Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Our business strategy is to operate as a well capitalized and profitable financial institution dedicated to providing exceptional personal service to our customers.
Since being organized in 1938, we grew to become, at the time of our initial public offering of stock in 2007, the nation’s largest mutually-owned savings and loan association based on total assets. We credit our success to our continued emphasis on our primary values: “Love, Trust, Respect, and a Commitment to Excellence, along with Having Fun". Our values are reflected in the design and pricing of our loan and deposit products, as described below. Our values are further reflected in a long-term revitalization program encompassing the three-mile corridor of the Broadway-Slavic Village neighborhood in Cleveland, Ohio where our main office was established and continues to be located and where we've been the developer of a community of 42 homes, intended to serve the low- to moderate income home owner. We intend to continue to adhere to our primary values and to support our customers and the communities in which we operate as we pursue our mission to help people achieve the dream of home ownership and financial security while creating value for our customers, our communities, our associates and our shareholders. Also, in the spirit of our values and specifically our Commitment to Excellence, the Association is in the process of implementing a new core processing system. The implementation is intended to go live in July 2026 and will modernize our operations, boost efficiency and allow us to leverage technology to enhance our customers' experience.
Consumers, businesses, and governments alike are navigating an elevated level of economic uncertainty as a new perspective on global trade policy is being deliberated by the markets. After maintaining interest rates near 20-year highs, the Federal Reserve has shifted its focus and initiated an easing cycle, conducting rate cuts in September and October 2025. The U.S. Treasury yield curve is currently positive, after a prolonged period of inversion, normalizing just prior to the FRS's 100 basis point rate cuts between September and December 2024. It is possible that the easing cycle will continue into late 2025 and 2026, however, uncertainty can lead to volatility in interest rates and spreads, creating a challenging operating environment. Taking all of this into consideration, we remain committed to our mission, business model, and strategic approach. Specifically, (1) our capital ratios remain a primary source of financial strength; (2) our core deposits remain stable and the majority of our deposit accounts fall within FDIC insurance limits; (3) we maintain adequate access to contingent sources of liquidity; and (4) our risk management practices around an array of financial disciplines are robust and commensurate to an institution of our size and complexity.
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The following tables present select financial data of the Company for the five most recent fiscal years.
At September 30,
Selected Financial Condition Data:
(In thousands)
Total assets
Cash and cash equivalents
Investment securities available for sale
Mortgage loans held for sale
Loans held for investment, net
Bank owned life insurance contracts
Total liabilities
Deposits
Borrowed funds
Shareholders’ equity
For the Years Ended September 30,
Selected Operating Data:
(In thousands, except per share amounts)
Interest and dividend income
Interest expense
Net interest income
Provision (release) for credit losses
Net interest income after provision (release) for credit losses
Non-interest income
Non-interest expenses
Income before income taxes
Income tax expense
Net income
Earnings per share
Basic
Diluted
Cash dividends declared per share
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At or For The Years Ended September 30,
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average total assets
Return on average equity
Interest rate spread (1)
Net interest margin (2)
Efficiency ratio (3)
Non-interest expense to average total assets
Average interest-earning assets to average interest-bearing liabilities
Asset Quality Ratios:
Non-performing assets as a percent of total assets
Non-accruing loans as a percent of total loans
Allowance for credit losses on loans as a percent of non-accruing loans
Allowance for credit losses on loans as a percent of total loans
Capital Ratios:
Association
Total capital to risk-weighted assets
Tier 1 (leverage) capital to net average assets
Tier 1 capital to risk-weighted assets
Common equity tier 1 capital to risk-weighted assets
TFS Financial Corporation
Total capital to risk-weighted assets
Tier 1 (leverage) capital to net average assets
Tier 1 capital to risk-weighted assets
Common equity tier 1 capital to risk-weighted assets
Average equity to average total assets
Other Data:
Association:
Number of full service offices
Loan production offices
(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.
(2) The net interest margin represents net interest income as a percent of average interest-earning assets for the year.
(3) The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.
Management believes that the following matters are those most critical to our success: (1) controlling our interest rate risk exposure; (2) monitoring and limiting our credit risk; (3) maintaining access to adequate liquidity and diverse funding sources to support our growth; and (4) monitoring and controlling our operating expenses.
Controlling Our Interest Rate Risk Exposure. Historically, our greatest risk has been our exposure to changes in market interest rates. When we hold longer-term, fixed-rate assets, funded by liabilities with shorter-term re-pricing characteristics, we are exposed to potentially adverse impacts from changing interest rates, and most notably rising interest rates. Generally, and particularly over extended periods of time that encompass full economic cycles, interest rates associated with longer-term assets, like fixed-rate mortgages, have been higher than interest rates associated with shorter-term funding sources, like deposits. This difference has been an important component of our net interest income and is fundamental to our operations.
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A challenge to our business model occurs when there is a rapid and substantial increase in short-term rates or there is an extended inverted yield curve where short-term rates exceed long-term rates, both of which occurred in the past three years. Although the yield curve became positive in September 2024, rapid and substantial decreases in short-term rates can also pose a challenge when interest rates on our home equity line of credit portfolio, indexed to the prime rate, reprice more quickly than interest rates on borrowings and certificate of deposit accounts which generally reprice at maturity. These economic environments may result in decreases in our net interest income and our net interest margin.
