What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-06 compared with 2024-08-08 · 289 added, 354 removed, 587 unchanged (52% of the section changed)

39 unchanged sentences

● cyber-attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data or disable our systems;

● the impact of wide-spread pandemic, including COVID-19, and related government action, on our business and the economy.

● the impact of a wide-spread pandemic, and related government action, on our business and the economy.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by any forward-looking statements.

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The business strategy of TFS Financial Corporation ("we," "us," or "our") 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 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, and continue to be, 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.

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 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 with high levels of inflation.

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

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 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 risks inherent in the banking industry.

The yield curve is currently positive, normalizing in mid-September just prior to the FRS's 100 basis point rate cuts between September and December 2024.

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

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The Company maintains high-quality core deposits distributed primarily across our Ohio and Florida branch network in products tailored toward consumers seeking non-transactional savings.

As of June 30, 2024, 96.2% of our $8.81 billion retail deposit base consists of accounts structured under the FDIC insured limit of $250,000.

As of December 31, 2024, 95.9% of our $9.11 billion retail deposit base consists of accounts structured under the FDIC insured limit of $250,000.

The Company has the ability to fund 100% of all uninsured deposit balances through sources described later in this Item 2 under the heading Liquidity and Capital Resources .

The Company retains ample and diverse sources of liquidity and funding, beyond deposits.

At June 30, 2024, our combined additional borrowing capacity under the Association's blanket pledge arrangements with the FHLB of Cincinnati and the FRB Cleveland along with our ability to purchase Fed Funds through arrangements with other institutions totaled $3.77 billion.

At December 31, 2024, our combined additional borrowing capacity under the Association's blanket pledge arrangements with the FHLB of Cincinnati and the FRB Cleveland along with our ability to purchase Fed Funds through arrangements with other institutions totaled $3.12 billion.

We also hold marketable securities that could be sold and converted to cash.

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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 where short-term rates exceed long-term rates, both of which have occurred over recent periods.

Conversely, rapid and substantial decreases in short-term rates can also pose a challenge when interest rates on our ELOC portfolio, indexed to the prime rate, reprice more quickly than interest rates on borrowings and certificate of deposit accounts which generally reprice at maturity.

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.

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• 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 loans 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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Levels of Regulatory Capital

At June 30, 2024, the Company’s Tier 1 (leverage) capital totaled $1.85 billion, or 10.82%, of net average assets and 18.82% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.70 billion, or 9.96%, of net average assets and 17.33% of risk-weighted assets.

Each of these measures is in excess of the requirements in effect for the Association at June 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.

At December 31, 2024, the Company’s Tier 1 (leverage) capital totaled $1.85 billion, or 10.89%, of net average assets and 18.32% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.70 billion, or 9.96%, of net average assets and 16.74% of risk-weighted assets.

Each of these measures is in excess of the requirements in effect for the Association at December 31, 2024, for designation as “well capitalized” under regulatory prompt corrective action provisions.

Beginning this fiscal year, the Company entered into the final year 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 2 for additional discussion regarding regulatory capital requirements.

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The 10-year, fixed-rate loan has a more desirable interest rate risk profile when compared to loans with fixed-rate terms of 15 to 30 years and can help to more effectively manage interest rate risk exposure, yet provides our borrowers with the certainty of a fixed interest rate throughout the life of the obligation.

The following tables set forth our first mortgage loan production and balances segregated by loan structure at origination:

For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023

The following tables set forth our first mortgage loan production and period end balances segregated by loan structure at origination:

For the Three Months Ended December 31, 2024 For the Three Months Ended December 31, 2023

Amount Percent Amount Percent

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Total First Mortgage Loan Originations and Purchases $ 176,492 100.0 % $ 272,953 100.0 %

June 30, 2024 September 30, 2023

December 31, 2024 September 30, 2024

Amount Percent Amount Percent

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Total First Mortgage Loans Held For Investment $ 11,210,526 100.0 % $ 11,426,080 100.0 %

The following table sets forth the balances as of June 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

The following table sets forth the balances and yields as of December 31, 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)

2 unchanged sentences

2027 1,506,441 2.77 %

Total $ 4,497,753

At June 30, 2024 and September 30, 2023, 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 $30.4 million and $3.3 million, respectively.

2028 486,337 4.83 %

2029 115,636 6.40 %

2030 39,732 6.79 %

$ 4,278,412 3.45 %

At December 31, 2024 and September 30, 2024, 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 $0.8 million and $17.8 million, respectively.

Loan Portfolio Yield

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

June 30, 2024

The following tables set forth the principal balance and interest yield as of December 31, 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 December 31, 2024.

December 31, 2024

Balance Percent Yield

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Terms less than or equal to 10 years

$ 778,705 5.1 % 2.68 %

Terms greater than 10 years

Total Fixed-Rate Residential Mortgage loans

6,153,409 40.1 4.06

Total Fixed-Rate Residential Mortgage loans 6,932,114 45.2 3.90

ARMs 4,278,412 27.8 3.44

Home Equity Loans and Lines of Credit 3,588,820 23.6 7.43

Home Equity Lines of Credit

3,513,094 22.8 6.60

Home Equity Loans

608,454 4.0 6.88

Construction and Other Loans 24,971 0.2 6.46

Total Loans Receivable $ 15,357,045 100.0 % 4.52 %

June 30, 2024

Balance Fixed Rate Balance Fixed Rate Percent

December 31, 2024

Balance Fixed Rate Balance Fixed Rate Percent Yield

(Dollars in thousands)

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Total Residential Mortgage Loans

Home Equity Loans and Lines of Credit

11,210,526 6,932,114 61.8 3.73

Home Equity Lines of Credit

Ohio $ 801,081 $ 6,978 0.9 % 6.61 %

2 unchanged sentences

Other 1,354,573 2,822 0.2 6.62

Total Home Equity Loans and Lines of Credit 3,588,820 373,698 10.4 7.43

Total Home Equity Lines of Credit

3,513,094 19,383 0.6 6.60

Home Equity Loans

Ohio 152,801 123,319 80.7 6.48

Florida 144,715 108,200 74.8 6.82

California 115,854 83,127 71.8 6.81

Other 195,084 152,048 77.9 7.29

Total Home Equity Loans

608,454 466,694 76.7 6.88

Construction and Other Loans 24,971 24,971 100.0 6.46

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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 June 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 $3.11 billion.

At December 31, 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 $3.51 billion.

Our home equity lending is discussed in the Lending Activities section of this Item 2.

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 duration of our fixed rate 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.

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

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").

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

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.

(generally three months) throughout the term of each agreement.

On the initiation date of the swap, the agreed upon exchange interest rates reflect market conditions at that point in time.

2 unchanged sentences

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 CDs.

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

The Association has found it financially beneficial to use swaps to extend the duration of our liabilities with a relatively lower borrowing cost.

For more details, refer to Notes 6.

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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 mortgages with terms of 15 years or more, Home Ready and some 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.

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, 10-year fixed-rate loans, and first mortgage loans secured by certain property types) are originated under our internally derived underwriting standards, 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 and are 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.

During the nine months ended June 30, 2024, $190.7 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, $5.3 million were originated through our traditional mortgage banking brand, known as "Mortgage Passport", and $185.4 million were originated or purchased as other agency-compliant first mortgage loans.

At June 30, 2024, loans classified as held for sale totaled $30.4 million.

At June 30, 2024, we serviced $1.96 billion of loans we originated and later sold to investors.

During the three months ended December 31, 2024, $72.0 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 or committed loans, $56.6 million were originated as agency-compliant first mortgage loans, $4.5 million were purchased through a correspondent lending partnership, $10.3 million were originated under Fannie Mae's Home Ready initiative, and $0.6 million were originated through our mortgage banking brand, known as "Mortgage Passport." At December 31, 2024, loans classified as held for sale totaled $0.8 million.

At December 31, 2024, we serviced $1.99 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've expanded our ability to sell certain fixed-rate loans to Fannie Mae through the use of more traditional mortgage banking activities, including a proprietary approach to risk-based pricing and loan-level pricing adjustments in markets outside of Ohio and Florida.

This approach is not expected to significantly impact our financial results in fiscal year 2024.

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 2.

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

At June 30, 2024, 89% of our assets consisted of residential real estate loans (both “held for sale” and “held for investment”) and home equity loans and lines of credit.

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.

At December 31, 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.

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 limit our credit risk exposure 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.

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

As of June 30, 2024, loans originated or purchased had a balance of $15.29 billion, of which $28.5 million, or 0.2%, were delinquent.

As of December 31, 2024, loans originated or purchased had a balance of $15.41 billion, of which $36.2 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.

At June 30, 2024,

approximately 57.9% and 17.4% of the combined total of our residential Core and construction loans held for investment and approximately 24.1% and 22.8% of our home equity loans and lines of credit were secured by properties in Ohio and Florida, respectively.

At December 31, 2024, approximately 58.2% and 17.3% of the combined total of our residential Core and construction loans were held for investment, and approximately 23.1% and 22.3% of our home equity loans and lines of credit were secured by properties in Ohio and Florida, respectively.

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

Currently, in addition to Ohio and Florida, we are actively lending in 25 other states and the District of Columbia, and as a result of that activity, the concentration ratios of the combined total of our residential Core and construction loans held for investment in Ohio and Florida have trended downward from their September 30, 2010, levels when the concentrations were 79.1% in Ohio and 19.0% in Florida.

Of the total mortgage loans originated in the nine months ended June 30, 2024, 20.4% are secured by properties in states other than Ohio or Florida.

Of the total mortgage loans originated in the three months ended December 31, 2024, 20.2% are secured by properties in states other than Ohio or Florida.

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

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

At June 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 9.96%.

At December 31, 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 9.96%.

The Association's Tier 1 (leverage) capital ratio at December 31, 2024 included the negative impact of a $40 million cash dividend payment that the Association made to the Company, its sole shareholder, in December 2024.

Because of its intercompany nature, this dividend payment did not impact the Company's consolidated capital ratios which are reported in the Liquidity and Capital Resources section of this Item 2.

We expect to continue to remain a well capitalized institution.

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To attract deposits, we typically offer rates that are competitive with the rates on similar products offered by other financial institutions.

At June 30, 2024, deposits totaled $10.03 billion (including $1.22 billion of brokered CDs), while borrowings totaled $4.83 billion and borrowers’ advances and servicing escrows totaled $83.6 million, combined.

At December 31, 2024, deposits totaled $10.21 billion (including $1.10 billion of brokered CDs), while borrowings totaled $4.66 billion and borrowers’ advances and servicing escrows totaled $179.4 million, combined.

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

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

At June 30, 2024, the Association had the ability to borrow a maximum of $7.48 billion from the FHLB of Cincinnati and $646.0 million from the FRB-Cleveland Discount Window.

As of June 30, 2024, our capacity for additional borrowing from the FHLB of Cincinnati was $2.68 billion.

At December 31, 2024, the Association had the ability to borrow a maximum of $6.77 billion from the FHLB of Cincinnati and $594.0 million from the FRB-Cleveland Discount Window.

As of December 31, 2024, our capacity for additional borrowing from the FHLB of Cincinnati was $2.13 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 June 30, 2024, our investment securities portfolio totaled $523.0 million.

At December 31, 2024, our investment securities portfolio totaled $507.7 million.

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

During the three months ended December 31, 2024, we sold, or committed to sell $72.0 million in loans to Fannie Mae.

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

During the nine months ended June 30, 2024 and 2023, cash flows from operations provided $147.3 million and $76.9 million, respectively.

During the three months ended December 31, 2024 and 2023, cash flows from operations provided $45.5 million and $36.3 million, respectively.

Overall, while customer and community confidence can never be assured, the Company believes that its liquidity is adequate and that it has access to adequate 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 annualized non-interest expense to average assets was 1.20% for the nine months ended June 30, 2024, and 1.34% for the nine months ended June 30, 2023.

As of June 30, 2024, our average assets per full-time employee and our average deposits per full-time employee were $18.5 million and $10.9 million, respectively.

We have successfully been able to reduce our operating expenses to help offset the pressure of margin compression resulting from until recently, the prolonged inverted yield curve.

Our ratio of annualized non-interest expense to average assets was 1.13% for the three months ended December 31, 2024, and 1.19% for the three months ended December 31, 2023.

As of December 31, 2024,

our average assets per full-time employee and our average deposits per full-time employee were $18.4 million and $11.0 million, respectively.

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

Our relatively high average deposits (exclusive of brokered CDs) held at our branch offices ($238.1 million per branch office as of June 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.

Our relatively high average deposits (exclusive of brokered CDs) held at our branch offices ($246.2 million per branch office as of December 31, 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 offset margin compression.

Critical Accounting Policies and Estimates

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Accordingly, all credit losses are charged to, and all recoveries are credited to, the related allowance.

Additions to the allowance for credit losses are provided by charges to income based on various factors which, in our judgment, deserve current recognition in estimating life of loan credit losses.

Additions to the allowance for credit losses are provided by charges to income based on various factors which, in our judgment, deserve current recognition in estimating lifetime credit losses.

We regularly review the loan portfolio and off-balance sheet exposures and make provisions (or releases) for losses in order to maintain the allowance for credit losses in accordance with U.S.

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(3) qualitative GVAs, which are adjustments to the quantitative GVAs, maintained to cover uncertainties that affect the estimate of expected credit losses for each loan type.

On October 1, 2023, the Individual Valuation Allowance (IVA) established for any loans dependent on cash flows, such as performing TDRs, was eliminated with the adoption of ASU 2022-02.

Subsequently, all non-collaterally dependent modifications have an allowance estimated through the lifetime loss model.

On October 1, 2023, the IVA established for any loans dependent on cash flows, such as performing TDRs, was eliminated with the adoption of ASU 2022-02.

Subsequently, all non-collateral dependent modifications have an allowance estimated through the lifetime loss model.

The qualitative GVAs expand our ability to identify and estimate probable losses and are based on our evaluation of the following factors, some of which are consistent with factors that impact the determination of quantitative GVAs.

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• management's view of changes in national, regional, and local economic and business conditions and trends including treasury yields, housing market factors and trends, such as the status of loans in foreclosure, real estate in judgment and real estate owned, and unemployment statistics and trends and how it aligns with economic modeling forecasts;

• changes in the nature and volume of the portfolios including home equity lines of credit nearing the end of the draw period and adjustable-rate mortgage loans nearing a rate reset;

• changes in the nature and volume of the portfolios including home equity lines of credit utilization and adjustable-rate mortgage loans nearing a rate reset;

• changes in the experience, ability or depth of lending management;

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• effect of other external factors such as competition, market interest rate changes or legal and regulatory requirements including market conditions and regulatory directives that impact the entire financial services industry;

• limitations within our models to predict life of loan net losses.

• limitations within our models to predict lifetime net losses on the loan portfolio.

Home equity loans and lines of credit generally have higher credit risk than traditional residential mortgage loans.

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A borrower with more equity in the property has a vested interest in keeping the loan current when compared to a borrower with little or no equity in the property.

We conduct an expanded loan level evaluation of our home equity loans and lines of credit, including bridge loans used to aid borrowers in buying a new home before selling their old one, which are delinquent 90 days or more.

Given the higher risk inherent in home equity loans and lines of credit and our experience during periods of weak housing markets and potential uncertainty with respect to future employment levels and economic prospects, we conduct an expanded loan level evaluation of our home equity loans and lines of credit, including bridge loans used to aid borrowers in buying a new home before selling their old one, which are delinquent 90 days or more.

This expanded evaluation is in addition to our traditional evaluation procedures.

We have established an allowance for our unfunded commitments on this portfolio, which is recorded in other liabilities.

In general, a considerable portion of our gross charge-offs originate from our home equity loans and lines of credit portfolios.

At June 30, 2024, we had an amortized cost of $3.63 billion in home equity loans and home equity lines of credit outstanding, of which $4.4 million, or 0.12%, were delinquent 90 days or more.

Our home equity loans and lines of credit portfolio continues to comprise a significant portion of our gross charge-offs.

At December 31, 2024, we had an amortized cost of $3.55 billion in home equity lines of credit and $613.7 million in home equity loans outstanding, of which $5.1 million, or 0.12%, were delinquent 90 days or more.

The allowance for credit losses is evaluated based upon the combined total of the quantitative and qualitative GVAs.

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The following table sets forth activity for credit losses segregated by geographic location for the periods indicated.

The majority of our Residential Core and Home Today loan portfolios are secured by properties located in Ohio, and therefore were not segregated by state.

For the Three Months Ended June 30, For the Nine Months Ended June 30,

2024 2023 2024 2023

The majority of our Residential Core and Home Today loan portfolios is secured by properties located in Ohio, and therefore were not segregated by state.

There were no charge-offs in the Home equity loan portfolio for the periods indicated.

For the Three Months Ended December 31,

(Dollars in thousands)

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Adoption of ASU 2022-02

— — (10,262) —

Charge-offs on real estate loans:

Total Residential Core

29 35 216 241

Total Residential Home Today — 30

Home equity loans and lines of credit

Ohio 76 4 318 237

Home equity lines of credit

Florida 30 20

California 18 96

Other 47 18 188 281

Total Home equity loans and lines of credit 161 22 695 580

Total home equity lines of credit

Total charge-offs 317 510

2 unchanged sentences

Residential Home Today 479 486

Home equity loans and lines of credit 487 1,194 1,943 3,200

Construction 20 — 20 —

Home equity lines of credit

Home equity loans

Total recoveries 1,765 1,517

Net recoveries 1,448 1,007

Release of allowance for credit losses on loans

(2,006) (1,099) (3,148) (2,731)

Provision (release) for credit losses on loans

Allowance balance for loans (end of the period) $ 70,559 $ 69,084

Allowance balance for credit losses on unfunded commitments (beginning of the period) $ 27,811 $ 27,515

Provision for credit losses on unfunded loan commitments

Release of allowance for credit losses on unfunded loan commitments

(609) (2,024)

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Allowance for credit losses on loans to the total amortized cost in loans at end of the period 0.46 % 0.45 %

The following table sets forth additional information with respect to net recoveries by category for the periods indicated.

Net recoveries on Construction loans were immaterial and therefore were not included in the table below.

For the Three Months Ended June 30, For the Nine Months Ended June 30,

2024 2023 2024 2023

The following table sets forth additional information with respect to net recoveries by category for the periods indicated rounded to the nearest tenth of a percent.

For the Three Months Ended December 31,

Net recoveries to average loans outstanding (annualized)

3 unchanged sentences

Residential Home Today 0.01 0.01

Home Equity loans and lines of credit 0.01 0.03 0.01 0.02

Home equity lines of credit

Home equity loans

Total net recoveries to average loans outstanding (annualized)

1 unchanged sentence

We continue to evaluate loans becoming delinquent for potential losses and record provisions for the estimate of those losses.

We reported net recoveries in each quarter for the past five years, primarily due to improvements in the values of collateral properties used to secure loans that were fully or partially charged off after the 2008 collapse of the housing market.

We reported net recoveries in each quarter for the past six years, primarily due to improvements in the values of properties used to secure loans that were fully or partially charged off after the 2008 collapse of the housing market.

Charge-offs are recognized on loans identified as collateral-dependent and subject to individual review when the collateral value does not sufficiently support full repayment of the obligation.

Recoveries are recognized on previously charged-off loans as borrowers perform their repayment obligations or as loans with improved collateral positions reach final resolution.

During the nine months ended June 30, 2024 and June 30, 2023, recoveries exceeded loan charge-offs by $3.6 million and $4.6 million, respectively.

During the nine months ended June 30, 2024, total gross charge-offs decreased slightly compared to the nine months ended June 30, 2023.

During the three months ended December 31, 2024 and December 31, 2023, recoveries exceeded loan charge-offs by $1.4 million and $1.0 million, respectively, and gross charge-offs decreased slightly.

Delinquent loans continue to be evaluated for potential losses and provisions are recorded for the estimate of potential losses of those loans.

Subject to changes in the economic environment, a moderate level of charge-offs are expected as delinquent loans are resolved in the future and uncollected balances are charged against the allowance.

During the three months ended June 30, 2024, the total allowance for credit losses increased to $95.7 million, from $94.8 million at March 31, 2024.

During the three months ended December 31, 2024 and September 30, 2024, the total allowance for credit losses remained at $97.8 million.

The total allowance for credit losses is comprised of the asset portion, which is applied to the loan portfolio and the liability portion, which is applied to off-balance sheet exposures, primarily related to undrawn equity exposures.

During the three months ended June 30, 2024, the asset portion of the total allowance decreased to $67.5 million from $68.2 million, and the liability portion of the total allowance increased to $28.2 million from $26.7 million.

We recorded a $0.5 million net release of allowance for credit losses for the period, consisting of a $2.0 million release of provision on loans and a $1.5 million provision for unfunded commitments.

During the three months ended December 31, 2024, the asset portion of the total allowance increased to $70.6 million from $70.0 million, and the liability portion of the total allowance decreased to $27.2 million from $27.8 million.

We recorded a $1.5 million net release of allowance for credit losses for the period, consisting of a $0.9 million release of provision on loans and a $0.6 million reclassification to credit losses on off-balance sheet exposures.

Because many variables are considered in determining the appropriate level of general valuation allowances, directional changes in individual considerations do not always align with the directional change in the balance of a particular component of the general valuation allowance.

Changes in the allowance for credit losses on loan balances during the three months ended June 30, 2024, were related to a decrease in the residential Core portfolio balance primarily due to aging and decreases in qualitative factors, partially offset by new growth in the home equity loans and lines of credit portfolio.

The amortized cost of the residential Core portfolio decreased 1.9%, or $225.8 million, and its total allowance decreased 5.2%, or $2.5 million, as of June 30, 2024, compared to March 31, 2024.

The amortized cost of the home equity loans and lines of credit portfolio increased 8.1%, or $271.2 million, and its total allowance increased 10.3% to $25.4 million, from $23.0 million at March 31, 2024.

As we are no longer originating loans under our Home Today program, there is an expected net recovery position for this portfolio which was $3.1 million at June 30, 2024, and $2.6 million at March 31, 2024.

While the allowance for credit losses on loan balances remained consistent during the three months ended December 31, 2024, the home equity loans and line of credit portfolios increased primarily due to new growth.

This was offset by decreases in the Core portfolio balances primarily due to aging.

The amortized cost of the residential Core portfolio decreased 1.9%, or $214.0 million, and its total allowance decreased 4.3%, or $1.9 million, as of December 31, 2024, compared to September 30, 2024.

The amortized cost of the home equity lines of credit portfolio increased 5.7%, or $190.0 million, and its total allowance increased 9.7% to $18.2 million, from $16.6 million at September 30, 2024.

The amortized cost of the home equity loans increased 8.3%, or $46.8 million, and its total allowance increased 6.3% to $12.4 million, from $11.6 million at September 30, 2024.

As we are no longer originating loans under our Home Today program, there is an expected net recovery position for this portfolio which was $2.5 million at December 31, 2024, and $2.7 million at September 30, 2024.

Under the CECL methodology, the life of loan concept allows for qualitative adjustments for the expected future recoveries of previously charged-off loans, which is driving the allowance balance for the Home Today loans to be negative.

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The tables do not include allowances for credit losses on unfunded loan commitments, which are primarily related to undrawn home equity lines of credit.

June 30, 2024 September 30, 2023

December 31, 2024 September 30, 2024

Amount Percent of

8 unchanged sentences

Residential Home Today (2,529) (3.6) 0.3 (2,672) (3.8) 0.3

Home equity loans and lines of credit 25,369 37.6 23.6 23,047 29.8 19.9

Home equity lines of credit

18,194 25.8 22.8 16,590 23.7 21.7

Home equity loans

12,375 17.5 4.0 11,642 16.6 3.6

Construction 43 0.1 0.1 40 0.1 0.2

4 unchanged sentences

Therefore, neither was segregated by geographic location.

June 30, 2024 September 30, 2023

December 31, 2024 September 30, 2024

Amount Percent Amount Percent

7 unchanged sentences

Total Residential Home Today 39,749 0.3 40,936 0.3

Home equity loans and lines of credit

Home equity lines of credit

Ohio 801,081 768,030

2 unchanged sentences

Other 1,354,573 1,275,014

Total Home equity loans and lines of credit 3,588,820 23.6 3,030,526 19.9

Total home equity lines of credit

3,513,094 22.8 3,323,381 21.7

Home equity loans

Ohio 152,801 148,721

Florida 144,715 139,912

California 115,854 107,833

Other 195,084 165,460

Total home equity loans

608,454 4.0 561,926 3.6

Construction loans

2 unchanged sentences

Total construction

18,225 0.1 21,701 0.2

Other loans 6,746 — 5,705 —

4 unchanged sentences

Total loans receivable, net $ 15,342,909 $ 15,322,059

The following table provides the amortized cost and an analysis of our residential mortgage loans disaggregated by refreshed FICO score, year of origination and portfolio at June 30, 2024.

The following table provides the amortized cost and an analysis of our real estate loans held for investment disaggregated by refreshed FICO score, year of origination and portfolio at December 31, 2024.

FICO scores are updated quarterly as available.

The Company treats the FICO score information as demonstrating that underwriting guidelines reduce risk rather than as a credit quality indicator utilized in the evaluation of credit risk.

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.

Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term

2 unchanged sentences

(Dollars in thousands)

June 30, 2024

December 31, 2024

Real estate loans:

11 unchanged sentences

Total Residential Home Today — — — — — 39,288 — — 39,288

Home equity loans and lines of credit

Home equity lines of credit

— — — — — — 177,408 12,028 189,436

2 unchanged sentences

— — — — — — 29,294 4,660 33,954

Total Home equity loans and lines of credit 204,113 174,633 61,547 19,926 5,643 16,246 3,086,802 59,989 3,628,899

Total Home equity lines of credit

— — — — — — 3,491,974 58,201 3,550,175

Home equity loans

— 9,229 8,951 1,953 1,221 900 — — 22,254

36,414 52,709 28,694 9,048 1,613 2,756 — — 131,234

46,671 222,406 117,586 43,090 14,520 14,085 — — 458,358

— 324 453 419 91 589 — — 1,876

Total Home equity loans

83,085 284,668 155,684 54,510 17,445 18,330 — — 613,722

— — — — — — — — —

103 252 — — — — — — 355

290 6,864 1,178 — — — — — 8,332

Total Construction 393 7,116 1,178 — — — — — 8,687

2 unchanged sentences

(2) No new originations of Home Today loans since fiscal year 2016.

The following table provides amortized cost and an analysis of our residential mortgage loans by origination LTV, origination year and portfolio at June 30, 2024.

Subsequent to origination, LTVs are only updated for our home equity loans and lines of credit and for residential mortgage loans collaterally reviewed.

The following table provides amortized cost and an analysis of our real estate loans held for investment by origination LTV, origination year and portfolio at December 31, 2024.

Subsequent to origination, LTVs are only updated for our home equity loans and lines of credit and for collateral-dependent residential mortgage loans.

Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term

2 unchanged sentences

(Dollars in thousands)

June 30, 2024

December 31, 2024

Real estate loans:

11 unchanged sentences

Total Residential Home Today — — — — — 39,288 — — 39,288

Home equity loans and lines of credit

Home equity lines of credit

<80% — — — — — — 3,293,090 42,788 3,335,878

3 unchanged sentences

— — — — — — 403 945 1,348

Total Home equity loans and lines of credit 204,113 174,633 61,547 19,926 5,643 16,246 3,086,802 59,989 3,628,899

Total Home equity lines of credit

— — — — — — 3,491,974 58,201 3,550,175

Home equity loans

<80% 81,191 277,860 151,618 52,700 17,041 15,274 — — 595,684

80-89.9% 1,894 6,534 4,066 1,783 404 1,214 — — 15,895

90-100% — 176 — — — 619 — — 795

>100% — 98 — 27 — 1,223 — — 1,348

Total Home equity loans

83,085 284,668 155,684 54,510 17,445 18,330 — — 613,722

<80% 367 4,455 1,178 — — — — — 6,000

80-89.9% 26 2,661 — — — — — — 2,687

Total Construction 393 7,116 1,178 — — — — — 8,687

2 unchanged sentences

(2) No new originations of Home Today loans since fiscal year 2016.

At June 30, 2024, the unpaid principal balance of the home equity loans and lines of credit portfolio consisted of $537.5 million in home equity loans (including $59.9 million of home equity lines of credit, which are in repayment and no longer eligible to be drawn upon, and $11.3 million in bridge loans) and $3.05 billion in home equity lines of credit.

The following table sets forth credit exposure, principal balance, percent delinquent 90 days or more, the mean CLTV percent at the time of origination and the current mean CLTV percent of home equity loans, home equity lines of credit and bridge loan portfolio as of June 30, 2024.

At December 31, 2024, the unpaid principal balance of the home equity loans and lines of credit portfolio consisted of $608.5 million in home equity loans (which included $11.6 million in bridge loans) and $3.51 billion in home equity lines of credit (which included $58.0 million of home equity lines of credit which are in repayment and no longer eligible to be drawn upon).

Home equity lines of credit in the draw period are reported according to geographic distribution.

11 unchanged sentences

Total home equity lines of credit in draw period 8,714,361 3,455,059 0.11 60 46

Home equity lines in repayment, home equity loans and bridge loans 537,483 537,483 0.24 56 47

Total $ 8,693,984 $ 3,588,820 0.12 % 60 % 47 %

Home equity lines in repayment

58,035 58,035 1.49 61 29

Home equity loans and bridge loans

608,454 608,454 0.07 57 50

Total $ 9,380,850 $ 4,121,548 0.12 % 59 % 47 %

(1) No other individual state has a committed or drawn balance greater than 10% of our total home equity lending portfolio and 5% of total loan balances.

(2) Mean CLTV percent at origination for all home equity lines of credit is based on the committed amount.

(3) Current Mean CLTV is based on best available first mortgage and property values as of June 30, 2024.

(3) Current Mean CLTV is based on best available first mortgage and property values as of December 31, 2024.

Property values are estimated using HPI data published by the FHFA.

1 unchanged sentence

Current Mean CLTV on home equity lines of credit in the repayment period is calculated using the principal balance.

The principal balance of home equity lines of credit in the draw period that have a current mean CLTV over 80% or unknown is $16.4 million, or 0.5%, at June 30, 2024 .

The principal balance of home equity lines of credit in the draw period that have a current mean CLTV over 80% or unknown is $21.3 million, or 0.6%, at December 31, 2024 .

In recognition of the previous past weakness in the housing market, we continue to conduct an expanded loan level evaluation of our home equity lines of credit which are delinquent 90 days or more.

At June 30, 2024, 26.8% of the home equity lending portfolio was either in a first lien position (13.8%), in a subordinate (second) lien position behind a first lien that we held (10.8%) or behind a first lien that was held by a loan that we originated, sold and now serviced for others (2.2%).

At June 30, 2024, 12.5% of the home equity line of credit portfolio in the draw period were making only the minimum payment on the outstanding line balance.

At December 31, 2024, 24.0% of the home equity lending portfolio was either in a first lien position (12.1%), in a subordinate (second) lien position behind a first lien that we held (9.9%) or behind a first lien that was held by a loan that we originated, sold and now serviced for others (2.0%).

At December 31, 2024, 12.5% of the home equity line of credit portfolio in the draw period were making only the minimum payment on the outstanding line balance.

Minimum payments include both a principal and interest component.

4 unchanged sentences

Loans Delinquent for

June 30, 2024 30-89 Days 90 Days or More Total

December 31, 2024 30-89 Days 90 Days or More Total

Real estate loans:

6 unchanged sentences

Residential Home Today 1,059 535 1,594

Home equity loans and lines of credit

Home equity lines of credit

Ohio 775 994 1,769

2 unchanged sentences

Other 2,987 2,198 5,185

Total Home equity loans and lines of credit 5,717 4,442 10,159

Total Home equity lines of credit

5,834 4,643 10,477

Home equity loans

Ohio 116 80 196

Florida 158 149 307

California — 232 232

Other 161 — 161

Total Home equity loans

Total $ 20,614 $ 15,661 $ 36,275

9 unchanged sentences

Residential Home Today 1,121 693 1,814

Home equity loans and lines of credit

Home equity lines of credit

Ohio 1,039 891 1,930

2 unchanged sentences

Other 1,689 1,961 3,650

Total Home equity loans and lines of credit 3,961 3,876 7,837

Total Home equity lines of credit

4,570 4,078 8,648

Home equity loans

Ohio 82 102 184

Florida 105 151 256

California 204 29 233

Other 294 — 294

Total Home equity loans

Total $ 17,954 $ 13,934 $ 31,888

Total loans seriously delinquent (i.e.

delinquent 90 days or more) were 0.10% of total net loans at June 30, 2024, and 0.09% at September 30, 2023.

The percentage of loans seriously delinquent to total net loans increased in the residential Core portfolio to 0.06% at June 30, 2024, from 0.05% at September 30, 2023.

Such loans in the residential Home Today portfolio remained at 0.01% for both periods.

Serious delinquencies in the home equity loans and lines of credit portfolio remained at 0.03% for both periods.

Although delinquencies remain at or near historic lows, recent economic trends and rising interest rates have led to increased delinquencies in all portfolios.

Interest rates on home equity lines of credit are tied to the prime rate of interest which has trended upward over the last two years, resulting in higher and less affordable monthly payments for some borrowers.

delinquent 90 days or more) were 0.10% of total net loans at December 31, 2024, and 0.09% at September 30, 2024.

The percentage of loans seriously delinquent to total net loans increased in the residential

Core portfolio to 0.07% at December 31, 2024, from 0.06% at September 30, 2024.

Serious delinquencies in the home equity lines of credit portfolio remained at 0.03% for both periods.

Serious delinquencies in the Home Today and home equity loans portfolios at December 31, 2024 and September 30, 2024, respectively, are immaterial due to the low level of seriously delinquent loans as compared to the total net loans at each period.

Although delinquencies remain at or near historic lows, recent economic trends and elevated interest rates on home equity lines of credit have led to increased total delinquencies.

Interest rates on home equity lines of credit are tied to the prime rate of interest which remains elevated, resulting in higher and less affordable monthly payments for some borrowers.

Non-Performing Assets

1 unchanged sentence

There were no construction loans reported as non-accrual at the dates presented.

June 30, 2024 September 30, 2023

December 31, 2024 September 30, 2024

(Dollars in thousands)

3 unchanged sentences

Residential Home Today 3,429 3,672

Home equity loans and lines of credit 8,801 7,877

Home equity lines of credit

Home equity loans

Total non-accrual loans

5 unchanged sentences

Total non-performing assets to total assets 0.21 % 0.20 %

We continue to modify loans to work with borrowers who are experiencing financial difficulty to help them keep their homes and to preserve neighborhoods.

Loan modifications may include interest rate reductions, term extensions (generally including capitalization of delinquent amounts), significant payment delays, other, or a combination thereof.

For additional information, refer to Note 4.

LOANS AND ALLOWANCES FOR CREDIT LOSSES .

The amortized cost of collateral-dependent loans includes loans that have returned to accrual status when contractual payments became less than 90 days past due.

2 unchanged sentences

The table below sets forth a reconciliation of the amortized costs and categories between non-accrual loans and collateral-dependent loans at the dates indicated.

June 30, 2024 September 30, 2023

December 31, 2024 September 30, 2024

(Dollars in thousands)

3 unchanged sentences

Total Collateral-Dependent loans $ 38,962 $ 39,577

We continue to modify loans to work with borrowers who are experiencing financial difficulty to keep their homes and to preserve neighborhoods.

