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What changed in TFS Financial CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TFS Financial CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+503 added−503 removedSource: 10-K (2023-11-21) vs 10-K (2022-11-22)

Top changes in TFS Financial CORP's 2023 10-K

503 paragraphs added · 503 removed · 397 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

192 edited+31 added−39 removed191 unchanged
Biggest changeLoans Delinquent For 30-89 Days 90 Days or More Total (Dollars in thousands) September 30, 2022 Real estate loans: Residential Core Ohio $ 2,862 $ 4,332 $ 7,194 Florida 1,009 1,066 2,075 Other 345 3,883 4,228 Total Residential Core 4,216 9,281 13,497 Residential Home Today 2,111 861 2,972 Home equity loans and lines of credit Ohio 630 679 1,309 Florida 438 694 1,132 California 427 444 871 Other 900 504 1,404 Total Home equity loans and lines of credit 2,395 2,321 4,716 Total $ 8,722 $ 12,463 $ 21,185 Loans Delinquent For 30-89 Days 90 Days or More Total (Dollars in thousands) September 30, 2021 Real estate loans: Residential Core Ohio $ 3,217 $ 5,729 $ 8,946 Florida 874 1,093 1,967 Other 1,814 2,548 4,362 Total Residential Core 5,905 9,370 15,275 Residential Home Today 1,909 2,068 3,977 Home equity loans and lines of credit Ohio 333 1,348 1,681 Florida 432 787 1,219 California 278 1,074 1,352 Other 195 1,022 1,217 Total Home equity loans and lines of credit 1,238 4,231 5,469 Total $ 9,052 $ 15,669 $ 24,721 16 Table of Contents Total loans seriously delinquent (i.e. delinquent 90 days or more) decreased three basis points to 0.09% of total net loans at September 30, 2022, from 0.12% at September 30, 2021.
Biggest changeLoans Delinquent For 30-89 Days 90 Days or More Total (Dollars in thousands) September 30, 2023 Real estate loans: Residential Core Ohio $ 2,616 $ 4,410 $ 7,026 Florida 1,207 1,340 2,547 Other 1,620 2,518 4,138 Total Residential Core 5,443 8,268 13,711 Residential Home Today 989 855 1,844 Home equity loans and lines of credit Ohio 910 600 1,510 Florida 973 813 1,786 California 529 790 1,319 Other 1,549 1,673 3,222 Total Home equity loans and lines of credit 3,961 3,876 7,837 Total $ 10,393 $ 12,999 $ 23,392 Loans Delinquent For 30-89 Days 90 Days or More Total (Dollars in thousands) September 30, 2022 Real estate loans: Residential Core Ohio $ 2,862 $ 4,332 $ 7,194 Florida 1,009 1,066 2,075 Other 345 3,883 4,228 Total Residential Core 4,216 9,281 13,497 Residential Home Today 2,111 861 2,972 Home equity loans and lines of credit Ohio 630 679 1,309 Florida 438 694 1,132 California 427 444 871 Other 900 504 1,404 Total Home equity loans and lines of credit 2,395 2,321 4,716 Total $ 8,722 $ 12,463 $ 21,185 Total loans seriously delinquent (i.e. delinquent 90 days or more) were 0.09% of total net loans at September 30, 2023 and at September 30, 2022.
Brokered CDs and longer-term advances from the FHLB of Cincinnati as well as shorter-term advances from the FHLB of Cincinnati, hedged to longer effective durations by interest rate exchange contracts, are also used as cost-effective funding alternatives.
Longer-term brokered CDs and advances from the FHLB of Cincinnati as well as shorter-term brokered CDs and advances from the FHLB of Cincinnati, hedged to longer effective durations by interest rate exchange contracts, are also used as cost-effective funding alternatives.
We purchase mortgage-backed securities insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. We invest in mortgage-backed securities to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae or Ginnie Mae. The U.S.
Mortgage-Backed Securities. We purchase mortgage-backed securities insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. We invest in mortgage-backed securities to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae or Ginnie Mae. The U.S.
Liquidity. A federal savings association is required to identify, measure, monitor and control its funding and liquidity risk and maintain a sufficient amount of liquid assets to ensure its safe and sound operation.
A federal savings association is required to identify, measure, monitor and control its funding and liquidity risk and maintain a sufficient amount of liquid assets to ensure its safe and sound operation.
If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan. Prompt Corrective Action Regulations . Under the prompt corrective action regulations, the OCC is required and authorized to take supervisory actions against undercapitalized savings associations.
If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan. Prompt Corrective Action Regulations . Under the prompt corrective action regulations, the OCC is required and authorized to take supervisory actions against undercapitalized federal savings associations.
The regulations also provide that a capital restoration plan must be filed with the OCC within 45 days of the date a savings association receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The criteria for an acceptable capital restoration plan include, among other things, the establishment of the methodology and assumptions for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with restrictions imposed by applicable federal regulations, the identification of the types and levels of activities the savings association will engage in while the capital restoration plan is in effect, and assurances that the capital restoration plan will not appreciably increase the current risk profile of the savings association.
The regulations also provide that a capital restoration plan must be filed with the OCC within 45 days of the date a federal savings association receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The criteria for an acceptable capital restoration plan include, among other things, the establishment of the methodology and assumptions for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with restrictions imposed by applicable federal regulations, the identification of the types and levels of activities the federal savings association will engage in while the capital restoration plan is in effect, and assurances that the capital restoration plan will not appreciably increase the current risk profile of the federal savings association.
Factors impacting the determination of qualitative GVAs include: • 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 nearing the end of the draw period 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 multiple restructurings of loans previously the subject of TDRs, and uncertainty surrounding borrowers’ ability to recover from temporary hardships for which short-term loan restructurings are granted; • changes in the quality of the loan review system; 21 Table of Contents • 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 life of loan net losses.
Factors impacting the determination of qualitative GVAs include: • 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 nearing the end of the draw period 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 multiple restructurings of loans previously the subject of TDRs, and uncertainty surrounding borrowers’ ability to recover from temporary hardships for which short-term loan restructurings 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; 19 Table of Contents • 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 life of loan net losses.
Non-accrual, performing status indicates that a loan was not accruing interest or in a forbearance plan at the time of restructuring, continues to not accrue interest, and is performing according to the terms of the restructuring; but has not been current for at least six consecutive months since its restructuring, has a partial charge-off, or is being classified as non-accrual per the OCC guidance on loans in Chapter 7 bankruptcy status, where all borrowers have filed and have not reaffirmed or been dismissed.
Non-accrual, performing status indicates that a loan was not accruing interest or in a forbearance plan at the time of restructuring, continues to not accrue interest, and is performing according to the terms of the restructuring; but it has not been current for at least six consecutive months since its restructuring, has a partial charge-off, or is being classified as non-accrual per the OCC guidance on loans in Chapter 7 bankruptcy status, where all borrowers have filed and have not reaffirmed or been dismissed.
Pursuant to Section 10(o) of the HOLA and FRS regulations, a mutual holding company, such as Third Federal Savings, MHC and its mid-tier company, the Company, may, with appropriate regulatory approval, engage in the following activities: (i) investing in the stock of a savings association; (ii) acquiring a mutual association through the merger of such association into a savings association subsidiary of the Company or an interim savings association subsidiary of the Company; (iii) merging with or acquiring another holding company, one of whose subsidiaries is a savings association; (iv) investing in a corporation, the capital stock of which is available for purchase by a savings association under federal law or under the law of any state where the subsidiary savings association has its home offices; (v) furnishing or performing management services for a savings association subsidiary of such company; (vi) holding, managing or liquidating assets owned or acquired from a savings association subsidiary of such company; (vii) holding or managing properties used or occupied by a savings association subsidiary of such company; (viii) acting as trustee under deeds of trust; (ix) any other activity: (A) that the FRS, by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the FRS, by regulation, prohibits or limits any such activity for savings and loan holding companies; or 35 Table of Contents (B) in which multiple savings and loan holding companies were authorized (by regulation) to directly engage on March 5, 1987; (x) if the savings and loan holding company meets the criteria to qualify as a financial holding company, any activity permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act, including securities and insurance underwriting; and (xi) purchasing, holding, or disposing of stock acquired in connection with a qualified stock issuance if the purchase of such stock by such savings and loan holding company is approved by the FRS.
Pursuant to Section 10(o) of the HOLA and FRS regulations, a mutual holding company, such as Third Federal Savings, MHC and its mid-tier holding company, the Company, may, with appropriate regulatory approval, engage in the following activities: (i) investing in the stock of a savings association; (ii) acquiring a mutual association through the merger of such association into a savings association subsidiary of the Company or an interim savings association subsidiary of the Company; (iii) merging with or acquiring another holding company, one of whose subsidiaries is a savings association; (iv) investing in a corporation, the capital stock of which is available for purchase by a savings association under federal law or under the law of any state where the subsidiary savings association has its home offices; (v) furnishing or performing management services for a savings association subsidiary of such company; (vi) holding, managing or liquidating assets owned or acquired from a savings association subsidiary of such company; (vii) holding or managing properties used or occupied by a savings association subsidiary of such company; (viii) acting as trustee under deeds of trust; (ix) any other activity: (A) that the FRS, by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the FRS, by regulation, prohibits or limits any such activity for savings and loan holding companies; or (B) in which multiple savings and loan holding companies were authorized (by regulation) to directly engage on March 5, 1987; (x) if the savings and loan holding company meets the criteria to qualify as a financial holding company, any activity permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act, including securities and insurance underwriting; and (xi) purchasing, holding, or disposing of stock acquired in connection with a qualified stock issuance if the purchase of such stock by such savings and loan holding company is approved by the FRS.
The Association also may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code. A savings association that fails the QTL test must operate under specified restrictions. Under the DFA, non-compliance with the QTL test may subject the Association to agency enforcement action for a violation of law.
The Association also may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code. A federal savings association that fails the QTL test must operate under specified restrictions. Under the DFA, non-compliance with the QTL test may subject the Association to agency enforcement action for a violation of law.
In fiscal year 2022, the Company started a new pilot program to originate loans with the intent to sell following a more traditional mortgage banking model including risk based pricing and loan level price adjustments. The pilot is marketed under the name Mortgage Passport and is considered a division of the Association.
In fiscal year 2022, the Company started a new program to originate loans with the intent to sell following a more traditional mortgage banking model including risk-based pricing and loan level price adjustments. The program is marketed under the name Mortgage Passport and is considered a division of the Association.
Any holding company for a savings association required to submit a capital restoration plan must guarantee the lesser of an amount equal to 5% of the savings association’s assets at the time it was notified or deemed to be undercapitalized by the OCC, or the amount necessary to restore the savings association to adequately capitalized status.
Any holding company for a federal savings association required to submit a capital restoration plan must guarantee the lesser of an amount equal to 5% of the federal savings association’s assets at the time it was notified or deemed to be undercapitalized by the OCC, or the amount necessary to restore the federal savings association to adequately capitalized status.
The FDIC also has the authority to terminate deposit insurance or to recommend to the OCC that enforcement action be taken with respect to a particular savings institution. If action is not taken by the OCC, the FDIC has authority to take action under specified circumstances. Standards for Safety and Soundness.
The FDIC also has the authority to terminate deposit insurance or to recommend to the OCC that enforcement action be taken with respect to a particular federal savings institution. If action is not taken by the OCC, the FDIC has authority to take action under specified circumstances. Standards for Safety and Soundness.
Regardless of whether an application is required, every savings association that is a subsidiary of a holding company must still file a notice with the FRS at least 30 days before the board of directors declares a dividend or approves a capital distribution.
Regardless of whether an application is required, every federal savings association that is a subsidiary of a holding company must still file a notice with the FRS at least 30 days before the board of directors declares a dividend or approves a capital distribution.
A savings association’s failure to comply with the provisions of the CRA could, at a minimum, result in denial of certain corporate applications such as branches, mergers, minority stock offerings or second-step conversion, or in restrictions on its activities.
A federal savings association’s failure to comply with the provisions of the CRA could, at a minimum, result in denial of certain corporate applications such as branches, mergers, minority stock offerings or second-step conversion, or in restrictions on its activities.
The Association’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the FRS.
The Association’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the FRS.
This guarantee remains in place until the OCC notifies the savings association that it has maintained adequately capitalized status for each of four consecutive calendar quarters, and the OCC has the authority to require payment and collect payment under the guarantee.
This guarantee remains in place until the OCC notifies the federal savings association that it has maintained adequately capitalized status for each of four consecutive calendar quarters, and the OCC has the authority to require payment and collect payment under the guarantee.
In this regard, transactions between an insured depository institution and its affiliates are limited to 10% of the institution’s unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the aggregate with all affiliates.
In this regard, covered transactions between an insured depository institution and its affiliates are limited to 10% of the institution’s unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the aggregate with all affiliates.
The Company’s home equity lines of credit are offered with adjustable rates of interest indexed to the Prime Rate, as reported in The Wall Street Journal . 12 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 our home equity loans, home equity lines of credit and bridge loan portfolio as of September 30, 2022.
The Company’s home equity lines of credit are offered with adjustable rates of interest indexed to the Prime Rate, as reported in The Wall Street Journal . 12 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 our home equity loans, home equity lines of credit and bridge loan portfolio as of September 30, 2023.
Allocation of Allowance for Credit Losses. The following table sets 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 following table sets 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.
Among other things, these provisions require that extensions of credit to insiders: (i) subject to certain exceptions for loan programs made available to all employees, be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than those prevailing for 32 Table of Contents comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and (ii) do not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Association’s capital.
Among other things, these provisions require that extensions of credit to insiders: (i) subject to certain exceptions for loan programs made available to all employees, be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and (ii) do not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Association’s capital.
At September 30, 2022, the Association exceeded the fully phased in regulatory requirement for the "capital conservation buffer". In assessing an institution’s capital adequacy, the OCC takes into consideration, not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary. As presented in Note 3.
At September 30, 2023, the Association exceeded the fully phased in regulatory requirement for the "capital conservation buffer." In assessing an institution’s capital adequacy, the OCC takes into consideration, not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary. As presented in Note 3.
As of September 30, 2022, we held no asset-backed securities or securities with sub-prime credit risk exposure, nor did we hold any banker’s acceptances, term federal funds, repurchase agreements or reverse repurchase agreements. As a federal savings association, the Association is not permitted to invest in equity securities. This general restriction does not apply to the Company.
As of September 30, 2023, we held no asset-backed securities or securities with sub-prime credit risk exposure, nor did we hold any banker’s acceptances, term federal funds, repurchase agreements or reverse repurchase agreements. As a federal savings association, the Association is not permitted to invest in equity securities. This general restriction does not apply to the Company.
An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of September 30, 2022, the Association was in compliance with the loans-to-one borrower limitations. Qualified Thrift Lender Test.
An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of September 30, 2023, the Association was in compliance with the loans-to-one borrower limitations. Qualified Thrift Lender Test.
For this purpose, a savings association is placed in one of the following five categories based on the savings association’s capital: • well capitalized (at least 5% leverage capital, 8% Tier 1 risk-based capital, 10% total risk-based capital, and 6.5% common equity Tier 1 ratios, and is not subject to any written agreement, order, capital directive or prompt corrective action directive issued under certain statutes and regulations, to maintain a specific capital level for any capital measure); • adequately capitalized (at least 4% leverage capital, 6% Tier 1 risk-based capital, 8% total risk-based capital and 4.5% common equity Tier 1 ratios); • undercapitalized (less than 4% leverage capital, 6% Tier 1 risk-based capital, 8% total risk-based capital, or 4.5% common equity Tier 1 ratios); • significantly undercapitalized (less than 3% leverage capital, 4% Tier 1 risk-based capital, 6% total risk-based capital or 3% common equity Tier 1 ratios); and • critically undercapitalized (less than or equal to 2% tangible capital to total assets).
For this purpose, a federal savings association is placed in one of the following five categories based on its capital: • well capitalized (at least 5% leverage capital, 8% Tier 1 risk-based capital, 10% total risk-based capital, and 6.5% common equity Tier 1 ratios, and is not subject to any written agreement, order, capital directive or prompt corrective action directive issued under certain statutes and regulations, to maintain a specific capital level for any capital measure); • adequately capitalized (at least 4% leverage capital, 6% Tier 1 risk-based capital, 8% total risk-based capital and 4.5% common equity Tier 1 ratios); • undercapitalized (less than 4% leverage capital, 6% Tier 1 risk-based capital, 8% total risk-based capital, or 4.5% common equity Tier 1 ratios); • significantly undercapitalized (less than 3% leverage capital, 4% Tier 1 risk-based capital, 6% total risk-based capital or 3% common equity Tier 1 ratios); and • critically undercapitalized (less than or equal to 2% tangible capital to total assets).