To mitigate our interest rate risk in general and to address the current rate environment specifically, we utilize a variety of strategies that include:
• Maintaining regulatory capital in excess of levels required to be considered well capitalized;
• Maintaining adjustable-rate mortgage loan balances and shorter-term fixed-rate loans;
• Marketing home equity lines of credit, which carry an adjustable rate of interest, indexed to the prime rate;
• Opportunistically extending the duration of our funding sources;
• Utilizing interest rate swaps to convert short-term FHLB advances and brokered certificates of deposit into long-term, fixed-rate borrowings; and
• Selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market.
Levels of Regulatory Capital
At September 30, 2025, the Company’s Tier 1 (leverage) capital totaled $1.87 billion, or 10.76%, of net average assets and 17.60% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.76 billion, or 10.11%, of net average assets and 16.53% of risk-weighted assets. Each of these measures is in excess of the requirements in effect for the Association at September 30, 2025 for designation as “well capitalized” under regulatory prompt corrective action provisions. Beginning this fiscal year, the Company entered into the final year of the five-year transitional period, as provided by a final rule, after CECL was adopted in fiscal year 2021. Refer to the Liquidity and Capital Resources section of this Item 7 for additional discussion regarding regulatory capital requirements.
Adjustable-Rate Loans and Shorter-Term, Fixed-Rate Loans
We offer our "Smart Rate" adjustable-rate mortgage loan, which provides us with improved interest rate risk characteristics when compared to a 30-year, fixed-rate mortgage loan.
We also offer a 10-year, fully amortizing fixed-rate, first mortgage loan. The 10-year, fixed-rate loan has a more desirable interest rate risk profile when compared to loans with fixed-rate terms of 15 to 30 years and can help to more effectively manage interest rate risk exposure, yet provides our borrowers with the certainty of a fixed interest rate throughout the life of the obligation.
The following tables set forth our first mortgage loan production and balances segregated by loan structure at origination:
For the Years Ended September 30,
Amount
Percent
Amount
Percent
First Mortgage Loan Originations and Acquisitions:
(Dollars in thousands)
ARM (all Smart Rate) production
Fixed-rate production:
Terms less than or equal to 10 years
Terms greater than 10 years
Total fixed-rate production
Total First Mortgage Loan Originations and Acquisitions:
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September 30, 2025
September 30, 2024
Amount
Percent
Amount
Percent
Balances of First Mortgage Loans Held For Investment:
(Dollars in thousands)
ARM (primarily Smart Rate) Loans
Fixed-rate Loans:
Terms less than or equal to 10 years
Terms greater than 10 years
Total fixed-rate loans
Total First Mortgage Loans Held For Investment:
The following table sets forth the balances and yields as of September 30, 2025, for all ARM loans segregated by the next scheduled interest rate reset date:
Current Balance of ARM Loans Scheduled for Interest Rate Reset
Yield
During the Fiscal Years Ending September 30,
(Dollars in thousands)
Total
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Loan Portfolio Yield
The following tables set forth the principal balance and interest yield as of September 30, 2025, for the portfolio of loans held for investment, by type of loan, structure and geographic location. Weighted average yields are based on principal balances as of September 30, 2025.
September 30, 2025
Balance
Percent
Yield
Total Loans:
(Dollars in thousands)
Fixed-Rate
Terms less than or equal to 10 years
Terms greater than 10 years
Total Fixed-Rate Residential Mortgage loans
ARMs
Home Equity Lines of Credit
Home Equity Loans
Construction and Other loans
Total Loans Receivable
September 30, 2025
Balance
Fixed-Rate Balance
Percent 1
Yield
Residential Mortgage Loans
(Dollars in thousands)
Ohio
Florida
Other
Total Residential Mortgage Loans
Home Equity Lines of Credit
Ohio
Florida
California
Other
Total Home Equity Lines of Credit
Home Equity Loans
Ohio
Florida
California
Other
Total Home Equity Loans
Construction and Other loans
Total Loans Receivable
1 Percent calculated as Fixed-Rate Balance divided by Balance.
Marketing of Home Equity Lines of Credit
We actively market home equity lines of credit, which carry an adjustable rate of interest indexed to the prime rate which provides interest rate sensitivity to that portion of our assets and is a meaningful strategy to manage our interest rate risk profile. Increasing our investments in loans with variable rates of interest help to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. We strive to grow the home equity line of credit portfolio through offering competitive rates, marketing efforts, and by utilizing partners to attract more home equity line of credit customers. At September 30, 2025, the principal balance of home equity lines of credit
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(including those in repayment) that are structured to reset with each prime rate adjustment totaled $4.06 billion. Our home equity lending is discussed in the preceding Lending Activities section of Item 1. 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 fixed rate interest-earning assets, as described above, we also seek to lengthen the duration of our interest-bearing funding sources. These efforts include monitoring the relative costs of alternative funding sources such as retail certificates of deposit, brokered certificates of deposit, longer-term (e.g. three years or greater) fixed-rate advances from the FHLB of Cincinnati, and shorter-term (e.g. one or three months) funding, the durations of which are extended by correlated interest rate exchange contracts ("swap"). Funding sources are discussed in more detail within this Item 7 in the sections entitled Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth and Liquidity and Capital Resources . All of our swaps are subject to collateral pledges and require specific structural features to qualify for hedge accounting treatment. Hedge accounting treatment directs that periodic mark-to-market adjustments be recorded in other comprehensive income (loss) in the equity section of the balance sheet, rather than being included in operating results of the income statement. The Association's intent is that any swap to which it may be a party will qualify for hedge accounting treatment.