Loan modifications may include interest rate reductions, term extensions (generally including capitalization of delinquent amounts), significant payment delays, other, or a combination thereof.

For additional information, refer to Note 4.

LOANS AND ALLOWANCES FOR CREDIT LOSSES .

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

Total assets increased $117.0 million, or 0.7%, to $17.03 billion at June 30, 2024, from $16.92 billion at September 30, 2023.

This increase was mainly the result of an increase in cash and cash equivalents and mortgage loans, partially offset by decreases in prepaid expenses and other assets.

Cash and cash equivalents increased $93.7 million, or 20.1%, to $560.4 million at June 30, 2024, from $466.7 million at September 30, 2023.

Comparison of Financial Condition at December 31, 2024 and September 30, 2024

Total assets decreased $33.2 million, or less than 1%, to $17.06 billion at December 31, 2024, from $17.09 billion at September 30, 2024.

This decrease was mainly the result of decreases in investment securities available for sale and mortgage loans held for sale.

Cash and cash equivalents increased $2.2 million, or less than 1%, to $465.9 million at December 31, 2024, from $463.7 million at September 30, 2024.

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

Investment securities, all of which are classified as available for sale, increased $14.7 million to $523.0 million at June 30, 2024, from $508.3 million at September 30, 2023.

The increase was the result of a $5.8 million increase in the mortgage-backed securities portfolio, and an $8.9 million increase in the balance of U.S.

government and agency obligations during the nine months ended June 30, 2024.

There were no sales of investment securities during the nine months ended June 30, 2024.

Loans held for sale increased $27.1 million, or 821%, to $30.4 million at June 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 $24.2 million, or less than 1%, to $15.19 billion at June 30, 2024, from $15.17 billion at September 30, 2023, as loans originated and purchased and additional draws on existing home equity lines of credit accounts outpaced repayments and sales of mortgage loans held for investment.

There was a $558.3 million increase in home equity loans and lines of credit during the nine months ended June 30, 2024.

In addition, there was a $536.8 million, or 4.4%, decrease in residential mortgage loans to $11.59 billion at June 30, 2024, from $12.12 billion at September 30, 2023.

During the nine months ended June 30, 2024, $128.8 million of three- and five-year “Smart Rate” loans were originated, while $470.0 million of fixed-rate first mortgage loans were originated.

Between September 30, 2023 and June 30, 2024, the total fixed-rate portion of the first mortgage loan portfolio decreased $273.6 million.

During the nine months ended June 30, 2024, the principal balance of first mortgage loans sold or committed for sale to Fannie Mae was $190.7 million.

Commitments originated for home equity loans, lines of credit, and bridge loans were $1.62 billion for the nine months ended June 30, 2024, compared to $1.24 billion for the nine months ended June 30, 2023.

At June 30, 2024, pending commitments to originate new home equity loans and lines of credit were $207.4 million.

Investment securities available for sale decreased $18.6 million, or 4%, to $507.7 million at December 31, 2024, from $526.3 million at September 30, 2024.

The decrease was due to the combined effect of cash flow from security repayments and maturities exceeding purchases during the three months ended December 31, 2024 as well as a decline in fair values, the result of interest rate changes between the periods compared.

There were no sales of investment securities during the three months ended December 31, 2024.

Mortgage loans held for sale decreased by $17.0 million, or 96%, to $0.8 million at December 31, 2024, from $17.8 million at September 30, 2024 due to a decrease 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 $20.9 million, or less than 1%, to $15.34 billion at December 31, 2024, from $15.32 billion at September 30, 2024.

During the three months ended December 31, 2024, the home equity loans and lines of credit portfolio increased $236.2 million and residential core mortgage loans decreased $214.4 million.

The changes in loans held for sale and loans held for investment were affected by the volume of loans originated, purchased and sold.

During the three months ended December 31, 2024, total first mortgage loan originations were $176.5 million compared to $255.5 million for the three months ended September 30, 2024 and $273.0 million for the three months ended December 31, 2023.

Of total residential mortgage loans originated during the current period, $146.3 million (83%) were purchase transactions and $23.8 million (14%) were adjustable rate loans.

Commitments originated for home equity loans and lines of credit were $559.0 million for the three months ended December 31, 2024, compared to $655.4 million for the three months ended September 30, 2024 and $436.1 million for the three months ended December 31, 2023.

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

The allowance for credit losses was $95.7 million, or 0.63% of total loans receivable, at June 30, 2024, including a $28.2 million liability for unfunded commitments.

The allowance for credit losses was $104.8 million, or 0.69% of total loans receivable, at September 30, 2023, including a $27.5 million liability for unfunded commitments.

Refer to Note 4.

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

FHLB stock owned decreased $15.0 million, or 6.1%, to $232.1 million at June 30, 2024, from $247.1 million at September 30, 2023.

The decrease is a result of stock redemptions by the FHLB related to a decrease in the balance of FHLB advances, partially offset by stock acquired during the first quarter of fiscal year 2024.

FHLB collateral requirements on funds borrowed dictate the minimum amount of stock owned at any given time.

Total bank owned life insurance contracts increased $3.6 million, to $315.7 million at June 30, 2024, from $312.1 million at September 30, 2023, due to changes in cash surrender value, offset by death benefits received.

Other assets, including prepaid expenses, decreased $34.2 million to $83.1 million at June 30, 2024, from $117.3 million at September 30, 2023.

The decrease was primarily due to a $28.9 million decline in swap margin receivable.

Deposits increased $576.2 million, or 6.1%, to $10.03 billion at June 30, 2024, from $9.45 billion at September 30, 2023.

The increase in deposits resulted primarily from a $1.09 billion increase in CDs, inclusive of brokered CDs, as current market interest rates, product development and marketing have attracted additional balances and new CD customers.

The increase also included an $11.4 million increase in accrued interest payable.

The increase was partially offset by a $274.0 million decrease in savings accounts, a $138.1 million decrease in money market accounts, and a $118.0 million decrease in checking accounts.

Brokered CDs, included in total deposits at June 30, 2024, increased $52.7 million to $1.21 billion, compared to a balance of $1.16 billion at September 30, 2023.

Based on FDIC insurance limits by ownership structure, uninsured deposits were $330.8 million and $322.5 million at June 30, 2024 and September 30, 2023, respectively.

Borrowed funds decreased $444.3 million, or 8.4%, to $4.83 billion at June 30, 2024, from $5.27 billion at September 30, 2023.

The decrease was primarily due to borrowings being replaced at maturity, when needed, by retail deposits.

The total balance of borrowed funds at June 30, 2024, all from the FHLB, included $1.81 billion of term advances with a weighted average maturity of 2.0 years and $3.00 billion of short-term advances aligned with interest rate swap contracts.

Other assets, including prepaid expenses, decreased $15.8 million, or 14%, to $98.3 million at December 31, 2024, from $114.1 million at September 30, 2024.

The decrease was primarily the result of a $12.6 million decrease in current and deferred income tax assets, which were liabilities at December 31, 2024, and a $2.2 million decrease in accounts receivable related to funds held by the benefit plan administrator for the employee stock ownership plan.

Deposits increased $12.2 million, or less than 1%, to $10.21 billion at December 31, 2024, from $10.20 billion at September 30, 2024.

The increase in deposits included a $14.2 million increase in checking accounts and a $13.2 million increase in savings accounts, partially offset by a $15.5 million decrease in money market accounts.

Based on FDIC insurance limits by ownership structure, uninsured deposits were $377.4 million and $349.3 million at December 31, 2024 and September 30, 2024, respectively.

Borrowed funds decreased $136.5 million, or 3%, to $4.66 billion at December 31, 2024, from $4.79 billion at September 30, 2024.

The total balance of borrowed funds at December 31, 2024, all from the FHLB, included $1.63 billion of long-term advances with a weighted average maturity of 2.0 years, $2.93 billion of short-term advances aligned with interest rate swap contracts and $81.0 million in overnight borrowings.

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

Refer to the Extending the Duration of Funding Sources section of the Overview for additional discussion regarding short-term borrowings and interest-rate swaps.

Borrowers' advances for insurance and taxes decreased by $57.7 million to $66.8 million at June 30, 2024, from $124.4 million at September 30, 2023.

Borrowers' advances for insurance and taxes increased by $26.4 million to $140.0 million at December 31, 2024, from $113.6 million at September 30, 2024.

This change primarily reflects the cyclical nature of real estate tax payments that have been collected from borrowers and are in the process of being remitted to various taxing agencies.

Accrued expenses and other liabilities increased by $68.0 million to $180.9 million at June 30, 2024, from $112.9 million at September 30, 2023.

The increase is primarily due to a $78.4 million increase in outstanding payables, primarily real estate tax payments, that had not yet cleared at the reporting date, partially offset by a $10.5 million decrease in net deferred income tax liability.

Total shareholders’ equity decreased $12.3 million, or 0.6%, to $1.92 billion at June 30, 2024, from $1.93 billion at September 30, 2023.

The decrease primarily reflects $61.4 million of net income in the current year reduced by dividends of $44.2 million.

