Company's capital ratios or its consolidated statement of condition but would have reduced the Association's

reported capital ratios.

At September 30, 2024, the Company had, in the form of cash and a demand loan from the Association, $126.2 million of funds readily available to support its stand-alone operations.

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There were 4,808,049 shares repurchased under that program between its start date and September 30, 2024.

During the year ended September 30, 2023, the Company repurchased $5.0 million of its common stock.

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

During the year ended September 30, 2024, the Company did not repurchase any shares of its common stock.

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

Third Federal Savings, MHC has the approval of its members to waive dividends aggregating up to $1.13 per share on the common stock of the Company for the 12 months following the special meeting of members held on July 9, 2024, and subsequently received the non-objection from the FRB.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis