Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This report contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include, among other things:
● statements of our goals, intentions and expectations;
● statements regarding our business plans and prospects and growth and operating strategies;
● statements concerning trends in our provision for credit losses and charge-offs on loans and off-balance sheet exposures;
● statements regarding the trends in factors affecting our financial condition and results of operations, including credit quality of our loan and investment portfolios; and
● estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events:
● significantly increased competition among depository and other financial institutions, including with respect to our ability to charge overdraft fees;
36
Table of Contents
● inflation and changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments, or our ability to originate loans;
● general economic conditions, either globally, nationally or in our market areas, including employment prospects, real estate values and conditions that are worse than expected;
● the strength or weakness of the real estate markets and of the consumer and commercial credit sectors and its impact on the credit quality of our loans and other assets, and changes in estimates of the allowance for credit losses;
● decreased demand for our products and services and lower revenue and earnings because of a recession or other events;
● changes in consumer spending, borrowing and savings habits, including repayment speeds on loans;
● adverse changes and volatility in the securities markets, credit markets or real estate markets;
● our ability to manage market risk, credit risk, liquidity risk, reputational risk, regulatory risk and compliance risk;
● our ability to access cost-effective funding;
● legislative or regulatory changes that adversely affect our business, including changes in regulatory costs and capital requirements and changes related to our ability to pay dividends and the ability of Third Federal Savings, MHC to waive dividends;
● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the FASB or the PCAOB;
● the adoption of implementing regulations by a number of different regulatory bodies, and uncertainty in the exact nature, extent and timing of such regulations and the impact they will have on us;
● our ability to enter new markets successfully and take advantage of growth opportunities;
● the continuing governmental efforts to restructure the U.S. financial and regulatory system;
● future adverse developments concerning Fannie Mae or Freddie Mac;
● changes in monetary and fiscal policy of the U.S. Government, including policies of the U.S. Treasury, the Federal Reserve System, Fannie Mae, the OCC, FDIC, and others, and the effects of tariffs and retaliatory actions;
● the ability of the U.S. Government to remain open, function properly and manage federal debt limits;
● changes in policy and/or assessment rates of taxing authorities that adversely affect us or our customers;
● changes in accounting and tax estimates;
● changes in our organization and changes in expense trends, including but not limited to trends affecting non-performing assets, charge-offs and provisions for credit losses;
● changes in liquidity, including the size and composition of our deposit portfolio, and the percentage of uninsured deposits in the portfolio;
● the inability of third-party providers to perform their obligations to us;
● our ability to retain key employees;
● the effects of global or national war, conflict or acts of terrorism;
● civil unrest;
● 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; and
● 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. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. Please see Part II Other Information Item 1A. Risk Factors for a discussion of certain risks related to our business.
Overview
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, 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.”
37
Table of Contents
Our values are reflected in the design and pricing of our loan and deposit products, as described below. Our values are further reflected in a long-term revitalization program encompassing the three-mile corridor of the Broadway-Slavic Village neighborhood in Cleveland, Ohio where our main office was established and continues to be located and where we've been the developer of a community of 40 homes, intended to serve the low- to moderate income home owner. We intend to continue to adhere to our primary values and to support our customers and the communities in which we operate as we pursue our mission to help people achieve the dream of home ownership and financial security while creating value for our customers, our communities, our associates and our shareholders.
Consumers, businesses, and governments alike are navigating an elevated level of economic uncertainty as a new perspective on global trade policy is being deliberated by the markets. The Federal Reserve has maintained interest rates near 20-year highs. The U.S. Treasury yield curve is currently positive, after a prolonged period of inversion, normalizing just prior to the FRS's 100 basis point rate cuts between September and December 2024. It is possible that the easing cycle will continue in the second half of 2025, however, uncertainty can lead to volatility in interest rates and spreads, creating a challenging operating environment. Taking all of this into consideration, we remain committed to our mission, business model, and strategic approach. Specifically, (1) our capital ratios remain a primary source of financial strength; (2) our core deposits remain stable and the majority of our deposit accounts fall within FDIC insurance limits; (3) we maintain adequate access to contingent sources of liquidity; and (4) our risk management practices around an array of financial disciplines are robust and commensurate to an institution of our size and complexity.
Capital ratios remain a source of financial strength for the Company and the Association as all capital ratios, including the Company's Common Equity Tier 1 Capital ratio of 17.75%, exceed the regulatory requirement to be considered "Well Capitalized". Additional details on our capital ratios are reported in the Liquidity and Capital Resources section of this Item 2.
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, 2025, 95.9% of our $9.36 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, 2025, 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 $2.75 billion. We also hold marketable securities that could be sold and converted to cash. Further details about liquidity and funding are described in the section labelled Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth of this Item 2.
We operate a multi-disciplined risk management program that emphasizes stress testing and scenario analysis in the realms of interest rate risk, credit risk, market risk and liquidity risk. Key risk indicators are proactively monitored and reported throughout the organization, up to and including the Board of Directors. The program is supported by a multi-line of defense approach in which internal oversight functions of risk management and internal audit grant their fully autonomous opinion of the process with an ability to issue findings for remediation if deemed necessary. The program is also regularly exposed to additional scrutiny in the form of regulatory oversight and from our external audit firm. Management established the risk management framework with an appropriate level of sophistication such that it fully encapsulates all identified areas of risk, in conjunction with a necessary level of governance, to promote the program’s intention of properly identifying and managing our risk profile.
Management believes that the following matters are those most critical to our success: (1) controlling our interest rate risk exposure; (2) monitoring and limiting our credit risk; (3) maintaining access to adequate liquidity and diverse funding sources to support our growth; and (4) monitoring and controlling our operating expenses.
Controlling Our Interest Rate Risk Exposure. Historically, our greatest risk has been our exposure to changes in market interest rates. When we hold longer-term, fixed-rate assets, funded by liabilities with shorter-term re-pricing characteristics, we are exposed to potentially adverse impacts from changing interest rates, and most notably rising interest rates. Generally, and particularly over extended periods of time that encompass full economic cycles, interest rates associated with longer-term assets, like fixed-rate mortgages, have been higher than interest rates associated with shorter-term funding sources, like deposits. 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 occurred in the past three years. Although the yield curve became positive in early September 2024, rapid and substantial decreases in short-term rates can also pose a challenge when interest rates on our home equity line of credit portfolio, indexed to the prime rate, reprice more quickly
38
Table of Contents
than interest rates on borrowings and certificate of deposit accounts which generally reprice at maturity. These economic environments may result in decreases in our net interest income and our net interest margin.
To mitigate our interest rate risk in general and to address the current rate environment specifically, we utilize a variety of strategies that include:
• Maintaining regulatory capital in excess of levels required to be considered well capitalized;
• Maintaining adjustable-rate loans and shorter-term fixed-rate loans;
• Maintaining and growing home equity line of credit balances, which carry an adjustable rate of interest, indexed to the prime rate;
• Opportunistically extending the duration of our funding sources;
• Utilizing interest rate swaps to convert short-term FHLB advances and brokered certificates of deposit into long-term, fixed rate borrowings; and
• Selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market.
Levels of Regulatory Capital
At June 30, 2025, the Company’s Tier 1 (leverage) capital totaled $1.86 billion, or 10.86%, of net average assets and 17.75% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.73 billion, or 10.10%, of net average assets and 16.51% of risk-weighted assets. Each of these measures is in excess of the requirements in effect at June 30, 2025, 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.
Adjustable-Rate Loans and Shorter-Term Fixed-Rate Loans
We offer our "Smart Rate" adjustable-rate mortgage loan, which provides us with improved interest rate risk characteristics when compared to a 30-year, fixed-rate mortgage loan. Our “Smart Rate” adjustable-rate mortgage offers borrowers an interest rate lower than that of a 30-year, fixed-rate loan. The interest rate of the Smart Rate mortgage is locked for three or five years, then resets annually. The Smart Rate mortgage contains a feature to re-lock the rate an unlimited number of times at our then-current interest rate and fee schedule, for another three or five years (which must be the same as the original lock period) without having to complete a full refinance transaction. Re-lock eligibility is subject to a satisfactory payment performance history by the borrower (current at the time of re-lock, and no foreclosures or bankruptcies since the Smart Rate application was taken). In addition to a satisfactory payment history, re-lock eligibility requires that the property continues to be the borrower’s primary residence. The loan term cannot be extended in connection with a re-lock, nor can new funds be advanced. All interest rate caps and floors remain as originated.