Other changes include $42.6 million of 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 a $7.9 million increase related to a change in accounting principle, ASU 2022-02, net of tax.

During the nine months ended June 30, 2024, we did not repurchase shares of our common stock.

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 June 30, 2024.

Total shareholders’ equity increased $51.7 million, or 3%, to $1.91 billion at December 31, 2024, from $1.86 billion at September 30, 2024.

The increase reflects $22.4 million of net income in the current year reduced by dividends of $14.8 million.

Other changes include $42.4 million of net increase in accumulated other comprehensive income, primarily related to changes in market values due to fluctuations in market interest rates of our swap contracts.

During the three months ended December 31, 2024, we did not repurchase shares of our common stock.

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 December 31, 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 80.9% of the outstanding stock of the Company, was able to waive its receipt of its share of the dividend paid.

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Unregistered Sales of Equity Securities and Use of Proceeds for additional details regarding the repurchase of shares of common stock and the dividend waiver.

Comparison of Operating Results for the Three Months Ended June 30, 2024 and 2023

Comparison of Operating Results for the Three Months Ended December 31, 2024 and 2023

Average Balances and Yields .

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Three Months Ended Three Months Ended

June 30, 2024 June 30, 2023

December 31, 2024 December 31, 2023

Balance Interest

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(5) Net interest margin represents net interest income divided by total interest-earning assets.

Net income increased $2.4 million, or 14%, to $20.0 million for the quarter ended June 30, 2024, from $17.6 million for the quarter ended June 30, 2023.

The increase in net income was attributable primarily due to an increase in net interest income and decreases related to marketing and other operating expenses.

Net income increased $1.7 million, or 8%, to $22.4 million for the quarter ended December 31, 2024, from $20.7 million for the quarter ended December 31, 2023.

The increase in net income was primarily attributable to a decline in non-interest expense, offset by a slight decrease in net interest income.

Interest and Dividend Income.

Interest and dividend income increased $9.6 million, or 5%, to $186.8 million during the current quarter, compared to $177.2 million during the same quarter in the prior year.

The increase in interest and dividend income was primarily the result of an increase in interest income on loans, as well as increases to income earned on mortgage-backed securities, FHLB stock, and other interest-bearing cash equivalents.

The increase in interest and dividend income was primarily the result of an increase in interest income on loans, offset by a decrease in income earned on FHLB stock.

Interest income on loans increased $10.2 million, or 6%, to $172.2 million during the current quarter, compared to $162.0 million for the same quarter in the prior year.

This change was primarily attributed to a 45 basis point increase in the average yield on loans for the quarter ended June 30, 2024, to 4.38%, compared to 3.93% the same quarter last year.

It was also attributed to a 3%, or $498.7 million, increase in the average balance of loans to $15.18 billion for the quarter ended June 30, 2024, compared to $14.68 billion during the same quarter last year as new loan production exceeded principal repayments and loan sales over the past year.

This change was primarily attributed to a 23 basis point increase in the average yield on loans for the quarter ended December 31, 2024, to 4.49%, compared to 4.26% the same quarter last year.

It was also attributed to a 1%, or $93.8 million, increase in the average balance of loans to $15.33 billion for the quarter ended December 31, 2024, compared to $15.23 billion during the same quarter last year as new loan production exceeded principal repayments and loan sales over the past year.

Interest Expense .

Interest expense increased $27.7 million, or 32%, to $115.6 million during the current quarter, compared to $87.9 million for the quarter ended June 30, 2023.

The increase primarily resulted from higher costs of certificates of deposit and borrowed funds.

Interest expense on CDs, net of related interest rate swap contracts, increased $31.0 million, or 78%, to $70.5 million during the current quarter, compared to $39.5 million for the quarter ended June 30, 2023.

Interest expense increased $10.3 million, or 10%, to $118.4 million during the current quarter, compared to $108.1 million for the quarter ended December 31, 2023.

The increase primarily resulted from an increase in interest expense on certificate of deposits, offset by decreases in interest expense on borrowed funds and savings deposits.

Interest expense on CDs, net of related interest rate swap contracts, increased $17.2 million, or 30%, to $74.5 million during the current quarter, compared to $57.3 million for the quarter ended December 31, 2023.

The increase was attributed to a 35 basis point increase in the average rate paid on CDs to 3.70% for the current quarter, from 3.35% for the same quarter last year.

Between the periods compared, maturing CDs were replaced by CDs at higher rates of interest, the majority with terms less than one year, that subsequently began maturing and repricing lower after the FRS's three rate cuts totaling 100 basis points between September and December 2024.

Additionally, there was a $1.21 billion, or 17.7%, increase in the average balance of CDs to $8.06 billion during the current quarter, from $6.85 billion during the same quarter of the prior year.

Interest rates on deposits generally increased in response to increases in market interest rates, as well as the higher rates paid by our competition.

Interest expense on borrowed funds, net of related interest rate swap contracts, increased $1.1 million, or 3%, to $40.1 million during the current quarter, compared to $39.0 million for the quarter ended June 30, 2023.

This increase was mainly attributed to a 27 basis point increase in the average rate paid on these funds to 3.28% for the current quarter, from 3.01% for the same period last year.

In addition, the average balance of borrowed funds decreased $283.4 million, or 5%, to $4.89 billion during the current quarter from an average balance of $5.18 billion during the same quarter of the prior year.

Interest expense on borrowed funds, net of related interest rate swap contracts, decreased $3.2 million, or 7%, to $40.5 million during the current quarter, compared to $43.7 million for the quarter ended December 31, 2023.

This decrease was mainly attributed to a decrease in the average balance of borrowed funds of $574.9 million, or 11%, to $4.65 billion during the current quarter from an average balance of $5.23 billion during the same quarter of the prior year.

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 $0.5 million to $69.3 million during the current quarter, compared to $68.8 million for the quarter ended June 30, 2023.

Both the average balance and the yield of interest earning assets increased when compared to the same period last year.

And to a lesser extent, there was also an increase in the cost of interest-bearing liabilities when compared to the same period last year.

Average interest-earning assets during the current quarter increased $797.6 million, or 5%, when compared to the quarter ended June 30, 2023.

The increase in average interest-earning assets was attributed primarily to an increase in the average balances of loans.

In addition to the increase in average interest-earning assets, the yield on those assets increased 49 basis points to 4.47% from 3.98%, as a result of market interest rate increases.

The interest rate spread decreased 14 basis points to 1.36% compared to 1.50% during the same quarter last year.

The net interest margin decreased eight basis points to 1.67% in the current quarter compared to 1.75% for the same quarter last year.

The decrease in our interest rate spread and net interest margin is primarily due to the impact of a prolonged period of historically low interest rates followed by a rapid and substantial rise in interest rates, that started in March 2022, along with an extended period of yield curve inversion.

Net interest income decreased $0.8 million to $68.3 million during the current quarter, compared to $69.1 million for the quarter ended December 31, 2023.

The decrease was primarily due to an increase in the weighted average rate paid on interest-bearing liabilities, partially offset by an increase in the weighted average rate paid on interest-earning assets.

Average interest-earning assets during the current quarter increased $80.1 million, or less than 1%, when compared to the quarter ended December 31, 2023.

The increase in average interest-earning assets was attributed primarily to an increase in the average balances of loans, offset by decrease in the average balance of FHLB stock.

In addition to the increase in average interest-earning assets, the yield on those assets increased 21 basis points to 4.53% from 4.32%, as a result of the weighted average increase in mortgage rates offsetting the weighted average decrease in home equity rates.

The average balance and cost of interest-bearing liabilities increased $93.2 million and 26 basis points, respectively, mainly due to an increase in the average balance of CDs and higher pricing of CDs maturing between the periods compared.

The interest rate spread decreased five basis points to 1.34% compared to 1.39% during the same quarter last year.

The net interest margin decreased two basis points to 1.66% in the current quarter compared to 1.68% for the same quarter last year.

The decrease in our interest rate spread and net interest margin was primarily due to increases in the average balances and cost of CDs described above.

Refer to Controlling Our Interest Rate Risk Exposure of the Overview section for further discussion.

Provision (Release) for Credit Losses.

We recorded a release of the allowance for credit losses on loans and off-balance sheet exposures of $0.5 million during the quarter ended June 30, 2024, compared to no provision or release during the quarter ended June 30, 2023.

As delinquencies in the portfolio have been resolved through pay-offs, short sale or foreclosure, or management determines the collateral is not sufficient to satisfy the loan balance, uncollected balances have been charged

against the allowance for credit losses previously provided.

We recorded a release of the allowance for credit losses on loans and off-balance sheet exposures of $1.5 million during the quarter ended December 31, 2024, compared to a release of $1.0 million during the quarter ended December 31, 2023.

Recoveries of amounts charged against the allowance for credit losses occur when collateral values increase and homes are sold or when borrowers repay the amounts previously charged-off.

In the current quarter, we recorded net recoveries of $1.4 million compared to net recoveries of $1.8 million for the quarter ended June 30, 2023.

In the current quarter, we recorded net recoveries of $1.4 million compared to net recoveries of $1.0 million for the quarter ended December 31, 2023.