However, at September 30, 2022, a reserve of $0.4 million has been maintained to cover potential losses on repurchases or reimbursements that may arise in connection with representations and warranties made at time of sale. The Company requires title insurance on all of its residential real estate mortgage loans.
However, at September 30, 2023, a reserve of $0.4 million has been maintained to cover potential losses on repurchases or reimbursements that may arise in connection with representations and warranties made at time of sale. The Company requires title insurance on all of its residential real estate mortgage loans.
The Company’s residential real estate mortgage loan originations are generated by its in-house loan representatives, by direct mail solicitations, by referrals from existing or past customers, by referrals from local builders and real estate brokers, from calls to its telephone call center and from the internet. The Company also purchases fixed-rate first mortgage loans through a correspondent lending partnership.
The Company’s residential real estate mortgage loan originations are generated by its in-house loan representatives, by direct mail solicitations, by referrals from existing or past customers, by referrals from local builders and real estate brokers, from calls to its telephone call center and from the internet. The Company also purchases first mortgage loans through a correspondent lending partnership.
(2) No new originations of Home Today loans since fiscal 2016. 9 Table of Contents The following table provides an analysis of our residential mortgage loans by origination LTV, origination year and portfolio at September 30, 2022. LTVs are not updated subsequent to origination except as part of the charge-off process.
(2) No new originations of Home Today loans since fiscal 2016. 9 Table of Contents The following table provides an analysis of our residential mortgage loans by origination LTV, origination year and portfolio at September 30, 2023. LTVs are not updated subsequent to origination except as part of the charge-off process.
Of the $37.3 million of loans less than 90 days past due, $29.2 million are TDRs, and the remaining $8.1 million are non-TDRs primarily made up of loans that had their forbearance term extended greater than 12 months regardless of forbearance plan status at September 30, 2022. Allowance for Credit Losses .
Of the $37.3 million of loans less than 90 days past due, $29.2 million are TDRs, and the remaining $8.1 million are non-TDRs primarily made up of loans that had their forbearance term extended greater than 12 months, regardless of forbearance plan status at September 30, 2023. Allowance for Credit Losses .
Information on that website is not and should not be considered a part of this document. Market Area The Association conducts its operations from its main office in Cleveland, Ohio, and from 37 additional, full-service branches and five loan production offices located throughout the states of Ohio and Florida.
Information on that website is not and should not be considered a part of this document. Market Area The Association conducts its operations from its main office in Cleveland, Ohio, and from 37 additional, full-service branches and four loan production offices located throughout the states of Ohio and Florida.
(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 September 30, 2022. Property values are estimated using HPI data published by the FHFA.
(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 September 30, 2023. Property values are estimated using HPI data published by the FHFA.
The following tables set forth the amortized cost in loan delinquencies by type, segregated by geographic location and duration of delinquency at the dates indicated. The majority of our Home Today loan portfolio is secured by properties located in Ohio and there are no other loans with delinquent balances.
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 there are no other loans with delinquent balances.
See the Residential Real Estate Mortgage Loans section which follows for a further description of Residential Core and Home Today loans. 8 Table of Contents The following table provides an analysis of our residential mortgage loans disaggregated by refreshed FICO score, year of origination and portfolio at September 30, 2022.
See the Residential Real Estate Mortgage Loans section which follows for a further description of Residential Core and Home Today loans. 8 Table of Contents The following table provides an analysis of our residential mortgage loans disaggregated by refreshed FICO score, year of origination and portfolio at September 30, 2023.
Loans are placed in non-accrual status when they are contractually 90 days or more past due or if collection of principal or interest in full is in doubt. Loans restructured in TDRs that were in non-accrual status prior to the restructurings remain in non-accrual status for a minimum of six months.
Loans are placed in non-accrual status when they are contractually 90 days or more past due or if collection of principal or interest in full is in doubt. Loans restructured in TDRs that were in non-accrual status prior to the restructurings remain in non-accrual status for a minimum of six months after restructuring.
The Association also has the ability to purchase overnight Fed Funds up to $595.0 million through arrangements with other institutions. The ability to borrow from the FRB-Cleveland Discount Window is also available to the Association and is secured by a pledge of specific loans in the Association’s mortgage portfolio.
The Association also has the ability to purchase overnight Fed Funds up to $585.0 million through arrangements with other institutions. The ability to borrow from the FRB-Cleveland Discount Window is also available to the Association and is secured by a pledge of specific loans in the Association’s mortgage portfolio.
Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or 20 Table of Contents improbable.
Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or 18 Table of Contents improbable.
Section 625(a) of DFA preserved, for mutual holding companies, including Third Federal Savings, MHC, that had reorganized into mutual holding company form, issued minority stock and waived dividends prior to December 1, 2009, the right to waive dividends if the waiver was not detrimental to the safe and sound operation of the savings association and the board of directors expressly determines that the waiver is consistent with the fiduciary duties of the board to the mutual members of the mutual holding company.
Section 625(a) of DFA preserved, for mutual holding companies that had reorganized into mutual holding company form, issued minority stock and waived dividends prior to December 1, 2009, including Third Federal Savings, MHC, the right to waive dividends if the waiver was not detrimental to the safe and sound operation of the savings association and the board of directors expressly determined that the waiver was consistent with the fiduciary duties of the board to the mutual members of the mutual holding company.
At September 30, 2022, substantially all of the loans serviced for Fannie Mae and others were performing in accordance with their contractual terms and management believes that it had no material repurchase obligations associated with these loans at that date.
At September 30, 2023, substantially all of the loans serviced for Fannie Mae and others were performing in accordance with their contractual terms and management believes that it had no material repurchase obligations associated with these loans at that date.
The Company’s primary lending activity is the origination of residential real estate mortgage loans. A comparison of 2022 data to the corresponding 2021 data can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation .
The Company’s primary lending activity is the origination of residential real estate mortgage loans. A comparison of 2023 data to the corresponding 2022 data can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation .
For more information regarding the allowance for credit losses, see Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations . 22 Table of Contents The following table sets forth activity for credit losses segregated by geographic location for the periods indicated.
For more information regarding the allowance for credit losses, see Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations . 20 Table of Contents The following table sets forth activity for credit losses segregated by geographic location for the periods indicated.
In Ohio, the Association maintains 21 full-service offices located in the northeast Ohio counties of Cuyahoga, Lake, Lorain, Medina and Summit, one regional loan production office located in the central Ohio (Columbus, Ohio) and four loan production offices located in the southern Ohio counties of Butler and Hamilton (Cincinnati, Ohio).
In Ohio, the Association maintains 21 full-service offices located in the northeast Ohio counties of Cuyahoga, Lake, Lorain, Medina and Summit, one regional loan production office located in the central Ohio (Columbus, Ohio) and three loan production offices located in the southern Ohio counties of Butler and Hamilton (Cincinnati, Ohio).
If necessary, subsequent late charges and delinquent notices are issued and the borrower’s account will be monitored on a regular basis thereafter. The Company also mails system-generated reminder notices on a monthly basis. When a loan is more than 30 days past due, the Company attempts to contact the borrower and develop a plan of repayment.
If necessary, subsequent late charges and delinquent notices are issued and the borrower’s account will be 15 Table of Contents monitored on a regular basis thereafter. The Company also mails system-generated reminder notices on a monthly basis. When a loan is more than 30 days past due, the Company attempts to contact the borrower and develop a plan of repayment.
Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available for sale-securities). The Association exercised its opt-out election during the first quarter of calendar 2015. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available for sale-securities). The Association exercised its opt-out election during 2015. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
A federal savings association’s authority to engage in transactions with its affiliates is limited by FRS regulations and by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W. An affiliate is a company that controls, is controlled by, or is under common control with an insured depository institution such as the Association.
A federal savings association’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W. An affiliate includes a company that controls, is controlled by, or is under common control with an insured depository institution such as the Association.
There were also no delinquencies in the construction loan portfolio for the fiscal years presented.
There were no delinquencies in the construction loan portfolio for the fiscal years presented.
See Delinquent Loans and Non-performing Assets and Restructured Loans for discussions of the asset quality of this portion of the Company’s loan portfolio. 11 Table of Contents The Company currently retains the servicing rights on all loans sold in order to generate fee income and reinforce its commitment to customer service.
See Delinquent Loans and Non-performing Assets and Restructured Loans for discussions of the asset quality of this portion of the Company’s loan portfolio. The Company currently retains the servicing rights on all loans sold in order to generate fee income and reinforce its commitment to customer service.
All savings associations have a responsibility under the Community Reinvestment Act ("CRA") and federal regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings association, the OCC is required to assess the savings association’s record of compliance with the CRA.
All savings associations have a responsibility under the CRA and federal regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings association, the OCC is required to assess the savings association’s record of compliance with the CRA.
We rely on the reputation that has been built during the Association’s over 80-year history of serving its customers and the communities in which it operates, the Association’s high capital levels, and the Association's extensive liquidity alternatives which, in combination, serve to maintain and nurture customer and marketplace confidence.
We rely on the reputation that has been built during the Association’s 85-year history of serving its customers and the communities in which it operates, the Association’s high capital levels, and the Association's extensive liquidity alternatives which, in combination, serve to maintain and nurture customer and marketplace confidence.
For the Years Ended September 30, 2022 2021 2020 (Dollars in thousands) Net recoveries (charge-offs) to average loans outstanding during the year Real estate loans: Residential Core 0.02 % — % 0.01 % Residential Home Today 0.02 % 0.02 % 0.01 % Home Equity loans and lines of credit 0.03 % 0.02 % 0.02 % Total net recoveries (charge-offs) to average loans outstanding 0.07 % 0.04 % 0.04 % We continue to evaluate loans becoming delinquent for potential losses and record provisions for the estimate of those losses.
For the Years Ended September 30, 2023 2022 2021 (Dollars in thousands) Net recoveries to average loans outstanding during the year Real estate loans: Residential Core 0.01 % 0.02 % — % Residential Home Today 0.01 % 0.02 % 0.02 % Home Equity loans and lines of credit 0.02 % 0.03 % 0.02 % Total net recoveries to average loans outstanding 0.04 % 0.07 % 0.04 % We continue to evaluate loans becoming delinquent for potential losses and record provisions for the estimate of those losses.
It also prohibits the acquisition or retention of, with certain exceptions, more than 5% of a non-subsidiary company engaged in activities other than those permitted by the HOLA or acquiring or retaining control of an institution that is not federally insured.
It also prohibits the acquisition or 33 Table of Contents retention of, with certain exceptions, more than 5% of a non-subsidiary company engaged in activities other than those permitted by the HOLA or acquiring or retaining control of an institution that is not federally insured.
FRS regulations require that all savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress. 36 Table of Contents Waivers of Dividends by Third Federal Savings, MHC .
FRS regulations require that all savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress. Waivers of Dividends by Third Federal Savings, MHC .
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; ● 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; ● 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, and regulatory 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 Financial Accounting Standards Board or the Public Company Accounting Oversight Board; ● 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, and the possible short-term dilutive effect of potential acquisitions or de novo branches, if any; ● our ability to retain key employees; ● future adverse developments concerning Fannie Mae or Freddie Mac; ● changes in monetary and fiscal policy of the U.S.
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; ● 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; ● 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 Financial Accounting Standards Board or the Public Company Accounting Oversight Board; ● 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; ● future adverse developments concerning Fannie Mae or Freddie Mac; ● changes in monetary and fiscal policy of the U.S.
The Company retains a portion of the interest paid by the borrower on the loans it services as consideration for its servicing activities. 15 Table of Contents Loan Approval Procedures and Authority . The Company’s lending activities follow written underwriting standards and loan origination procedures established by its Board of Directors.
The Company retains a portion of the interest paid by the borrower on the loans it services as consideration for its servicing activities. Loan Approval Procedures and Authority . The Company’s lending activities follow written underwriting standards and loan origination procedures established by its Board of Directors.
From October 2021 through August 2022 (the latest date for which information is publicly available), per data furnished by MarketTrac ® , the Association had the largest market share of conventional purchase mortgage loans originated in Cuyahoga County, Ohio.
From October 2022 through August 2023 (the latest date for which information is publicly available), per data furnished by MarketTrac ® , the Association had the second largest market share of conventional purchase mortgage loans originated in Cuyahoga County, Ohio.
All loans that the Company originates are underwritten pursuant to its policies and procedures, which, for real estate loans, are consistent with the ability to repay guidance provided by the CFPB. Loans originated with the intent to sell and certain other long-term, fixed-rate loans, as described below, are originated using Fannie Mae processing and underwriting guidelines.
All loans that the Company originates are underwritten pursuant to its policies and procedures, which, for real estate loans, are consistent with the ability to repay guidance provided by the CFPB. Loans 13 Table of Contents originated with the intent to sell and certain other long-term, fixed-rate loans, as described below, are originated using Fannie Mae processing and underwriting guidelines.
Residential real estate mortgage loans and construction loans require the approval of one individual with designated underwriting authority. The Company requires independent third-party valuations of real property. Appraisals are performed by independent licensed/certified appraisers. Delinquent Loans .
Residential real estate mortgage loans and construction loans require the approval of one individual with designated underwriting authority. The Company requires independent third-party valuations of real property. Appraisals are performed by independent licensed/certified appraisers. 14 Table of Contents Delinquent Loans .
Third Federal Savings, MHC has the approval to waive the receipt of dividends up to an aggregate of $1.13 per share on the common stock of the Company for the 12 months following the special meeting of members held on July 12, 2022.
Third Federal Savings, MHC has the approval to waive the receipt of dividends up to an aggregate of $1.13 per share on the common stock of the Company for the 12 months following the special meeting of members held on July 11, 2023.
As of September 30, 2022, the only remaining entity in which Third Capital, Inc. has an investment in is Third Cap Associates, Inc., an Ohio corporation that owns 49% and 60% of two title agencies that provide escrow and settlement services in the States of Ohio and Florida, primarily to customers of the Association.
As of September 30, 2023, the only remaining entity in which Third Capital, Inc. has an investment in is Third Cap Associates, Inc., an Ohio corporation that owns 49% and 60% of two title agencies that provide escrow and settlement services in the States of Ohio, Florida and New Jersey, primarily to customers of the Association.
At September 30, 2022, there were no “interest only” residential real estate mortgage loans held in the Company's portfolio. The Company generally originates both fixed- and adjustable-rate mortgage loans in amounts up to $1 million, for single-family homes in most of our lending markets.
At September 30, 2023, there were no “interest only” residential real estate mortgage loans held in the Company's portfolio. The Company generally originates both fixed- and adjustable-rate mortgage loans in amounts up to $2 million, for single-family homes in most of our lending markets.
At September 30, 2022, we had $1.2 million in real estate owned. Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets.
At September 30, 2023, we had $1.4 million in real estate owned. Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets.
“Portfolio assets” generally means total assets of a savings institution, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings association’s business.
“Portfolio assets” generally means total assets of a federal savings association, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the federal savings association’s business.
This involves making changes to the borrowers’ loan terms through interest rate reductions, either for a specific period or for the remaining term of the loan; term extensions including those beyond that provided in the original agreement; principal forgiveness; capitalization of delinquent payments in special situations; or some combination of the aforementioned.
This involves making changes to the borrowers’ loan terms through interest rate reductions, either for a specific period or for the remaining term of the loan; term extensions including those beyond the original agreement; capitalization of delinquent payments in special situations; or some combination of the aforementioned.
REGULATORY MATTERS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS , at September 30, 2022, the Association exceeded all regulatory capital requirements to be considered “Well Capitalized”. Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus.
REGULATORY MATTERS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS , at September 30, 2023, the Association exceeded all regulatory capital requirements to be considered “Well Capitalized.” Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus.
The OTS, the previous regulator for Third Federal Savings, MHC, allowed dividend waivers provided the mutual holding company’s Board of Directors determined that the waiver was consistent with its fiduciary duties and the waiver would not be detrimental to the safety and soundness of its subsidiary institution.
The OTS, the previous regulator for Third Federal Savings, MHC, allowed dividend waivers provided that its Board of Directors determined that the waiver was consistent with the Board's fiduciary duties and the waiver would not be detrimental to the safety and soundness of its subsidiary institution.
Third Federal Savings, MHC and the Company are affiliates of the Association. In general, loan transactions between an insured depository institution and its affiliates are subject to certain quantitative and collateral requirements.
Third Federal Savings, MHC and the Company are affiliates of the Association. In general, specified covered transactions between an insured depository institution and its affiliates are subject to certain quantitative and collateral requirements.
The Company also purchases fixed-rate first mortgage loans originated in Ohio and Pennsylvania through a correspondent lending partnership. Additionally, the Company offers home equity lines of credit in 25 states and the District of Columbia and home equity loans in eight states. Refer to Item 7.