We also offer a 10-year, fully amortizing fixed-rate, first mortgage loan. 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 period end principal balances segregated by loan structure at origination:
For the Nine Months Ended June 30, 2025 For the Nine Months Ended June 30, 2024
Amount Percent Amount Percent
(Dollars in thousands)
First Mortgage Loan Originations and Acquired Loans:
ARM (all Smart Rate) production $ 98,731 13.0 % $ 128,752 21.5 %
Fixed-rate production:
Terms less than or equal to 10 years 1,938 0.3 5,166 0.9
Terms greater than 10 years 659,528 86.7 464,808 77.6
Total fixed-rate production 661,466 87.0 469,974 78.5
Total First Mortgage Loan Originations and Acquired Loans $ 760,197 100.0 % $ 598,726 100.0 %
39
Table of Contents
June 30, 2025 September 30, 2024
Amount Percent Amount Percent
(Dollars in thousands)
Balance of First Mortgage Loans Held For Investment:
ARM (primarily Smart Rate) Loans $ 4,056,491 36.9 % $ 4,379,132 38.3 %
Fixed-rate Loans:
Terms less than or equal to 10 years 671,567 6.1 836,875 7.3
Terms greater than 10 years 6,279,346 57.0 6,210,073 54.4
Total fixed-rate loans 6,950,913 63.1 7,046,948 61.7
Total First Mortgage Loans Held For Investment $ 11,007,404 100.0 % $ 11,426,080 100.0 %
The following table sets forth the principal balances and yields as of June 30, 2025, for all ARM loans segregated by the next scheduled interest rate reset date:
Current Balance of ARM Loans Scheduled for Interest Rate Reset Yield
During the Fiscal Years Ending September 30, (Dollars in thousands)
2025 $ 364,592 4.42 %
2026 1,585,256 3.51 %
2027 1,417,688 2.74 %
2028 499,586 4.93 %
2029 96,516 6.36 %
2030 92,853 6.62 %
Total $ 4,056,491 3.63 %
At June 30, 2025 and September 30, 2024, mortgage loans held for sale, all of which were long-term, fixed-rate first mortgage loans and substantially all of which were held for sale to Fannie Mae, totaled $31.0 million and $17.8 million, respectively.
Loan Portfolio Yield
The following tables set forth the principal balance and interest yield as of June 30, 2025, 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 June 30, 2025.
June 30, 2025
Balance Percent Yield
(Dollars in thousands)
Total Loans:
Fixed Rate
Terms less than or equal to 10 years $ 671,567 4.3 % 2.67 %
Terms greater than 10 years 6,279,346 40.2 4.19
Total Fixed-Rate Residential Mortgage loans 6,950,913 44.5 4.04
ARMs 4,056,491 26.0 3.63
Home Equity Lines of Credit 3,881,132 24.9 6.66
Home Equity Loans 695,004 4.5 6.98
Construction and Other Loans 22,251 0.1 6.46
Total Loans Receivable $ 15,605,791 100.0 % 4.73 %
40
Table of Contents
June 30, 2025
Balance Fixed Rate Balance Fixed Rate Percent Yield
(Dollars in thousands)
Residential Mortgage Loans
Ohio $ 6,441,225 $ 5,057,044 78.5 % 4.00 %
Florida 1,850,624 900,349 48.7 3.66
Other 2,715,555 993,520 36.6 3.81
Total Residential Mortgage Loans 11,007,404 6,950,913 63.1 3.90
Home Equity Lines of Credit
Ohio $ 859,878 $ 6,675 0.8 % 6.65 %
Florida 841,936 6,669 0.8 6.61
California 656,955 2,641 0.4 6.67
Other 1,522,363 2,696 0.2 6.68
Total Home Equity Lines of Credit 3,881,132 18,681 0.5 6.66
Home Equity Loans
Ohio 163,924 134,691 82.2 6.55
Florida 156,891 118,322 75.4 6.92
California 127,986 94,369 73.7 6.93
Other 246,203 196,683 79.9 7.34
Total Home Equity Loans 695,004 544,065 78.3 6.98
Construction and Other Loans 22,251 22,251 100.0 6.46
Total Loans Receivable $ 15,605,791 $ 7,535,910 48.3 % 4.73 %
Marketing of Home Equity Lines of Credit
We actively market home equity lines of credit, which carry an adjustable rate of interest indexed to the prime rate which provides interest rate sensitivity to that portion of our assets and is a meaningful strategy to manage our interest rate risk profile. Increasing our investments in loans with variable rates of interest help to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. 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, 2025, the principal balance of home equity lines of credit (including those in repayment) that are structured to reset with each prime rate adjustment totaled $3.88 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 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. three years or greater) fixed-rate advances from the FHLB of Cincinnati, and shorter-term (e.g. one or three months) funding, the durations of which are extended by correlated interest rate exchange contracts ("swap"). Funding sources are discussed in more detail within this Item 2 in the sections entitled Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth and Liquidity and Capital Resources. All of our swaps are subject to collateral pledges and require specific structural features to qualify for hedge accounting treatment. Hedge accounting treatment directs that periodic mark-to-market adjustments be recorded in other comprehensive income (loss) in the equity section of the balance sheet, rather than being included in operating results of the income statement. The Association's intent is that any swap to which it may be a party will qualify for hedge accounting treatment.
The Association uses swaps to extend the duration of its funding sources. Each of the Association's swap agreements is registered on the Chicago Mercantile Exchange and involves the exchange of interest payment amounts based on a notional principal balance. No exchange of principal amounts occur and the notional principal amount does not appear on our balance sheet. 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
41
Table of Contents
(generally one to 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. Swaps generally require counterparty collateral pledges that ensure the counterparties' ability to comply with the conditions of the agreement. Concurrent with the execution of each swap, the Association enters into a short-term borrowing or issues brokered CDs in an amount equal to the notional amount of the swap and with interest rate resets aligned with the reset interval of the swap. Each individual swap agreement has been designated as a cash flow hedge of interest rate risk associated with either the Company's variable rate borrowings from the FHLB of Cincinnati or brokered CDs. 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. BORROWED FUNDS and 13. DERIVATIVE INSTRUMENTS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .
Each funding alternative is monitored and evaluated based on its effective interest payment rate, options exercisable by the creditor (early withdrawal, right to call, etc.), and collateral requirements. Refer to Notes 5. DEPOSITS and 6. BORROWED FUNDS for additional details on balances. The interest payment rate is a function of market influences that are specific to the nuances and market competitiveness/breadth of each funding source. Generally, early withdrawal options, subject to a fee, are available to our retail CD customers but not to holders of brokered CDs; issuer call options are not provided on our advances from the FHLB of Cincinnati; and we are not subject to early termination options with respect to our interest rate exchange contracts. Additionally, collateral pledges are not provided with respect to our retail CDs or our brokered CDs, but are required for our advances from the FHLB of Cincinnati as well as for our interest rate exchange contracts. We will continue to evaluate the structure of our funding sources balancing the need to extend duration and manage cost.
Selling Fixed Rate Loans in the Secondary Market
We also manage interest rate risk by selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market. First mortgage loans (primarily fixed-rate mortgages with terms of 15 years or more, Home Ready and certain loans acquired 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. 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 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, 2025, $210.6 million of agency-compliant, long-term (15 to 30 years), fixed-rate mortgage loans were sold, or committed to be sold, primarily to Fannie Mae. Of these sold or committed loans, $20.8 million were originated under Fannie Mae's Home Ready initiative, $23.0 million were acquired through a correspondent lending partnership and $166.8 million were originated as agency-compliant first mortgage loans or to the same "Qualified Mortgage" underwriting standards. At June 30, 2025, loans classified as held for sale totaled $31.0 million. At June 30, 2025, 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. Loan sales are discussed in more detail within the Liquidity and Capital Resources section of this Item 2.