Credit loss provisions (releases) are recorded with the objective of aligning our allowance for credit loss balances with our current estimates of loss in the portfolio.

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Non-Interest Income.

Non-interest income increased $0.4 million, or 7%, to $6.2 million during the current quarter compared to $5.8 million for the quarter ended June 30, 2023.

Non-interest income increased $0.2 million, or 3%, to $6.5 million during the current quarter, compared to $6.3 million for the quarter ended December 31, 2023, primarily due to an increase in net gain on the sale of loans.

Non-Interest Expense.

Non-interest expense decreased $2.1 million, or 4%, to $50.8 million during the current quarter compared to $52.9 million for the quarter ended June 30, 2023.

The decrease primarily consisted of a $2.1 million decrease in marketing expense and a $0.9 million decrease in other operating expense, partially offset by a $1.5 million increase in salaries and employee benefits.

Non-interest expense decreased $2.4 million, or 5%, to $47.9 million during the current quarter, compared to $50.3 million for the quarter ended December 31, 2023.

The decrease primarily consisted of a $0.7 million decrease in marketing expense, a $0.7 million decrease in other operating expenses and a $0.5 million decrease in salaries and employee benefits.

The decrease in other operating expenses was mainly due to a decrease in telecommunications expense and an increased benefit from actuarial calculations on the defined benefit plan.

Income Tax Expense.

The provision for income taxes increased $1.2 million to $5.3 million during the current quarter, compared to $4.1 million for the quarter ended June 30, 2023.

The provision for income taxes increased $0.6 million to $6.0 million during the current quarter, compared to $5.4 million for the quarter ended December 31, 2023.

The provision for the current quarter included $5.5 million of federal income tax provision and $0.5 million of state income tax expense.

The provision for the quarter ended June 30, 2023, included $3.9 million of federal income tax provision and $0.2 million of state income tax expense.

Our effective federal tax rate was 18.7% and 18.8% during the quarters ended June 30, 2024 and June 30, 2023, respectively.

Comparison of Operating Results for the Nine Months Ended June 30, 2024 and 2023

Average balances and yields .

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

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

Average balances are derived from daily average balances.

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.

Nine Months Ended Nine Months Ended

June 30, 2024 June 30, 2023

Balance Interest

Expense Yield/

Cost (1) Average

Balance Interest

Expense Yield/

(Dollars in thousands)

Interest-earning assets:

Interest-earning cash equivalents

$ 579,383 $ 23,543 5.42 % $ 351,742 $ 11,677 4.43 %

Investment securities

69,677 2,663 5.10 10,438 342 4.37

Mortgage-backed securities 448,429 10,871 3.23 470,108 9,887 2.80

15,190,356 491,273 4.31 14,530,428 410,847 3.77

Federal Home Loan Bank stock

250,285 17,208 9.17 228,318 10,426 6.09

Total interest-earning assets 16,538,130 545,558 4.40 15,591,034 443,179 3.79

Noninterest-earning assets 524,179 518,875

Total assets $ 17,062,309 $ 16,109,909

Interest-bearing liabilities:

Checking accounts

$ 897,190 310 0.05 $ 1,126,064 5,956 0.71

Savings accounts

1,573,401 17,477 1.48 1,774,965 16,822 1.26

Certificates of deposit

7,350,136 194,745 3.53 6,042,061 95,858 2.12

Borrowed funds

5,051,371 123,283 3.25 5,053,965 111,339 2.94

Total interest-bearing liabilities 14,872,098 335,815 3.01 13,997,055 229,975 2.19

Noninterest-bearing liabilities 250,916 243,823

Total liabilities 15,123,014 14,240,878

Shareholders’ equity 1,939,295 1,869,031

Total liabilities and shareholders’ equity $ 17,062,309 $ 16,109,909

Net interest income $ 209,743 $ 213,204

Interest rate spread (1)(3) 1.39 % 1.60 %

Net interest-earning assets (4) $ 1,666,032 $ 1,593,979

Net interest margin (1)(5) 1.69 % 1.82 %

Average interest-earning assets to average interest-bearing liabilities 111.20 % 111.39 %

Selected performance ratios:

Return on average assets (1) 0.48 % 0.46 %

Return on average equity (1) 4.22 % 3.97 %

Average equity to average assets 11.37 % 11.60 %

_________________

(1) Annualized.

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

(3) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5) Net interest margin represents net interest income divided by total interest-earning assets.

Net income increased $5.7 million to $61.4 million for the nine months ended June 30, 2024, compared to $55.7 million for the nine months ended June 30, 2023.

The increase in net income was primarily driven by decreases in non-interest expense and an increase in the release of provision for credit losses, partially offset by a decrease in net interest income.

Interest and Dividend Income.

Interest and dividend income increased $102.4 million, or 23%, to $545.6 million during the nine months ended June 30, 2024, compared to $443.2 million during the same nine months in the prior year.

The increase in interest and dividend income resulted mainly from an increase in interest income on loans, other interest earning assets, as well as increases in income earned on FHLB stock.

Interest income on loans increased $80.5 million, or 20%, to $491.3 million for the nine months ended June 30, 2024, compared to $410.8 million for the nine months ended June 30, 2023.

This increase was attributed mainly to an 54 basis point increase in the average yield on loans to 4.31% for the nine months ended June 30, 2024, from 3.77% for the same nine months in the prior fiscal year.

Adding to the increase was a $659.9 million increase in the average balance of loans to $15.19 billion for the current nine months compared to $14.53 billion for the prior fiscal year period as new loan production exceeded repayments and loan sales during the current fiscal year.

Interest Expense.

Interest expense increased $105.8 million, or 46%, to $335.8 million during the current nine months compared to $230.0 million during the nine months ended June 30, 2023.

This increase mainly resulted from an increase in yields and average volume of deposits and borrowed funds.

Interest expense on CDs, net of related interest rate swap contracts, increased $98.8 million, or 103%, to $194.7 million during the nine months ended June 30, 2024, compared to $95.9 million during the nine months ended June 30, 2023.

The increase was attributed primarily to a 141 basis point increase in the average rate paid on CDs to 3.53% during the current nine months from 2.12% during the same nine months last fiscal year.

In addition, there was a $1.31 billion, or 22%, increase in the average balance of CDs to $7.35 billion, from $6.04 billion during the same nine months of the prior fiscal year.

Interest expense on savings accounts increased $0.7 million to $17.5 million during the nine months ended June 30, 2024, compared to interest expense of $16.8 million for the nine-month period ended June 30, 2023.

Interest expense on checking accounts decreased $5.7 million to $0.3 million during the nine months ended June 30, 2024, compared to interest expense of $6.0 million for the nine-month period ended June 30, 2023.

Overall, rates increased for deposits in response to increases in market interest rates, as well as increases in the rates paid by our competitors.

Interest expense on borrowed funds, net of related interest rate swap contracts, increased $12.0 million, or 11%, to $123.3 million during the nine months ended June 30, 2024, from $111.3 million during the nine months ended June 30, 2023.

The increase was primarily the result of higher average interest rates for the nine months ended June 30, 2024.

There was a 31 basis point increase in the average rate paid for these funds to 3.25%, from 2.94% for the nine months ended June 30, 2024 and June 30, 2023, respectively.

The average balance of borrowed funds decreased $2.6 million, or less than 1%, to $5.05 billion for the nine months ended June 30, 2024 when compared to the same period of the prior fiscal year.

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

Net Interest Income.

Net interest income decreased $3.5 million, or 2%, to $209.7 million during the nine months ended June 30, 2024, from $213.2 million during the nine months ended June 30, 2023.

The net decrease consisted of a $102.4 million increase in interest income offset by a $105.8 million increase in interest expense.

Average interest-earning assets increased during the current nine months by $947.1 million, or 6%, to $16.54 billion when compared to the nine months ended June 30, 2023.

The increase in average assets was attributed primarily to a $659.9 million increase in the average balance of our loans, a $22.0 million increase in FHLB stock and a $227.7 million increase in interest-bearing cash equivalents.

The yield on average interest-earning assets increased 61 basis points to 4.40% for the nine months ended June 30, 2024, from 3.79% for the nine months ended June 30, 2023.

Average interest-bearing liabilities increased $875.0 million to $14.87 billion for the nine months ended June 30, 2024, compared to $14.00 billion for the nine months ended June 30, 2023.

Average interest-bearing liabilities experienced an 82 basis point increase in cost for the nine months ended June 30, 2024 and the interest rate spread decreased 21 basis points to 1.39% when compared to 1.60% during the same nine months of the prior fiscal year period.

The net interest margin was 1.69% for the current nine months and 1.82% for the same nine months in the prior fiscal year period.

Provision (Release) for Credit Losses .

We recorded a release of the allowance for credit losses on loans and off-balance sheet exposures of $2.5 million during the nine months ended June 30, 2024, and $2.0 million at June 30, 2023.

In the current nine months, we recorded net recoveries of $3.6 million, as compared to net recoveries of $4.6 million for the nine months ended June 30, 2023.