The Association uses swaps to extend the duration of its funding sources. Each of the Association's swap agreements is registered on the Chicago Mercantile Exchange and involves the exchange of interest payment amounts based on a notional principal balance. No exchange of principal amounts occur and the notional principal amount does not appear on our balance sheet. In each of the Association's agreements, interest paid is based on a fixed rate of interest throughout the term of each agreement while interest received is based on an interest rate that resets and compounds daily over a specified interval (generally one to three months) throughout the term of each agreement. On the initiation date of the swap, the agreed upon exchange interest rates reflect market conditions at that point in time. Swaps generally require counterparty collateral pledges that ensure the counterparties' ability to comply with the conditions of the agreement. Concurrent with the execution of each swap, the Association enters into a short-term borrowing in an amount equal to the notional amount of the swap and with interest rate resets aligned with the reset interval of the swap. Each individual swap agreement has been designated as a cash flow hedge of interest rate risk associated with either the Company's variable rate borrowings from the FHLB of Cincinnati or brokered CDs. The Association has found it financially beneficial to use swaps with a relatively lower cost to extend the duration of our liabilities. For more details, refer to Notes 10. BORROWED FUNDS and 17. DERIVATIVE INSTRUMENTS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .
Each funding alternative is monitored and evaluated based on its effective interest payment rate, options exercisable by the creditor (early withdrawal, right to call, etc.), and collateral requirements. Refer to Notes 9. DEPOSITS and 10. BORROWED FUNDS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional details on balances. The interest payment rate is a function of market influences that are specific to the nuances and market competitiveness/breadth of each funding source. Generally, early withdrawal options, subject to a fee, are available to our retail CD customers but not to holders of brokered CDs; issuer call options are not provided on our advances from the FHLB of Cincinnati; and we are not subject to early termination options with respect to our interest rate exchange contracts. Additionally, collateral pledges are not provided with respect to our retail CDs or our brokered CDs, but are required for our advances from the FHLB of Cincinnati as well as for our interest rate exchange contracts. We will continue to evaluate the structure of our funding sources balancing the need to extend duration and manage cost.
Selling Fixed Rate Loans in the Secondary Market
We also manage interest rate risk by selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market. First mortgage loans (primarily fixed-rate mortgages with terms of 15 years or more, Home Ready and certain loans acquired through our correspondent lending partner) are originated under Fannie Mae guidelines and are eligible for sale to Fannie Mae either as whole loans or within mortgage-backed securities. Currently, certain types of loans (i.e. our Smart Rate adjustable-rate loans, 10-year fixed-rate loans, and first mortgage loans secured by certain property types) are originated under our proprietary underwriting and closing process, not eligible for sale to Fannie Mae. We can also manage interest rate risk by selling non-Fannie Mae compliant mortgage loans to private investors, although those transactions may be limited to loans that have established payment histories, strong borrower credit profiles and are supported by adequate collateral. Additionally, sales to private investors are dependent upon favorable market conditions, including motivated buyers, and involve more complicated negotiations and longer settlement timelines.
During the fiscal year ended September 30, 2025, $411.3 million of agency-compliant, long-term (15 to 30 years), fixed-rate mortgage loans were sold, or committed to be sold, primarily to Fannie Mae. Of these sold or committed loans, $284.1 million were originated as other agency-compliant first mortgage loans, $88.6 million were acquired through a correspondent
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lending partnership, and $38.6 million were originated under Fannie Mae's Home Ready initiative. At September 30, 2025, loans classified as held for sale totaled $57.7 million. At September 30, 2025, we serviced $2.13 billion of loans we originated and later sold to investors.
We continue to consider liquidity and balance sheet management, as well as secondary market pricing, in evaluating the opportunity to sell loans. Loan sales are discussed in more detail within the Liquidity and Capital Resources section of this Item 7.
Monitoring and Limiting Our Credit Risk. While, historically, we had been successful in limiting our credit risk exposure by generally imposing high credit standards with respect to lending, the memory of the 2008 housing market collapse and financial crisis is a constant reminder to focus on credit risk. In response to the evolving economic landscape, we continuously revise and update our quarterly analysis and evaluation procedures, as needed, for each category of our lending with the objective of identifying and recognizing all estimated credit losses. At September 30, 2025, 90% of our assets consisted of residential mortgage loans (both “held for sale” and “held for investment”) and home equity loans and lines of credit. Our analytic procedures and evaluations include specific reviews of all home equity loans and lines of credit that become 90 or more days past due, as well as collateral reviews of all first mortgage loans that become 180 or more days past due. We transfer performing home equity lines of credit subordinate to first mortgages delinquent greater than 90 days to non-accrual status. We also charge-off performing loans to collateral value and classify those loans as non-accrual within 60 days of notification of all borrowers filing Chapter 7 , that have not reaffirmed or been , regardless of how long the loans have been performing.
In an effort to limit our credit risk exposure and keep it consistent with the low risk appetite approved by the Board of Directors, the credit eligibility criteria is evaluated to ensure a successful homeowner has the primary source of repayment, followed by a collateral position that allows for a secondary source of repayment, if needed. Products that do not result in an 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 acquired during the current fiscal year, the average credit score was 776, and the average LTV was 71% at origination. Our current delinquency levels reflect the higher credit standards to which we subject all new originations. As of September 30, 2025, loans originated or acquired had a balance of $15.80 billion, of which $34.6 million, or 0.2%, were delinquent.