Monitoring and Limiting Our Credit Risk. While, historically, we had been successful in limiting our credit risk exposure by generally imposing high credit standards with respect to lending, the memory of the 2008 housing market collapse and financial crisis is a constant reminder to focus on credit risk. 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, 2025, 90% of our assets consisted of residential real estate loans (both “held for sale” and “held for investment”) and home equity loans and lines of credit. Our analytic procedures and evaluations include specific reviews of all home equity loans and lines of credit that become 90 or more days past due, as well as specific reviews of all first mortgage loans that are at least 150 days past due, but not later than 180 days past due. We transfer performing home equity lines of credit subordinate to first mortgages delinquent greater than 90 days to non-accrual status. We also charge-off performing loans to collateral value and classify those loans as non-accrual within 60 days of notification of all borrowers filing Chapter 7 bankruptcy, that have not reaffirmed or been dismissed, regardless of how long the loans have been performing.
In an effort to 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
42
Table of Contents
effective mix of repayment ability are not offered. We believe we use stringent, conservative lending standards for underwriting to reduce our credit risk. For first mortgage loans originated during the current quarter, the average credit score was 776 and the average LTV was 70% at origination. Our current delinquency levels reflect the higher credit standards to which we subject all new originations. As of June 30, 2025, loans originated or acquired had a balance of $15.70 billion, of which $34.3 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, 2025, approximately 58.4% and 16.8% of the combined total of our residential Core and construction loans were held for investment, and approximately 22.4% and 21.8% 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, 2025, 29.2% are secured by properties in states other than Ohio or Florida.
Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth. For most insured depositories, customer and community confidence are critical to their ability to maintain access to adequate liquidity and to conduct business in an orderly manner. We believe that a well capitalized institution is one of the most important factors in nurturing customer and community confidence. At June 30, 2025, the Association’s ratio of Tier 1 (leverage) capital to net average assets (a basic industry measure that deems 5.00% or above to represent a “well capitalized” status) was 10.10%. The Association's Tier 1 (leverage) capital ratio at June 30, 2025 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.
In managing its level of liquidity, the Company monitors available funding sources, which include attracting new deposits (including brokered deposits), borrowing from others, the conversion of assets to cash and the generation of funds through profitable operations. The Company has traditionally relied on retail deposits as its primary means in meeting its funding needs. To attract deposits, we typically offer rates that are competitive with the rates on similar products offered by other financial institutions. At June 30, 2025, deposits totaled $10.34 billion (including $977.5 million of brokered CDs), while borrowings totaled $4.88 billion and borrowers’ advances and servicing escrows totaled $148.1 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.
While our retail deposit customers provide our primary source of funding, we maintain many alternative funding sources. First, we pledge available real estate mortgage loans with the FHLB of Cincinnati and the FRB-Cleveland. At June 30, 2025, the Association had the ability to borrow a maximum of $6.63 billion from the FHLB of Cincinnati and $530.8 million from the FRB-Cleveland Discount Window. As of June 30, 2025, our capacity for additional borrowing from the FHLB of Cincinnati was $1.77 billion. Second, we have the ability to purchase overnight Fed Funds up to $455.0 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, 2025, our investment securities portfolio totaled $525.2 million. Fourth, selling loans in the secondary market is a regular source of liquidity. During the nine months ended June 30, 2025, we sold, or committed to sell $210.6 million in loans primarily to Fannie Mae. Finally, cash flows from operating activities have been a regular source of funds. During the nine months ended June 30, 2025 and 2024, cash flows from operations provided $93.5 million and $147.3 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.
Monitoring and Controlling Our Operating Expenses. We continue to focus on managing operating expenses. We have successfully been able to reduce our operating expenses to help offset the pressure of margin compression resulting from our liabilities repricing at elevated interest rates and sooner than most of our longer-term fixed rate assets reprice. Our ratio of annualized non-interest expense to average assets was 1.19% for the nine months ended June 30, 2025, and 1.20% for the nine months ended June 30, 2024. As of June 30, 2025, our average assets per full-time employee and our average deposits per full-time employee were $18.2 million and $10.9 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 ($253.1
43
Table of Contents
million per branch office as of June 30, 2025) 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
Critical accounting policies and estimates are defined as those made in accordance with U.S. GAAP that involve significant judgments, estimates and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions. We believe that the most critical accounting policies and estimates upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are those with respect to our allowance for credit losses, as described in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Allowance for Credit Losses
We provide for credit losses based on a life of loan methodology. 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 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. GAAP. Our allowance for credit losses is a general valuation allowance (GVA) on our portfolio made up of:
(1) quantitative GVAs for loans, which are general allowances for credit losses for each loan type based on historical loan loss experience;
(2) quantitative GVAs for off-balance sheet credit exposures, which are comprised of expected lifetime losses on unfunded loan commitments to extend credit where the obligations are not unconditionally cancellable; and
(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 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. For example, delinquency statistics (both current and historical) are used in developing the quantitative GVAs, while the trending of the delinquency statistics is considered and evaluated in the determination of the qualitative GVAs. Factors impacting the determination of qualitative GVAs include, among other:
• changes in lending policies and procedures including underwriting standards, collection, charge-off or recovery practices;
• 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 utilization and adjustable-rate mortgage loans nearing a rate reset;
• changes in the experience, ability or depth of lending management;
• changes in the volume or severity of past due loans, volume of non-accrual loans, or the volume and severity of adversely classified loans including the trending of delinquency statistics (both current and historical), historical loan loss experience and trends, the frequency and magnitude of loan modifications, and uncertainty surrounding borrowers’ ability to recover from temporary hardships for which short-term loan modifications are granted;
• changes in the quality of the loan review system;
• changes in the value of the underlying collateral including asset disposition loss statistics (both current and historical) and the trending of those statistics, and additional charge-offs and recoveries on individually reviewed loans;
• existence of any concentrations of credit;
• 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; and
• 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. These loans and credit lines are usually in a second lien position and when combined with the first mortgage, result in generally higher overall loan-to-value ratios. In a stressed housing market with high delinquencies and decreasing housing prices, these higher
44
Table of Contents
loan-to-value ratios represent a greater risk of loss to the Company. 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. 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. Our home equity loans and lines of credit portfolio continues to comprise a significant portion of our gross charge-offs. At June 30, 2025, we had an amortized cost of $3.92 billion in home equity lines of credit and $700.7 million in home equity loans outstanding, of which $5.2 million, or 0.11%, were delinquent 90 days or more.
The allowance for credit losses is evaluated based upon the combined total of the quantitative and qualitative GVAs. Periodically, the carrying value of loans and factors impacting our credit loss analysis are evaluated and the allowance is adjusted accordingly. While we use the best information available to make evaluations, future additions to the allowance may be necessary based on unforeseen changes in loan quality and economic conditions.
45
Table of Contents
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 is 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,
2025 2024 2025 2024
(Dollars in thousands)
Allowance balance for credit losses on loans (beginning of the period) $ 70,546 $ 68,169 $ 70,002 $ 77,315
Adoption of ASU 2022-02 — — — (10,262)
Charge-offs on real estate loans:
Total Residential Core — 29 18 216
Total Residential Home Today 7 73 15 103
Home equity lines of credit
Ohio 138 58 451 300
Florida 56 38 116 77
California — — 18 96
Other 19 47 182 188
Total home equity lines of credit 213 143 767 661
Home equity loans
Ohio — 18 17 18
Florida — — — 16
California — — — —
Other — — — —
Total home equity loans — 18 17 34
Total charge-offs 220 263 817 1,014
Recoveries on real estate loans:
Residential Core 195 453 846 1,027
Residential Home Today 570 669 1,429 1,648
Home equity lines of credit 389 453 1,570 1,880
Home equity loans 11 34 30 63
Construction — 20 — 20
Total recoveries 1,165 1,629 3,875 4,638
Net recoveries 945 1,366 3,058 3,624
Provision (release) of allowance for credit losses on loans
1,049 (2,006) (520) (3,148)
Allowance balance for loans (end of the period) $ 72,540 $ 67,529 $ 72,540 $ 67,529
Allowance balance for credit losses on unfunded commitments (beginning of the period) $ 29,380 $ 26,657 $ 27,811 $ 27,515
Provision for credit losses on unfunded loan commitments
451 1,506 2,020 648
Allowance balance for unfunded loan commitments (end of the period) 29,831 28,163 29,831 28,163
Allowance balance for all credit losses (end of the period) $ 102,371 $ 95,692 $ 102,371 $ 95,692
Ratios:
Allowance for credit losses on loans to non-accrual loans at end of the period 194.72 % 190.93 % 194.72 % 190.93 %
Allowance for credit losses on loans to the total amortized cost in loans at end of the period 0.46 % 0.44 % 0.46 % 0.44 %
46
Table of Contents
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 June 30, For the Nine Months Ended June 30,
2025 2024 2025 2024
Net recoveries to average loans outstanding (annualized)
Real estate loans:
Residential Core 0.01 % 0.01 % 0.01 % 0.01 %
Residential Home Today 0.01 0.02 0.01 0.01
Home equity lines of credit 0.00 0.01 0.01 0.01
Home equity loans 0.00 0.00 0.00 0.00
Total net recoveries to average loans outstanding (annualized) 0.02 % 0.04 % 0.03 % 0.03 %
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 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 three months ended June 30, 2025 and June 30, 2024, recoveries exceeded loan charge-offs by $0.9 million and $1.4 million, respectively. During the three months ended June 30, 2025 and June 30, 2024, gross charge-offs were $0.2 million and $0.3 million, respectively. Delinquent loans continue to be evaluated for potential losses and provisions are recorded for the estimate of potential losses of those loans.