The Company also purchases first mortgage loans originated in Ohio, Pennsylvania and North Carolina through a correspondent lending partnership. Additionally, the Company offers home equity lines of credit in 25 states and the District of Columbia and home equity loans in eight states. Refer to Item 7.
Borrowings from the FHLB of Cincinnati are secured by the Association’s investment in the common stock of the FHLB of Cincinnati as well as by a blanket pledge of its mortgage portfolio not otherwise pledged. Our current, maximum borrowing capacity with the FHLB of Cincinnati is $8.47 billion.
Borrowings from the FHLB of Cincinnati are secured by the Association’s investment in the common stock of the FHLB of Cincinnati as well as by a blanket pledge of its mortgage portfolio not otherwise pledged. Our current, maximum borrowing capacity with the FHLB of Cincinnati is $6.63 billion.
We reported net recoveries in each quarter for the last four 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.
We reported net recoveries in each quarter for the past five 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.
During the fiscal year ended September 30, 2022, the Company sold, or committed to sell, to Fannie Mae, in either whole loan or security form, $128.1 million of long-term, fixed-rate residential real estate mortgage loans, all on a servicing retained basis. The Company has also previously sold to private parties, non-agency eligible, adjustable-rate loans on a servicing retained basis.
During the fiscal year ended September 30, 2023, the Company sold, or committed to sell, to Fannie Mae, in either whole loan or security form, $77.2 million of long-term, fixed-rate residential real estate mortgage loans, all on a servicing retained basis. The Company has also previously sold to private parties, non-agency eligible, adjustable-rate loans on a servicing retained basis.
The Association retains in its portfolio a large portion of the loans that it originates. The Association also purchases residential real estate mortgage loans through a correspondent lending partnership. Loans that the Association sells consist primarily of long-term, fixed-rate residential real estate mortgage loans.
The Association retains in its portfolio a large portion of the loans that it originates. The Association also purchases residential real estate mortgage loans through a correspondent lending partnership. Loans that the Association sells consist primarily of long-term, fixed-rate residential real estate mortgage loans. The Association retains the servicing rights on all loans that it sells.
For the fiscal year ended September 30, 2022, Third Cap Associates, Inc. recorded net income of $1.7 million. THIRD FEDERAL SAVINGS AND LOAN ASSOCIATION OF CLEVELAND General The Association is a federally chartered savings and loan association headquartered in Cleveland, Ohio, that was organized in 1938. In 1997, the Association reorganized into its current two-tier mutual holding company structure.
For the fiscal year ended September 30, 2023, Third Cap Associates, Inc. recorded net income of $0.2 million. THIRD FEDERAL SAVINGS AND LOAN ASSOCIATION OF CLEVELAND General The Association is a federally chartered savings and loan association headquartered in Cleveland, Ohio, that was organized in 1938. In 1997, the Association reorganized into its current two-tier mutual holding company structure.
Third Federal Savings, MHC received the approval of its members (depositors and certain loan customers of the Association) with respect to the waiver of dividends, and subsequently received the non-objection of the FRB-Cleveland, to waive dividends aggregating up to $1.13 per share on the common stock of the Company for the 12 months following the special meeting of members held on July 12, 2022 .
Third Federal Savings, MHC received the approval of its members (depositors and certain loan customers of the Association) with respect to the waiver of dividends, and subsequently received the non-objection of the FRB-Cleveland, to waive dividends aggregating up to $1.13 per share on the common stock of the Company for the 12 34 Table of Contents months following the special meeting of members held on July 11, 2023.
Additionally, at September 30, 2022 and 2021, the undrawn amounts of home equity lines of credit totaled $4.08 billion and $3.20 billion, respectively. A bridge loan permits a borrower to utilize the existing equity in their current home to fund the purchase of a new home before the current home is sold.
Additionally, at September 30, 2023 and 2022, the undrawn amounts of home equity lines of credit totaled $4.70 billion and $4.08 billion, respectively. A bridge loan permits a borrower to utilize the existing equity in their current home to fund the purchase of a new home before the current home is sold.
Management’s Discussion and Analysis of Financial Condition and Results of Operation - Controlling Our Interest Rate Risk Exposure , only a portion of the Company's first mortgage loan originations are eligible for securitization and sale in Fannie Mae mortgage backed security form. The balance of loans held for sale was $9.7 million at September 30, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operation - Controlling Our Interest Rate Risk Exposure , only a portion of the Company's first mortgage loan originations and purchases are eligible for securitization and sale in Fannie Mae mortgage backed security form. The balance of loans held for sale was $3.3 million at September 30, 2023.
At September 30, 2022, we had an amortized cost of $2.67 billion in home equity loans and home equity lines of credit outstanding, of which $2.3 million, or 0.1% were delinquent 90 days or more. The allowance for credit losses is evaluated based upon the combined total of the quantitative and qualitative GVAs and IVAs.
At September 30, 2023, we had an amortized cost of $3.07 billion in home equity loans and home equity lines of credit outstanding, of which $3.9 million, or 0.1%, were delinquent 90 days or more. The allowance for credit losses is evaluated based upon the combined total of the quantitative and qualitative GVAs and IVAs.
Failure by a holding 33 Table of Contents company to provide the required guarantee will result in certain operating restrictions on the savings association, such as restrictions on the ability to declare and pay dividends, pay executive compensation and management fees, and increase assets or expand operations.
Failure by a holding company to provide the required guarantee will result in certain operating restrictions on the federal savings association, such as restrictions on the ability to declare and pay dividends, pay executive compensation and management fees, and increase assets or expand operations.
The Association’s operations are also subject to federal laws applicable to credit transactions, such as the: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; 34 Table of Contents • Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and • rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
The Association’s operations are also subject to federal laws and regulations applicable to credit transactions, such as the: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; • Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and • Implementing regulations of the relevant federal agencies charged with the responsibility of implementing such federal laws that have supervisory authority over the Association.
As of September 30, 2022, outstanding borrowings (including accrued interest) from the FHLB of Cincinnati were $4.57 billion and the Association was in compliance with the stock investment requirement. Other Regulations Interest and other charges collected or contracted for by the Association are subject to state usury laws and federal laws concerning interest rates.
As of September 30, 2023, outstanding borrowings (including accrued interest) from the FHLB of Cincinnati were $5.27 billion and the Association was in compliance with the stock investment requirement. Other Regulations Interest and other charges collected or contracted for by the Association are subject to state usury laws and federal laws concerning interest rates.
As a result of previous guidance from the Company's primary regulator that indicated that the Company's reported balance of liquid assets could not include any investment security not classified as available- for- sale, all investment securities held by the Company are classified as available for sale. We do not have a trading portfolio.
As a result of previous guidance from the Company's primary regulator that indicated that the Company's reported balance of liquid assets could not include any investment security not classified as available- for- sale, all investment securities held by the Company are classified as available for sale.
In evaluating applications by holding companies to acquire savings institutions, the FRS must consider the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.
In evaluating applications by holding companies to acquire savings institutions, the FRS must consider the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the DIF, the convenience and needs of the community and competitive factors.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

43 edited+37 added−19 removed86 unchanged
Biggest changeThese reasons, as well as the legal and regulatory responses, have impacted the foreclosure process and completion time of foreclosures for residential mortgage lenders. This may result in a material adverse effect on collateral values and our ability to minimize its losses. Risks Related to Competitive Matters Strong competition within our market areas may limit our growth and profitability.
Biggest changeAny increase in our allowance for credit losses or loan charge-offs as a result of such review or otherwise, may have a material adverse effect on our financial condition and results of operation. Risks Related to Competitive Matters Strong competition within our market areas may limit our growth and profitability. Competition in the banking and financial services industry is intense.
However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. If our risk management framework proves ineffective, we could suffer unexpected losses and our business and results of operations could be materially adversely affected.
However, as with any risk management framework, there are inherent limitations to our risk management strategies as risks may exist, or develop in the future, that we have not appropriately anticipated or identified. If our risk management framework proves ineffective, we could suffer unexpected losses and our business and results of operations could be materially adversely affected.
We also could be adversely affected to the extent such an agreement is not renewed by the third-party vendor or is renewed on terms less favorable to us.
We also could be adversely affected to the extent that such an agreement is not renewed by the third-party vendor, or is renewed on terms less favorable to us.
Generally, in a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities because, like many savings institutions, our liabilities generally have shorter contractual maturities than our assets. An example of this occurs when, interest rates paid on certificates of deposit experience a significant increase.
Generally, during a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities because, like many savings institutions, our liabilities generally have shorter contractual maturities than our assets. An example of this occurs when interest rates paid on certificates of deposit experience a significant increase.
In general, changes in market and competitive interest rates result from events that we do not control and over which we generally have little or no influence. As a result, mitigation of the adverse affects of changing interest rates is generally limited to controlling the composition of the assets and liabilities that we hold.
In general, changes in market and competitive interest rates result from events that we do not control and over which we generally have little or no influence. As a result, mitigation of the adverse effects of changing interest rates is generally limited to controlling the composition of the assets and liabilities that we hold.
Associate errors and associate and customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Our loans to individuals and our deposit relationships and related transactions are also subject to exposure to the risk of loss due to fraud and other financial crimes.
Associate errors, as well as associate and customer misconduct, could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Our loans to individuals, our deposit relationships and related transactions are also subject to exposure to the risk of loss due to fraud and other financial crimes.
Furthermore, the wide acceptance of Internet-based commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles. Customers can now maintain funds in prepaid debit cards or digital currencies, and pay bills and 41 Table of Contents transfer funds directly without the direct assistance of banks.
Furthermore, the wide acceptance of Internet-based commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles. Customers can now maintain funds in prepaid debit cards or digital currencies, and pay bills and transfer funds directly without the direct assistance of banks.
As part of its rulemaking process, the FRS is reviewing comments on the interim final rule and there can be no assurance that the final rule will not require such a member vote.
As part of its rule making process, the FRS is reviewing comments on the interim final rule and there can be no assurance that the final rule will not require such a member vote.
We also may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Risks Related to Our Operations Cyber-attacks, other security breaches or failure or interruption of information systems could adversely affect our operations, net income or reputation.
We also may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Risks Related to Our Operations 40 Table of Contents Cyber-attacks, other security breaches or failure or interruption of information systems could adversely affect our operations, net income or reputation.
A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a 39 Table of Contents minimum, result in denial of certain corporate applications such as those related to branches, mergers, minority stock offerings or a second-step conversion, or in restrictions on its activities.
A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as those related to branches, mergers, minority stock offerings or a second-step conversion, or in restrictions on its activities.
Using customized modeling software, the Association prepares periodic estimates of the amounts by which the net present value of its cash flows from assets, liabilities and off balance sheet items (the institution’s economic value of equity) would change in the event of a range of assumed changes in market interest rates.
Using customized modeling software, the Association prepares periodic estimates of the amounts by which the net present value of its cash flows from assets, liabilities and off balance sheet items (the institution’s EVE) would change in the event of a range of assumed changes in market interest rates.
Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers. 46 Table of Contents Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts.
Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers. Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts.
If interest rates fall and the value of our capitalized servicing rights decrease, we may be required to recognize an additional impairment charge against income for the amount by which amortized cost exceeds estimated fair market value. Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings.
If interest rates fall and the value of our capitalized servicing rights decrease, we may be required to recognize an additional impairment charge against income for the amount by which amortized cost exceeds estimated fair market value. Our securities portfolio may be impacted by fluctuations in market value, potentially reducing AOCI and/or earnings.
The value of the Company’s common stock is significantly affected by our ability to pay dividends to our public stockholders. The Company’s ability to pay dividends to our stockholders is subject to the availability of cash at the Company which is dependent on the Association having sufficient earnings to make capital distributions to the Company.
The value of the Company’s common stock is significantly affected by our ability to pay dividends to our public stockholders. The Company’s ability to pay dividends to our stockholders is subject to the availability of cash at the Company, 42 Table of Contents which is dependent on the Association having sufficient earnings to make capital distributions to the Company.
Reinvestment risk also exists with the securities in our investment portfolio that are backed by mortgage loans. 44 Table of Contents Our net interest income can also be negatively impacted when assets and funding sources with seemingly similar, but not identical re-pricing characteristics react differently to changing interest rates.
Reinvestment risk also exists with the securities in our investment portfolio that are backed by mortgage loans. Our net interest income can also be negatively impacted when assets and funding sources with seemingly similar, but not identical re-pricing characteristics, react differently to changing interest rates.
Third Federal Savings, MHC has received the approval of its members in nine separate meetings (held in either July or August of each year from 2014 through 2022) to waive the receipt of dividends for a twelve-month period, and the FRS has “non-objected” to Third Federal Savings, MHC’s waiver each time.
Third Federal Savings, MHC, has received the approval of its members in 10 separate meetings (held in either July or August of each year from 2014 through 2023) to waive the receipt of dividends for a twelve-month period, and the FRS has “non-objected” to Third Federal Savings, MHC’s waiver each time.
Each of these alternatives can have an unfavorable impact on us. As another example of changes in interest rates that can have an unfavorable impact on our net interest income, if mortgage interest rates decline, our customers may seek to refinance, without penalty, their mortgage loans with us or repay their mortgage loans with us and borrow from another lender.
Each of these alternatives can have an unfavorable impact on us. Changes in interest rates can also have an unfavorable impact on our net interest income if mortgage interest rates decline. Our customers may seek to refinance, without penalty, their mortgage loans with us or repay their mortgage loans with us and borrow from another lender.
We cannot predict whether or to what extent damage caused by future hurricanes or tropical storms will affect our operations or the economy in our market area, but such weather events could result in fewer loan originations and greater delinquencies, foreclosures or loan losses.
We cannot predict whether or to what extent damage caused by future hurricanes or tropical storms will affect our operations or the economy in our market area, but such 43 Table of Contents weather events could result in fewer loan originations and greater delinquencies, foreclosures or loan losses.
Our operations rely on numerous external vendors. We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements.
Our operations rely on numerous external vendors. We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the 41 Table of Contents contracted arrangements under service level agreements.
Adverse developments with respect to the financial services industry may also, by association, negatively impact the Company's reputation or result in greater regulatory or legislative scrutiny or litigation against the Company. Furthermore, shareholders, customers and other stakeholders have begun to consider how corporations are addressing environmental, social and governance (“ESG”) issues.
Adverse developments with respect to the financial services industry may also, by association, negatively impact the Company's reputation or result in greater regulatory or legislative scrutiny or litigation against the Company. Furthermore, shareholders, customers and other stakeholders have begun to consider how corporations are addressing ESG issues.
The resulting economic pressure on consumers and lack of 45 Table of Contents confidence in the financial markets could adversely affect our business, financial condition and results of operations.
The resulting economic pressure on consumers and lack of confidence in the financial markets could adversely affect our business, financial condition and results of operations.
At September 30, 2022, we held $2.47 billion of home equity lines of credit loans and $2.85 billion of interest-bearing checking and savings deposits. Our net income can also be reduced by the impact that changes in interest rates can have on the value of our capitalized mortgage servicing rights.
At September 30, 2023, we held $2.70 billion of home equity lines of credit loans and $2.61 billion of interest-bearing checking and savings deposits. Our net income can also be reduced by the impact that changes in interest rates can have on the value of our capitalized mortgage servicing rights.
If the Company, or our relationships with certain customers, vendors or suppliers, became the subject of negative publicity, our ability to attract and retain customers and employees, and our financial condition and results of operations, could be adversely impacted. Item 1B. Unresolved Staff Comments None.
If the Company, or our relationships with certain customers, vendors or suppliers, became the subject of negative publicity, our ability to attract and retain customers and employees, and our financial condition and results of operations, could be adversely impacted.
Our calculations further project that, at September 30, 2022, in the event that market interest rates used in the simulation were adjusted in equal monthly amounts (termed a "ramped" format) during the twelve month measurement period to an aggregate increase in 200 basis points, we would expect our projected net interest income for the twelve months ended September 30, 2023 to decrease by 0.29%.
Our calculations further 37 Table of Contents project that, at September 30, 2023, in the event that market interest rates used in the simulation were adjusted in equal monthly amounts (termed a "ramped" format) during the twelve month measurement period to an aggregate increase in 200 basis points, we would expect our projected net interest income for the twelve months ended September 30, 2024 to decrease by 2.71%.
As of September 30, 2022, we serviced $2.05 billion of loans sold to third parties, and the mortgage servicing rights associated with such loans had an amortized cost of $7.9 million and an estimated fair value, at that date, of $15.3 million.
As of September 30, 2023, we serviced $1.93 billion of loans sold to third parties, and the mortgage servicing rights associated with such loans had an amortized cost of $7.4 million and an estimated fair value, at that date, of $15.9 million.