Credit loss provisions (releases) are recorded with the objective of aligning our allowance for credit loss balances with our current estimates of loss in the portfolio.

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

Refer to the Lending Activities section

of the Overview and Note 4.

LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for further discussion.

Non-Interest Income.

Non-interest income increased $2.0 million, or 12%, to $18.3 million during the nine months ended June 30, 2024, compared to $16.3 million during the nine months ended June 30, 2023.

The increase in non-interest income was primarily due to a $1.0 million increase in the net gain on sale of loans and a $0.5 million increase in cash surrender value and death benefits from bank owned life insurance.

There were loan sales of $190.7 million during the nine months ended June 30, 2024, compared to loan sales of $58.1 million during the nine months ended June 30, 2023.

Non-Interest Expense.

Non-interest expense decreased $8.3 million, or 5%, to $153.3 million during the nine months ended June 30, 2024, compared to $161.6 million during the nine months ended June 30, 2023.

This decrease was driven by a $7.0 million decrease in marketing expenses and a $2.6 million decrease in salaries and employee benefits, partially offset by a $1.2 million increase in federal insurance premiums.

Income Tax Expense.

The provision for income taxes increased $1.7 million to $15.9 million during the nine months ended June 30, 2024, from $14.2 million for the nine months ended June 30, 2023, reflecting the higher level of pre-tax income during the more recent period.

The provision for the current nine months included $14.5 million of federal income tax provision and $1.4 million of state income tax provision.

The provision for the nine months ended June 30, 2023 included $12.8 million of federal income tax provision and $1.4 million of state income tax provision.

Our effective federal tax rate was 19.1% during the nine months ended June 30, 2024, and 18.7% during the nine months ended June 30, 2023.

The provision for the quarter ended December 31, 2023 included $5.1 million of federal income tax provision and $0.3 million of state income tax expense.

Our effective federal tax rate was 19.8% during the quarters ended December 31, 2024 and December 31, 2023.

Liquidity and Capital Resources

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

For the three months ended June 30, 2024, our liquidity ratio averaged 6.19%.

We believe that we had sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of June 30, 2024.

For the three months ended December 31, 2024, our liquidity ratio averaged 5.44%.

We had sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of December 31, 2024.

We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, scheduled liability maturities and the objectives of our asset/liability management program.

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

At June 30, 2024, cash and cash equivalents totaled $560.4 million, which represented an increase of 20% from $466.7 million at September 30, 2023.

Investment securities classified as available-for-sale, which provide additional sources of liquidity, totaled $523.0 million at June 30, 2024.

During the nine-month period ended June 30, 2024, loan sales, including commitments to sell, totaled $190.7 million, which included sales to Fannie Mae, consisting of $168.7 million of long-term, fixed-rate, agency-compliant, non-Home Ready first mortgage loans and $22.0 million of loans that qualified under Fannie Mae's Home Ready initiative.

At June 30, 2024, $30.4 million of long-term, fixed-rate residential first mortgage loans were classified as “held for sale".

At December 31, 2024, cash and cash equivalents totaled $465.9 million, which represented an increase of less than 1% from $463.7 million at September 30, 2024.

Investment securities classified as available-for-sale, which provide additional sources of liquidity, totaled $507.7 million at December 31, 2024.

During the three-month period ended December 31, 2024, we settled $81.6 million of loan sales and had commitments to sell $1.6 million of mortgage loans to Fannie Mae at December 31, 2024.

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

At June 30, 2024, we had $348.8 million in outstanding commitments to originate loans.

At December 31, 2024, we had $268.5 million in outstanding commitments to originate loans.

In addition to commitments to originate loans, we had $5.26 billion in unfunded home equity lines of credit to borrowers.

CDs due within one year of June 30, 2024, totaled $4.73 billion, or 47.2% of total deposits.

CDs due within one year of December 31, 2024, totaled $5.15 billion, or 50.5% 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.

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 June 30, 2025.

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 December 31, 2025.

We believe, however, based on past experience, that a significant portion of such deposits will remain with us.

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

During the nine months ended June 30, 2024, we originated $598.7 million of residential mortgage loans, and $1.62 billion of commitments for home equity loans and lines of credit, while during the nine months ended June 30, 2023, we originated $1.31 billion of residential mortgage loans and $1.24 billion of commitments for home equity loans and lines of credit.

We purchased $121.1 million of securities during the nine months ended June 30, 2024, and $124.2 million during the nine months ended June 30, 2023.

Also, during the nine months ended June 30, 2024 and June 30, 2023, we purchased $121.0 million and $133.9 million of long-term, first mortgage loans, respectively.

During the three months ended December 31, 2024, we originated $176.5 million of residential mortgage loans, and $559.0 million of commitments for home equity loans and lines of credit, while during the three months ended December 31, 2023, we originated $273.0 million of residential mortgage loans and $436.1 million of commitments for home equity loans and lines of credit.

We purchased $86.1 million of securities during the three months ended December 31, 2024, and $80.8 million during the three months ended December 31, 2023.

Also, during the three months ended December 31, 2024 and December 31, 2023, we purchased $40.8 million and $31.7 million of long-term, residential mortgage loans, respectively.

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 $576.2 million during the nine months ended June 30, 2024, which reflected the active management of the offered rates on maturing CDs, compared to a net increase of $145.1 million during the nine months ended June 30, 2023.

We experienced a net increase in total deposits of $12.2 million during the three months ended December 31, 2024, which reflected the active management of the offered rates on maturing CDs, compared to a net increase of $471.2 million during the three months ended December 31, 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.

During the nine months ended June 30, 2024, there was a $52.7 million increase in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of $1.22 billion at June 30, 2024.

At June 30, 2023, the balance of brokered CDs was $667.8 million.

Principal and interest owed on loans serviced for others experienced a net decrease of $12.9 million to $16.9 million during the nine months ended June 30, 2024, compared to a net decrease of $13.4 million to $16.5 million during the nine months ended June 30, 2023.

During the nine months ended June 30, 2024, we decreased our total borrowings by $444.3 million as we managed our growth, capital initiatives, and liquidity ratio.

During the nine months ended June 30, 2023, our total borrowings increased by $659.0 million.

During the three months ended December 31, 2024, there was a $119.8 million decrease in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of $1.10 billion at December 31, 2024.

At December 31, 2023, the balance of brokered CDs was $1.49 billion.

Principal and interest owed on loans serviced for others experienced a net increase of $10.7 million to $39.4 million during the three months ended December 31, 2024, compared to a net decrease of $0.6 million to $29.2 million during the three months ended December 31, 2023.

During the three months ended December 31, 2024, we decreased our total borrowings by $136.5 million as we managed our growth, capital initiatives, and liquidity ratio.

During the three months ended December 31, 2023, our total borrowings decreased by $243.1 million.

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

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

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.

The FHLB of Cincinnati approved the Association's allowable borrowing limit of 45% of total assets as long as the Association maintains compliance with certain credit and regulatory criteria and meets collateral requirements.

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 June 30, 2024, we had $4.81 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.

During the nine months ended June 30, 2024, we had average outstanding advances from the FHLB of Cincinnati of $5.05 billion, as compared to average outstanding advances of $5.05 billion during the nine months ended June 30, 2023.

At December 31, 2024, we had $4.64 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.

During the three months ended December 31, 2024, we had average outstanding advances from the FHLB of Cincinnati of $4.65 billion, as compared to average outstanding advances of $5.23 billion during the three months ended December 31, 2023.

Refer to the Extending the Duration of Funding Sources section of the Overview for further discussion.

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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, are deemed to be fixed and will be phased out of CET1 capital over the three-year period ending in 2025.

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 standard minimum capital requirements.

At June 30, 2024, the Association exceeded the regulatory requirement for the "capital conservation buffer".

As of June 30, 2024, the Association exceeded all regulatory requirements to be considered “Well Capitalized” as presented in the table below (dollar amounts in thousands).

At December 31, 2024, the Association exceeded the regulatory requirement for the "capital conservation buffer".

As of December 31, 2024, the Association exceeded all regulatory requirements to be considered “Well Capitalized” as presented in the table below (dollar amounts in thousands).

Capital remains a source of financial strength for the Association and the Company.

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Common Equity Tier 1 Capital to Risk-Weighted Assets 1,696,034 16.74 % 658,461 6.50 %

The capital ratios of the Company as of June 30, 2024, are presented in the table below (dollar amounts in thousands).

The capital ratios of the Company as of December 31, 2024, are presented in the table below (dollar amounts in thousands).

Total Capital to Risk-Weighted Assets $ 1,940,628 19.15 %

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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.

At June 30, 2024, the Company had, in the form of cash and a demand loan from the Association, $140.2 million of funds readily available to support its stand-alone operations.

In December 2024, the Company received a $40 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 STATEMENTS OF CONDITION but reduced the Association's reported capital ratios.

At December 31, 2024, the Company had, in the form of cash and a demand loan from the Association, $158.8 million of funds readily available to support its stand-alone operations.

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.

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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-Q

Item 2. Management’s Discussion and Analysis