During the three months ended June 30, 2025, the total allowance for credit losses increased to $102.4 million, from $99.9 million at March 31, 2025. 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, 2025, the asset portion of the total allowance increased to $72.5 million from $70.5 million, and the liability portion of the total allowance increased to $29.8 million from $29.4 million. We recorded a $1.5 million net provision for credit losses for the period, consisting of a $1.0 million provision on loans and a $0.5 million provision for 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. The increase in the allowance for credit losses applied to the loan portfolio during the three months ended June 30, 2025, was primarily related to the net impact of increases in the home equity loan and line of credit portfolios and an increase in the mortgage loss dollars due to a higher origination rate and a widening in the treasury spread and unfavorable unemployment and home price projections. The portion of the allowance for credit losses applied to off-balance sheet exposures increased slightly due to an increase in those exposures, including both the undrawn portion of equity lines of credit and commitments to originate or acquire loans.
The amortized cost of the residential Core portfolio decreased 0.2%, or $23.1 million, and its total allowance increased 0.8%, or $0.3 million, as of June 30, 2025, compared to March 31, 2025. The amortized cost of the home equity lines of credit portfolio increased 5.7%, or $210.1 million, and its total allowance increased 6.8% to $20.8 million, from $19.5 million at March 31, 2025. The amortized cost of the home equity loans increased 7.9%, or $51.4 million, and its total allowance increased 6.5% to $13.7 million, from $12.8 million at March 31, 2025. As we are no longer originating loans under our Home Today program, there is an expected net recovery position for this portfolio which was $2.9 million at June 30, 2025, and $2.4 million at March 31, 2025. 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. Refer to the "Activity in the Allowance for Credit Losses" and "Analysis of the Allowance for Credit Losses" tables in Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for more information.
47
Table of Contents
The following tables set forth the allowance for credit losses allocated by loan category, the percent of allowance in each category to the total allowance on loans, and the percent of loans in each category to total loans at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories. 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, 2025 September 30, 2024
Amount Percent of
Allowance
to Total
Allowance Percent of
Loans in
Category to Total
Loans Amount Percent of
Allowance
to Total
Allowance Percent of
Loans in
Category to Total
Loans
(Dollars in thousands)
Real estate loans:
Residential Core $ 40,979 56.5% 70.3% $ 44,402 63.4% 74.2%
Residential Home Today (2,922) (4.0) 0.2 (2,672) (3.8) 0.3
Home equity lines of credit 20,788 28.7 24.9 16,590 23.7 21.7
Home equity loans 13,666 18.8 4.5 11,642 16.6 3.6
Construction 29 — 0.1 40 0.1 0.2
Allowance for credit losses on loans $ 72,540 100.0% 100.0% $ 70,002 100.0% 100.0%
48
Table of Contents
Lending Activities
Loan Portfolio Composition
The following table sets forth the composition of the portfolio of loans held for investment, by type of loan segregated by geographic location, at the indicated dates, excluding loans held for sale. The majority of our Home Today loan portfolio is secured by properties located in Ohio and the balances of other loans are immaterial. Therefore, neither was segregated by geographic location.
June 30, 2025 September 30, 2024
Amount Percent Amount Percent
(Dollars in thousands)
Real estate loans:
Residential Core
Ohio $ 6,405,394 $ 6,605,571
Florida 1,849,038 1,976,473
Other 2,715,498 2,803,098
Total Residential Core 10,969,930 70.3 % 11,385,142 74.2 %
Total Residential Home Today 37,474 0.2 40,936 0.3
Home equity lines of credit
Ohio 859,878 768,030
Florida 841,936 734,895
California 656,955 545,442
Other 1,522,363 1,275,014
Total home equity lines of credit 3,881,132 24.9 3,323,381 21.7
Home equity loans
Ohio 163,924 148,721
Florida 156,891 139,912
California 127,986 107,833
Other 246,203 165,460
Total home equity loans 695,004 4.5 561,926 3.6
Construction loans
Ohio 12,145 21,300
Florida 1,400 401
Other 961 —
Total construction 14,506 0.1 21,701 0.2
Other loans 7,745 — 5,705 —
Total loans receivable 15,605,791 100.0 % 15,338,791 100.0 %
Deferred loan expenses, net 69,517 64,956
Loans in process (6,771) (11,686)
Allowance for credit losses on loans (72,540) (70,002)
Total loans receivable, net $ 15,595,997 $ 15,322,059
49
Table of Contents
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 June 30, 2025. 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, therefore not by year of origination. 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
By fiscal year of origination
2025 2024 2023 2022 2021 Prior Total
(Dollars in thousands)
June 30, 2025
Real estate loans:
Residential Core
<680 $ 10,885 $ 20,110 $ 57,963 $ 118,962 $ 66,256 $ 185,366 $ — $ — $ 459,542
680-740 98,416 54,169 160,870 306,703 177,853 427,758 — — 1,225,769
741+ 480,464 404,771 1,185,019 2,276,921 1,404,277 3,359,159 — — 9,110,611
Unknown (1)
857 1,552 6,339 31,279 37,016 123,465 — — 200,508
Total Residential Core 590,622 480,602 1,410,191 2,733,865 1,685,402 4,095,748 — — 10,996,430
Residential Home Today (2)
<680 — — — — — 17,430 — — 17,430
680-740 — — — — — 7,411 — — 7,411
741+ — — — — — 9,736 — — 9,736
Unknown (1)
— — — — — 2,432 — — 2,432
Total Residential Home Today — — — — — 37,009 — — 37,009
Home equity lines of credit
<680 — — — — — — 216,533 11,583 228,116
680-740 — — — — — — 763,039 11,920 774,959
741+ — — — — — — 2,849,310 30,597 2,879,907
Unknown (1)
— — — — — — 31,475 4,574 36,049
Total Home equity lines of credit — — — — — — 3,860,357 58,674 3,919,031
Home equity loans
<680 3,740 13,055 10,008 1,975 1,049 1,300 — — 31,127
680-740 58,685 49,233 26,895 6,492 1,310 2,103 — — 144,718
741+ 169,850 190,188 99,059 38,766 12,503 11,819 — — 522,185
Unknown (1)
147 483 783 556 95 577 — — 2,641
Total Home equity loans 232,422 252,959 136,745 47,789 14,957 15,799 — — 700,671
Construction
741+ 4,673 2,978 — — — — — — 7,651
Total Construction 4,673 2,978 — — — — — — 7,651
Total net real estate loans $ 827,717 $ 736,539 $ 1,546,936 $ 2,781,654 $ 1,700,359 $ 4,148,556 $ 3,860,357 $ 58,674 $ 15,660,792
(1) Data necessary for stratification is not readily available.
(2) No new originations of Home Today loans since fiscal year 2016.