The simulation model uses a discounted cash flow analysis and an option-based pricing approach in measuring the interest rate sensitivity of EVE. At September 30, 2022, in the event of an immediate 200 basis point increase in all interest rates, our model projects that we would experience a $397.3 million, or 29.92%, decrease in EVE.
The simulation model uses a discounted cash flow analysis and an option-based pricing approach in measuring the interest rate sensitivity of EVE. At September 30, 2023, in the event of an immediate 200 basis point increase in all interest rates, our model projects that we would experience a $324.7 million, or 31.45%, decrease in EVE.
Competition in the banking and financial services industry is intense. In our market areas, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, money market funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere.
In our market areas, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, money market funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere.
Loan sales provide a significant portion of our non-interest income. In addition to being affected by interest rates, the secondary mortgage markets are also subject to investor demand for residential real estate loans and increased investor yield requirements for these loans. These conditions may fluctuate or worsen in the future.
In addition to being affected by interest rates, the secondary mortgage markets are also subject to investor demand for residential real estate loans and increased investor yield requirements for these loans. These conditions may fluctuate or worsen in the future.
These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively. Risks Related to Economic Conditions Future changes in interest rates could reduce our net income.
These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively.
In connection with its examination of a federal savings association, the OCC is required to assess the savings association’s record of compliance with the Community Reinvestment Act. The Association received a “Needs to Improve” Community Reinvestment Act rating in its most recent federal examination that analyzed home mortgage lending data for the period January 1, 2015 through December 31, 2019.
The Association received a “Needs to Improve” Community Reinvestment Act rating in its most recent federal examination that analyzed home mortgage lending data for the period January 1, 2015 through December 31, 2019.
Our net income largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.
Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.
However, if our internal controls fail to prevent or promptly detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our financial condition and results of operations. 42 Table of Contents If our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses and our results of operations could be materially adversely affected.
However, if our internal controls fail to prevent or promptly detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our financial condition and results of operations.
Bank regulatory agencies, such as the FRS, the OCC, the CFPB and the FDIC, govern the activities in which we may engage, primarily for the protection of depositors, and not for the protection or benefit of potential investors. In addition, new laws and regulations may increase our costs of regulatory compliance and of doing business, and otherwise affect our operations.
Bank regulatory agencies, such as the FRS, the OCC, the CFPB and the FDIC, govern the activities in 38 Table of Contents which we may engage, primarily for the protection of depositors, and not for the protection or benefit of potential investors.
Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing stockholder value. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including credit, liquidity, operational, regulatory compliance and reputational.
We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject to, including credit, liquidity, operational, regulatory compliance and reputational.
The Company is a separate legal entity from its subsidiaries and does not have significant operations of its own. Dividends from the Association provide a significant source of cash for the Company. The availability of dividends from the Association is limited by various statutes and regulations.
Risk Related to Our Corporate Structure Our sources of funds are limited because of our holding company structure. The Company is a separate legal entity from its subsidiaries and does not have significant operations of its own. Dividends from the Association provide a significant source of cash for the Company.
Our Vendor Management program helps mitigate risks and is structured to minimize the cost and time required to replace a vendor in the event of a failure or the vendor's inability to meet service level agreements. Risk Related to Our Corporate Structure Our sources of funds are limited because of our holding company structure.
Our Vendor Management program helps mitigate risks and is structured to minimize the cost and time required to replace a vendor in the event of a failure or the vendor's inability to meet service level agreements. Our board of directors relies to a large degree on management and outside consultants in overseeing cybersecurity risk management.
In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf.
In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf. A number of our associates work at remote locations, increasing the number of surfaces that require protection.
New laws and regulations may significantly affect the markets in which we do business, the markets for and value of our loans and investments, the fees we can charge and our ongoing operations, costs and profitability. We received a “Needs to Improve” Community Reinvestment Act rating in our most recent federal examination.
In addition, new laws and regulations may increase our costs of regulatory compliance and of doing business, and otherwise affect our operations. New laws and regulations may significantly affect the markets in which we do business, the markets for and value of our loans and investments, the fees we can charge and our ongoing operations, costs and profitability.
As a result, we may generate lower interest rate spreads and rates of return when compared to our competitors who originate more consumer or commercial loans than we do. We intend to continue our focus on residential real estate lending. Secondary mortgage market conditions could have a material impact on our financial condition and results of operations.
As a result, we may generate lower interest rate spreads and rates of return when compared to our competitors who originate more consumer or commercial loans than we do.
However, future approvals of members and non-objections from the FRS are not assured and if not obtained, the discontinuance of dividend payments would adversely affect the value of our common stock. 43 Table of Contents Public stockholders own a minority of the outstanding shares of our common stock and will not be able to exercise voting control over most matters put to a vote of stockholders.
However, future approvals of members and non-objections from the FRS are not assured and if not obtained, the discontinuance of dividend payments would adversely affect the value of our common stock.
If we are required to repurchase mortgage loans or provide indemnification or other recourse, this could significantly increase our costs and thereby affect our future earnings. 40 Table of Contents Final regulations could restrict our ability to originate and sell loans.
If we are required to repurchase mortgage loans or provide indemnification or other recourse, this could significantly increase our costs and thereby affect our future earnings. If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings could decrease.
This could, at a minimum, result in denial of certain corporate applications such as those related to branches, mergers, minority stock offerings or a second-step conversion. All savings associations have a responsibility under the Community Reinvestment Act and federal regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods.
We received a “Needs to Improve” Community Reinvestment Act rating in our most recent federal examination. This could, at a minimum, result in denial of certain corporate applications such as those related to branches, mergers, minority stock offerings or a second-step conversion.
See also, “Forward-Looking Statements.” Risks Related to the COVID-19 Pandemic The economic impact of the COVID-19 outbreak could continue to adversely affect our financial condition and results of operations.
See also, “Forward-Looking Statements.” Risks Related to Economic Conditions Our financial condition, results of operation, and stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions.
Removed
Although U.S. and global economies have begun to recover from the COVID-19 pandemic as many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time, including labor shortages and disruptions of global supply chains.
Added
Further, if we are unable to adequately manage our liquidity, deposits, capital levels, and interest rate risk, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations.
Removed
The growth in economic activity and demand for goods and services, alongside labor shortages and supply chain complications, has also contributed to rising inflationary pressures. The extent to which the COVID-19 pandemic impacts our business, financial condition, liquidity, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.
Added
On March 8, 2023, Silvergate Bank, La Jolla, CA, announced its decision to voluntarily liquidate its assets and wind down operations.
Removed
We continue to have many associates working hybrid schedules and may take further actions as may be required by government authorities or that we determine are in the best interests of our associates, customers and business partners.
Added
On March 10, 2023, Silicon Valley Bank, Santa Clara, CA, was closed by the California Department of Financial Protection and Innovation, and on March 12, 2023, Signature Bank, New York, NY, was closed by the New York State Department of Financial Services.
Removed
We did not participate in, or offer loans, as part of the Payroll Protection Program. 38 Table of Contents The length of the adverse consequences of the pandemic and the impact to the macroeconomic environment are unknown.
Added
Additionally, on May 1, 2023, First Republic Bank, San Francisco, CA, was closed by the FDIC and sold to JP Morgan Chase & Co. These events led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.
Removed
Until the consequences subside, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: • demand for our products and services may decline, making it difficult to grow assets and income; • loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; • collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; • our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income; • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; • a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend; • our cyber security risks are increased as the result of an increase in the number of associates working remotely; • the unanticipated loss or unavailability of key associates due to the outbreak, which could harm our ability to operate our business or execute our business strategy, especially as we may not be successful in finding and integrating suitable successors; • we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; • Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs; and • as a result of the temporary recession experienced by the U.S. due to the pandemic, our business could be materially and adversely affected by another recession should the effects of the pandemic continue for a period of time or worsen.
Added
Notably, the liquidation of Silvergate Bank and the failures of Silicon Valley Bank and Signature Bank were not generally related to the credit quality of their assets, but to poor liquidity management, mismatched funding of long-term assets with short-term funds, and unique business models.
Removed
The Consumer Financial Protection Bureau issued a rule designed to clarify for lenders how they can avoid legal liability under the Dodd-Frank Act, which holds lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that meet this “qualified mortgage” definition will be presumed to have complied with the ability-to-repay standard.
Added
The financial distress these banks experienced appears to have been caused in large part by high exposure to certain industries, including cryptocurrency and venture capital and start-up companies operating in the technology space, which have experienced significant volatility and fluctuations in cash flows over the past several years.
Removed
A “qualified mortgage” must be made to a borrower whose total monthly debt-to-income ratio does not exceed 43%.
Added
These banks also had high levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. Silicon Valley Bank in particular appears to have experienced a severe lack of liquidity, forcing it to sell long-term investment securities at significant losses.
Removed
Lenders must also verify and document the income and financial resources relied upon to qualify the borrower on the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments.
Added
Ultimately, it was unable to meet its financial commitments and satisfy the cash requirements of its customers.
Removed
Under the rule, a “qualified mortgage” loan must not contain certain specified features, including: • not be higher-priced as defined by the FRB in 2008; • excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points” for prime loans); • interest-only payments; • negative amortization; • balloon payments; • terms of longer than 30 years; and • cannot be a 'no doc' loan where the creditor does not verify income or assets.
Added
These bank failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions, which in turn led to a greater focus by institutions, investors, and regulators on the on-balance sheet liquidity of and funding sources for financial institutions and the composition of its deposits.
Removed
In addition to the above exclusions, a newly defined "qualified mortgage" APR must be within a certain tolerance of APOR in order to qualify as a "qualified mortgage" loan under the final rule. These tolerances have the ability to impact certain products, but does not preclude TFS from originating non-qualified mortgage loans.
Added
Notwithstanding, our efforts to promote deposit insurance coverage with our customers and otherwise effectively manage our liquidity, deposit portfolio retention, and other related matters, our financial condition, results of operation, and stock price may be adversely affected by future negative events within the banking sector and adverse customer or investor responses to such events.
Removed
TFS has been delivering fixed-rate loans to government sponsored entities over the past year, which required implementation of the Final "Qualified Mortgage" General Rule that went into effect on October 1, 2022. In September of 2022, internal systems were updated at TFS in order to calculate "qualified mortgage" status for all closed end products (i.e. Fixed, ARM, HELOANs).
Added
Inflation can have an adverse impact on our business and on our customers. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.
Removed
The regulatory agencies have issued a rule in response to requirements within the Dodd-Frank Act that requires securitizers of loans to retain not less than 5% of the credit risk for any asset that is not a qualified residential mortgage.
Added
Recently, there has been a rise in inflation and the Federal Reserve Board has raised certain benchmark interest rates in an effort to combat inflation. As inflation increases, the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments.
Removed
The final rule also provides that the definition of “qualified residential mortgage” includes loans that meet the definition of qualified mortgage issued by the Consumer Financial Protection Bureau. The General Qualified Mortgage Final Rule could have a significant effect on the secondary market for loans.
Added
In addition, inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expense.
Removed
The Consumer Financial Protection Bureau's rule on qualified mortgages could limit our desire to make certain types of loans or loan to certain borrowers, which could limit our growth or profitability.
Added
Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. The reversal of the historically low interest rate environment may further adversely affect our net interest income and profitability.
Removed
The foreclosure process may adversely impact our recoveries on non-performing loans The judicial foreclosure process is protracted, which delays our ability to resolve non-performing loans through the sale of the underlying collateral.
Added
The Federal Reserve Board decreased benchmark interest rates significantly, to near zero, in response to the COVID-19 pandemic. The Federal Reserve Board is reversing its policy of near zero interest rates given its concerns over inflation. Market interest rates have risen in response to the Federal Reserve Board's recent rate increases.
Removed
The longer timelines have been the result of the economic crisis, additional consumer protection initiatives related to the foreclosure process, increased documentary requirements and judicial scrutiny, and both voluntary and mandatory programs under which lenders may consider loan modifications or other alternatives to foreclosure.
Added
The increase in market interest rates has had and, as discussed below, is expected to continue to have an adverse effect on our net interest income and profitability.
Removed
We are required to transition from the use of the LIBOR interest rate index in the future. We have certain interest rate swap contracts indexed to LIBOR to calculate the interest rate. The LIBOR index will be discontinued for U.S. Dollar settings effective June 30, 2023.
Added
Future changes in interest rates could reduce our net income. 36 Table of Contents Our net income largely depends on our net interest income, which could be negatively affected by changes in interest rates.
Removed
The language in our LIBOR-based contracts and financial instruments has developed over time and may have various events that trigger when a successor rate to the designated rate would be selected.
Added
All savings associations have a responsibility under the Community Reinvestment Act and federal regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings association, the OCC is required to assess the savings association’s record of compliance with the Community Reinvestment Act.
Removed
If a trigger is satisfied, contracts and financial instruments may give the calculation agent discretion over the substitute index or indices for the calculation of interest rates to be selected. Additionally, since alternative rates are calculated differently, the transition may change our market risk profile, requiring changes to risk and pricing models.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company owns the building in which its home office and executive offices are located, and six other office locations. The net book value of our land, premises, equipment and software was $34.5 million at September 30, 2022, a $2.9 million reduction from September 30, 2021, primarily due to depreciation.
Biggest changeThe net book value of our land, premises, equipment and software was $34.7 million at September 30, 2023, a $177 thousand increase from September 30, 2022 due to a $2.0 million increase in DP equipment and a $479 thousand increase in building improvements. These increases were primarily offset by depreciation.
Our branch offices are located in the Ohio counties of Cuyahoga, Lake, Lorain, Medina and Summit and in the Florida counties of Broward, Collier, Hillsborough, Lee, Palm Beach, Pasco, Pinellas and Sarasota. Our loan production offices are located in the Ohio counties of Franklin, Butler, Delaware and Hamilton.
Our branch offices are located in the Ohio counties of Cuyahoga, Lake, Lorain, Medina and Summit and in the Florida counties of Broward, Collier, Hillsborough, Lee, Palm Beach, Pasco, Pinellas and Sarasota. Our loan production offices are located in the Ohio counties of Butler, Delaware and Hamilton.
Item 2. Properties We operate from our main office in Cleveland, Ohio, our 37 full-service branch offices located in Ohio and Florida and our five loan production offices located in Ohio.
Item 2. Properties We operate from our main office in Cleveland, Ohio, our 37 full-service branch offices located in Ohio and Florida and our four loan production offices located in Ohio.
Added
The Company owns the building in which its home office and executive offices are located, and six other office locations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s consolidated financial condition, results of operation, or statements of cash flows.
Biggest changeItem 3. Legal Proceedings The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s consolidated financial condition, results of operation, or statements of cash flows. Item 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+1 added−1 removed6 unchanged
Biggest changeAverage Total Number of Maximum Number Total Number Price Shares Purchased of Shares that May of Shares Paid per as Part of Publicly Yet be Purchased Period Purchased Share Announced Plans (1) Under the Plans July 1, 2022 through July 31, 2022 25,000 $ 13.59 25,000 5,553,820 August 1, 2022 through August 31, 2022 — — — 5,553,820 September 1, 2022 through September 30, 2022 — — — 5,553,820 25,000 $13.59 25,000 (1) On October 27, 2016, the Company announced that the Board of Directors approved the Company's eighth stock repurchase program, which authorizes the repurchase of up to 10,000,000 shares of the Company's outstanding common stock.
Biggest changeWe did not purchase any stock during the quarter ended September 30, 2023. On October 27, 2016, the Company announced that the Board of Directors approved the Company's eighth stock repurchase program, which authorizes the repurchase of up to 10,000,000 shares of the Company's outstanding common stock.
At a special meeting of members of Third Federal Savings, MHC, the members (depositors and certain loan customers of the Association) voted to approve Third Federal Savings, MHC's proposed waiver of dividends aggregating up to $1.13 per share on the common stock of the Company for the 12 months following the special meeting of members held on July 12, 2022.
At a special meeting of members of Third Federal Savings, MHC, the members (depositors and certain loan customers of the Association) voted to approve Third Federal Savings, MHC's proposed waiver of dividends aggregating up to $1.13 per share on the common stock of the Company for the 12 months following the special meeting of members held on July 11, 2023.
The members approved the waiver by casting 61% of the eligible votes, with 97% of the votes cast, or 60% of the total eligible votes, in favor of the waiver. Third Federal Savings, MHC is the 81% majority shareholder of the Company.
The members approved the waiver by casting 60% of the eligible votes, with 97% of the votes cast, or 58% of the total eligible votes, in favor of the waiver. Third Federal Savings, MHC is the 81% majority shareholder of the Company.
As of November 16, 2022, we had 6,221 shareholders of record, which does not include persons or entities holding shares in “nominee” or “street” name through brokerage firms. Through September 30, 2010, Third Federal Savings, MHC, waived its right to receive dividends. The waivers complied with regulatory authorizations (in the form of non-objection) obtained by Third Federal Savings, MHC.