One aspect of our credit risk exposure relates to high concentrations of our loans that are secured by residential real estate in specific states, particularly Ohio and Florida, where a large portion of our historical lending has occurred. At September 30, 2025, approximately 58.4% and 16.8% of the combined total of our residential Core and construction loans held for investment and approximately 22.4% and 21.5% of our home equity loans and lines of credit were secured by properties in Ohio and Florida, respectively. In an effort to moderate the concentration of our credit risk exposure in individual states, we have utilized direct mail marketing, our internet site and our customer service call center to extend our lending activities to other attractive geographic locations. Currently, in addition to Ohio and Florida, we are actively lending in 26 other states and the District of Columbia, and as a result of that activity, the concentration ratios of the combined total of our residential Core and construction loans held for investment in Ohio and Florida have trended downward from their September 30, 2010 levels when the concentrations were 79.1% in Ohio and 19.0% in Florida. Of the total mortgage loan originations and acquisitions for the year ended September 30, 2025, 28.9% are secured by properties in states other than Ohio or Florida.
Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth. For most insured depositories, customer and community confidence are critical to their ability to maintain access to adequate liquidity and to conduct business in an orderly manner. We believe that a well capitalized institution is one of the most important factors in nurturing customer and community confidence. At September 30, 2025, the Association’s ratio of Tier 1 (leverage) capital to net average assets (a basic industry measure that deems 5.00% or above to represent a “well capitalized” status) was 10.11%. The Association's Tier 1 (leverage) capital ratio at September 30, 2025, included the negative impact of a $40 million cash dividend payment that the Association made to the Company, it's sole shareholder, in December 2024. Because of its intercompany nature, this dividend payment did not impact the Company's consolidated capital ratios which are reported in the Liquidity and Capital Resources section of this Item 7. We expect to continue to remain a well capitalized institution.
In managing its level of liquidity, the Company monitors available funding sources, which include attracting new deposits (including brokered deposits), borrowing from others, the conversion of assets to cash and the generation of funds through profitable operations. The Company has traditionally relied on retail deposits as its primary means in meeting its funding needs. To attract deposits, we typically offer rates that are competitive with the rates on similar products offered by other financial institutions. At September 30, 2025, deposits totaled $10.45 billion (including $902.1 million of brokered CDs), while borrowings totaled $4.87 billion and borrowers’ advances and servicing escrows totaled $143.5 million, combined. In evaluating funding sources, we consider many factors, including cost, collateral, duration and optionality, current availability, expected sustainability, impact on operations and capital levels.
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While our retail deposit customers remain our preferred source of funding, we maintain many alternative funding sources. First, we pledge available real estate mortgage loans with the FHLB of Cincinnati and the FRB-Cleveland. At September 30, 2025, the Association had the ability to borrow a maximum of $6.94 billion from the FHLB of Cincinnati and $505.4 million from the FRB-Cleveland Discount Window. As of September 30, 2025, our capacity for additional borrowing from FHLB of Cincinnati was $2.09 billion. Second, we have the ability to purchase overnight Fed Funds up to $455.0 million through various arrangements with other institutions. Third, we invest in high quality marketable securities that exhibit limited market price variability and, to the extent that they are not needed as collateral for borrowings, can be sold in the institutional market and converted to cash. At September 30, 2025, our investment securities portfolio totaled $520.7 million. Fourth, selling loans in the secondary market is a regular source of liquidity. During the fiscal year ended September 30, 2025, we sold, or committed to sell $411.3 million in loans primarily to Fannie Mae. Finally, cash flows from operating activities have been a regular source of funds. During the fiscal years ended September 30, 2025 and 2024, cash flows from operations provided $82.4 million and $88.6 million, respectively.
Overall, while customer and community confidence can never be assured, the Company believes that our liquidity is adequate and that we have adequate access to alternative funding sources.
Monitoring and Controlling Our Operating Expenses. We continue to focus on managing operating expenses. We have successfully been able to reduce our operating expenses to help offset the pressure of margin compression resulting from our
liabilities repricing at elevated interest rates and sooner than most of our longer-term fixed rate assets reprice. Our ratio of non-interest expense to average assets was 1.19% for the fiscal year ended September 30, 2025, and 1.20% for the fiscal year ended September 30, 2024. As of September 30, 2025, our average assets per full-time associate and our average deposits per full-time associate were $18.3 million and $10.9 million, respectively. We believe that each of these measures compares favorably with industry averages. Our relatively high average deposits (exclusive of brokered CDs) held at our branch offices ($265.1 million per branch office as of September 30, 2025) contributes to our expense management efforts by limiting the overhead costs of serving our customers. While we will continue our efforts to control operating expenses to help safeguard against the ongoing pressure of margin compression, in periods subsequent to the Association's core processing system implementation, management anticipates information technology and related expenses to increase.
Critical Accounting Estimates
Critical accounting estimates are defined as those that involve significant judgments and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions. We believe that the most critical accounting estimates upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, relate to the allowance for credit losses.
Allowance for Credit Losses. The allowance for credit losses is the amount estimated by management as adequate to absorb credit losses related to both the loan portfolio and off-balance sheet commitments based on a life of loan methodology. The amount of the allowance is based on significant estimates and the ultimate losses may vary from such estimates as more information becomes available, or conditions change. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions used and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for credit losses. At September 30, 2025, the allowance for credit losses was $104.4 million, which included a $74.2 million allowance on loans receivable and a $30.1 million allowance for unfunded commitments. The allowance on loans receivable represents 0.47% of total loans. An increase or decrease of 10% in the total allowance for credit at September 30, 2025, would result in a $10.4 million charge or release, respectively, to income before income taxes.