50
Table of Contents
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 June 30, 2025. 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
By fiscal year of origination
2025 2024 2023 2022 2021 Prior Total
(Dollars in thousands)
June 30, 2025
Real estate loans:
Residential Core
<80% $ 232,129 $ 182,945 $ 488,111 $ 1,576,175 $ 1,131,834 $ 2,117,398 $ — $ — $ 5,728,592
80-89.9% 259,374 241,913 728,409 962,653 513,241 1,808,971 — — 4,514,561
90-100% 99,119 55,744 193,671 194,049 40,071 167,232 — — 749,886
>100% — — — — — 642 — — 642
Unknown (1)
— — — 988 256 1,505 — — 2,749
Total Residential Core 590,622 480,602 1,410,191 2,733,865 1,685,402 4,095,748 — — 10,996,430
Residential Home Today (2)
<80% — — — — — 7,699 — — 7,699
80-89.9% — — — — — 11,538 — — 11,538
90-100% — — — — — 17,772 — — 17,772
Total Residential Home Today — — — — — 37,009 — — 37,009
Home equity lines of credit (3)
<80% — — — — — — 3,648,992 45,198 3,694,190
80-89.9% — — — — — — 209,340 12,343 221,683
90-100% — — — — — — 823 108 931
>100% — — — — — — 1,027 238 1,265
Unknown (1)
— — — — — — 175 787 962
Total Home equity lines of credit — — — — — — 3,860,357 58,674 3,919,031
Home equity loans
<80% 223,852 247,465 132,824 46,242 14,581 13,152 — — 678,116
80-89.9% 8,570 5,400 3,921 1,522 376 941 — — 20,730
90-100% — — — — — 589 — — 589
>100% — 94 — 25 — 1,117 — — 1,236
Total Home equity loans 232,422 252,959 136,745 47,789 14,957 15,799 — — 700,671
Construction
<80% 3,238 1,415 — — — — — — 4,653
80-89.9% 1,435 1,563 — — — — — — 2,998
Total Construction 4,673 2,978 — — — — — — 7,651
Total net real estate loans $ 827,717 $ 736,539 $ 1,546,936 $ 2,781,654 $ 1,700,359 $ 4,148,556 $ 3,860,357 $ 58,674 $ 15,660,792
(1) Market data necessary for stratification is not readily available.
(2) No new originations of Home Today loans since fiscal year 2016.
(3) Mean CLTV percent at origination for all home equity lines of credit is based on the committed amount.
At June 30, 2025, the unpaid principal balance of the home equity loans and lines of credit portfolio consisted of $695.0 million in home equity loans (which included $17.3 million in bridge loans) and $3.88 billion in home equity lines of credit (which included $58.4 million of home equity lines of credit which are in repayment and no longer eligible to be drawn upon).
51
Table of Contents
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 portfolios as of June 30, 2025. Home equity lines of credit in the draw period are reported according to geographic distribution.
Credit
Exposure Principal
Balance Percent
Delinquent
90 Days or More Mean CLTV
Percent at
Origination (2) Current Mean
CLTV Percent (3)
(Dollars in thousands)
Home equity lines of credit in draw period (by state)
Ohio $ 2,519,303 $ 835,783 0.10 % 60 % 42 %
Florida 1,760,914 826,838 0.12 56 45
California 1,519,207 648,651 0.09 59 50
Other (1) 3,538,345 1,511,486 0.10 63 51
Total home equity lines of credit in draw period 9,337,769 3,822,758 0.10 59 47
Home equity lines in repayment 58,374 58,374 1.19 59 29
Home equity loans and bridge loans 695,004 695,004 0.08 57 50
Total $ 10,091,147 $ 4,576,136 0.11 % 59 % 48 %
(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, 2025. Property values are estimated using HPI data published by the FHFA. Current Mean CLTV percent for home equity lines of credit in the draw period is calculated using the committed amount. 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 CLTV over 80% or unknown, based on drawn amount, is $31.3 million, or 0.8% of the total, at June 30, 2025 . In recognition of the 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, 2025, 23.1% of the home equity lending portfolio was either in a first lien position (12.0%), in a subordinate (second) lien position behind a first lien that we held (9.2%) or behind a first lien that was held by a loan that we originated, sold and now serviced for others (1.9%). At June 30, 2025, 12.3% 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.
52
Table of Contents
Delinquent Loans
The following tables set forth the amortized cost in loan delinquencies by type, segregated by geographic location and duration of delinquency as of the dates indicated. The majority of our Home Today loan portfolio is secured by properties located in Ohio, and therefore not segregated by state. There were no other loans with delinquent balances. There were no delinquencies in the construction loan portfolio as of the dates presented.
Loans Delinquent for
June 30, 2025 30-89 Days 90 Days or More Total
Real estate loans: (Dollars in thousands)
Residential Core
Ohio $ 4,569 $ 3,900 $ 8,469
Florida 1,963 2,781 4,744
Other 2,603 3,219 5,822
Total Residential Core 9,135 9,900 19,035
Residential Home Today 1,229 667 1,896
Home equity lines of credit
Ohio 1,008 1,067 2,075
Florida 2,207 1,028 3,235
California 1,424 784 2,208
Other 2,142 1,778 3,920
Total Home equity lines of credit 6,781 4,657 11,438
Home equity loans
Ohio 93 124 217
Florida 376 196 572
California 376 64 440
Other 478 192 670
Total Home equity loans 1,323 576 1,899
Total $ 18,468 $ 15,800 $ 34,268
Loans Delinquent for
September 30, 2024 30-89 Days 90 Days or More Total
Real estate loans: (Dollars in thousands)
Residential Core
Ohio $ 5,490 $ 3,943 $ 9,433
Florida 2,676 1,570 4,246
Other 3,412 3,368 6,780
Total Residential Core 11,578 8,881 20,459
Residential Home Today 1,121 693 1,814
Home equity lines of credit
Ohio 1,039 891 1,930
Florida 994 474 1,468
California 848 752 1,600
Other 1,689 1,961 3,650
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 685 282 967
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, 2025, and 0.09% at September 30, 2024. The percentage of loans seriously delinquent in the residential Core portfolio remained at 0.06%
53
Table of Contents
for both periods. 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 June 30, 2025 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 in most portfolios remain at or near historic lows, recent economic trends and elevated interest rates on home equity lines of credit led to an upward trend in delinquencies in that portfolio. 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
The following table sets forth the amortized costs and categories of our non-performing assets at the dates indicated. There were no construction loans reported as non-accrual at the dates presented.
June 30, 2025 September 30, 2024
(Dollars in thousands)
Non-accrual loans:
Real estate loans:
Residential Core $ 22,552 $ 21,058
Residential Home Today 3,139 3,672
Home equity lines of credit 10,426 8,361
Home equity loans 1,137 519
Total non-accrual loans 37,254 33,610
Real estate owned 1,240 174
Total non-performing assets $ 38,494 $ 33,784
Ratios:
Total non-accrual loans to total loans 0.24 % 0.22 %
Total non-accrual loans to total assets 0.21 % 0.20 %
Total non-performing assets to total assets 0.22 % 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. These loans continue to be individually evaluated based on collateral until, at a minimum, contractual payments are less than 30 days past due. Also, the amortized cost of non-accrual loans includes loans that are not included in the amortized cost of collateral-dependent loans because they are included in loans collectively evaluated for credit losses.
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, 2025 September 30, 2024
(Dollars in thousands)
Non-Accrual Loans $ 37,254 $ 33,610
Accruing Collateral-Dependent Loans 11,474 9,064
Less: Loans Collectively Evaluated (5,317) (3,097)
Total Collateral-Dependent loans $ 43,411 $ 39,577
Comparison of Financial Condition at June 30, 2025 and September 30, 2024
Total assets increased $284.9 million, or 1.7%, to $17.38 billion at June 30, 2025, from $17.09 billion at September 30, 2024. This increase was mainly the result of an increase in loans held for investment.
54
Table of Contents
Cash and cash equivalents decreased $11.1 million, or 2.4%, to $452.6 million at June 30, 2025, 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 available for sale decreased $1.1 million, or less than 1%, to $525.2 million at June 30, 2025, from $526.3 million at September 30, 2024. There were no sales of investment securities during the nine months ended June 30, 2025.
Mortgage loans held for sale increased by $13.2 million, or 74.2%, to $31.0 million at June 30, 2025, from $17.8 million at September 30, 2024 due to an increase in loans committed to forward sales.
Loans held for investment, net of deferred loan fees and allowance for credit losses, increased $273.9 million, or 1.8%, to $15.60 billion at June 30, 2025, from $15.32 billion at September 30, 2024. During the nine months ended June 30, 2025, the home equity loans and lines of credit portfolio increased $690.8 million and residential core mortgage loans decreased $415.2 million.
The changes in loans held for sale and loans held for investment were affected by the volume of loans originated, acquired and sold. During the nine months ended June 30, 2025, total first mortgage loan originations were $760.2 million compared to $598.7 million for the nine months ended June 30, 2024. Of total residential mortgage loans originated and acquired during the current period, $673.3 million (88.6%) were purchase transactions and $98.7 million (13.0%) were adjustable rate loans. Commitments originated for home equity loans and lines of credit were $1.87 billion for the nine months ended June 30, 2025, compared to $1.62 billion for the nine months ended June 30, 2024. Refer to Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional information.