As of November 14, 2023, we had 6,044 shareholders of record, which does not include persons or entities holding shares in “nominee” or “street” name through brokerage firms. Through September 30, 2010, Third Federal Savings, MHC, waived its right to receive dividends. The waivers complied with regulatory authorizations (in the form of non-objection) obtained by Third Federal Savings, MHC.
Following the receipt of the members’ approval at the July 12, 2022 special meeting, Third Federal Savings, MHC filed a notice with, and subsequently received the non-objection of, the FRB-Cleveland for the proposed dividend waivers. 48 Table of Contents In the table and graph that follow, we have provided summary information regarding the performance of the cumulative total return of our common stock from September 30, 2017 through September 30, 2022, relative to the cumulative total return on stocks included in the S&P U.S.
Following the receipt of the members’ approval at the July 11, 2023 special meeting, Third Federal Savings, MHC filed a notice with, and subsequently received the non-objection of, the FRB-Cleveland for the proposed dividend waivers. 45 Table of Contents In the table and graph that follow, we have provided summary information regarding the performance of the cumulative total return of our common stock from September 30, 2018 through September 30, 2023, relative to the cumulative total return on stocks included in the S&P U.S.
BMI Banks Index, S&P Composite 1500 Thrifts & Mortgage Finance Index and NASDAQ Composite, in each case for the same period. The cumulative return data is presented in dollars, based on starting investments of $100 and assuming the reinvestment of dividends.
BMI Banks Index, KBW NASDAQ Bank Index and NASDAQ Composite, in each case for the same period. The cumulative return data is presented in dollars, based on starting investments of $100 and assuming the reinvestment of dividends.
For the fiscal year ended September 30, 2022, stock repurchases totaled 337,259 shares at an average price per share of $14.97. The program has 5,553,820 shares yet to be purchased as of September 30, 2022. The program has no expiration date. Item 6. [Reserved]
For the fiscal year ended September 30, 2023, stock repurchases totaled 361,869 shares at an average price per share of $13.82. The program has 5,191,951 shares yet to be purchased as of September 30, 2023. The program has no expiration date. 46 Table of Contents Item 6. [Reserved]
Measurement Date Index (with base price at 9/30/2017) 9/30/2017 9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 TFS Financial Corporation 100.00 97.76 124.62 107.99 148.21 108.51 S&P U.S.
Measurement Date Index (with base price at 9/30/2018) 9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 TFS Financial Corporation 100.00 127.48 110.47 151.61 111.00 110.02 S&P U.S.
Removed
BMI Banks Index 100.00 108.42 108.77 79.86 145.30 111.62 S&P Composite 1500 Thrifts & Mortgage Finance Index 100.00 98.18 111.54 80.62 131.86 107.52 NASDAQ Composite Index 100.00 125.17 125.82 177.36 231.30 170.38 Source: S&P Global Market Intelligence We did not sell any securities for the fiscal year ended September 30, 2022. 49 Table of Contents The following table summarizes our stock repurchase activity during the three months ended September 30, 2022 and the stock repurchase plans approved by our Board of Directors.
Added
BMI Banks Index 100.00 100.32 73.65 134.01 102.95 99.73 KBW NASDAQ Bank Index 100.00 98.25 74.43 136.50 103.11 87.45 NASDAQ Composite Index 100.00 100.52 141.70 184.58 136.12 171.65 Source: S&P Global Market Intelligence We did not sell any equity securities during the fiscal year ended September 30, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAt September 30, 2022 2021 2020 2019 2018 (In thousands) Selected Financial Condition Data: Total assets $ 15,789,879 $ 14,057,450 $ 14,642,221 $ 14,542,356 $ 14,137,331 Cash and cash equivalents 369,564 488,326 498,033 275,143 269,775 Investment securities - available for sale 457,908 421,783 453,438 547,864 531,965 Loans held for sale 9,661 8,848 36,871 3,666 659 Loans, net 14,257,067 12,509,035 13,103,062 13,195,745 12,871,294 Bank owned life insurance 304,040 297,332 222,919 217,481 212,021 Prepaid expenses and other assets 95,428 91,586 104,832 87,957 44,344 Deposits 8,921,017 8,993,605 9,225,554 8,766,384 8,491,583 Borrowed funds 4,793,221 3,091,815 3,521,745 3,902,981 3,721,699 Shareholders’ equity 1,844,339 1,732,280 1,671,853 1,696,754 1,758,404 50 Table of Contents For the Years Ended September 30, 2022 2021 2020 2019 2018 (In thousands, except per share amounts) Selected Operating Data: Interest income $ 409,333 $ 389,351 $ 455,298 $ 482,087 $ 443,045 Interest expense 141,937 157,721 213,030 216,666 162,104 Net interest income 267,396 231,630 242,268 265,421 280,941 Provision (release) for credit losses on loans 1,000 (9,000) 3,000 (10,000) (11,000) Net interest income after provision (release) for credit losses on loans 266,396 240,630 239,268 275,421 291,941 Non-interest income 23,804 55,299 53,251 20,464 21,536 Non-interest expenses 198,146 195,835 192,274 193,673 192,313 Earnings before income tax 92,054 100,094 100,245 102,212 121,164 Income tax expense 17,489 19,087 16,928 21,975 35,757 Net earnings after income tax expense $ 74,565 $ 81,007 $ 83,317 $ 80,237 $ 85,407 Earnings per share Basic $ 0.26 $ 0.29 $ 0.30 $ 0.29 $ 0.31 Diluted $ 0.26 $ 0.29 $ 0.29 $ 0.28 $ 0.30 Cash dividends declared per share $ 1.13 $ 1.12 $ 1.11 $ 1.02 $ 0.760 51 Table of Contents At or For The Years Ended September 30, 2022 2021 2020 2019 2018 Selected Financial Ratios and Other Data: Performance Ratios: Return on average assets 0.51 % 0.56 % 0.56 % 0.56 % 0.62 % Return on average equity 4.14 % 4.77 % 4.88 % 4.58 % 4.91 % Interest rate spread(1) 1.75 % 1.52 % 1.52 % 1.73 % 1.93 % Net interest margin(2) 1.88 % 1.66 % 1.69 % 1.92 % 2.08 % Efficiency ratio(3) 68.04 % 68.25 % 65.06 % 67.75 % 63.58 % Non-interest expense to average total assets 1.34 % 1.35 % 1.29 % 1.36 % 1.39 % Average interest-earning assets to average interest-bearing liabilities 112.42 % 111.92 % 111.41 % 112.28 % 112.96 % Asset Quality Ratios: Non-performing assets as a percent of total assets 0.23 % 0.32 % 0.37 % 0.50 % 0.57 % Non-accruing loans as a percent of total loans 0.25 % 0.35 % 0.41 % 0.54 % 0.60 % Allowance for credit losses on loans as a percent of non-accruing loans 204.73 % 145.96 % 87.95 % 54.60 % 54.56 % Allowance for credit losses on loans as a percent of total loans 0.51 % 0.51 % 0.36 % 0.29 % 0.33 % Capital Ratios: Association Total capital to risk-weighted assets(4) 18.84 % 21.00 % 19.96 % 19.56 % 20.47 % Tier 1 (leverage) capital to net average assets(4) 10.33 % 11.15 % 10.39 % 10.54 % 10.87 % Tier 1 capital to risk-weighted assets(4) 18.25 % 20.43 % 19.37 % 19.07 % 19.91 % Common equity tier 1 capital to risk-weighted assets(4) 18.25 % 20.43 % 19.37 % 19.07 % 19.91 % TFS Financial Corporation Total capital to risk-weighted assets(4) 21.18 % 23.75 % 22.71 % 22.22 % 22.94 % Tier 1 (leverage) capital to net average assets(4) 11.66 % 12.65 % 11.88 % 12.05 % 12.25 % Tier 1 capital to risk-weighted assets(4) 20.59 % 23.18 % 22.13 % 21.73 % 22.39 % Common equity tier 1 capital to risk-weighted assets(4) 20.59 % 23.18 % 22.13 % 21.73 % 22.39 % Average equity to average total assets 12.23 % 11.72 % 11.50 % 12.30 % 12.56 % Other Data: Association: Number of full service offices 37 37 37 37 38 Loan production offices 5 7 7 8 8 ______________________ (1) Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the year.
Biggest changeAt September 30, 2023 2022 2021 2020 2019 (In thousands) Selected Financial Condition Data: Total assets $ 16,917,979 $ 15,789,879 $ 14,057,450 $ 14,642,221 $ 14,542,356 Cash and cash equivalents 466,746 369,564 488,326 498,033 275,143 Investment securities - available for sale 508,324 457,908 421,783 453,438 547,864 Loans held for sale 3,260 9,661 8,848 36,871 3,666 Loans, net 15,165,747 14,257,067 12,509,035 13,103,062 13,195,745 Bank owned life insurance 312,072 304,040 297,332 222,919 217,481 Prepaid expenses and other assets 117,270 95,428 91,586 104,832 87,957 Deposits 9,449,820 8,921,017 8,993,605 9,225,554 8,766,384 Borrowed funds 5,273,637 4,793,221 3,091,815 3,521,745 3,902,981 Shareholders’ equity 1,927,361 1,844,339 1,732,280 1,671,853 1,696,754 47 Table of Contents For the Years Ended September 30, 2023 2022 2021 2020 2019 (In thousands, except per share amounts) Selected Operating Data: Interest income $ 611,919 $ 409,333 $ 389,351 $ 455,298 $ 482,087 Interest expense 328,352 141,937 157,721 213,030 216,666 Net interest income 283,567 267,396 231,630 242,268 265,421 Provision (release) for credit losses on loans (1,500) 1,000 (9,000) 3,000 (10,000) Net interest income after provision (release) for credit losses on loans 285,067 266,396 240,630 239,268 275,421 Non-interest income 21,429 23,804 55,299 53,251 20,464 Non-interest expenses 213,129 198,146 195,835 192,274 193,673 Earnings before income tax 93,367 92,054 100,094 100,245 102,212 Income tax expense 18,117 17,489 19,087 16,928 21,975 Net earnings after income tax expense $ 75,250 $ 74,565 $ 81,007 $ 83,317 $ 80,237 Earnings per share Basic $ 0.27 $ 0.26 $ 0.29 $ 0.30 $ 0.29 Diluted $ 0.26 $ 0.26 $ 0.29 $ 0.29 $ 0.28 Cash dividends declared per share $ 1.13 $ 1.13 $ 1.12 $ 1.11 $ 1.02 48 Table of Contents At or For The Years Ended September 30, 2023 2022 2021 2020 2019 Selected Financial Ratios and Other Data: Performance Ratios: Return on average assets 0.46 % 0.51 % 0.56 % 0.56 % 0.56 % Return on average equity 4.00 % 4.14 % 4.77 % 4.88 % 4.58 % Interest rate spread(1) 1.57 % 1.75 % 1.52 % 1.52 % 1.73 % Net interest margin(2) 1.80 % 1.88 % 1.66 % 1.69 % 1.92 % Efficiency ratio(3) 69.88 % 68.04 % 68.25 % 65.06 % 67.75 % Non-interest expense to average total assets 1.31 % 1.34 % 1.35 % 1.29 % 1.36 % Average interest-earning assets to average interest-bearing liabilities 111.36 % 112.42 % 111.92 % 111.41 % 112.28 % Asset Quality Ratios: Non-performing assets as a percent of total assets 0.20 % 0.23 % 0.32 % 0.37 % 0.50 % Non-accruing loans as a percent of total loans 0.21 % 0.25 % 0.35 % 0.41 % 0.54 % Allowance for credit losses on loans as a percent of non-accruing loans 242.26 % 204.73 % 145.96 % 87.95 % 54.60 % Allowance for credit losses on loans as a percent of total loans 0.51 % 0.51 % 0.51 % 0.36 % 0.29 % Capital Ratios: Association Total capital to risk-weighted assets(4) 17.87 % 18.84 % 21.00 % 19.96 % 19.56 % Tier 1 (leverage) capital to net average assets(4) 9.82 % 10.33 % 11.15 % 10.39 % 10.54 % Tier 1 capital to risk-weighted assets(4) 17.15 % 18.25 % 20.43 % 19.37 % 19.07 % Common equity tier 1 capital to risk-weighted assets(4) 17.15 % 18.25 % 20.43 % 19.37 % 19.07 % TFS Financial Corporation Total capital to risk-weighted assets(4) 19.85 % 21.18 % 23.75 % 22.71 % 22.22 % Tier 1 (leverage) capital to net average assets(4) 10.96 % 11.66 % 12.65 % 11.88 % 12.05 % Tier 1 capital to risk-weighted assets(4) 19.13 % 20.59 % 23.18 % 22.13 % 21.73 % Common equity tier 1 capital to risk-weighted assets(4) 19.13 % 20.59 % 23.18 % 22.13 % 21.73 % Average equity to average total assets 11.58 % 12.23 % 11.72 % 11.50 % 12.30 % Other Data: Association: Number of full service offices 37 37 37 37 37 Loan production offices 4 5 7 7 8 ______________________ (1) Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the year.
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 shareholders, our customers, our communities and our associates.
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.
Overall, while customer and community confidence can never be assured, the Company believes that our liquidity is adequate and that we have adequate access to alternative funding sources. Monitoring and Controlling Operating Expenses. We continue to focus on managing operating expenses.
Overall, while customer and community confidence can never be assured, the Company believes that our liquidity is adequate and that we have adequate access to alternative funding sources. Monitoring and Controlling Our Operating Expenses. We continue to focus on managing operating expenses.
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.
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.
We believe that we had sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2022. 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.
We believe that we had sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2023. 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.
In April 2020, the Association adopted the Simplifications to the Capital Rule ("Rule") which simplified certain aspects of the capital rule under Basel III. The impact of the Rule was not material to the Association's regulatory ratios.
In 2020, the Association adopted the Simplifications to the Capital Rule ("Rule") which simplified certain aspects of the capital rule under Basel III. The impact of the Rule was not material to the Association's regulatory ratios.
Generally, and particularly over extended periods of time that encompass full economic cycles, interest rates associated with longer-term 52 Table of Contents 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.
Generally, and particularly over extended periods of time that encompass full economic cycles, interest rates associated with longer-term 49 Table of Contents 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.
Even though we have determined a valuation allowance is not required for deferred tax assets at September 30, 2022, there is no guarantee that those assets will be recognizable in the future. Pension Benefits. The determination of our obligations and expense for pension benefits is dependent upon certain assumptions used in calculating such amounts.
Even though we have determined a valuation allowance is not required for deferred tax assets at September 30, 2023, there is no guarantee that those assets will be recognizable in the future. Pension Benefits. The determination of our obligations and expense for pension benefits is dependent upon certain assumptions used in calculating such amounts.
We must assess the realization of the deferred tax asset and, to the extent that we believe that recovery is not likely, a valuation allowance is established. Adjustments to increase or decrease existing valuation allowances, if any, are charged or credited, respectively, to income tax expense. At September 30, 2022, no valuation allowances were outstanding.
We must assess the realization of the deferred tax asset and, to the extent that we believe that recovery is not likely, a valuation allowance is established. Adjustments to increase or decrease existing valuation allowances, if any, are charged or credited, respectively, to income tax expense. At September 30, 2023, no valuation allowances were outstanding.
Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the CDs due on or before September 30, 2023. We believe, however, based on past experience, that a significant portion of such deposits will remain with us.
Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the CDs due on or before September 30, 2024. We believe, however, based on past experience, that a significant portion of such deposits will remain with us.
The ten-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 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.
Generally, early withdrawal options 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.
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.
During the year ended September 30, 2022, the Company repurchased $5.0 million of its common stock. The payment of dividends, support of asset growth and strategic stock repurchases are planned to continue in the future as the focus for future capital deployment activities.
During the year ended September 30, 2023, the Company repurchased $5.0 million of its common stock. The payment of dividends, support of asset growth and strategic stock repurchases are planned to continue in the future as the focus for future capital deployment activities.
Currently, in addition to Ohio and Florida, we are actively lending in 23 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 56 Table of Contents 30, 2010 levels when the concentrations were 79.1% in Ohio and 19.0% in Florida.
Currently, in addition to Ohio and Florida, we are actively lending in 23 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.
For a comparison of operating results for the fiscal years ended September 30, 2021 and 2020, see the Company's Form 10-K for the fiscal year ended September 30, 2021. Liquidity and Capital Resources Liquidity is the ability to meet current and future financial obligations of a short-term nature.
For a comparison of operating results for the fiscal years ended September 30, 2022 and 2021, see the Company's Form 10-K for the fiscal year ended September 30, 2022. Liquidity and Capital Resources Liquidity is the ability to meet current and future financial obligations of a short-term nature.