As a substantial percentage of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the charge-offs for specific loans. Assumptions are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. Management carefully reviews the assumptions supporting such appraisals to determine that the resulting values reasonably reflect amounts realizable on the related loans.
Management performs a quarterly evaluation of the adequacy of the allowance for credit losses. We consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic concentrations, economic forecasts and how they correlate to management's view of the future, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions. Refer to Note 5. LOANS AND ALLOWANCES FOR CREDIT
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LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and the Lending Activities section of Item 1. Business in Part I. for further discussion.
Actual credit losses may be significantly more than the allowances we have established, which would have a materially adverse effect on our financial results.
Comparison of Financial Condition at September 30, 2025 and September 30, 2024
Total assets increased $365.5 million, or 2.14%, to $17.46 billion at September 30, 2025, from $17.09 billion at September 30, 2024. This increase was mainly the result of an increase in mortgage loans held for investment.
Cash and cash equivalents decreased $34.3 million, or 7.40%, to $429.4 million at September 30, 2025, from $463.7 million at September 30, 2024. Cash is managed to maintain the level of liquidity described later in the Liquidity and Capital Resources section of the Overview .
Investment securities, all of which are classified as available for sale, decreased $5.6 million, or 1.06%, to $520.7 million at September 30, 2025, from $526.3 million at September 30, 2024. The decrease was due to the combined effect of cash flow from security repayments and maturities exceeding purchases during the year ended September 30, 2025. There were no sales of investment securities during the year ended September 30, 2025.
Mortgage loans held for sale increased $39.9 million, or 224.16%, to $57.7 million at September 30, 2025, from $17.8 million at September 30, 2024, due to an increase in both loans committed to forward sales and loans identified for future sale.
Loans held for investment, net of deferred loan fees and allowance for credit losses, increased $341.3 million, or 2.23%, to $15.66 billion at September 30, 2025, from $15.32 billion at September 30, 2024. During the year ended September 30, 2025, the home equity loans and lines of credit portfolio increased $927.0 million and residential core mortgage loans decreased $581.3 million.
The changes in loans held for sale and loans held for investment were affected by the volume of loans originated, acquired and sold. During the year ended September 30, 2025, total first mortgage loan originations and acquisitions were $1.19 billion compared to $854.2 million for the year ended September 30, 2024. Of total residential mortgage loans originated and acquired during the current period, $1.07 billion (89.7%) were purchase transactions and $136.3 million (11.5%) were adjustable rate loans. Commitments originated for home equity loans and lines of credit were $2.52 billion for the year ended September 30, 2025, compared to $2.28 billion for the year ended September 30, 2024. Refer to Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional information.
Premises, equipment and software, net increased by $6.8 million, or 20.5%, to $40.0 million at September 30, 2025, from $33.2 million at September 30, 2024. This growth was mainly driven by higher software acquisitions, primarily for our upcoming core processing system.
Other assets, including prepaid expenses, decreased $2.4 million, or 2.10%, to $111.7 million at September 30, 2025, from $114.1 million at September 30, 2024. The decrease was primarily the result of a $5.8 million decrease in interest receivable from swaps, offset by a $2.0 million increase in prepaid expenses.
The allowance for credit losses was $104.4 million, or 0.67%, of total loans receivable, at September 30, 2025, and included a $30.1 million allowance for unfunded commitments. At September 30, 2024, the allowance for credit losses was $97.8 million, or 0.64%, of total loans receivable and included a $27.8 million allowance for unfunded commitments. Refer to Note 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional discussion.
The amount of FHLB stock owned increased $6.9 million, or 3.02%, to $235.4 million at September 30, 2025, from $228.5 million at September 30, 2024. FHLB stock ownership requirements dictate the amount of stock owned at any given time.
Total bank owned life insurance contracts increased $7.2 million, or 2.23%, to $325.1 million at September 30, 2025, from $318.0 million at September 30, 2024, primarily due to changes in cash surrender value.
Deposits increased $251.9 million, or 2.47%, to $10.45 billion at September 30, 2025, from $10.20 billion at September 30, 2024. The increase in deposits included a $453.4 million increase in certificates of deposit, partially offset by a $84.1 million decrease in savings accounts, a $64.8 million decrease in money market accounts and a $44.1 million decrease in checking accounts. Based on FDIC insurance limits by ownership structure, total uninsured deposits were $387.3 million and $349.3 million at September 30, 2025 and September 30, 2024, respectively.
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Borrowed funds increased $77.4 million, or 1.61%, to $4.87 billion at September 30, 2025, from $4.79 billion at September 30, 2024. The total balance of borrowed funds at September 30, 2025, all from the FHLB, included $1.60 billion of long-term advances with a weighted average maturity of approximately 1.8 years, $3.00 billion of short-term advances aligned with interest rate swap contracts and $248.0 million in overnight borrowings. Interest rate swaps have been used to extend the duration of short-term borrowings at inception by paying a fixed rate of interest and receiving a variable rate. Refer to the Extending the Duration of Funding Sources section of the Overview for additional discussion regarding short-term borrowings and interest-rate swaps.