Premises, equipment and software, net increased by $5.9 million, or 17.8%, to $39.1 million at June 30, 2025 from $33.2 million at September 30, 2024 due to increased software acquisitions.
Other assets, including prepaid expenses, decreased $6.8 million, or 6.0%, to $107.3 million at June 30, 2025, from $114.1 million at September 30, 2024. The decrease was primarily the result of a $4.9 million decrease in interest receivable from swaps and a $2.6 million increase in unapplied wire transfer receipts, primarily loan repayments.
Deposits increased $146.4 million, or 1.4%, to $10.34 billion at June 30, 2025, from $10.20 billion at September 30, 2024. The increase in deposits included a $250.5 million increase in certificates of deposit partially offset by a $26.7 million decrease in savings accounts, a $49.7 million decrease in money market accounts and a $19.3 million decrease in checking accounts. Based on FDIC insurance limits by ownership structure, uninsured deposits were $381.2 million and $349.3 million at June 30, 2025 and September 30, 2024, respectively.
Borrowed funds increased $90.1 million, or 1.9%, to $4.88 billion at June 30, 2025, from $4.79 billion at September 30, 2024. The total balance of borrowed funds at June 30, 2025, all from the FHLB, included $1.51 billion of long-term advances with a weighted average maturity of 1.8 years, $2.93 billion of short-term advances aligned with interest rate swap contracts, with a remaining weighted average effective maturity of approximately 2.7 years, and $435.0 million in overnight advances. 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 increased by $4.3 million to $117.9 million at June 30, 2025, 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 $17.2 million, or 16.8% to $115.0 million at June 30, 2025 from $97.8 million at September 30, 2024. The increase was primarily related to a $10.9 million increase in payables due to real estate tax payments in process. There was also a $3.6 million increase in accrued compensation expense and a $1.7 million increase in provision for off-balance sheet credit losses. The increase in accrued compensation was due to the timing of pay dates and an increase in the accrual for discretionary incentive payments.
Total shareholders’ equity increased $25.4 million, or 1.4%, to $1.89 billion at June 30, 2025, from $1.86 billion at September 30, 2024. The increase reflects $65.0 million of net income in the current year reduced by dividends of $44.7 million. Other changes include $0.4 million of net decrease in accumulated other comprehensive income, primarily related to a net decrease in unrealized gains on swap contracts and net positive adjustments of $6.3 million related to our stock compensation and employee stock ownership plans. During the nine months ended June 30, 2025, a total of 57,500 shares of our common stock were repurchased for $0.7 million, or an average cost of $12.87 per share. The Company's eighth stock
55
Table of Contents
repurchase program allows for a total of 10,000,000 shares to be repurchased, with 5,134,451 shares remaining to be repurchased at June 30, 2025. As a result of a mutual member vote, Third Federal Savings, MHC, the mutual holding company that owns approximately 80.9% of the outstanding stock of the Company, was able to waive the receipt of its share of the dividend paid. Refer to Part II, Item 2. 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, 2025 and 2024
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.
Three Months Ended Three Months Ended
June 30, 2025 June 30, 2024
Average
Balance Interest
Income/
Expense Yield/
Cost (1) Average
Balance Interest
Income/
Expense Yield/
Cost (1)
(Dollars in thousands)
Interest-earning assets:
Interest-earning cash equivalents $ 388,694 $ 4,354 4.48 % $ 618,986 $ 8,500 5.49 %
Investment securities 54,074 550 4.07 72,161 906 5.02
Mortgage-backed securities 474,245 4,266 3.60 452,224 3,757 3.32
Loans (2) 15,476,380 177,493 4.59 15,175,535 166,268 4.38
Federal Home Loan Bank stock 221,693 4,744 8.56 235,755 5,475 9.29
Total interest-earning assets 16,615,086 191,407 4.61 16,554,661 184,906 4.47
Noninterest-earning assets 548,257 513,931
Total assets $ 17,163,343 $ 17,068,592
Interest-bearing liabilities:
Checking accounts $ 810,566 88 0.04 $ 866,170 94 0.04
Savings accounts 1,260,067 3,373 1.07 1,437,406 4,967 1.38
Certificates of deposit 8,311,629 73,342 3.53 7,654,612 70,460 3.68
Borrowed funds 4,595,818 39,610 3.45 4,892,621 40,112 3.28
Total interest-bearing liabilities 14,978,080 116,413 3.11 14,850,809 115,633 3.11
Noninterest-bearing liabilities 270,184 261,741
Total liabilities 15,248,264 15,112,550
Shareholders’ equity 1,915,079 1,956,042
Total liabilities and shareholders’ equity $ 17,163,343 $ 17,068,592
Net interest income $ 74,994 $ 69,273
Interest rate spread (1)(3) 1.50 % 1.36 %
Net interest-earning assets (4) $ 1,637,006 $ 1,703,852
Net interest margin (1)(5) 1.81 % 1.67 %
Average interest-earning assets to average interest-bearing liabilities 110.93 % 111.47 %
Selected performance ratios:
Return on average assets (1) 0.50 % 0.47 %
Return on average equity (1) 4.49 % 4.08 %
Average equity to average assets 11.16 % 11.46 %
_________________
(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.
56
Table of Contents
(5) Net interest margin represents net interest income divided by total interest-earning assets.
General . Net income increased $1.5 million, or 7.5%, to $21.5 million for the quarter ended June 30, 2025, from $20.0 million for the quarter ended June 30, 2024. The increase in net income was primarily attributable to an increase in net interest income and non-interest income, partially offset by increases in non-interest expense and the provision for credit losses.
Interest and Dividend Income. Interest and dividend income increased $6.5 million, or 3.5%, to $191.4 million during the current quarter, compared to $184.9 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, offset by decreases in income earned on FHLB stock and other interest-bearing cash equivalents.
Interest income on loans increased $11.2 million, or 6.7%, to $177.5 million during the current quarter, compared to $166.3 million for the same quarter in the prior year. This change was primarily attributed to a 21 basis point increase in the average yield on loans for the quarter ended June 30, 2025, to 4.59%, compared to 4.38% the same quarter last year. It was also attributed to a 2.0%, or $300.8 million, increase in the average balance of loans to $15.48 billion for the quarter ended June 30, 2025, compared to $15.18 billion during the same quarter last year as new loan production exceeded principal repayments and loan sales.
Interest Expense . Interest expense increased $0.8 million, or 0.7%, to $116.4 million during the current quarter, compared to $115.6 million for the quarter ended June 30, 2024. 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 $2.8 million, or 4.0%, to $73.3 million during the current quarter, compared to $70.5 million for the quarter ended June 30, 2024. The increase was primarily attributed to a $657.0 million, or 8.6%, increase in the average balance of CDs to $8.31 billion during the current quarter, from $7.65 billion during the same quarter of the prior year, partially offset by a 15 basis point decrease in the average rate paid on CDs, to 3.53% for the current quarter, from 3.68% for the same quarter last year.
Interest expense on savings accounts decreased $1.6 million to $3.4 million during the quarter ended June 30, 2025, compared to $5.0 million for the quarter ended June 30, 2024. The decrease was attributed to a $177.3 million, or 12.3%, decrease in the average balance of savings accounts and a 31 basis point decrease in the average rate paid on savings accounts, to 1.07% during the current quarter, when compared to the prior quarter ended June 30, 2024.
Interest expense on borrowed funds, net of related interest rate swap contracts, decreased $0.5 million, or 1.2%, to $39.6 million during the current quarter, compared to $40.1 million for the quarter ended June 30, 2024. This decrease was mainly attributed to a decrease in the average balance of borrowed funds of $296.8 million, or 6.1%, to $4.60 billion during the current quarter from an average balance of $4.89 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 $5.7 million to $75.0 million during the current quarter, compared to $69.3 million for the quarter ended June 30, 2024. The increase was primarily due to an increase in the yield of interest-earning assets, partially offset by a slight increase in the weighted average rate paid on interest-bearing liabilities.