After two years the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of CET1 capital over the three-year period. The Association is subject to the "capital conservation buffer" requirement level of 2.5%.
After two years the quarterly transitional amounts along with the initial adoption impact of CECL is fixed and will be phased out of CET1 capital over the three-year period. The Association is subject to the "capital conservation buffer" requirement level of 2.5%.
The amount of dividends that the Association may declare and pay to the Company in any calendar year, without the receipt of prior approval from the OCC but with prior notice to the FRB-Cleveland, cannot exceed net income for the current calendar year-to-date period plus retained net income (as defined) for the preceding two calendar years, reduced by prior dividend payments made during those periods.
The 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 62 Table of Contents 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 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 64 Table of Contents strategies which encompass its share repurchase and dividend payment programs.
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 requirement limits capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" in addition to the minimum capital requirements. At September 30, 2022, the Association exceeded the regulatory requirement for the "capital conservation buffer".
The requirement limits capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" in addition to the minimum capital requirements. At September 30, 2023, the Association exceeded the regulatory requirement for the "capital conservation buffer".
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for additional details regarding the repurchase of shares of common stock and the payment of dividends. Analysis of Net Interest Income Net interest income represents the difference between the income we earn on our interest-earning assets and the expense we pay on our interest-bearing liabilities.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for additional details regarding the repurchase of shares of common stock and the payment of dividends. 57 Table of Contents Analysis of Net Interest Income Net interest income represents the difference between the income we earn on our interest-earning assets and the expense we pay on our interest-bearing liabilities.
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 CDs transactions, principal repayments and maturities of securities, and sales of loans.
Our primary sources of funds consist of deposit inflows, loan repayments, advances from the FHLB of Cincinnati, borrowings from the FRB-Cleveland 60 Table of Contents Discount Window, overnight Fed Funds through various arrangements with other institutions, proceeds from brokered CDs transactions, principal repayments and maturities of securities, and sales of loans.
Levels of Regulatory Capital 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.
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.
(4) In April 2020, the Simplifications to the Capital Rule ("Rule") was adopted, which simplified certain aspects of the capital rule under Basel III. The impact of the Rule was not material to the regulatory capital ratios.
(4) In April 2020, the Simplifications to the Capital Rule ("Rule") was adopted, which simplified certain aspects of the capital rule under Basel III. The impact of the Rule was not material to previously reported regulatory capital ratios.
We believe that the most 57 Table of Contents critical accounting policies and estimates upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, relate to the allowance for credit losses, income taxes and pension benefits. Allowance for Credit Losses.
We believe that the most critical accounting policies and estimates upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, relate to the allowance for credit losses, income taxes and pension benefits. Allowance for Credit Losses.
The delinquency level related to loan originations prior to 2009, compared to originations in 2009 and after, reflect the higher credit standards to which we have subjected all new originations.
The delinquency level related to loan originations prior to 2009, compared to originations or purchases in 2009 and after, reflect the higher credit standards to which we have subjected all new originations.
In an effort to moderate the concentration of our credit risk exposure in individual states, particularly Ohio and Florida, 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.
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.
At September 30, 2022, 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.
At September 30, 2023, 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.
(2) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. (3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (4) Net interest margin represents net interest income divided by total interest-earning assets. Rate/Volume Analysis.
(2) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. (3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (4) Net interest margin represents net interest income divided by total interest-earning assets. 58 Table of Contents Rate/Volume Analysis.
During the year ended September 30, 2022, we had average outstanding borrowed funds of $3.67 billion as compared to $3.30 billion during the year ended September 30, 2021. Refer to the Extending the Duration of Funding Sources section of the Overview and the General section of Item 7A. Quantitative and Qualitative Disclosures About Market Risk for further discussion.
During the year ended September 30, 2023, we had average outstanding borrowed funds of $5.11 billion, as compared to $3.67 billion during the year ended September 30, 2022. Refer to the Extending the Duration of Funding Sources section of the Overview and the General section of Item 7A. Quantitative and Qualitative Disclosures About Market Risk for further discussion.
The FHFA practice is to place member institutions in this situation on restriction. If this restriction is established, we will not have access to FHLB long-term advances (maturities greater than one year) until our rating improves. However, we have not received notice of this restriction as of November 22, 2022.
The FHFA practice is to place member institutions in this situation on restriction. If this restriction is established, we will not have access to FHLB long-term advances (maturities greater than one year) until our rating improves. However, we have not received notice of this restriction as of November 21, 2023.
We use the asset/liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.
We use the asset/liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis 55 Table of Contents and the tax basis of our assets and liabilities.
In December 2021, the Company received a $56.0 million cash dividend from the Association. Because of its intercompany nature, this dividend payment had no impact on the Company's capital ratios or its consolidated statement of condition but reduced the Association's reported capital ratios.
In December 2022, the Company received a $40.0 million cash dividend from the Association. Because of its intercompany nature, this dividend payment had no impact on the Company's capital ratios or its consolidated statement of condition but reduced the Association's reported capital ratios.
As of September 30, 2022, the Association exceeded all regulatory capital requirements to be considered "Well Capitalized".
As of September 30, 2023, the Association exceeded all regulatory capital requirements to be considered "Well Capitalized".
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.
The Association’s Investment 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.
At September 30, 2022, $9.7 million of long-term, fixed-rate residential first mortgage loans were classified as held for sale. Our cash flows are derived from operating activities, investing activities and financing activities as reported in our CONSOLIDATED STATEMENTS OF CASH FLOWS included in the CONSOLIDATED FINANCIAL STATEMENTS .
At September 30, 2023, $3.3 million of long-term, fixed-rate residential first mortgage loans were classified as "held for sale". Our cash flows are derived from operating activities, investing activities and financing activities as reported in our CONSOLIDATED STATEMENTS OF CASH FLOWS included in the CONSOLIDATED FINANCIAL STATEMENTS .
The Company’s eighth stock repurchase program, which authorized the repurchase of up to 10,000,000 shares of the Company’s outstanding common stock was approved by the Board of Directors on October 27, 2016, and repurchases began on January 6, 2017. There were 4,133,921 shares repurchased under that program between its start date and September 30, 2022.
The Company’s eighth stock repurchase program, which authorized the repurchase of up to 10,000,000 shares of the Company’s outstanding common stock was approved by the Board of Directors on October 27, 2016, and repurchases began on January 6, 2017. There were 4,808,049 shares repurchased under that program between its start date and September 30, 2023.
Of the total mortgage loan originations for the year ended September 30, 2022, 25.4% are secured by properties in states other than Ohio or Florida. Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth.
Of the total mortgage loan originations and purchases for the year ended September 30, 2023, 25.8% are secured by properties in states other than Ohio or Florida. Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth.
Fourth, we invest in high quality marketable securities that exhibit limited market price variability and, to the extent that they are not needed as collateral for borrowings, can be sold in the institutional market and converted to cash. At September 30, 2022, our investment securities portfolio totaled $457.9 million.
Fourth, we invest in high quality marketable securities that exhibit limited market price variability and, to the extent that they are not needed as collateral for borrowings, can be sold in the institutional market and converted to cash. At September 30, 2023, our investment securities portfolio totaled $508.3 million.
These efforts include monitoring the relative costs of alternative funding sources such as retail deposits, brokered deposits, longer-term (e.g. four to six years) fixed rate advances from the FHLB of Cincinnati, and shorter-term (e.g. three months) advances from the FHLB of Cincinnati, the durations of which are extended by correlated interest rate exchange contracts.
These efforts include monitoring the relative costs of alternative funding sources such as retail certificates of deposit, brokered certificates of deposit, longer-term (e.g. four to six 52 Table of Contents years) fixed-rate advances from the FHLB of Cincinnati, and shorter-term (e.g. three months) funding, the durations of which are extended by correlated interest rate exchange contracts ("swap").
As delinquencies in the portfolio are resolved through pay-off, short sale or foreclosure, or management determines the collateral is not sufficient to satisfy the loan, uncollected balances have been charged against the allowance for credit losses previously provided. When amounts previously charged off are subsequently collected, the recoveries are added to the allowance.
As delinquencies in the portfolio are resolved through pay-off, short sale or foreclosure, or management determines the collateral is not sufficient to satisfy the loan, uncollected balances have been charged against the allowance for credit losses previously provided.
Each of these measures was more than twice the requirements currently in effect for the Association for designation as “well capitalized” under regulatory prompt corrective action provisions, which set minimum levels of 5.00% of net average assets and 8.00% of risk-weighted assets.
Each of these measures is in excess of the requirements currently in effect for the Association for designation as “well capitalized” under regulatory prompt corrective action provisions, which set minimum levels of 5.00% of net average assets and 8.00% of risk-weighted assets.
We generally seek to maintain a minimum liquidity ratio of 5% (which we compute as the sum of cash and cash equivalents plus unencumbered investment securities for which ready markets exist, divided by total assets). For the year ended September 30, 2022, our liquidity ratio averaged 5.64%.
We generally seek to maintain a minimum liquidity ratio of 5% (which we compute as the sum of cash and cash equivalents plus unencumbered investment securities for which ready markets exist, divided by total average assets). For the year ended September 30, 2023, the liquidity ratio averaged 5.53% for the Association.
Products that do not result in an effective mix of repayment ability are not offered. We use stringent, conservative lending standards for underwriting to reduce our credit risk. For first mortgage loans originated during the current fiscal year, the average credit score was 775, and the average LTV was 63%.
Products that do not result in an effective mix of repayment ability are not offered. We use stringent, conservative lending standards for underwriting to reduce our credit risk. For first mortgage loans originated or purchased during the current fiscal year, the average credit score was 774, and the average LTV was 71% at origination.
Finally, cash flows from operating activities have been a regular source of funds. During the fiscal years ended September 30, 2022 and 2021, cash flows from operations totaled $38.9 million and $83.2 million, respectively.
Finally, cash flows from operating activities have been a regular source of funds. During the fiscal years ended September 30, 2023 and 2022, cash flows from operations totaled $90.7 million and $38.9 million, respectively.
At September 30, 2022, the Company had, in the form of cash and a demand loan from the Association, $186.1 million of funds readily available to support its stand-alone operations.
At September 30, 2023, the Company had, in the form of cash and a demand loan from the Association, $173.7 million of funds readily available to support its stand-alone operations.
During the year ended September 30, 2022, we increased our borrowed funds by $1.7 billion to manage future interest costs, to fund new loan originations, and to actively manage our liquidity ratio. In March 2021, we received a second consecutive “Needs to Improve” rating on our Community Reinvestment Act (CRA) examination covering the period ended December 31, 2019.
During the year ended September 30, 2023, we increased our borrowed funds by $480.4 million to manage future interest costs, to fund new loan originations, and to actively manage our liquidity ratio. In March 2021, we received a second consecutive “Needs to Improve” rating on our CRA examination covering the period ended December 31, 2019.
Refer to the Controlling Our Interest Rate Risk Exposure section of the Overview for additional information. The allowance for credit losses was $99.9 million, or 0.70% of total loans receivable, at September 30, 2022, and included a $27.0 million liability for unfunded commitments.
Refer to the Controlling Our Interest Rate Risk Exposure section of the Overview for additional information. The allowance for credit losses was $104.8 million, or 0.69% of total loans receivable, at September 30, 2023, and included a $27.5 million liability for unfunded commitments.
Principal and interest received on loans serviced for others and owed to investors experienced a net decrease of $11.6 million to $29.9 million during the year ended September 30, 2022 compared to a net decrease of $4.4 million to $41.5 million during the year ended September 30, 2021.
Principal and interest received on loans serviced for others and owed to investors experienced a net decrease of $0.1 million to $29.8 million during the year ended September 30, 2023, compared to a net decrease of $11.6 million to $29.9 million during the year ended September 30, 2022.
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 $35.8 million, or 15%, to $267.4 million during the year ended September 30, 2022 from $231.6 million during the year ended September 30, 2021.
Refer to the Extending the Duration of Funding Sources section of the Overview and Comparison of Financial Condition for further discussion. Net Interest Income . Net interest income increased $16.2 million, or 6%, to $283.6 million during the year ended September 30, 2023 from $267.4 million during the year ended September 30, 2022.
If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Cincinnati, the FRB-Cleveland Discount Window, and arrangements with other institutions to purchase overnight Fed Funds, each of which provides an additional source of funds. Also, in evaluating funding alternatives, we may participate in the brokered deposit market.
If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Cincinnati, the FRB-Cleveland Discount Window, and arrangements with other institutions to purchase overnight Fed Funds, each of which provides an additional source of funds.
During the year ended September 30, 2022, we originated $3.65 billion of residential mortgage loans, and $2.16 billion of commitments for home equity loans and lines of credit, while during the year ended September 30, 2021, we originated $3.63 billion of residential mortgage loans and $1.74 billion of commitments for home equity loans and lines of credit.
During the year ended September 30, 2023, we originated or purchased $1.86 billion of residential mortgage loans, and $1.70 billion of commitments for home equity loans and lines of credit, while during the year ended September 30, 2022, we originated $3.65 billion of residential mortgage loans and $2.16 billion of commitments for home equity loans and lines of credit.
At September 30, 2022, the allowance for credit losses was $99.9 million or 0.70% of total loans. An increase or decrease of 10% in the allowance at September 30, 2022 would result in a $10.0 million charge or release, respectively, to income before income taxes.
At September 30, 2023, the allowance for credit losses was $102.6 million or 0.67% of total loans. An increase or decrease of 10% in the allowance at September 30, 2023 would result in a $10.3 million charge or release, respectively, to income before income taxes.
The provision for the year ended September 30, 2021 included $17.5 million of federal 62 Table of Contents income tax provision and $1.6 million of state income tax provision. Our combined effective tax rate was 19.0% during the year ended September 30, 2022 and 19.1% during the year ended September 30, 2021.
The provision for the year ended September 30, 2022 included $17.1 million of federal income tax provision and $0.4 million of state income tax provision. Our combined effective tax rate was 19.4% during the year ended September 30, 2023 and 19.0% during the year ended September 30, 2022.
We expect that certain loan types (i.e. our Smart Rate adjustable-rate loans, home purchase fixed-rate loans and 10-year fixed-rate loans) will continue to be originated under our legacy procedures, which are not eligible for sale to Fannie Mae.
Currently, certain types of loans (i.e. our Smart Rate adjustable-rate loans, home purchase fixed-rate loans and 10-year fixed-rate loans) are originated under our legacy procedures, which are not eligible for sale to Fannie Mae.
Third Federal Savings, MHC has the approval of its members to waive dividends aggregating up to $1.13 per share on the common stock of the Company for the 12 months following the special meeting of members held on July 12, 2022.
Third Federal Savings, MHC has the approval of its members to waive dividends aggregating up to $1.13 per share on the common stock of the Company for the 12 months following the special meeting of members held on July 11, 2023, and subsequently received the non-objection from the FRB.
This increase was attributed to a 35 basis point increase in the average yield on mortgage-backed securities, combined with a $10.7 million increase in the average balance of mortgage-backed securities to $439.3 million for the current year compared to $428.6 million during the prior year.
This increase was attributed to a 161 basis point increase in the average yield on mortgage-backed securities, combined with a $25.6 million increase in the average balance of mortgage-backed securities to $464.9 million for the current year compared to $439.3 million during the prior year. Interest Expense.
Rates were adjusted on deposits in response to changes in general market rates, as well as to changes in the rates paid by our competition. Interest expense on borrowed funds increased $4.6 million, or 8%, to $65.0 million during the year ended September 30, 2022 from $60.4 million during the year ended September 30, 2021.
Rates were adjusted on deposits in response to changes in market interest rates, as well as to changes in the rates paid by our competition. Interest expense on borrowed funds increased $89.2 million, or 137%, to $154.2 million during the year ended September 30, 2023 from $65.0 million during the year ended September 30, 2022.
Comparison of Financial Condition at September 30, 2022 and September 30, 2021 Total assets increased $1.73 billion, or 12.3%, to $15.79 billion at September 30, 2022 from $14.06 billion at September 30, 2021. This increase was mainly due to new loan originations exceeding the total of loan sales and principal repayments.
Comparison of Financial Condition at September 30, 2023 and September 30, 2022 Total assets increased $1.13 billion, or 7.1%, to $16.92 billion at September 30, 2023, from $15.79 billion at September 30, 2022. This increase was mainly due to new loan originations exceeding the total of loan sales and principal repayments.
At September 30, 2022, deposits totaled $8.92 billion (including $575.2 million of brokered CDs), while borrowings totaled $4.79 billion and borrowers’ advances and servicing escrows totaled $147.2 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.
At September 30, 2023, deposits totaled $9.45 billion (including $1.16 billion of brokered CDs), while borrowings totaled $5.27 billion and borrowers’ advances and servicing escrows totaled $154.2 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.