Accrued expenses and other liabilities increased by $3.9 million to $101.7 million at September 30, 2025, from $97.8 million at September 30, 2024. The increase was primarily due to a $2.0 million increase in provision for off-balance sheet credit losses and a $1.2 million increase in accrued bonus expense.
Total shareholders’ equity increased $31.3 million, or 1.68%, to $1.89 billion at September 30, 2025, from $1.86 billion at September 30, 2024. The increase reflects $91.0 million of net income in the current year, reduced by dividends of $59.7 million. Other changes include an $8.9 million net positive change related to activity in the Company's stock compensation and employee stock ownership plans offset by a $5.6 million net decrease in accumulated other comprehensive income, primarily related to a net decrease in unrealized gains on swaps contracts. During the fiscal year ended September 30, 2025, a total of 247,865 shares of our common stock were repurchased for $3.2 million, an average cost of $13.05 per share. The Company's eighth stock repurchase program allows for a total of 10,000,000 shares to be repurchased, with 4,944,086 shares remaining to be repurchased at September 30, 2025. As a result of a mutual member vote, Third Federal Savings, MHC, the mutual holding company that owns approximately 80.9% of the outstanding stock of the Company, was able to waive receipt of its share of each dividend paid. Refer to Item 5. 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.
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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. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the rates earned on such assets and the rates paid on such liabilities.
Average balances and yields . The following table sets forth average balances, average yields and costs, and certain other information at and for the fiscal years indicated. No tax-equivalent yield adjustments were made, as the effects thereof were not material. Average balances are derived from daily average balances. Non-accrual loans are included in the computation of loan average balances, but only cash payments received on those loans during the period presented are reflected in the yield. The yields set forth below include the effect of deferred fees, deferred expenses, discounts and premiums that are amortized or accreted to interest income or interest expense.
For the Fiscal Years Ended September 30,
Average
Balance
Interest
Income/
Expense
Yield/
Cost
Average
Balance
Interest
Income/
Expense
Yield/
Cost
Average
Balance
Interest
Income/
Expense
Yield/
Cost
Interest-earning assets:
(Dollars in thousands)
Interest-earning cash equivalents
Investment securities
Mortgage-backed securities
Loans (1)
Federal Home Loan Bank stock
Total interest-earning assets
Non-interest-earning assets
Total assets
Interest-bearing liabilities:
Checking accounts
Savings and money market accounts
Certificates of deposit
Borrowed funds
Total interest-bearing liabilities
Non-interest-bearing liabilities
Total liabilities
Shareholders’ equity
Total liabilities and
shareholders’ equity
Net interest income
Interest rate spread (2)
Net interest-earning assets (3)
Net interest margin (4)
Average interest-earning assets to average interest-bearing liabilities
(1) Loans include both mortgage loans held for sale and loans held for investment.
(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.
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Rate/Volume Analysis. The following table presents the effects of changing rates (yields) and volumes (average balances) on our net interest income for the fiscal years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.
For the Fiscal Years Ended
September 30, 2025 vs. 2024
For the Fiscal Years Ended
September 30, 2024 vs. 2023
Increase (Decrease)
Due to
Increase (Decrease)
Due to
Volume
Rate
Net
Volume
Rate
Net
Interest-earning assets:
(In thousands)
Interest-earning cash equivalents
Investment securities
Mortgage-backed securities
Loans
Federal Home Loan Bank stock
Total interest-earning assets
Interest-bearing liabilities:
Checking accounts
Savings and money market accounts
Certificates of deposit
Borrowed funds
Total interest-bearing liabilities
Net change in net interest income
Comparison of Operating Results for the Fiscal Years Ended September 30, 2025 and 2024
General. Net income increased $11.4 million to $91.0 million for the year ended September 30, 2025, compared to $79.6 million for the year ended September 30, 2024. The increase was primarily driven by an increase in net interest income.
Interest and Dividend Income. Interest and dividend income increased $29.1 million, or 4.0%, to $763.2 million during the year ended September 30, 2025, compared to $734.1 million during the year ended September 30, 2024. The increase in interest and dividend income resulted mainly from an increase in interest on loans, partially offset by decreases in income earned on FHLB stock and other interest-bearing cash equivalents.
Interest income on loans increased $42.8 million, or 6.4%, to $706.5 million for the year ended September 30, 2025, compared to $663.7 million for the year ended September 30, 2024. This increase was attributed mainly to a 21 basis point increase in average yield on loans to 4.57% for the current year, from 4.36% for the prior year. Additionally, there was a $257.3 million increase in the average balance of loans to $15.46 billion for the current year, compared to $15.21 billion during the prior year. The increase was attributed to an increase in loan production that exceeded repayments and loan sales.
Interest income on interest bearing cash equivalents decreased $11.6 million, or 39.1%, to $18.1 million during the current year compared to $29.7 million during the prior year. The decrease was attributed to a 93 basis point decrease in the average yield, and a $145.8 million decrease in the average balance of the interest-bearing cash equivalents to $403.8 million for the current year compared to $549.6 million during the prior year. Additionally, dividend income from FHLB Stock decreased $2.6 million, or 11.6%, to $19.9 million in the current year from $22.5 million during the prior year. The increase was attributed mainly to a 36 basis point decrease in the average yield on FHLB stock.
Interest Expense. Interest expense increased $14.9 million, or 3.3%, to $470.5 million for the year ended September 30, 2025, compared to $455.6 million for the year ended September 30, 2024. The increase mainly resulted from an increase in average volume of deposits.