Average interest-earning assets during the current quarter increased $60.4 million, or less than 1%, when compared to the quarter ended June 30, 2024. The increase in average interest-earning assets was attributed primarily to an increase in the average balance of loans, offset by a decrease in the average balance of other interest-bearing cash equivalents. The yield on interest-earning assets increased 14 basis points to 4.61% from 4.47%. The average balance of interest-bearing liabilities increased $127.3 million, primarily due to an increase in the average balance of CDs, offset by decreases in the average balances of borrowed funds and savings accounts.
The interest rate spread increased fourteen basis points to 1.50% compared to 1.36% during the same quarter last year. The net interest margin increased fourteen basis points to 1.81% in the current quarter compared to 1.67% for the same quarter last year. Refer to Controlling Our Interest Rate Risk Exposure of the Overview section for further discussion.
Provision (Release) for Credit Losses. We recorded a provision of the allowance for credit losses on loans and off-balance sheet exposures of $1.5 million during the quarter ended June 30, 2025, compared to a release of $0.5 million during the quarter ended June 30, 2024. The increase in provision expense was primarily related to growth in the equity loan and line of credit portfolios. 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. During the quarter ended June 30, 2025, we recorded net recoveries of $0.9 million compared to net recoveries of $1.4 million for the quarter ended June 30, 2024. Refer to the Lending Activities
57
Table of Contents
section of Item 2. 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 $0.8 million, or 12.8%, to $7.0 million during the current quarter, compared to $6.2 million for the quarter ended June 30, 2024, primarily due to increases of $0.4 million in loan fees and service charges and $0.5 million in cash surrender value increases and death benefits from bank owned life insurance contracts.
Non-Interest Expense. Non-interest expense increased $2.4 million, or 4.7%, to $53.2 million during the current quarter, compared to $50.8 million for the quarter ended June 30, 2024. The increase primarily consisted of a $0.9 million increase in marketing expense, a $0.9 million increase in salaries and employee benefits and a $0.2 million increase in FDIC premiums.
Income Tax Expense. The provision for income taxes increased $0.5 million to $5.8 million during the current quarter, compared to $5.3 million for the quarter ended June 30, 2024. The provision for the current quarter included $5.2 million of federal income tax provision and $0.6 million of state income tax expense. The provision for the quarter ended June 30, 2024 included $4.7 million of federal income tax provision and $0.6 million of state income tax expense. Our effective federal tax rate was 19.6% and 18.7% during the quarters ended June 30, 2025 and June 30, 2024, respectively.
58
Table of Contents
Comparison of Operating Results for the Nine Months Ended June 30, 2025 and 2024
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, 2025 June 30, 2024
Average
Balance Interest
Income/
Expense Yield/
Cost (1) Average
Balance Interest
Income/
Expense Yield/
Cost (1)
(Dollars in thousands)
Interest-earning assets:
Interest-earning cash equivalents $ 409,905 $ 13,881 4.52 % $ 579,383 $ 23,543 5.42 %
Investment securities 56,121 1,776 4.22 69,677 2,663 5.10
Mortgage-backed securities 465,065 12,250 3.51 448,429 10,871 3.23
Loans (2) 15,384,513 521,151 4.52 15,190,356 491,273 4.31
Federal Home Loan Bank stock 222,495 15,069 9.03 250,285 17,208 9.17
Total interest-earning assets 16,538,099 564,127 4.55 16,538,130 545,558 4.40
Noninterest-earning assets 535,725 524,179
Total assets $ 17,073,824 $ 17,062,309
Interest-bearing liabilities:
Checking accounts $ 819,669 267 0.04 $ 897,190 310 0.05
Savings accounts 1,256,348 9,448 1.00 1,573,401 17,477 1.48
Certificates of deposit 8,220,860 220,409 3.57 7,350,136 194,745 3.53
Borrowed funds 4,597,155 118,632 3.44 5,051,371 123,283 3.25
Total interest-bearing liabilities 14,894,032 348,756 3.12 14,872,098 335,815 3.01
Noninterest-bearing liabilities 259,143 250,916
Total liabilities 15,153,175 15,123,014
Shareholders’ equity 1,920,650 1,939,295
Total liabilities and shareholders’ equity $ 17,073,825 $ 17,062,309
Net interest income $ 215,371 $ 209,743
Interest rate spread (1)(3) 1.43 % 1.39 %
Net interest-earning assets (4) $ 1,644,067 $ 1,666,032
Net interest margin (1)(5) 1.74 % 1.69 %
Average interest-earning assets to average interest-bearing liabilities 111.04 % 111.20 %
Selected performance ratios:
Return on average assets (1) 0.51 % 0.48 %
Return on average equity (1) 4.51 % 4.22 %
Average equity to average assets 11.25 % 11.37 %
_________________
(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.
59
Table of Contents
General. Net income increased $3.6 million to $65.0 million for the nine months ended June 30, 2025, compared to $61.4 million for the nine months ended June 30, 2024. The increase in net income was primarily driven by an increase in net interest income, non-interest income and a decrease in non-interest expense, partially offset by an increase in the provision for credit losses.
Interest and Dividend Income. Interest and dividend income increased $18.5 million, or 3.4%, to $564.1 million during the nine months ended June 30, 2025, compared to $545.6 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, partially offset by decreases in income earned on FHLB stock and other interest-bearing cash equivalents.
Interest income on loans increased $29.9 million, or 6.1%, to $521.2 million for the nine months ended June 30, 2025, compared to $491.3 million for the nine months ended June 30, 2024. This increase was attributed mainly to a 21 basis point increase in the average yield on loans to 4.52% for the nine months ended June 30, 2025, from 4.31% for the same nine months in the prior fiscal year. Adding to the increase was a $194.2 million increase in the average balance of loans to $15.38 billion for the current nine months compared to $15.19 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 $13.0 million, or 3.9%, to $348.8 million during the current nine months compared to $335.8 million during the nine months ended June 30, 2024. This increase mainly resulted from an increase in average volume of deposits.
Interest expense on CDs, net of related interest rate swap contracts, increased $25.7 million, or 13.2%, to $220.4 million during the nine months ended June 30, 2025, compared to $194.7 million during the nine months ended June 30, 2024. The increase was attributed primarily to a $870.7 million, or 11.8%, increase in the average balance of CDs to $8.22 billion, from $7.35 billion during the same nine months of the prior fiscal year. In addition, there was a 4 basis point increase in the average rate paid on CDs to 3.57% during the current nine months from 3.53% during the same nine months last fiscal year.
Interest expense on savings accounts decreased $8.1 million to $9.4 million during the nine months ended June 30, 2025, compared to interest expense of $17.5 million for the nine-month period ended June 30, 2024. The decrease was attributed primarily to a $317.1 million, or 20.15%, decrease in the average balance of savings accounts. In addition, there was a 48 basis point decrease in the average rate paid on savings accounts to 1.00% during the current nine months from 1.48% during the prior nine months ended June 30, 2024.
Interest expense on borrowed funds, net of related interest rate swap contracts, decreased $4.7 million, or 3.8%, to $118.6 million during the nine months ended June 30, 2025, from $123.3 million during the nine months ended June 30, 2024. The decrease was primarily the result of a decrease of $454.2 million in the average balance of borrowed funds to $4.60 billion for the nine months ended June 30, 2025 compared to $5.05 billion for the same period of the prior fiscal year. There was a 19 basis point increase in the average rate paid for these funds to 3.44%, from 3.25% for the nine months ended June 30, 2025 and June 30, 2024, respectively. 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 $5.7 million, or 2.7%, to $215.4 million during the nine months ended June 30, 2025, from $209.7 million during the nine months ended June 30, 2024. The net increase consisted of a $18.5 million increase in interest income offset by a $13.0 million increase in interest expense.
Average interest-earning assets decreased during the current nine months by less than $0.1 million to $16.54 billion when compared to the nine months ended June 30, 2024. The decrease in average assets was attributed primarily to a $27.8 million decrease in FHLB stock and a $169.5 million decrease in interest-bearing cash equivalents, offset by a $194.2 million increase in the average balance of our loans. The yield on average interest-earning assets increased 15 basis points to 4.55% for the nine months ended June 30, 2025, from 4.40% for the nine months ended June 30, 2024. Average interest-bearing liabilities increased $21.9 million to $14.89 billion for the nine months ended June 30, 2025, compared to $14.87 billion for the nine months ended June 30, 2024. Average interest-bearing liabilities experienced an 11 basis point increase in cost for the nine months ended June 30, 2025 and the interest rate spread increased 4 basis point to 1.43% when compared to 1.39% during the same nine months of the prior fiscal year period. The net interest margin was 1.74% for the nine months ended June 30, 2025, and 1.69% for the nine months ended June 30, 2024.