During the year ended September 30, 2022, loan sales, including commitments to sell, totaled $128.1 million, which included sales to Fannie Mae consisting of $99.3 million of long-term, fixed-rate, agency-compliant, non-Home Ready first mortgage loans and $28.8 million of loans that qualified under Fannie Mae's Home Ready initiative.
During the year ended September 30, 2023, loan sales, including commitments to sell, totaled $77.2 million, which included sales to Fannie Mae consisting of $66.5 million of long-term, fixed-rate, agency-compliant, non-Home Ready first mortgage loans and $10.7 million of loans that qualified under Fannie Mae's Home Ready initiative.
The average yield on interest earning assets increased eight basis points to 2.87% from 2.79%, compared to a 15 basis point decrease in the average rate paid on interest-bearing liabilities to 1.12% in the current year from 1.27% in the prior year.
The average yield on interest earning assets increased 102 basis points to 3.89% from 2.87%, compared to a 120 basis point increased in the average rate paid on interest-bearing liabilities to 2.32% in the current year from 1.12% in the prior year.
Commitments originated for home equity lines of credit and equity and bridge loans were $2.16 billion for the year ended September 30, 2022 compared to $1.74 billion for the year ended September 30, 2021. At September 30, 2022, pending commitments to originate new home equity lines of credit were $84.6 million and equity and bridge loans were $63.3 million.
Commitments originated for home equity lines of credit and equity and bridge loans were $1.70 billion for the year ended September 30, 2023, compared to $2.16 billion for the year ended September 30, 2022. At September 30, 2023, pending commitments to originate new home equity lines of credit were $64.2 million and equity and bridge loans were $80.9 million.
During the two-year delay, the Association and Company will add back to common equity tier 1 capital (“CET1”), 100% of the initial adoption impact of CECL plus 25% of the cumulative quarterly changes in the allowance for credit losses.
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.
Critical Accounting Policies and Estimates Critical accounting policies and estimates are defined as those that involve significant judgments and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions.
We will continue our efforts to control operating expenses as we grow our business. Critical Accounting Policies and Estimates Critical accounting policies and estimates are defined as those that involve significant judgments and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions.
Investment securities increased as $250.0 million in 58 Table of Contents purchases exceeded the combined effect of $163.6 million in principal repayments, a $44.9 million increase in unrealized losses and $5.4 million of premium amortization that occurred during the year ended September 30, 2022. There were no sales of investment securities during the year ended September 30, 2022.
Investment securities increased as $144.7 million in purchases exceeded the combined effect of $83.6 million in principal repayments, a $9.7 million increase in unrealized losses and $1.0 million of premium amortization that occurred during the year ended September 30, 2023. There were no sales of investment securities during the year ended September 30, 2023.
Interest expense on savings and checking accounts increased $1.6 million and $3.1 million, respectively, to $4.6 million and $4.2 million during the year ended September 30, 2022, compared to the prior year due to an increase in the average rates we paid on the deposits.
Interest expense on savings and checking accounts increased $20.1 million and $1.9 million, respectively, to $24.7 million and $6.1 million during the year ended September 30, 2023, compared to the prior year due to an increase in the average rates we 59 Table of Contents paid on the deposits.
At September 30, 2022, we had $538.7 million in outstanding commitments to originate loans. In addition to commitments to originate loans, we had $4.08 billion in unfunded home equity lines of credit to borrowers. CDs due within one year of September 30, 2022 totaled $3.02 billion, or 33.8% of total deposits.
At September 30, 2023, we had $349.4 million in outstanding commitments to originate or purchase loans. In addition to commitments to originate loans, we had $4.70 billion in unfunded home equity lines of credit to borrowers. CDs due within one year of September 30, 2023 totaled $3.42 billion, or 36.2% of total deposits.
As of September 30, 2022, loans originated prior to 2009 had a balance of $336.3 million, of which $8.1 million, or 2.4%, were delinquent, while loans originated in 2009 and after had a balance of $14.0 billion, of which $13.0 million, or 0.1%, were delinquent.
As of September 30, 2023, loans originated prior to 2009 had a balance of $276.5 million, of which $5.5 million, or 2.0%, were delinquent, while loans originated or purchased in 2009 and after had a balance of $15.0 billion, of which $17.8 million, or 0.1%, were delinquent.
During the year ended September 30, 2022, there was a $83.2 million increase in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of $575.2 million at September 30, 2022. At September 30, 2021, the balance of brokered CDs was $492.0 million.
During the year ended September 30, 2023, there was a $587.4 million 61 Table of Contents increase in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of $1.16 billion at September 30, 2023. At September 30, 2022, the balance of brokered CDs was $575.2 million.
The interest rate spread was 1.75% for the fiscal year ended September 30, 2022 compared to 1.52% at September 30, 2021. The net interest margin was 1.88% for the fiscal year ended September 30, 2022 and 1.66% for the fiscal year ended September 30, 2021. Provision (Release) for Credit Losses .
The interest rate spread was 1.57% for the fiscal year ended September 30, 2023 compared to 1.75% at September 30, 2022. The net interest margin was 1.80% for the fiscal year ended September 30, 2023 and 1.88% for the fiscal year ended September 30, 2022.
Business in Part I. THIRD FEDERAL SAVINGS AND LOAN ASSOCIATION OF CLEVELAND . Extending the Duration of Funding Sources As a complement to our strategies to shorten the duration of our interest earning assets, as described above, we also seek to lengthen the duration of our interest bearing funding sources.
Extending the Duration of Funding Sources As a complement to our strategies to shorten the duration of our interest-earning assets, as described above, we also seek to lengthen the duration of our interest-bearing funding sources.
The increase was attributed to a combination of a $367.4 million, or 11%, increase in the average balance of borrowed funds to $3.67 billion during the current year from $3.30 billion during the prior year, partially offset by a six basis point decrease in the average rate paid for these funds to 1.77% during the year ended September 30, 2022 from 1.83% for the year ended September 30, 2021.
The increase was attributed to a combination of a $1.44 billion, or 39%, increase in the average balance of borrowed funds to $5.11 billion during the current year from $3.67 billion during the prior year, and a 124 basis point increase in the average rate paid for these funds to 3.01% during the year ended September 30, 2023 from 1.77% for the year ended September 30, 2022.
Current Balance of ARM Loans Scheduled for Interest Rate Reset During the Fiscal Years Ending September 30, (in thousands) 2023 $207,932 2024 354,614 2025 708,993 2026 1,525,895 2027 1,770,027 2028 100,628 Total $4,668,089 At September 30, 2022 and September 30, 2021, mortgage loans held for sale, all of which were long-term, fixed-rate first mortgage loans and all of which were held for sale to Fannie Mae, totaled $9.7 million and $8.8 million, respectively. 54 Table of Contents Loan Portfolio Yield The following tables set forth the balance and interest yield as of September 30, 2022 for the portfolio of loans held for investment, by type of loan, structure and geographic location.
Current Balance of ARM Loans Scheduled for Interest Rate Reset During the Fiscal Years Ending September 30, (in thousands) 2024 $381,797 2025 699,104 2026 1,464,792 2027 1,650,442 2028 510,582 2029 54,126 Total $4,760,843 At September 30, 2023 and September 30, 2022, mortgage loans held for sale, all of which were long-term, fixed-rate first mortgage loans and all of which were held for sale to Fannie Mae, totaled $3.3 million and $9.7 million, respectively. 51 Table of Contents Loan Portfolio Yield The following tables set forth the principal balance and interest yield as of September 30, 2023 for the portfolio of loans held for investment, by type of loan, structure and geographic location.
Total bank owned life insurance contracts increased $6.7 million, to $304.0 million at September 30, 2022, from $297.3 million at September 30, 2021, primarily due to changes in cash surrender value. Deposits decreased $72.6 million, or 0.8%, to $8.92 billion at September 30, 2022 from $8.99 billion at September 30, 2021.
Total bank owned life insurance contracts increased $8.0 million, to $312.0 million at September 30, 2023, from $304.0 million at September 30, 2022, primarily due to changes in cash surrender value. Deposits increased $528.8 million, or 5.9%, to $9.45 billion at September 30, 2023, from $8.92 billion at September 30, 2022.
At September 30, 2022, we had $4.56 billion of FHLB of Cincinnati advances, no outstanding borrowings from the FRB-Cleveland Discount Window and $225 million in Fed Funds. Additionally, at September 30, 2022, we had $575.2 million of brokered CDs.
At September 30, 2023, we had $5.25 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. Additionally, at September 30, 2023, we had $1.16 billion of brokered CDs.
Of the total $3.65 billion in first mortgage loan originations for the fiscal year ended September 30, 2022, 50% were refinance transactions and 50% were purchases, while 28% were adjustable-rate mortgages and 72% were fixed-rate mortgages. Fixed rate loans with terms of 10 years or less accounted for 13% of total first mortgage loan originations.
Of the total $1.86 billion in first mortgage loans originated and purchased for the fiscal year ended September 30, 2023, 11% were refinance transactions and 89% were purchases, while 34% were adjustable-rate mortgages and 66% were fixed-rate mortgages. Fixed-rate loans with terms of 10 years or less accounted for 2% of total first mortgage loan originations and purchases.
Borrowed funds increased $1.70 billion, or 55.0%, to $4.79 billion at September 30, 2022 from $3.09 billion at September 30, 2021. The increase was primarily used to fund loan growth.
Borrowed funds increased $480.4 million, or 10.0%, to $5.27 billion at September 30, 2023, from $4.79 billion at September 30, 2022. The increase was primarily used to fund loan growth.
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.
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.
For the Fiscal Years Ended September 30, 2022 2021 2020 Average Balance Interest Income/ Expense Yield/ Cost Average Balance Interest Income/ Expense Yield/ Cost Average Balance Interest Income/ Expense Yield/ Cost (Dollars in thousands) Interest-earning assets: Interest-earning cash equivalents $ 384,947 $ 3,178 0.83% $ 567,035 $ 673 0.12 % $ 307,902 $ 1,909 0.62 % Investment securities 3,643 43 1.18% — — — % — — — % Mortgage-backed securities 439,269 5,458 1.24% 428,590 3,822 0.89 % 527,195 9,707 1.84 % Loans(1) 13,258,517 395,691 2.98% 12,800,542 381,887 2.98 % 13,366,447 440,697 3.30 % Federal Home Loan Bank stock 173,506 4,963 2.86% 155,322 2,969 1.91 % 120,011 2,985 2.49 % Total interest-earning assets 14,259,882 409,333 2.87% 13,951,489 389,351 2.79 % 14,321,555 455,298 3.18 % Non-interest-earning assets 482,501 532,786 540,421 Total assets $ 14,742,383 $ 14,484,275 $ 14,861,976 Interest-bearing liabilities: Checking accounts $ 1,326,882 4,186 0.32% $ 1,079,699 1,140 0.11 % $ 917,552 1,477 0.16 % Savings accounts 1,859,990 4,553 0.24% 1,742,042 2,992 0.17 % 1,530,977 7,775 0.51 % Certificates of deposit 5,826,286 68,204 1.17% 6,339,412 93,187 1.47 % 6,621,289 130,990 1.98 % Borrowed funds 3,671,323 64,994 1.77% 3,303,925 60,402 1.83 % 3,785,026 72,788 1.92 % Total interest-bearing liabilities 12,684,481 141,937 1.12% 12,465,078 157,721 1.27 % 12,854,844 213,030 1.66 % Non-interest-bearing liabilities 255,388 321,958 298,520 Total liabilities 12,939,869 12,787,036 13,153,364 Shareholders’ equity 1,802,514 1,697,239 1,708,612 Total liabilities and shareholders’ equity $ 14,742,383 $ 14,484,275 $ 14,861,976 Net interest income $ 267,396 $ 231,630 $ 242,268 Interest rate spread(2) 1.75 % 1.52 % 1.52 % Net interest-earning assets(3) $ 1,575,401 $ 1,486,411 $ 1,466,711 Net interest margin(4) 1.88 % 1.66 % 1.69 % Average interest-earning assets to average interest-bearing liabilities 112.42 % 111.92 % 111.41 % 60 Table of Contents (1) Loans include both mortgage loans held for sale and loans held for investment.
For the Fiscal Years Ended September 30, 2023 2022 2021 Average Balance Interest Income/ Expense Yield/ Cost Average Balance Interest Income/ Expense Yield/ Cost Average Balance Interest Income/ Expense Yield/ Cost (Dollars in thousands) Interest-earning assets: Interest-earning cash equivalents $ 356,450 $ 16,826 4.72% $ 384,947 $ 3,178 0.83 % $ 567,035 $ 673 0.12 % Investment securities 23,636 1,123 4.75% 3,643 43 1.18 % — — — % Mortgage-backed securities 464,919 13,247 2.85% 439,269 5,458 1.24 % 428,590 3,822 0.89 % Loans (1) 14,657,265 565,610 3.86% 13,258,517 395,691 2.98 % 12,800,542 381,887 2.98 % Federal Home Loan Bank stock 233,013 15,113 6.49% 173,506 4,963 2.86 % 155,322 2,969 1.91 % Total interest-earning assets 15,735,283 611,919 3.89% 14,259,882 409,333 2.87 % 13,951,489 389,351 2.79 % Non-interest-earning assets 515,123 482,501 532,786 Total assets $ 16,250,406 $ 14,742,383 $ 14,484,275 Interest-bearing liabilities: Checking accounts $ 1,093,036 6,081 0.56% $ 1,326,882 4,186 0.32 % $ 1,079,699 1,140 0.11 % Savings accounts 1,798,663 24,686 1.37% 1,859,990 4,553 0.24 % 1,742,042 2,992 0.17 % Certificates of deposit 6,123,979 143,434 2.34% 5,826,286 68,204 1.17 % 6,339,412 93,187 1.47 % Borrowed funds 5,114,045 154,151 3.01% 3,671,323 64,994 1.77 % 3,303,925 60,402 1.83 % Total interest-bearing liabilities 14,129,723 328,352 2.32% 12,684,481 141,937 1.12 % 12,465,078 157,721 1.27 % Non-interest-bearing liabilities 239,387 255,388 321,958 Total liabilities 14,369,110 12,939,869 12,787,036 Shareholders’ equity 1,881,296 1,802,514 1,697,239 Total liabilities and shareholders’ equity $ 16,250,406 $ 14,742,383 $ 14,484,275 Net interest income $ 283,567 $ 267,396 $ 231,630 Interest rate spread (2) 1.57 % 1.75 % 1.52 % Net interest-earning assets (3) $ 1,605,560 $ 1,575,401 $ 1,486,411 Net interest margin (4) 1.80 % 1.88 % 1.66 % Average interest-earning assets to average interest-bearing liabilities 111.36 % 112.42 % 111.92 % (1) Loans include both mortgage loans held for sale and loans held for investment.
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. Our funding sources are discussed in the Sources of Funds section of Item 1. Business in Part I.
Additionally, collateral pledges are not provided with respect to our retail CDs or our brokered CDs, but are required for our advances from the FHLB of Cincinnati as well as for our interest rate exchange contracts. We will continue to evaluate the structure of our funding sources based on current needs.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

21 edited+5 added−25 removed18 unchanged
Biggest changeAt September 30, Risk Measure (+200 bp Rate Shock) 2022 2021 Pre-Shock EVE Ratio 9.08 % 12.97 % Post-Shock EVE Ratio 6.71 % 12.46 % Sensitivity Measure in basis points (237) (51) Percentage Change in EVE Ratio (29.92) % (8.21) % Certain shortcomings are inherent in the methodologies used in measuring interest rate risk through changes in EVE.
Biggest changeTFS Financial Corporation At September 30, Risk Measure (+200 bp Rate Shock) 2023 2022 Pre-Shock EVE Ratio 8.21 % 11.00 % Post-Shock EVE Ratio 6.44 % 9.25 % Sensitivity Measure in basis points (177) (175) Percentage Change in EVE Ratio (25.92) % (20.25) % Third Federal Savings and Loan Association At September 30, Risk Measure (+200 bp Rate Shock) 2023 2022 Pre-Shock EVE Ratio 6.77 % 9.08 % Post-Shock EVE Ratio 4.91 % 6.71 % Sensitivity Measure in basis points (186) (237) Percentage Change in EVE Ratio (31.45) % (29.92) % The manner in which actual yields, costs and consumer behavior respond to changes in market interest rates may vary from the inherent methodologies used to measure interest rate risk through changes in EVE.
In our model, we estimate what our net interest income would be for prospective 12 and 24 month periods using customized (based on our portfolio characteristics) assumptions with respect to loan prepayment rates, default rates and deposit decay rates, and the implied forward yield curve as of the market date for assumptions as to projected interest rates.