Interest expense on CDs, net of related interest swap contracts, increased $25.5 million, or 9.4%, to $295.7 million for the year ended September 30, 2025, compared to $270.2 million for the year ended September 30, 2024. The increase was attributed primarily to a $765.2 million, or 10.2%, increase in the average balance of CDs to $8.26 billion for the current year,
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from $7.49 billion for the prior year, partially offset by a 3 basis point decrease in the average rate paid on CDs to 3.58% for the current year, from 3.61% for the prior year.
Interest expense on savings decreased $9.6 million, or 43.3%, to $12.6 million during the year ended September 30, 2025, compared to $22.2 million during the year ended September 30, 2024. The decrease was attributed to a $276.6 million, or 18.2%, decrease in the average balance of savings accounts. In addition, there was a 44 basis point decrease in the average rate paid on savings accounts to 1.02% during the current year, from 1.46% during the prior year.
Interest expense on borrowed funds, net of related interest swap contracts, decreased $1.2 million, or 0.74%, to $161.7 million during the year ended September 30, 2025, from $162.9 million during the year ended September 30, 2024. The decrease was attributed to a combination of a $309.8 million, or 6.21%, decrease in the average balance of borrowed funds to $4.68 billion during the current year, from $4.99 billion during the prior year, as well as a 19 basis point increase in the average rate paid for these funds to 3.46% during the current year, from 3.27% during the prior year. Refer to the Extending the Duration of Funding Sources section of the Overview and Comparison of Financial Condition for further discussion.
Net Interest Income . Net interest income increased $14.2 million, or 5.10%, to $292.7 million during the year ended September 30, 2025, from $278.5 million during the year ended September 30, 2024. The net increase consisted of a $29.1 million increase in interest income, offset by a $14.9 million increase in interest expense.
Average interest-earning assets increased during the current year by $93.8 million, or 0.57%, to $16.61 billion when compared to $16.52 billion during the prior year. The increase was attributed primarily to a $257.3 million increase in our average balance of loans, offset by a $145.8 million decrease in other interest-bearing cash equivalents and a $19.4 million decrease in FHLB stock. The average yield on interest earning assets increased 15 basis points to 4.59% for the current year, from 4.44% for the prior year. Average interest-bearing liabilities increased during the current year by $112.1 million, or 0.75% to $14.99 billion when compared to $14.87 billion during the prior year. Average interest-bearing liabilities experienced an 8 basis point increase in the average rate paid on interest-bearing liabilities to 3.14% in the current year, from 3.06% in the prior year. The interest rate spread was 1.45% for the current year, compared to 1.38% for the prior year. The net interest margin was 1.76% for the current year, compared to 1.69% for the prior year.
Provision (Release) for Credit Losses . We recorded a provision for credit losses on loans and off-balance sheet exposures of $2.5 million during the year ended September 30, 2025, and a $1.5 million release of provision for credit losses during the year ended September 30, 2024. For the fiscal year ended September 30, 2025, we recorded net recoveries of $4.0 million, as compared to net recoveries of $4.7 million for the year ended September 30, 2024. Credit loss provisions (releases) are recorded with the objective of aligning our allowance for credit loss balances with our current estimates of loss in the portfolio. As delinquencies in the portfolio 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. Refer to the Lending Activities section of the Overview and Note 5. LOANS AND ALLOWANCE FOR CREDIT of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for further discussion.
Non-Interest Income. Non-interest income increased $4.1 million, or 16.6%, to $28.8 million during the year ended September 30, 2025, compared to $24.7 million during the year ended September 30, 2024. The increase in non-interest income was primarily due to an increase in net gain on sale of loans of $2.6 million and an increase in loan fees and service charges of $1.4 million during the current year. Loans sold, or committed to be sold, during the fiscal year ended September 30, 2025, were $411.3 million, compared to loan sales of $247.4 million during the year ended September 30, 2024.
Non-Interest Expense. Non-interest expense decreased less than 1% to $204.3 million during the fiscal year ended September 30, 2025. This decrease resulted primarily from a $1.1 million decrease in marketing and a $1.2 million decrease in other operating expenses, partially offset by a $1.7 million increase in salary and employee benefits.
Income Tax Expense. The provision for income taxes was $23.8 million during the year ended September 30, 2025, compared to $20.7 million during the year ended September 30, 2024. The provision for the current year included $21.8 million of federal income tax provision and $2.0 million of state income tax provision. The provision for the prior year included $18.8 million of federal income tax provision and $1.9 million of state income tax provision. Our combined effective tax rate was 20.7% during each of the years ended September 30, 2025 and September 30, 2024.
For a comparison of operating results for the fiscal years ended September 30, 2024 and 2023, see the Company's Form 10-K for the fiscal year ended September 30, 2024.
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Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, advances from the FHLB of Cincinnati, borrowings from the FRB-Cleveland Discount Window, overnight Fed Funds through various arrangements with other institutions, proceeds from brokered CDs transactions, principal repayments and maturities of securities, and sales of loans.
In addition to the primary sources of funds described above, we have the ability to obtain funds through the use of collateralized borrowings in the wholesale markets, and from sales of securities. Also, debt issuance by the Company and access to the equity capital markets via a supplemental minority stock offering or a full conversion (second-step) transaction remain as other potential sources of liquidity, although these channels generally require up to nine months of lead time.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by interest rates, economic conditions and competition. The Association’s 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. 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 interest-earning assets). For the year ended September 30, 2025, the liquidity ratio averaged 5.47% for the Association. We believe that we had sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2025.