Provision (Release) for Credit Losses . We recorded a provision for credit losses on loans and off-balance sheet exposures of $1.5 million during the nine months ended June 30, 2025, and a $2.5 million release of provision for credit losses at June 30, 2024. In the current nine months, we recorded net recoveries of $3.1 million, as compared to net recoveries of $3.6 million for the nine months ended June 30, 2024. 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
60
Table of Contents
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 $2.3 million, or 12.6%, to $20.6 million during the nine months ended June 30, 2025, compared to $18.3 million during the nine months ended June 30, 2024. The increase in non-interest income was primarily due to a $1.4 million increase in the net gain on sale of loans and a $1.2 million increase in loan fees and service charges. There were loan sales of $210.6 million during the nine months ended June 30, 2025, compared to loan sales of $190.7 million during the nine months ended June 30, 2024.
Non-Interest Expense. Non-interest expense decreased $1.1 million, or 0.7%, to $152.2 million during the nine months ended June 30, 2025, compared to $153.3 million during the nine months ended June 30, 2024. This decrease was driven by a $1.6 million decrease in other operating expenses, a $0.3 million decrease in marketing expenses and a $0.2 million decrease in federal insurance premiums, partially offset by a $0.4 million increase in salaries and employee benefits. The decrease in other operating expenses was primarily due to a $1.3 million benefit related to actuarial calculations on the defined benefit plan.
Income Tax Expense. The provision for income taxes increased $1.4 million to $17.3 million during the nine months ended June 30, 2025, from $15.9 million for the nine months ended June 30, 2024, reflecting the higher level of pre-tax income during the more recent period. The provision for the current nine months included $15.7 million of federal income tax provision and $1.6 million of state income tax provision. The provision for the nine months ended June 30, 2024, included $14.5 million of federal income tax provision and $1.4 million of state income tax provision. Our effective federal tax rate was 19.5% during the nine months ended June 30, 2025, and 19.1% during the nine months ended June 30, 2024.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, advances from the FHLB of Cincinnati, borrowings from the FRB-Cleveland Discount Window, overnight Fed Funds through various arrangements with other institutions, proceeds from brokered CD transactions, principal repayments and maturities of securities, and sales of loans.
In addition to the primary sources of funds described above, we have the ability to obtain funds through the use of collateralized borrowings in the wholesale markets, and from sales of securities. Also, debt issuance by the Company and access to the equity capital markets via a supplemental minority stock offering or a full conversion (second-step) transaction remain as other potential sources of liquidity, although these channels generally require meaningful lead times.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by interest rates, economic conditions and competition. The Association’s Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers, as well as unanticipated contingencies. 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 interest-earning assets). For the three months ended June 30, 2025, our liquidity ratio averaged 5.50%. We had sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of June 30, 2025.
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. Excess liquidity is generally invested in interest-earning deposits and short- and intermediate-term securities.
Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent upon our operating, financing, lending and investing activities during any given period. At June 30, 2025, cash and cash equivalents totaled $452.6 million, which represented a decrease of 2.4% from $463.7 million at September 30, 2024.
Investment securities classified as available-for-sale, all of which are government guaranteed, provide additional sources of liquidity, totaled $525.2 million at June 30, 2025.
During the nine-month period ended June 30, 2025, we settled $192.2 million of loan sales and had commitments to sell $73.3 million of mortgage loans primarily to Fannie Mae at June 30, 2025.
61
Table of Contents
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, 2025, we had $426.4 million in outstanding commitments to originate loans. In addition to commitments to originate loans, we had $5.52 billion in unfunded home equity lines of credit to borrowers. CDs due within one year of June 30, 2025, totaled $5.54 billion, or 53.6% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, sales of investment securities, other deposit products, including new CDs, brokered CDs, FHLB advances, borrowings from the FRB-Cleveland Discount Window or other collateralized borrowings. 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, 2026. We believe, however, based on past experience, that a significant portion of such deposits will remain with us. Generally, we have the ability to attract and retain deposits by adjusting the interest rates offered.
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, 2025, we originated $760.2 million of residential mortgage loans and $1.87 billion of commitments for home equity loans and lines of credit, while 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. We purchased $141.7 million of securities during the nine months ended June 30, 2025, and $121.1 million during the nine months ended June 30, 2024. Also, during the nine months ended June 30, 2025 and June 30, 2024, we acquired $282.5 million and $121.0 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 $146.4 million during the nine months ended June 30, 2025, which reflected the active management of the offered rates on maturing CDs, compared to a net increase of $576.2 million during the nine months ended June 30, 2024. 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, 2025, there was a $239.8 million decrease in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of $977.5 million at June 30, 2025. At June 30, 2024, the balance of brokered CDs was $1.22 billion. Principal and interest owed on loans serviced for others experienced a net increase of $1.5 million to $30.2 million during the nine months ended June 30, 2025, compared to a net decrease of $12.9 million to $16.9 million during the nine months ended June 30, 2024. During the nine months ended June 30, 2025, we increased our total borrowings by $90.1 million primarily to fund loan growth. During the nine months ended June 30, 2024, our total borrowings decreased by $444.3 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. 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.
At June 30, 2025, we had $4.87 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, 2025, we had average outstanding advances from the FHLB of Cincinnati of $4.60 billion, as compared to average outstanding advances of $5.05 billion during the nine months ended June 30, 2024. Refer to the Extending the Duration of Funding Sources section of the Overview for further discussion.
The Association and the Company are subject to various regulatory capital requirements, including a risk-based capital measure. The Basel III capital framework ("Basel III Rules") includes both a revised definition of capital and guidelines for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories.
62
Table of Contents
In 2019, a final rule adopted by the federal banking agencies provided banking organizations with the option to phase in, over a three-year period, the adverse day-one regulatory capital effects of the adoption of the CECL accounting standard. In 2020, as part of its response to the impact of COVID-19, U.S. federal banking regulatory agencies issued a final rule which provides banking organizations that implement CECL during the 2020 calendar year the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period, which the Association and Company have adopted. During the two-year delay, the Association and Company added back to 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 September 30, 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, 2025, the Association exceeded the regulatory requirement for the "capital conservation buffer".
As of June 30, 2025, 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. Preserving capital to levels in excess of regulatory minimums is a priority for the Association and the Company, especially given the uncertainty and pressures of the current economic environment. The Association intends to maintain minimum capital ratios to exceed total capital to risk-weighted assets of 13.0%, tier 1 (leverage) capital to net average assets of 9.0%, and tier 1 capital to risk-weighted assets of 11.0%.
Actual Well Capitalized Levels
Amount Ratio Amount Ratio
Total Capital to Risk-Weighted Assets $ 1,824,752 17.37 % $ 1,050,369 10.00 %
Tier 1 (Leverage) Capital to Net Average Assets 1,734,345 10.10 % 858,172 5.00 %
Tier 1 Capital to Risk-Weighted Assets 1,734,345 16.51 % 840,295 8.00 %
Common Equity Tier 1 Capital to Risk-Weighted Assets 1,734,345 16.51 % 682,740 6.50 %
The capital ratios of the Company as of June 30, 2025, are presented in the table below (dollar amounts in thousands).
Actual
Amount Ratio
Total Capital to Risk-Weighted Assets $ 1,955,245 18.61 %
Tier 1 (Leverage) Capital to Net Average Assets 1,864,838 10.86 %
Tier 1 Capital to Risk-Weighted Assets 1,864,838 17.75 %
Common Equity Tier 1 Capital to Risk-Weighted Assets 1,864,838 17.75 %
In addition to the operational liquidity considerations described above, which are primarily those of the Association, the Company, as a separate legal entity, also monitors and manages its own parent company-only liquidity, which provides the source of funds necessary to support all of the parent company's stand-alone operations, including its capital distribution strategies which encompass its share repurchase and dividend payment programs. The Company's primary source of liquidity is dividends received from the Association. 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. 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 June 30, 2025, the Company had, in the form of cash and a demand loan from the Association, $129.2 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. See Part II Other Information Item 2. Unregistered Sales of Equity Securities and Use of Proceeds for details on stock repurchase programs, dividends paid and dividend waivers.
63
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.