In our model, we estimate what our net interest income would be for prospective 12 and 24 month periods using customized (based on our portfolio characteristics) assumptions with respect to loan prepayment rates, default rates and deposit decay rates, and the implied forward yield curve as of the market date for assumptions related to projected interest rates.
EVE is considered as a point in time calculation with a "liquidation" view of the Association where all the cash flows (including interest, principal and prepayments) are modeled and discounted using discount factors derived from the current market yield curves.
EVE is considered as a point in time calculation with a "liquidation" view of the Company and Association where all the cash flows (including interest, principal and prepayments) are modeled and discounted using discount factors derived from the current market yield curves.
In this regard, the EVE tables presented above assume: • no new growth or business volumes; • that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, except for reductions to reflect mortgage loan principal repayments along with modeled prepayments and defaults; and • that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities.
In this regard, the EVE tables presented above assume: • no new growth or business volumes; • that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, except for reductions to reflect mortgage loan principal repayments along with modeled prepayments and defaults, and deposit decays; and • that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities.
Further, the Board has established the Directors Risk Committee, which, among other responsibilities, conducts regular oversight and review of the guidelines, policies and deliberations of the Asset/Liability Management Committee. We have sought to manage our interest rate risk in order to control the exposure of our earnings and capital to changes in interest rates.
Further, the Board has established the Directors Risk Committee, which, among other responsibilities, conducts regular oversight and review of the guidelines, policies and deliberations of the Asset/Liability Management Committee. We manage our interest rate risk in order to control the exposure of our earnings and capital to changes in interest rates.
The underlying prepayment, decay and default assumptions are also the same and they both start with the same month end "markets" (Treasury and LIBOR yield curves, etc.). From that similar starting point, the models follow divergent paths.
The underlying prepayment, decay and default assumptions are also the same and they both start with the same month end "markets" (Treasury and FHLB yield curves, etc.). From that similar starting point, the models follow divergent paths.
Accordingly, although the EVE table provides an indication of our interest rate risk exposure as of the indicated dates, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our EVE and will differ from actual results.
Accordingly, although the EVE tables provide an indication of our interest rate risk exposure as of the indicated dates, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our EVE and will differ from actual results.
Using customized modeling software, the Association prepares periodic estimates of the amounts by which the net present value of its cash flows from assets, liabilities and off-balance sheet items (the institution’s economic value of equity or EVE) would change in the event of a range of assumed changes in market interest rates.
Using customized modeling software, the Company and Association prepare periodic estimates of the amounts by which the net present value of cash flows from assets, liabilities and off-balance sheet items (the institution’s economic value of equity or EVE) would change in the event of a range of assumed changes in market interest rates.
Net interest income is the difference between the interest income that we earn on our interest-earning assets, such as loans and securities, and the interest that we pay on our interest-bearing liabilities, such as deposits and borrowings.
Net interest income is the difference between the interest income that we earn on our interest-earning assets, such as loans and securities, and the interest that we pay on our interest- 65 Table of Contents bearing liabilities, such as deposits and borrowings.
In addition to our core business activities, which primarily sought to originate Smart Rate (adjustable), home equity lines of credit (adjustable) and 10-year fixed-rate loans funded by borrowings from the FHLB and intermediate term CDs (including brokered CDs) and which are intended to have a favorable impact on our IRR profile, the net impact of several other items resulted in the 21.70% deterioration in the Pre-Shock EVE Ratio (base valuation) measure at September 30, 2022, when compared to the measure at September 30, 2021.
In addition to our core business activities, which seek to originate Smart Rate (adjustable) loans, home equity lines of credit (adjustable) and 10-year fixed-rate loans funded by borrowings from the FHLB and intermediate term CDs (including brokered CDs), and which are intended to have a favorable impact on our IRR profile, the impact of several other items and events resulted in the 279 and 231 basis point deterioration in the Pre-Shock EVE Ratio (base valuation) measures at September 30, 2023, when compared to the measures at September 30, 2022 for the Company and Association, respectively.
As of September 30, 2022, we estimated that our EaR for the 12 months ending September 30, 2023 would decrease by 0.29% in the event that market interest rates used in the simulation were adjusted in equal monthly amounts (termed a "ramped" format) during the 12 month measurement period to an aggregate increase in 200 basis points.
As of September 30, 2023, the estimated EaR for the 12 months ending September 30, 2024 would decrease by 1.75% for the Company and 2.71% for the Association in the event that market interest rates used in the simulation were adjusted in incremental amounts (termed a "ramped" format) during the 12 month measurement period to an aggregate increase in 200 basis points.
We then calculate what the estimated net interest income would be for the same period under numerous interest rate scenarios. The simulation process is subject to continual enhancement, modification, refinement and adaptation in order that it might most accurately reflect our current circumstances, factors and expectations.
We then calculate what the estimated net interest income would be for the same period under numerous interest rate scenarios. The simulation process is subject to continual enhancement, modification, refinement and adaptation.
The Association continues to calculate instantaneous scenarios, and as of September 30, 2022, we estimated that our EaR for the 12 months ending September 30, 2023, would decrease by 15.06% in the event of an instantaneous 200 basis point increase in market interest rates.
The Company and Association continue to calculate instantaneous scenarios, and as of September 30, 2023, the estimated EaR for the 12 months ending September 30, 2024, would decrease by 5.16% and 6.91%, respectively, in the event of an instantaneous 200 basis point increase in market interest rates.
We continually evaluate, challenge and update the methodology and assumptions used in our IRR model, including behavioral equations that have been derived based on third-party studies of our customers' historical performance patterns.
Modeling our IRR profile and measuring our IRR exposure are processes that are subject to continuous revision, refinement, modification, enhancement, back testing and validation. We continually evaluate, challenge and update the methodology and assumptions used in our IRR model, including behavioral equations that have been derived based on third-party studies of our customers' historical performance patterns.
With each of these models, specific policy limits have been established that are compared with the actual month end results. These limits have been approved by the Association's Board of Directors and are used as benchmarks to evaluate and moderate interest rate risk.
These limits have been approved by the Association's Board of Directors and are used as benchmarks to evaluate and moderate interest rate risk.
On the other hand, EaR is based on balance sheet projections going one year and two years forward and assumes new business volume and pricing to calculate net interest income under different interest rate environments. EaR is calculated to determine the sensitivity of net interest income under different interest rate scenarios.
It provides a long term view and helps to define changes in equity and duration as a result of changes in interest rates. On the other hand, EaR is based on balance sheet projections going one year and two years forward and assumes new business volume and pricing to calculate net interest income under different interest rate environments.
The table above indicates that at September 30, 2022, in the event of an increase of 200 basis points in all interest rates, the Association would experience a 29.92% decrease in EVE. In the event of a 100 basis point decrease in interest rates, the Association would experience a 11.43% increase in EVE.
The tables above indicate that at September 30, 2023, in the event of an increase of 200 basis points in all interest rates, the Company and Association would experience a 25.92% and 31.45% decrease in EVE, respectively.
Certain shortcomings are also inherent in the methodologies used in determining interest rate risk through changes in EaR. Modeling changes in EaR require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.
The manner in which actual yields, costs and consumer behavior respond to changes in market interest rates may vary from the inherent methodologies used to measure interest rate risk through EaR.
The following table is based on the calculations contained in the previous table, and sets forth the change in the EVE at a +200 basis point rate of shock at September 30, 2022, with comparative information as of September 30, 2021.
In the event of a 100 basis point decrease in interest rates, the Company and Association would experience a 8.91% and 10.80% increase in EVE, respectively. 64 Table of Contents The following tables are based on the calculations contained in the previous tables, and set forth the change in the EVE at a +200 basis point rate of shock at September 30, 2023, with comparative information as of September 30, 2022.
The model facilitates the generation of alternative modeling scenarios and provides us with timely decision making data that is integral to our IRR management processes. Modeling our IRR profile and measuring our IRR exposure are processes that are subject to continuous revision, refinement, modification, enhancement, back testing and validation.
Our simulation model possesses random patterning capabilities and accommodates extensive regression analytics applicable to the prepayment and decay profiles of our borrower and depositor portfolios. The model facilitates the generation of alternative modeling scenarios and provides us with timely decision making data that is integral to our IRR management processes.
Factors contributing to this decline 67 Table of Contents included changes in market rates, capital actions by the Association, and changes due to business activity. Negatively impacting the Percentage Change in EVE was a $56.0 million cash dividend that the Association paid to the Company in December 2021.
Factors contributing to these deteriorations included increases in market interest rates, capital actions by the Association, and changes due to business activity.
Removed
As part of our ongoing asset-liability management, we use the following strategies to manage our interest rate risk: (i) marketing adjustable-rate and shorter-maturity (10-year, fixed-rate mortgage) loan products; (ii) lengthening the weighted average remaining term of major funding sources, primarily by offering attractive interest rates on deposit products, particularly longer-term certificates of deposit, and through the use of longer-term advances from the FHLB of Cincinnati (or shorter-term advances converted to longer-term durations via the use of interest rate exchange contracts that qualify as cash flow hedges) and longer-term brokered certificates of deposit; (iii) investing in shorter- to medium-term investments and mortgage-backed securities; (iv) maintaining the levels of capital in excess of what is required for "well capitalized" designation; and (v) securitizing and/or selling long-term, fixed-rate residential real estate mortgage loans. 65 Table of Contents During the fiscal year ended September 30, 2022, $128.1 million of agency-compliant, long-term, fixed-rate mortgage loans were sold to Fannie Mae on a servicing retained basis.
Added
Refer to the Overview section of Item 7 for additional discussion on how we manage interest rate risk. Economic Value of Equity .
Removed
At September 30, 2022, $9.7 million of agency-compliant, long-term, fixed-rate residential first mortgage loans were classified as "held for sale".
Added
The following table presents the estimated changes in the Company's EVE at September 30, 2023 that would result from the indicated instantaneous changes in the United States Treasury yield curve and other relevant market interest rates. 63 Table of Contents TFS Financial Corporation Change in Interest Rates (basis points) (1) Estimated EVE (2) Estimated Increase (Decrease) in EVE EVE as a Percentage of Present Value of Assets (3) EVE Ratio (4) Increase (Decrease) (basis points) Amount Percent (Dollars in thousands) +300 $ 740,527 $ (513,451) (40.95) % 5.28 % (293) +200 928,976 (325,002) (25.92) % 6.44 % (177) +100 1,111,172 (142,806) (11.39) % 7.49 % (72) 0 1,253,978 — — % 8.21 % — -100 1,365,669 111,691 8.91 % 8.70 % 49 -200 1,422,575 168,597 13.44 % 8.83 % 62 -300 1,411,363 157,385 12.55 % 8.56 % 35 The following table presents the estimated changes in the Association's EVE at September 30, 2023 that would result from the indicated instantaneous changes in the United States Treasury yield curve and other relevant market interest rates.
Removed
Of the agency compliant loan sales during the fiscal year ended September 30, 2022, $28.8 million was comprised of long-term, (15 to 30 years), fixed-rate first mortgage loans which were sold under Fannie Mae's Home Ready program; and $99.3 million was comprised of long-term (15 to 30 years), fixed-rate first mortgage refinance loans which were sold to Fannie Mae, as described in the next paragraph.
Added
Third Federal Savings and Loan Association Change in Interest Rates (basis points) (1) Estimated EVE (2) Estimated Increase (Decrease) in EVE EVE as a Percentage of Present Value of Assets (3) EVE Ratio (4) Increase (Decrease) (basis points) Amount Percent (Dollars in thousands) +300 $ 519,419 $ (512,967) (49.69) % 3.71 % (306) +200 707,707 (324,679) (31.45) % 4.91 % (186) +100 889,739 (142,647) (13.82) % 6.00 % (77) 0 1,032,386 — — % 6.77 % — -100 1,143,898 111,512 10.80 % 7.30 % 53 -200 1,200,628 168,242 16.30 % 7.46 % 69 -300 1,189,237 156,851 15.19 % 7.22 % 45 _________________ (1) Assumes an instantaneous uniform change in interest rates at all maturities.
Removed
First mortgage loans (primarily fixed-rate, mortgage refinances with terms of 15 years or more, and Home Ready) are generally originated under Fannie Mae procedures and are eligible for sale to Fannie Mae either as whole loans or within mortgage-backed securities.
Added
The Company and Association use the "ramped" assumption in preparing the EaR simulation estimates for use in its public disclosures.
Removed
We expect that certain loan types (i.e. our Smart Rate adjustable-rate loans, home purchase fixed-rate loans and 10-year fixed-rate loans) will continue to be originated under our legacy procedures, which are not eligible for sale to Fannie Mae.
Added
EaR is calculated to determine the sensitivity of net interest income under different interest rate scenarios. With each of these models, specific policy limits have been established for the Association that are compared with the actual month end results.
Removed
For loans that are not originated under Fannie Mae procedures, the Association’s ability to reduce interest rate risk via loan sales is limited to those loans that have established payment histories, strong borrower credit profiles and are supported by adequate collateral values that meet the requirements of the FHLB's Mortgage Purchase Program or of private third-party investors.
Removed
The Association actively markets home equity lines of credit, an adjustable-rate mortgage loan product and a 10-year fixed-rate mortgage loan product. Each of these products provides us with improved interest rate risk characteristics when compared to longer-term, fixed-rate mortgage loans.
Removed
Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and investments, as well as loans and investments with variable rates of interest, helps 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.
Removed
The Association evaluates funding source alternatives as it seeks to extend its liability duration.
Removed
Extended duration funding sources that are currently considered include: retail certificates of deposit (which, subject to a fee, generally provide depositors with an early withdrawal option, but do not require pledged collateral); brokered certificates of deposit (which generally do not provide an early withdrawal option and do not require collateral pledges); collateralized borrowings which are not subject to creditor call options (generally advances from the FHLB of Cincinnati); and interest rate exchange contracts ("swaps") which are subject to collateral pledges and which 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).
Removed
The Association's intent is that any swap to which it may be a party will qualify for hedge accounting treatment. The Association attempts to be opportunistic in the timing of its funding duration deliberations and when evaluating alternative funding sources, compares effective interest rates, early withdrawal/call options and collateral requirements. The Association is a party to interest rate swap agreements.
Removed
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 occurs and the notional principal amount does not appear on our balance sheet. The Association uses swaps to extend the duration of its funding sources.
Removed
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 at a specified interval (generally three months) throughout the term of each agreement.
Removed
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. The notional amount of the Association's swap portfolio at September 30, 2022 was $1.55 billion.
Removed
The swap portfolio's weighted average fixed pay rate was 1.88% and the weighted average remaining term was 2.7 years.
Removed
Concurrent with the execution of each swap, the Association entered into a short-term borrowing from the FHLB of Cincinnati in an amount equal to the notional amount of the swap and with interest rate resets aligned with the reset interval of the swap.
Removed
Each individual swap agreement has been designated as a cash flow hedge of interest rate risk associated with the Company's variable rate borrowings from the FHLB of Cincinnati. Economic Value of Equity .
Removed
The following table presents the estimated changes in the Association’s EVE at September 30, 66 Table of Contents 2022 that would result from the indicated instantaneous changes in the United States Treasury yield curve and other relevant market interest rates.
Removed
Change in Interest Rates (basis points) (1) Estimated EVE (2) Estimated Increase (Decrease) in EVE EVE as a Percentage of Present Value of Assets (3) EVE Ratio (4) Increase (Decrease) (basis points) Amount Percent (Dollars in thousands) +300 $ 698,469 $ (629,633) (47.41) % 5.18 % (390) +200 930,754 (397,348) (29.92) % 6.71 % (237) +100 1,141,216 (186,886) (14.07) % 8.01 % (107) 0 1,328,102 — — % 9.08 % — -100 1,479,861 151,759 11.43 % 9.86 % 78 _________________ (1) Assumes an instantaneous uniform change in interest rates at all maturities.
Removed
Modeling changes in EVE require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.
Removed
Because of its intercompany nature, this payment had no impact on the Company's capital position, or the Company's overall IRR profile, but reduced the Association's regulatory capital and regulatory capital ratios and negatively impacted the Association's Percentage Change in EVE.
Removed
The IRR simulation results presented above were in line with management's expectations and were within the risk limits established by our Board of Directors. Our simulation model possesses random patterning capabilities and accommodates extensive regression analytics applicable to the prepayment and decay profiles of our borrower and depositor portfolios.
Removed
The Association uses the "ramped" assumption in preparing the EaR simulation estimates for use in its public disclosures. In addition to conforming to predominate industry practice, the Association also believes that the ramped assumption provides a more probable/plausible scenario for net interest income simulations than instantaneous shocks which provide a theoretical analysis but a much less credible economic scenario.
Removed
It provides a long term view and helps to define changes in equity and duration as a result of changes in 68 Table of Contents interest rates.
Removed
At September 30, 2022 the IRR profile as disclosed above was within our internal limits.

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