We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, scheduled liability maturities and the objectives of our asset/liability management program. Excess liquid assets are generally invested in interest-earning deposits and short- and intermediate-term securities.
Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2025, cash and cash equivalents totaled $429.4 million, which represented a decrease of 7.40% from $463.7 million at September 30, 2024.
Investment securities classified as available for sale, which provide additional sources of liquidity, totaled $520.7 million at September 30, 2025.
During the year ended September 30, 2025, we settled $399.3 million of loan sales and had commitments to sell $59.3 million of mortgage loans to Fannie Mae at September 30, 2025.
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, 2025, we had $328.1 million in outstanding commitments to originate loans. In addition to commitments to originate loans, we had $5.55 billion in unfunded home equity lines of credit to borrowers. CDs due within one year of September 30, 2025, totaled $5.73 billion, or 54.85% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, sales of investment securities, other deposit products, including new CDs and brokered CDs, FHLB advances, borrowings from the FRB-Cleveland Discount Window or other collateralized borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the CDs due on or before September 30, 2026. We believe, however, based on past experience, that a significant portion of such deposits will remain with us. Generally, we have the ability to attract and retain deposits by adjusting the interest rates offered.
Our primary investing activities are originating residential mortgage loans, home equity loans and lines of credit and purchasing investments. During the year ended September 30, 2025, we originated and acquired $1.19 billion of residential mortgage loans, and $2.52 billion of commitments for home equity loans and lines of credit, while during the year ended September 30, 2024, we originated and acquired $854.2 million of residential mortgage loans and $2.28 billion of commitments for home equity loans and lines of credit. We purchased $160.3 million of securities during the year ended September 30, 2025, and $133.5 million during the year ended September 30, 2024. Also, during the years ended September 30, 2025 and September 30, 2024, we acquired $432.2 million and $308.9 million of long-term, residential mortgage loans, respectively.
Financing activities consist primarily of changes in deposit accounts, changes in the balances of principal and interest owed on loans serviced for others, FHLB advances, including any collateral requirements related to interest rate swap agreements and borrowings from the FRB-Cleveland Discount Window. We experienced a net increase in total deposits of $251.9 million during the year ended September 30, 2025, compared to a net increase of $745.3 million during the year ended
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September 30, 2024. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors. During the year ended September 30, 2025, there was a $315.2 million decrease in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of $902.1 million at September 30, 2025. At September 30, 2024, the balance of brokered CDs was $1.22 billion. Principal and interest received on loans serviced for others and owed to investors experienced a net increase of $1.6 million to $30.3 million during the year ended September 30, 2025, compared to a net decrease of $1.0 million to $28.8 million during the year ended September 30, 2024. During the year ended September 30, 2025, we increased our borrowed funds by $77.4 million to appropriately fund future operations and to actively manage our liquidity ratio.
Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Cincinnati, the FRB-Cleveland Discount Window, and arrangements with other institutions to purchase overnight Fed Funds, each of which provides an additional source of funds. On December 19, 2023, the FHLB of Cincinnati, subsequent to revising their Credit Policy Manual in September 2023 to decrease the allowable borrowing limit from 50% to 40% of total assets, approved an exception to increase the Association's allowable borrowing limit to 45% of total assets. The exception requires the Association to maintain compliance with certain credit and regulatory criteria.
At September 30, 2025, we had $4.85 billion of FHLB of Cincinnati advances, no outstanding borrowings from the FRB-Cleveland Discount Window and no outstanding borrowings in the form of Fed Funds. During the year ended September 30, 2025, we had average outstanding borrowed funds of $4.68 billion, as compared to $4.99 billion during the year ended September 30, 2024. 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 Association and the Company are subject to various regulatory capital requirements, including a risk-based capital measure. The Basel III capital framework for U.S. banking organizations ("Basel III Rules") includes both a revised definition of capital and guidelines for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories.
The Association is subject to the "capital conservation buffer" requirement level of 2.5%. The requirement limits capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" in addition to the minimum capital requirements. At September 30, 2025, the Association exceeded the regulatory requirement for the "capital conservation buffer" and all regulatory capital requirements to be considered "Well Capitalized".
In addition to the operational liquidity considerations described above, which are primarily those of the Association, the Company, as a separate legal entity, also monitors and manages its own, parent company-only liquidity, which provides the source of funds necessary to support all of the parent company's stand-alone operations, including its capital distribution strategies which encompass its share repurchase and dividend payment programs. The Company's primary source of liquidity is dividends received from the Association. 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. The Company received a $40.0 million cash dividend from the Association in December 2024. Because of its intercompany nature, this dividend payment would not have had an impact on the Company's capital ratios or its consolidated statement of condition but would have reduced the Association's reported capital ratios. At September 30, 2025, the Company had, in the form of cash and a demand loan from the Association, $112.9 million of funds readily available to support its stand-alone operations.
The payment of dividends, support of asset growth and strategic stock repurchases are planned to continue in the future as the focus for future capital deployment activities. See Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for details on stock repurchase programs, dividends paid and dividend waivers.
Impact of Inflation and Changing Prices
Our consolidated financial statements and related notes have been prepared in accordance with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.
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Recent Accounting Pronouncements
Refer to Note 20. RECENT ACCOUNTING PRONOUNCEMENTS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for pending and adopted accounting guidance.
